Teucrium Commodity Trust S-1/A, filed Jul 20, 2022
Teucrium Commodity Trust (BTCK)
S-1/A
2022-07-20
View Original
Added on
October 21, 2026
As filed with the Securities and Exchange Commission on July 20,
2022
Registration No. 333-256339
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 4 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)
87-3131324
(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.
Vedder Price P.C.
1401 New York Avenue NW
Suite 500
Washington, DC 20005
Approximate date of
commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration
Statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer ☒
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☐
Emerging
growth company ☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.
☐
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 July 20, 2022
Hashdex Bitcoin Futures ETF
Hashdex
Bitcoin Futures ETF (the “Fund” or “DEFI”)
is designed to provide investors with a means to gain price
exposure to the bitcoin market. The Fund issues Shares
(“Shares”) that trade on the NYSE Arca stock exchange
(“NYSE Arca”) under the symbol “DEFI.”
Shares can be purchased and sold by investors through their
broker-dealer. Under its current investment objective (which may be
changed under certain circumstances, see “The Fund’s
Investment Strategies” on page 8), the Fund will not hold,
purchase, or otherwise own any bitcoin. Purchasing Shares of the
Fund is not a direct investment in bitcoin.
The
Fund’s investment objective is for changes in the
Shares’ NAV to reflect the daily changes of the price of a
specified benchmark (the “Benchmark”), less expenses
from the Fund’s operations. The Benchmark is currently the
average of the closing settlement prices for the first to expire
and second to expire bitcoin futures contracts (“Bitcoin
Futures Contracts”) listed on the Chicago Mercantile Exchange
Inc. (“CME”). The Bitcoin Futures Contracts that at any
given time make up the Benchmark are referred to hereinafter as the
“Benchmark Component Futures Contracts.” Under normal
market conditions, the Fund invests in Benchmark Component Futures
Contracts and cash and cash equivalents. Because the Fund’s
investment objective is to track the price of the Benchmark by
investing in Benchmark Futures Contracts rather than bitcoin,
changes in the price of the Shares will vary from changes in the
spot price of bitcoin.
An
investment in the Fund is subject to the risks of an investment in
futures contracts, which are complex instruments that are often
subject to a high degree of price variability. Because the price of
Bitcoin Futures Contracts is linked to the price of bitcoin, an
investment in the Fund may be riskier than other exchange-traded
products that do not hold financial instruments related to bitcoin
and may not be suitable for all investors. In addition, Bitcoin
Futures Contracts may experience pronounced and swift price
changes. Accordingly, there is a potential for movement in the
price of Shares between the time an investor places an order to
purchase or sell with its broker-dealer and the time of the actual
purchase or sale resulting from the price volatility of Bitcoin
Futures Contracts.
Investing
in the Fund involves significant risks. See “What Are the
Risk Factors Involved with an Investment in the Fund?”
beginning on page 17. The Fund is not a mutual fund registered
under the Investment Company Act of 1940, and Fund shareholder will
not be afforded the protections associated with ownership of shares
in a registered investment company. See “The Fund is not a registered investment
company, so you do not have the protections of the Investment
Company Act of 1940” on page 26.
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.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE
SECURITIES OFFERED IN THIS PROSPECTUS OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The
Fund is a series of the Teucrium Commodity Trust (the
“Trust”). Shareholders have no voting rights with
respect to the Trust or the Fund except as expressly provided in
the Trust’s Fifth Amended and Restated Declaration of Trust
and Trust Agreement (the “Trust Agreement”). 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. Toroso Investments, LLC
(“Toroso”), Tidal ETF Services LLC
(“Tidal”) and Victory Capital Management Inc.
(“Victory Capital”) “(the “Marketing
Agents”) assist the Fund and the Sponsor with certain
functions and duties relating to distribution and marketing, which
include the following: marketing, sales strategy, and distribution
related services. Hashdex Asset Management Ltd.
(“Hashdex”) will serve as the Fund’s Digital
Asset Adviser and will assist the Sponsor and Marketing Agents with
research and investment analysis regarding bitcoin and bitcoin
markets for use in the marketing of the Fund. Hashdex will also
provide the Fund with marketing services including, but not limited
to, the issuance of press releases, preparation of website data
content, holding promotional webinars and engaging in promotional
activities through social media outlets. Hashdex has no
responsibility for the investment or management of the Fund’s
investment portfolio or for the overall performance or operation of
the Fund.
The
Marketing Agents, Digital Asset Advisor and Sponsor have entered
into an agreement (the “Support Agreement”) that sets
forth the terms and conditions applicable to the launch, marketing,
promotion, development, and ongoing operation of the Fund, as well
the respective rights in profits and obligations for expenses. The
Support Agreement also provides that the Parties expect that Toroso
will use commercially reasonable efforts to organize a new Delaware
statutory trust (the “New Trust”) and a new series
thereof (the “New Fund”) and enter into an agreement
pursuant to which, among other things, the assets of the Fund (and
certain other assets as applicable) will be transferred to the New
Fund as a series of the New Trust, as successor to the Fund and the
Trustee will transfer to Toroso sponsorship of the Fund. There is
no timeline for this transaction.
While
investors will purchase and sell Shares through their
broker-dealer, the Fund continuously offers creation baskets
consisting of 10,000 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 Bitcoin 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 50. 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. Goldman Sachs & Co. is expected to be
the initial Authorized Purchaser. It is expected that on the
effective date, the initial Authorized Purchaser will purchase one
or more initial Creation Baskets of 10,000 Shares at a per Share
price of $25.00. The initial offering price of $25.00 was set as an
appropriate and convenient price that would facilitate secondary
market trading of Shares. The Shares of the Fund acquired by the
Sponsor in connection with its initial capital contribution were
purchased at a price of $25.00 per Share. An Authorized Purchaser
is under no obligation to purchase Shares. This is intended to be a
continuous offering that will terminate on [●], 2022 unless
suspended or terminated at any earlier time for certain reasons
specified in this prospectus or unless extended as permitted under
the rules of the Securities Act of 1933. See “Prospectus
Summary – The Shares” and “Creation and
Redemption of Shares – Rejection of Purchase Orders”
below.
The
Fund is a commodity pool and the Sponsor 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”).
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 [●]
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 48 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
14.
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 12 AND “WHAT ARE THE PRINCIPAL RISK
FACTORS INVOLVED WITH AN INVESTMENT IN THE FUND?”, AT
PAGE 17.
TABLE OF CONTENTS
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PAGE
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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 17, 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 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 an initial price of $25.00, is $0.24 or 0.96% of
the selling price. For more information, see “Breakeven
Analysis” below.
The Fund’s Investment
Objective
The
Fund is a commodity pool that issues Shares that may be purchased
and sold on NYSE Arca. The Fund’s investment objective is for
changes in the Shares’ NAV to reflect the daily changes of
the price of the Benchmark, less expenses from the Fund’s
operations. Under normal market conditions, the Fund invests in
Benchmark Component Futures Contracts and cash and cash
equivalents. Because the Fund’s investment objective is to
track the price of the Benchmark by investing in Benchmark Futures
Contracts rather than bitcoin, changes in the price of the Shares
will vary from changes in the spot price of bitcoin. The NYSE Arca
rule under which the Shares will be listed and traded prevents the
Fund from utilizing leverage. 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 CME’s main pricing mechanism is
open.
Bitcoin
is a digital asset or cryptocurrency that is a unit of account on
the “Bitcoin Network,” an open source, decentralized
peer-to-peer computer network. The ownership and operation of
bitcoin is determined by purchasers in the Bitcoin Network. The
Bitcoin Network connects computers that run publicly accessible, or
open source, software that follows the rules and procedures
governing the Bitcoin Network. This is commonly referred to as the
Bitcoin Protocol. Bitcoin may be held, may be used to purchase
goods and services or may be exchanged for fiat currency. No single
entity owns or operates the Bitcoin Network, and the value of
bitcoin is not backed by any government, corporation or other
entity. Instead the value of bitcoin is determined in part by the
supply and demand in markets created to facilitate the trading of
bitcoin. Public key cryptography protects the ownership and
transaction records for bitcoin. Because the source code for the
Bitcoin Network is open-source, anyone can contribute to its
development. At this time the ultimate supply of bitcoin is finite
and limited to 21 million “coins” with the number of
bitcoin available increasing gradually as new bitcoin supplies are
mined until the 21 million current protocol cap is reached. The
following factors, among others, may affect the price and market
for bitcoin: The Fund does not
invest directly in bitcoin.
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How
widely bitcoin is adopted, including the use of bitcoin as a
payment.
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The
regulatory environment for cryptocurrencies, which continues to
evolve in the U.S., and which may delay, impede, or restrict the
adoption or use of bitcoin.
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Speculative
activity in the market for bitcoin, including by holders of large
amounts of bitcoin, which may increase volatility.
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Cyberattacks,
including the risk that malicious actors will exploit flaws in the
code or structure of bitcoin, control the blockchain, steal
information or cause disruptions to the internet.
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Rewards
for mining bitcoin are designed to decline over time, which may
lessen the incentive for miners to process and confirm transactions
on the Bitcoin Network.
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The
open-source nature of the Bitcoin Network may result in forks, or
changes to the underlying code of bitcoin that result in the
creation of new, separate digital assets.
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Fraud,
manipulation, security failure or operational problems at bitcoin
exchanges that result in a decline in adoption or acceptance of
bitcoin.
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Scalability as the
use of bitcoin expands to a greater number of users.
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7
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 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/1471824/000165495419004865/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”). The Fund intends to be treated as
a partnership for U.S. federal income tax purposes.
The
Benchmark currently is the average of the closing settlement prices
for the first to expire and second to expire bitcoin futures
contracts (“Bitcoin Futures Contracts”) listed on the
CME. These futures contracts are the Benchmark Component Futures
Contracts. The CME currently offers two Bitcoin Futures Contracts,
one contract representing 5 bitcoin (“BTC Contracts”)
and another contract representing 0.10 bitcoin (“MBT
Contracts”). The Fund will invest in BTC Contracts and MBT
Contracts to the extent necessary to achieve maximum exposure to
the bitcoin futures market. Because the Fund’s investment
objective is to track the price of the Benchmark by investing in
Benchmark Futures Contracts rather than bitcoin, changes in the
price of the Shares will vary from changes in the spot price of
bitcoin. The Fund will purchase MBT Contracts only if the Fund has
proceeds remaining from the sale of a Creation Basket that are less
than the price of a BTC contract. BTC and MBT will count toward an
aggregate position limit.
BTC
Contracts began trading on the CME Globex trading platform on
December 15, 2017 under the CME ClearPort ticker symbol
“BTC” and are cash settled in U.S. dollars. MBT
Contracts began trading on the CME Globex trading platform on May
3, 2021 under the CME ClearPort ticker symbol “MBT” and
are also cash settled in U.S. dollars. The daily settlement prices
for MBT Contracts are derived directly from the settlements in the
BTC Contracts. BTC Contracts and MBT Contracts each trade six
consecutive monthly contracts plus two additional December contract
months (if the 6 consecutive months include December, only one
additional December contract month is listed).
Because
BTC Contracts and MBT Contracts are exchange-listed, they allow
investors to gain price exposure to bitcoin without having to hold
the underlying cryptocurrency. Like a futures contract on a
commodity or stock index, BTC Contracts and MBT Contracts provide a
means for investors to hedge investment positions or speculate on
the future price of the bitcoin market.
CME
Bitcoin Futures Contracts are cash-settled and based on the CME CF
Bitcoin Reference Rate (BRR) and CME CF Bitcoin Real-Time Index
(BRTI). The BRR is a daily reference rate of the U.S. dollar price
of one bitcoin calculated daily as of 4:00 p.m. London time. It is
representative of the bitcoin trading activity on specified
constituent bitcoin exchanges, which currently include Bitstamp,
Coinbase, Gemini, itBit Kraken and LMAX Digital. BRTI is a real
time index of the U.S. dollar price of one bitcoin, published once
per second, 24 hours per day, 7 days per week, and 365 days per
year. The CME launched the BRR and BRTI on November 14,
2016.
The Fund’s Investment
Strategies
The
Fund seeks to achieve its investment objective by investing in
Benchmark Component Futures Contracts. Under normal market
conditions, the Fund expects that the Fund’s assets will be
invested in Benchmark Component Futures Contracts and in cash and
cash equivalents, such as short-term Treasury bills, money market
funds, and demand deposit accounts. The term “normal market
conditions” includes, but is not limited to, the absence of:
trading halts in the applicable financial markets generally;
operational issues (e.g., systems failure) causing dissemination of
inaccurate market information; or force majeure type events such as
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
Teucrium created
and maintains the Benchmark and ICE Data Indices, LLC will publish
the Benchmark. ICE Data Indices, LLC disseminates the intraday
indicative value (also referred to in this prospectus as
"approximate net asset value") of the Fund's Shares through the
facilities of Consolidated Tape Association's Consolidated
Quotation High Speed Lines (also known as the "CTA/QC High Speed
Lines"). ICE Data Indices, LLC will make the Benchmark information
available through online information services, such as Yahoo
Finance, Bloomberg and Reuters. The Benchmark will only include BTC
Contracts.
8
The
Fund's futures contract positions will be rolled on a monthly basis
by closing out the first to expire contracts prior to their final
settlement date and then entering into the third to expire
contracts which will become the new second to expire - maintaining
an equal weight of 50% first to expire and 50% second to expire. A
first to expire contract is the contract with the nearest
expiration date. A second to expire contract follows the first - it
is the contract that will expire second in line after the first
contract has expired. For example, when a first to expire contract
expires, the second to expire contract becomes the first to expire
contract.
Fund
rolling will take place on the market business day preceding the
last trading day of the first to expire contract. The last trading
day of the first to expire contact is currently defined as the last
business Friday of each month. By way of example, as of the date of
this prospectus the Fund’s futures contract positions will be
entered and exited according to the roll schedule below. For
example, on August 15, 2022 if the fund held 100 futures contracts,
50 contracts would be expiring in August 2022 and 50 contracts
would be expiring in September 2022 .
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Hashdex
Bitcoin Futures ETF (DEFI) – Roll Schedule July 2022 –
Dec 2022
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Roll Date
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Contract Expiring
(Exiting Position)
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New Contract
(Entering Position)
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First to Expire Contract
(Resulting Position)
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Second to Expire Contract
(Resulting Position)
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7/28/2022
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July
(BTCN2)
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September
(BTCU2)
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August
(BTCQ2)
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September
(BTCU2)
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8/28/2022
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August
(BTCQ2)
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October
(BTCV2)
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September
(BTCU2)
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October
(BTCV2)
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9/29/2022
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September
(BTCU2)
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November
(BTCX2)
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October
(BTCV2)
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November
(BTCX2)
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10/27/2022
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October
(BTCV2
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December
(BTCZ2)
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November
(BTCX2)
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December
(BTCZ2)
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11/23/2022
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November
(BTCX2)
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January
(BTCF3)
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December
(BTCZ2)
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January
(BTCF3)
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12/29/2022
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December
(BTCZ2)
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February
(BTCG3)
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January
(BTCF3)
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February
(BTCG3)
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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. The design of the
Fund’s Benchmark is such that the Benchmark Component Futures
Contracts will change on a monthly basis, with the contracts with
the shortest maturity being replaced with contracts with a longer
maturity. Sometimes the Fund will have to pay more for longer
maturity contracts to replace existing shorter maturity contracts
about to expire. This situation is known as “contango”
in the futures markets. In the event of a prolonged period of
contango, and absent the impact of rising or falling bitcoin
prices, this could have a negative impact on the Fund’s NAV
and total return, which in turn may have a negative impact on your
investment in the Fund. By way of example, during the period from
1/1/2019 to 3/31/2022, the market for Bitcoin Component Futures
Contracts were in contango approximately 89% of the time, which
resulted in an average annual negative roll yield of approximately
7%. If the futures market is in a state of backwardation (i.e.,
when the price of bitcoin in the future is to be less than the
current price), the Fund will buy later to expire contracts for a
lower price than the soon to expire contracts that it
sells.
Consistent with
applicable provisions of the Trust Agreement and Delaware law, the
Fund has broad authority to make changes to the Fund’s
operations. Consistent with this authority, the Fund, in its sole
discretion and without Shareholder approval or advance notice, may
change its investment objective, Benchmark, or investment
strategies. The Fund has no current intention to make any such
change, and any change is subject to applicable regulatory
requirements, including, but not limited to, any requirement to
amend applicable listing rules of the NYSE.
The
reasons for and circumstances that may trigger any such changes may
vary widely and cannot be predicted. However, by way of example,
the Fund may change the term structure or underlying components of
the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of the Benchmark Component Futures
Contracts if, due to market conditions, a potential or actual
imposition of position limits by the CFTC or futures exchange
rules, or the imposition of risk mitigation measures by a futures
commission merchant, restricts the ability of the Fund to invest in
the current Benchmark Component Futures Contracts. The Fund would,
among other things, file a current report on Form 8-K and a
prospectus supplement to describe any such change and the effective
date of the change. Shareholders may modify their holdings of the
Fund’s Shares in response to any change by purchasing or
selling Fund Shares through their broker-dealer.
9
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.”
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 bitcoin 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 bitcoin market, as
measured by the Benchmark.
The
CFTC and U.S. designated contract markets, such as the CME, have
established position limits and accountability levels on the
maximum net long or net short Bitcoin Futures Contracts that the
Fund may hold, own or control. The current CME established position
limit level for investments in BTC Contracts for the spot month is
4,000 contracts. A position accountability level of 5,000 contracts
will be applied to positions in single months outside the spot
month and in all months combined. The MBT Contracts have a spot
month limit of 200,000 contracts and a position accountability
level of 250,000 contracts. Open positions in MBT Contracts will
count as 1/50 of a BTC Contract for the purposes of determining the
aggregate position limit. Accountability levels are not fixed
ceilings but rather thresholds above which the exchange may
exercise greater scrutiny and control over an investor, including
limiting the Fund to holding no more Bitcoin Futures Contracts than
the amount established by the accountability levels. The potential
for the Fund to reach position or accountability limits will depend
on if and how quickly the Fund’s net assets
increase.
10
In
addition to position limits and accountability limits, the CME and
other exchanges have set dynamic price fluctuation limits on
Bitcoin Futures Contracts. The dynamic price limit functionality
under the special price fluctuation limits mechanism assigns a
price limit variant which equals a percentage of the prior trading
day’s settlement price, or a price deemed appropriate. During
the trading day, the dynamic variant is utilized in continuous
rolling 60-minute look-back periods to establish dynamic upper and
lower price fluctuation limits. Once the dynamic price fluctuation
limit has been reached in a particular Bitcoin Futures Contract, no
trades may be made at a price beyond that limit. The CME has
adopted daily dynamic price fluctuation limit functionality
effective March 11, 2019, specifically, Rule 589 which is found in
the following link: https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2019/03/SER-8351.pdf.
When a Bitcoin Futures Contract has closed at its daily price
fluctuation limit, that limit price will be the daily settlement
price that the CME publishes. The Fund will use the published
settlement price to price its Shares on that day. If the CME halted
trading in Bitcoin Futures Contracts for other reasons, including
if trading were halted for an entire trading day or several trading
days, the Fund would value its Bitcoin Futures Contracts by using
the settlement price that the CME publishes.
Position limits,
accountability limits and dynamic price fluctuation limits may
limit the Fund’s ability to invest the proceeds of Creation
Baskets in Bitcoin Futures Contracts. As a result, when the Fund
offers to sell Creation Baskets it may be limited in its ability to
invest in Bitcoin Futures Contracts, including the Benchmark
Component Futures Contracts. The Fund may hold larger amounts of
cash and cash equivalents, which will impair the Fund’s
ability to meet its investment objective of tracking the
Benchmark.
There
is a minimum number of baskets and associated Shares specified for
the Fund. If the Fund experiences redemptions that cause 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 five baskets. The minimum level of Shares
specified for the Fund is subject to change.
The
Sponsor maintains a public website on behalf of the Fund,
http://hashdex-etfs.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 10,000 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 Bitcoin Futures Contracts traded on the
CME. The Fund expressly disclaims any association with the CME or
endorsement of the Fund by such exchange and acknowledges that
“CME” is a registered trademark of such
exchange.
Voting Rights
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).
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 Trust, 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. In addition, Fund shareholders holding
Shares representing seventy-five percent (75%) of the outstanding
Shares of the Trust, 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.
11
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 in the “What Are the Risk
Factors Involved with an Investment in the Fund?” section,
beginning on page 17.
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The
Fund has no operating history, so there is no performance history
to serve as a basis for you to evaluate an investment in the Fund.
In addition, the Fund may not be successful in implementing its
investment objective or may fail to attract sufficient
assets.
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Bitcoin
and Bitcoin Futures Contracts are a relatively new asset class and
bitcoin is subject to rapid changes, uncertainty and regulation
that may adversely affect the value of the bitcoin futures or the
nature of an investment in the Fund, and may adversely affect the
ability of the Fund to buy and sell Bitcoin Futures Contracts or
achieve its investment objective.
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Historically,
bitcoin and Bitcoin Futures Contracts have been subject to
significant price volatility. The price of Bitcoin Futures
Contracts may differ significantly from the spot price of
bitcoin.
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The
market for Bitcoin Futures Contracts is less developed than older,
more established futures markets (such as corn or wheat futures)
and may be more volatile and less liquid.
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Unlike
mutual funds, commodity pools and other investment pools that
manage their investments so as to realize income and gains for
distribution to their investors, the Fund generally does not
distribute dividends to holders of Fund Shares
(“Shareholders”). You should not invest in the Fund if
you will need cash distributions from the Fund to pay taxes on your
share of income and gains of the Fund, if any, or for other
purposes.
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Investors may
choose to use the Fund as a means of investing indirectly in
bitcoin, and there are risks involved in this investment strategy.
The risks and hazards that are inherent in the market for bitcoin
may cause the price of bitcoin and Bitcoin Futures Contracts to
fluctuate widely.
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Only an
Authorized Purchaser may engage in creation or redemption
transactions with the Fund. The Fund has a limited number of
institutions that act as Authorized Purchasers. To the extent 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.
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In some
cases, the near month Bitcoin Futures Contract’s price will
be lower than the next month’s contract 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 bitcoin 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.
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12
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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.
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The
Fund seeks to have changes in its Shares’ NAV track changes
in the Benchmark, rather than profit from speculative trading of
Bitcoin 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).
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Bitcoin
and other cryptocurrencies are a new and developing asset class
subject to both developmental and regulatory uncertainty. 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.
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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.
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The
Fund is subject to position limits, accountability limits and
dynamic price fluctuation limits that could limit the Fund’s
ability to invest the proceeds of Creation Baskets in Bitcoin
Futures Contracts. Position limits, accountability limits and
dynamic price fluctuation limits may cause tracking error or may
impair the Fund’s ability to meet its investment objective of
tracking the Benchmark.
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War and
other geopolitical events in Eastern Europe, including but not
limited to Russia and Ukraine, may cause volatility in bitcoin
prices. These events are unpredictable and may lead to extended
periods of price volatility.
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The
Fund currently has two futures commission merchants
(“FCMs”) through which it buys and sells futures
contracts. Volatility in the bitcoin futures market may lead one or
both of the Fund’s FCMs to impose risk mitigation procedures
that could limit the Fund’s investment in Bitcoin Futures
Contracts beyond the accountability and position limits imposed by
the CME futures contract exchange as discussed herein. An FCM could
impose a financial ceiling on initial margin that could change and
become more or less restrictive on the Fund’s activities
depending upon a variety of conditions beyond the Sponsor’s
control. If the Fund’s other current FCM were to impose
position limits, or if any other FCM with which the Fund
establishes a relationship in the future were to impose position
limits, the Fund’s ability to meet its investment objective
could be negatively impacted. The Fund continues to monitor and
manage its existing relationships with its FCMs and will continue
to seek additional relationships with FCMs as needed.
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The
occurrence of a severe weather event, natural disaster, terrorist
attack, geopolitical event, 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. For
example, in late February 2022, Russia invaded Ukraine,
significantly amplifying already existing geopolitical tensions
among Russia and other countries in the region and in the West. The
responses of countries and political bodies to Russia’s
actions, the larger overarching tensions, and Ukraine’s
military response and the potential for wider conflict may increase
financial market volatility generally, have severe adverse effects
on regional and global economic markets, and cause volatility in
the price of bitcoin, bitcoin futures and the Share price of the
Fund.
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The
ability of Authorized Purchasers to create or redeem Shares may be
suspended for several reasons, including but not limited to the
Fund voluntarily imposing such restrictions. A suspension in the
ability of Authorized Purchasers to create or redeem Shares would
have no impact on the Fund’s investment objective – the
Fund would continue to seek to track its benchmark. However, with
respect to the impact of a suspension on the price of Fund Shares
in the secondary market, investors may have to pay a higher price
to buy Shares and receive a lower price when they sell their
Shares. This “spread” may continue to widen the longer
the suspension lasts.
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Market fraud and/or manipulation and other fraudulent trading
practices such as the intentional dissemination of false or
misleading information (e.g., false rumors) can, among other
things, lead to a disruption of the orderly functioning of bitcoin
and Bitcoin Futures Contract markets, significant market
volatility, and cause the value of Bitcoin Futures Contracts to
fluctuate quickly and without warning. Depending on the timing of
an investor’s purchases and sales of the Fund’s Shares,
these pricing anomalies could cause the investor to incur
losses.
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Teucrium, Hashdex
and the Marketing Agents have entered into a “support
agreement” that, among other things, reflects the intention
of the Parties to transition some or all of Teucrium’s
obligations to Toroso, Tidal, Hashdex, and/or Victory Capital on a
time schedule to be mutually agreed. Teucrium will remain the sole
Sponsor of the Fund until all necessary regulatory approvals have
been received. There can be no assurance that the transferee
parties are capable of continuing to manage the Fund so as to
achieve its investment objective.
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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. (ET) on each day that the
NYSE Arca is open for trading.
Defined Terms
For a
glossary of defined terms, see Appendix A.
13
Breakeven Analysis
The
breakeven analysis set forth below is a hypothetical illustration
of the approximate dollar returns and percentage returns for the
redemption value of a single Share to equal the amount invested
twelve months after the investment is made. For purposes of this
breakeven analysis, an initial selling price of $25.00 per Share,
is assumed. The breakeven analysis is an approximation only and
assumes a constant month-end Net Asset Value. In order for a
hypothetical investment in Shares to breakeven over the next 12
months, assuming a selling price of $25.00 per Share, the
investment would have to generate a 0.96% or $0.24 return. The
numbers in the chart below have been rounded to the nearest
0.01.
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Per
Share
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Assumed initial
selling price per Share (1)
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$25.00
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Management Fee
(0.94%) (2)
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$0.24
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Estimated Brokerage
Commissions and Fees (3)
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$0.10
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Other Fund Fees and
Expenses(4)
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$0.00
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Interest and Other
Income (0.76%) (5)
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$(0.10)
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Amount of trading
income (loss) required for the redemption value at the end of one
year to equal the selling price of the Share
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$0.24
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Percentage of
initial selling price per Share (6)
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0.96%
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(1)
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In
order to show how a hypothetical investment in Shares would break
even over the next 12 months, this breakeven analysis uses an
assumed initial selling price of $25.00 per Share. Investors should
note that, because ‘DEFI’s NAV will change on a daily
basis, the breakeven amount on any given day could be higher or
lower than the amount reflected here.
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(2)
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From the Management Fee, the Sponsor pays all of the routine
operational, administrative and other ordinary expenses of each
Fund, generally as determined by the Sponsor, including but not
limited to, fees and expenses of the Administrator, Custodian,
Distributor, Transfer Agent, licensors, accounting and audit fees
and expenses, tax preparation expenses, legal fees, ongoing SEC
registration fees, individual Schedule K-1 preparation and mailing
fees, and report preparation and mailing expenses. These fees and
expenses are not included in the breakeven table because they are
paid for by the Sponsor through the proceeds from the Management
Fee.
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(3)
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Reflects estimated brokerage commissions and fees for Bitcoin
Futures Contract purchase or sale and reflected on a per trade
basis. The actual amount of brokerage commissions and trading fees
to be incurred will vary based upon the trading frequency of the
Fund. The Sponsor may elect to pay or waive a portion of these
fees. The Fund may elect to waive fees in order to reduce the
Fund’s expenses.
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(4)
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The
Fund pays all of its non-recurring and unusual fees and expenses,
if any, as determined by the Sponsor. Non-recurring and unusual
fees and expenses are unexpected or unusual in nature, such as
legal claims and liabilities and litigation costs or
indemnification or other unanticipated expenses. Extraordinary fees
and expenses also include material expenses which are not currently
anticipated obligations of the Fund. Routine operational,
administrative and other ordinary expenses are not deemed
extraordinary expenses.
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(5)
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The
Fund seeks to earn interest and other income in high credit
quality, short-duration instruments or deposits associated with the
pool’s 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, and money market
funds. Management estimates that the blended interest rate will be
0.76% for assets not held in initial margin, based on the current
interest rate environment and outlook as of May 31, 2022. The
actual rate may vary and not all assets of the Fund will earn
interest.
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(6)
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This
represents the estimated approximate percentage for the redemption
value of a hypothetical initial investment in a single Share to
equal the amount invested twelve months after the investment was
made. The estimated approximate percentage of selling price is
0.96% or $0.24 per Share.
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14
THE OFFERING
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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 10,000 Shares through the
Distributor to Authorized Purchasers. Authorized Purchasers may
purchase Creation Baskets consisting of 10,000 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 32% 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 due to, among others, price volatility caused by changes in
the fundamentals of the underlying bitcoin cryptocurrency markets
resulting in increased margin requirements by the exchange. 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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“DEFI”
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Creation and
Redemption
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Authorized
Purchasers pay a $300 fee per order to create Creation Baskets, and
a $300 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
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While
the Fund will be one of six 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 would be enforceable only against the assets of that series,
and not against any other series or the Trust generally or any of
their respective assets. The assets of the Fund and any other
series will include only those funds and other assets that are paid
to, held by or distributed to the series on account of and for the
benefit of that series, including, without limitation, amounts
delivered to the Trust for the purchase of Shares in a
series.
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Registration Clearance and
Settlement
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Individual
certificates are not issued for the Shares. Instead, Shares will be
represented by one or more global certificates, which are deposited
by the transfer agent with the Depository Trust Company
(“DTC”) and registered in the name of Cede & Co.,
as nominee for DTC. The global certificates evidence all of the
Shares outstanding at any time. Beneficial interests in Shares are
held through DTC’s book-entry system, which means that
Shareholders are limited to: (1) purchasers in DTC such as banks,
brokers, dealers and trust companies, (2) those who maintain,
either directly or indirectly, a custodial relationship with a DTC
purchaser, and (3) those who hold interests in the Shares through
DTC purchasers or indirect purchasers, in each case who satisfy the
requirements for transfers of Shares. DTC purchasers acting on
behalf of investors holding Shares through such DTC
purchasers’ 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 purchasers’
securities accounts following confirmation of receipt of
payment.
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15
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Net
Asset Value
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The NAV
is calculated by taking the current market value of the
Fund’s total assets and subtracting any liabilities and
dividing the balance by the number of Shares. Under the
Fund’s current operational procedures, U.S. Bancorp Fund
Services, LLC, doing business as U.S. Bank Global Fund Services
(“Global Fund Services”), the Fund’s
“Administrator” calculates the NAV of the Fund’s
Shares as of the earlier of 4:00 p.m. (ET) or the close of the New
York Stock Exchange each day. ICE Data Indices, LLC calculates and
disseminates 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 CME’s main pricing mechanism is
open.
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Fund
Expenses
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The
Fund pays the Sponsor a Management Fee, monthly in arrears, in an
amount equal to 0.94% per annum of the daily NAV of the Fund. The
Management Fee is paid in consideration of the Sponsor’s
services related to the management of the Fund’s business and
affairs, including the provision of commodity futures trading
advisory services. The Fund pays all of its respective brokerage
commissions, including applicable exchange fees, NFA fees and
give-up fees, and other transaction related fees and expenses
charged in connection with trading activities for the Fund’s
investments in CFTC regulated investments. The Fund bears other
transaction costs related to the FCM capital requirements on a
monthly basis. The Sponsor pays all of the routine operational,
administrative and other ordinary expenses of the Fund, generally
as determined by the Sponsor, including but not limited to, fees
and expenses of the Administrator, Custodian, Distributor, Transfer
Agent, licensors, accounting and audit fees and expenses, tax
preparation expenses, legal fees, ongoing SEC registration fees,
individual Schedule K-1 preparation and mailing fees, and report
preparation and mailing expenses. The Fund pays all of its
non-recurring and unusual fees and expenses, if any, as determined
by the Sponsor. Non-recurring and unusual fees and expenses are
unexpected or unusual in nature, such as legal claims and
liabilities and litigation costs or indemnification or other
unanticipated expenses. Extraordinary fees and expenses also
include material expenses which are not currently anticipated
obligations of the Fund. Routine operational, administrative and
other ordinary expenses are not deemed extraordinary expenses. 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 $0.24 or 0.96% of the selling price. The total
estimated fees and expenses are expressed as a percentage of an
estimated $2,500,000 million in assets.
The
Sponsor, Marketing Agents and Digital Asset Advisor will bear the
costs and expenses related to the initial offer and sale of Shares,
including registration fees paid or to be paid to the SEC,
Financial Industry Regulatory Authority (“FINRA”) or
any other regulatory body or self-regulatory organization. None of
the costs and expenses related to the initial offer and sale of
Shares, which are expected to total approximately $165,000, are
chargeable to the Fund, and the Sponsor, Marketing Agents, and
Digital Asset Advisor may not recover any of these costs and
expenses from the Fund. Total fees to be paid by the Fund are
currently estimated to be approximately 0.96% of the daily net
assets of the Fund for the twelve-month period after issuance,
though this amount may change in future years.
General
expenses of the Trust will be allocated among the existing Teucrium
Funds and any future series of the Trust as determined by the
Sponsor in its discretion. The Trust may be required to indemnify
the Sponsor, and the Trust and/or the Sponsor may be required to
indemnify the Trustee, Distributor or Administrator, under certain
circumstances.
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Termination
Events
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The
Trust and the Fund shall continue in existence from the date of
their formation in perpetuity, unless the Trust or the Fund, as the
case may be, is sooner terminated upon the occurrence of certain
events specified in the Trust Agreement, including the following:
(1) the filing of a certificate of dissolution or cancellation of
the Sponsor or revocation of the Sponsor’s charter or the
withdrawal of the Sponsor, unless Shareholders holding a majority
of the outstanding Shares of the Trust, voting together as a single
class, elect within ninety (90) days after such event to continue
the business of the Trust and appoint a successor Sponsor; (2) the
occurrence of any event which would make the existence of the Trust
or the Fund unlawful; (3) the suspension, revocation, or
termination of the Sponsor’s registration as a CPO with the
CFTC or membership with the NFA; (4) the insolvency or bankruptcy
of the Trust or the Fund; (5) a vote by the Shareholders holding at
least seventy-five percent (75%) of the outstanding Shares of the
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 50. Authorized Purchasers must be
(1) registered broker-dealers or other securities market
purchasers, such as banks and other financial institutions, which
are not required to register as broker-dealers to engage in
securities transactions, and (2) DTC purchasers. To become an
Authorized Purchaser, a person must enter into an Authorized
Purchaser Agreement with the Sponsor.
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Conflicts of
Interest
|
There
are present and potential future conflicts of interest related to
the Trust’s structure and operation that you should consider
before you purchase Shares. These include, among others, conflicts
related to the Sponsor serving as the Sponsor to the other Teucrium
Funds and to commodity pools other than the Teucrium Funds in the
future. A description of such conflicts of interest can be found
under “The Sponsor Has Conflicts of Interest” on page
58.
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16
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 in Bitcoin
Further Development and Acceptance of Bitcoin and the Bitcoin
Network Is Uncertain.
The
further development and acceptance of the Bitcoin Network, which is
part of a new and rapidly changing industry, is subject to a
variety of factors that are difficult to evaluate. The slowing,
stopping or reversing of the development or acceptance of the
Bitcoin Network may adversely affect the price of bitcoin and
therefore cause the Fund to suffer losses. Regulatory changes or
actions may alter the nature of an investment in bitcoin or
restrict the use of bitcoin or the operations of the Bitcoin
Network or venues on which bitcoin trades in a manner that
adversely affects the price of bitcoin and, therefore, the
Fund’s Bitcoin Futures Contracts. Bitcoin generally operates
without central authority (such as a bank) and is not backed by any
government. Bitcoin is not legal tender and federal, state and/or
foreign governments may restrict the use and exchange of bitcoin,
and regulation in the United States is still developing. For
example, it may become difficult or illegal to acquire, hold, sell
or use bitcoin in one or more countries, which could adversely
impact the price of bitcoin, and therefore the value of the
Fund’s Bitcoin Futures Contracts.
“Forks” in Bitcoin Network Could Have Adverse
Effects.
From
time to time, developers of the bitcoin network suggest changes to
the bitcoin software. If a sufficient number of users and miners
elect not to adopt the changes, a new digital asset, operating on
the earlier version of the bitcoin software, may be created. This
is often referred to as a “fork.”
In
August 2017, bitcoin “forked” into bitcoin and a new
digital asset, bitcoin cash, as a result of a several-year dispute
over how to increase the rate of transactions that the Bitcoin
network can process. Since then, bitcoin has been forked numerous
times to launch new digital assets, such as bitcoin gold, bitcoin
silver and bitcoin diamond. Additional hard forks of the Bitcoin
blockchain could adversely affect the market for Bitcoin Futures in
which the Fund invests and, therefore, an investment in the Fund. A
substantial giveaway of bitcoin (sometimes referred to as an
“air drop”) may also result in significant and
unexpected declines in the value of bitcoin, Bitcoin Futures
Contracts, and the Fund.
Rewards for mining bitcoin are designed to decline over time, which
may lessen the incentive for miners to process and confirm
transactions on the Bitcoin Network.
Transactions in
bitcoin are processed by miners who are primarily compensated by
receiving newly-issued bitcoin as a reward for successfully solving
cryptological puzzles according to a payment schedule that declines
over time (in some instances, miners are also compensated through
voluntary fees paid by Bitcoin Network participants). If this
compensation is not sufficient to incentivize miners to process
transactions, the confirmation process for transactions, which acts
as security for the Bitcoin Network, may become slower and the
Bitcoin Network may become more vulnerable. These and similar
events may have a significant adverse effect on the price and
liquidity of bitcoin and the value of an investment in the
Fund.
The Bitcoin Network may face scalability challenges as it expands
to a greater number of users.
As with
other digital asset networks, the Bitcoin Network faces significant
scaling challenges because public blockchains generally face a
tradeoff between security and scalability. A decentralized network
is less susceptible to manipulation or capture if more
participants, or “nodes,” are involved in the
processing and maintenance of such network. However, a greater
number of nodes decreases the network’s efficiency in
processing transactions and may result in increased settlement
times. Increased settlement times could discourage certain uses for
bitcoin (for example, micropayments), and could reduce demand for
and price of bitcoin, which could adversely impact the value of an
investment in the Fund.
17
Bitcoin Markets Are Susceptible To Extreme Price Fluctuations,
Theft, Loss and Destruction.
The
market price of bitcoin has been subject to extreme fluctuations.
If bitcoin markets continue to be subject to sharp fluctuations,
the Fund’s Shareholders may experience losses. Similar to
fiat currencies (i.e., a currency that is backed by a central bank
or a national, supra-national or quasi-national organization),
bitcoin is susceptible to theft, loss and destruction. Accordingly,
the Fund’s Bitcoin Futures are also susceptible to these
risks. Cybersecurity risks of the Bitcoin Protocol and of entities
that custody or facilitate the transfers or trading of bitcoin
could result in a loss of public confidence in bitcoin, a decline
in the value of bitcoin and, as a result, adversely impact the
Fund’s Bitcoin Futures Contracts.
Bitcoin Ownership is Concentrated in a Small Number of Holders
Referred to as ‘Whales.’
A
significant portion of bitcoin is held by a small number of holders
who have the ability to affect the price of bitcoin and who are
sometimes referred to as “whales.” Because bitcoin is
lightly regulated, bitcoin whales have the ability, alone or in
coordination, to manipulate the price of bitcoin by restricting or
expanding the supply of bitcoin. Activities of bitcoin whales that
reduce user confidence in bitcoin, the Bitcoin Network or the
fairness of bitcoin trading venues, or that affect the price of
bitcoin, could have a negative impact on the value of an investment
in the Fund.
Bitcoin Exchanges Are Unregulated and May Be More Exposed to Fraud
and Failure.
Bitcoin
exchanges and other trading venues on which bitcoin trades are
relatively new and, in most cases, largely unregulated and may
therefore be more exposed to fraud and failure than established,
regulated exchanges for securities, derivatives and other
currencies. The Fund’s indirect investment in bitcoin remains
subject to volatility experienced by the bitcoin exchanges and
other bitcoin trading venues. Such volatility can adversely affect
an investment in the Fund. Bitcoin exchanges have in the past
stopped, and may in the future stop operating or permanently shut
down due to fraud, cybersecurity issues, manipulation, technical
glitches, hackers or malware, which may also affect the price of
bitcoin and thus the Fund’s indirect investment in
bitcoin. Fraud and
failure related to such bitcoin exchanges could result in a loss of
public confidence in bitcoin and a decline in the value of bitcoin,
which could adversely impact the adoption of bitcoin or acceptance
of bitcoin and cause a decline in value of the Fund’s Bitcoin
Futures Contracts.
Networked Systems Are Vulnerable to Attacks.
All
networked systems are vulnerable to various kinds of attacks. As
with any computer network, the Bitcoin network contains certain
flaws. For example, the Bitcoin network is currently vulnerable to
a “51% attack” where, if a mining pool were to gain
control of more than 50% of the “hash” rate, or the
amount of computing and process power being contributed to the
network through mining, a malicious actor would be able to gain
full control of the network and the ability to manipulate the
blockchain. A significant portion of bitcoin is held by a small
number of holders sometimes referred to as “whales.”
These holders have the ability to manipulate the price of
bitcoin.
Cybersecurity Risk.
As a
digital asset, bitcoin is subject to cybersecurity risks, including
the risk that malicious actors will exploit flaws in its code or
structure that will allow them to, among other things, steal
bitcoin held by others, control the blockchain, steal personally
identifying information, or issue significant amounts of bitcoin in
contravention of the Bitcoin Protocols. The occurrence of any of
these events is likely to have a significant adverse impact on the
price and liquidity of bitcoin and Bitcoin Futures Contracts and
therefore the value of an investment in the Fund. Additionally, the
Bitcoin network’s functionality relies on the Internet. A
significant disruption of Internet connectivity affecting large
numbers of users or geographic areas could impede the functionality
of the Bitcoin network. Any technical disruptions or regulatory
limitations that affect Internet access may have an adverse effect
on the Bitcoin network, the price of bitcoin and Bitcoin Futures
Contracts, and the value of an investment in the Fund.
18
Limited Adoption and Ability to Use Bitcoin to Purchase
Goods.
Currently, there is
relatively limited use of bitcoin in the retail and commercial
marketplace in comparison to relatively extensive use as a store of
value, thus contributing to price volatility that could adversely
affect the Fund’s Bitcoin Futures Contracts. Bitcoin is not
currently a form of legal tender in the United States and has only
recently become selectively accepted as a means of payment for
goods and services by some retail and commercial outlets, and the
use of bitcoin by consumers to pay such retail and commercial
outlets remains limited. Banks and other established financial
institutions may refuse to process funds for bitcoin transactions;
process wire transfers to or from bitcoin trading venues,
bitcoin-related companies or service providers; or maintain
accounts for persons or entities transacting in bitcoin or
providing bitcoin-related services. In addition, some taxing
jurisdictions, including the U.S., treat the use of bitcoin as a
medium of exchange for goods and services to be a taxable sale of
bitcoin, which could discourage the use of bitcoin as a medium of
exchange, especially for a holder of bitcoin that has appreciated
in value.
Risks to Bitcoin from Other parts of the Cryptocurrency
Market.
The
price of bitcoin and the bitcoin market generally may be adversely
impacted by developments in other parts of the cryptocurrency
market. The acceptance of bitcoin and cryptocurrency generally
depends on a number of factors, including adverse developments in
the cryptocurrency market that could impact investor confidence.
For example, “stablecoins” have been developed to
enhance the value of cryptocurrency to be used like fiat currency
in transactions in goods and services. Adverse developments such as
the recent “depegging”: of the TerraUSD stablecoin may
undermine confidence in the cryptocurrency markets generally and
cause decreases in the price of cryptocurrencies such as
bitcoin.
Hacking Risk of Theft of Private Keys.
Due to
the nature of private keys, bitcoin transactions are irrevocable
and stolen or incorrectly transferred bitcoin may be irretrievable,
and as a result, any incorrectly executed bitcoin transactions
could adversely affect the price and liquidity of bitcoin, which
may indirectly affect the price and liquidity of the Bitcoin
Futures Contracts.
Environmental risks from bitcoin mining.
Bitcoin
mining currently requires computing hardware that consumes large
amounts of electricity. By way of electrical power generation, many
bitcoin miners rely on fossil fuels to power their operations.
Public perception of the impact of bitcoin mining on climate change
may reduce demand for bitcoin and increase the likelihood of
regulation that limits bitcoin mining or restricts energy usage by
bitcoin miners. Such events could have an impact on the price of
bitcoin, bitcoin futures, and the performance of the
Fund.
Risks Associated with Investing in Bitcoin Futures
Contracts
Investing in Bitcoin Futures Contracts subjects the Fund to the
Risks of the Bitcoin Market.
The
Fund is subject to the risks and hazards of the bitcoin market
because it invests in Bitcoin Futures Contracts listed on the CME.
The risks and hazards that are inherent in the bitcoin market may
cause the price of bitcoin and the Fund’s Shares to fluctuate
widely and you could incur a partial or total loss of your
investment in the Fund. The prices of bitcoin and bitcoin futures
contracts have historically been highly volatile. The value of the
Fund’s investments in bitcoin futures – and therefore
the value of an investment in the Fund – could decline
significantly and without warning, including to zero. If you are
not prepared to accept significant and unexpected changes in the
value of the Fund and the possibility that you could lose your
entire investment in the Fund you should not invest in the
Fund.
19
The Bitcoin Futures Contracts listed on the CME are a relatively
new type of futures contract that may be less developed than other,
more established futures markets.
The
Bitcoin Futures Contracts listed on the CME are a relatively new
type of futures contract that may be less developed than more
established futures markets (such as the futures markets for corn
or wheat). Accordingly, although BTC Contracts have traded on the
CME since December 2017 and MBT Contracts have traded on the CME
since May 2021 and the market for exchange listed Bitcoin Futures
Contracts has grown since inception, the market for Bitcoin Futures
Contracts may be riskier, less liquid, more volatile and more
vulnerable to economic, market, industry, regulatory and other
changes than more established futures contracts. The liquidity of
the market for BTC Contracts and MBT Contracts will depend on,
among other things, the supply and demand for Bitcoin Futures
Contracts, speculative interest in the market for Bitcoin Futures
Contracts and the potential ability to hedge against the price of
bitcoin with Bitcoin Futures Contracts.
An investment in the Fund is subject to the risks of an investment
in futures contracts.
An
investment in the Fund is subject to the risks of an investment in
futures contracts, which are complex instruments that are often
subject to a high degree of price variability. Because the price of
Bitcoin Futures Contracts is linked to the price of bitcoin, an
investment in the Fund may be riskier than other exchange-traded
products that do not hold financial instruments related to bitcoin
and may not be suitable for all investors.
Pricing anomalies in the bitcoin futures market could cause
losses.
Market fraud and/or manipulation and other fraudulent trading
practices such as the intentional dissemination of false or
misleading information (e.g., false rumors) can, among other
things, lead to a disruption of the orderly functioning of markets,
significant market volatility, and cause the value of bitcoin
futures to fluctuate quickly and without warning. Depending on the
timing of an investor’s purchases and sales of the
Fund’s Shares, these pricing anomalies could case the
investor to incur losses.
Risks of Government Regulation.
The
Financial Industry Regulatory Authority (“FINRA”)
issued a notice on March 8, 2022 seeking comment on measures that
could prevent or restrict investors from buying a broad range of
public securities and products designated as “complex
products” – which could include each Exchange Traded
Product offered by the Sponsor. The ultimate impact, if any, of
these measures remain unclear. However, if regulations are adopted,
they could, among other things, prevent or restrict
investors’ ability to buy the Fund.
Correlation Risk
The Benchmark is not designed to correlate with the spot price of
bitcoin, and this could cause the changes in the price of the
Shares to substantially vary from the changes in the spot price of
bitcoin. Therefore, you may not be able to effectively use the Fund
to hedge against bitcoin related losses or to indirectly invest in
bitcoin.
The
correlation between changes in such Bitcoin Futures Contracts and
the spot price of bitcoin will be only approximate. Weak
correlation between the Benchmark and the spot price of bitcoin may
result from the factors discussed above. Imperfect correlation may
also result from speculation in Benchmark Component Futures
Contracts, and/or technical or other factors that may influence the
trading of Benchmark Component Futures Contracts. If there is a
weak correlation between the Benchmark and the spot price of
bitcoin, then the price of Shares may not accurately track the spot
price of bitcoin and you may not be able to effectively use the
Fund as a way to hedge the risk of losses in your bitcoin related
transactions or as a way to indirectly invest in
bitcoin.
20
Moreover, while
there is a spot bitcoin index calculated by the CME that is based
on price feeds from certain designated bitcoin spot market
exchanges, the Fund will generally not directly price off of this
index. This is because the Fund will roll its futures holdings
prior to settlement of the expiring contract and intends to never
carry futures positions all the way to cash settlement (the only
date that the BTC Contracts and MBT Contracts settle to the CME
spot price index). The Fund will only price off of Bitcoin Futures
Contracts volume-weighted average price (VWAP) daily settlement
price, which might cause the Fund’s NAV to differ from spot
bitcoin prices.
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
bitcoin related losses or as a way to indirectly invest in
bitcoin.
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. To the
extent these expenses are not covered by the Management Fee, and
income from short-term financial instruments may cause imperfect
correlation between changes in the Fund’s NAV and changes in
the Benchmark. Differences between returns based on the price of
bitcoin and an investment in the Fund may also be attributable to
additional costs related to futures investing and other fund
expenses.
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 BTC Contract is for a specified amount of
bitcoin, 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 might not invest the entire proceeds
from the purchase of the Creation Basket in such futures contracts.
(As an example, assume that a Creation Basket is sold by the Fund,
and that the Fund’s closing NAV per Share is $25.00. In that
case, the Fund would receive $250,000 in proceeds from the sale of
the Creation Basket ($25.00 NAV per Share multiplied by 10,000
Shares and ignoring the Creation Basket fee of $300). 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 $188,175 (or otherwise not a round
number), the Fund would be unable to buy an exact number of BTC
Contracts with an aggregate market value equal to $250,000. In this
case, the Fund would be able to purchase 1 BTC Contract with an aggregate
market value of approximately $188,175 and 16 MBT Contracts at
$3,750 with an aggregate market value of approximately $60,000,
bringing the aggregate value of proceeds to $248,175.) Any amounts
not invested in Benchmark Component Futures Contracts are held in
cash and cash equivalents.
The
Benchmark Component Futures Contracts reflect the price of bitcoin
for future delivery, not the current spot price of bitcoin, so at
best the correlation between changes in such Bitcoin Futures
Contracts and the spot price of bitcoin will be only approximate.
Weak correlation between the Benchmark and the spot price of
bitcoin may result from fluctuations in bitcoin 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 bitcoin, then the price
of Shares may not accurately track the spot price of bitcoin and
you may not be able to effectively use the Fund as a way to hedge
the risk of losses in your bitcoin related transactions or as a way
to indirectly invest in bitcoin.
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 bitcoin market. On the other hand, if the
Fund’s NAV is equal to 100.9 times the value of a single
Bitcoin Futures Contract, it can purchase 100 such contracts,
resulting in 99.1% exposure.
21
There
may be significant volatility in the market for Bitcoin Futures
Contracts. This volatility, in turn, may make it more difficult for
Authorized Purchasers and other market purchasers to be able to
identify a reliable price for Bitcoin Futures Contracts. Without
reliable prices, Authorized Purchasers and other market purchasers
may reduce their role in the market arbitrage process or
“step away” from these activities. This, in turn, might
inhibit the effectiveness of the arbitrage process in maintaining
the relationship between the underlying value of the Fund’s
Bitcoin Futures Contracts and the Fund’s market price. This
reduced effectiveness could result in Fund Shares trading at a
price which differs materially from NAV and also in greater than
normal intraday bid/ask spreads for Fund Shares.
Position limits, accountability levels and dynamic 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 bitcoin related losses or as a way to indirectly invest in
bitcoin.
The
CFTC and U.S. designated contract markets, such as the CME, have
established position limits and accountability levels on the
maximum net long or net short BTC Contracts that the Fund may hold,
own or control. Spot position limits are set at 4,000 contracts. A
position accountability level of 5,000 contracts will be applied to
positions in single months outside the spot month and in all months
combined. The MBT Contracts have a spot month limit of 200,000
contracts and a position accountability level of 250,000 contracts.
Accountability levels are not fixed ceilings but rather thresholds
above which the exchange may exercise greater scrutiny and control
over an investor, including limiting the Fund to holding no more
Bitcoin Futures Contracts than the amount established by the
accountability level. The potential for the Fund to reach position
or accountability limits will depend on if and how quickly the
Fund’s net assets increase.
In
addition to position limits and accountability limits, the CME
places daily price fluctuation limits on Bitcoin Futures Contracts
that represent the maximum daily price range permitted for a
contract. Once a price fluctuation limit has been reached, no
trades may be made at a price beyond that limit. Under the price
fluctuation mechanism that was initially put into place when
Bitcoin Futures Contracts were launched on the CME in December
2017, price fluctuation limits were triggered 116 times. In March
2019, the CME adopted a dynamic price fluctuation mechanism. This
mechanism assigns an initial opening price fluctuation limit equal
to a percentage of the prior trading day’s settlement price
(or a different price if deemed more appropriate), which then moves
with the market throughout the day. Since dynamic price fluctuation
limits were introduced, price limits have been triggered 89 times
and there has been one "hard limit move." A hard limit move is when
the price of Bitcoin Futures Contracts exceeds a price limit that
defines the minimum/maximum price to which such Bitcoin Futures
Contracts can move for the given trade date. If the hard limit is
reached, trade matching will not occur at prices above the maximum
price or below the minimum price.
Position
limits, accountability limits and dynamic price fluctuation limits
may limit the Fund’s ability to invest the proceeds of
Creation Baskets in Bitcoin Futures Contracts. As result, when the
Fund sells Creation Baskets it may be limited in its ability to
invest in Bitcoin Futures Contracts, including the Benchmark
Component Futures Contracts. In such case, the Fund may hold larger
amounts of cash and cash equivalents, which will impair the
Fund’s ability to meet its investment objective of tracking
the Benchmark.
Price
fluctuation limits may contribute to a lack of liquidity and have a
negative impact on Fund performance. During periods of market
illiquidity, including periods of market disruption and volatility,
it may be difficult or impossible for the Fund to buy or sell
futures at desired prices or at all.
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.
22
Variables such as
cost of electricity, regulation, market disruptions, cyber-attacks
and political events may have a larger impact on bitcoin and
bitcoin 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 bitcoin
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.
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 bitcoin related losses or indirectly invest in
bitcoin.
Futures Commission Merchant Risks
The Fund Has Two Futures Commission Merchants.
The Fund
currently has two futures commission merchants (“FCMs”)
through which it buys and sells futures contracts. Volatility in
the bitcoin futures market may lead one or both of the Fund’s
FCMs to impose risk mitigation procedures that could limit the
Fund’s investment in Bitcoin Futures Contracts beyond the
accountability and position limits imposed by the CME futures
contract exchange as discussed herein. An FCM could impose a
financial ceiling on initial margin that could change and become
more or less restrictive on the Fund’s activities depending
upon a variety of conditions beyond the Sponsor’s control. If
the Fund’s FCMs were to impose position limits, or if any
other FCM with which the Fund establishes a relationship in the
future were to impose position limits, the Fund’s ability to
meet its investment objective could be negatively impacted. The
Fund continues to monitor and manage its existing relationships
with its FCMs and will continue to seek additional relationships
with FCMs as needed.
Risks Associated With the Fund’s Investment In Cash and Cash
Equivalents
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 bitcoin. 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.
Risk Related To Lack of Liquidity
Certain of the Fund’s Investments Could Be Illiquid, Which
Could Cause Large Losses to Investors at any Time or from Time to
Time.
If the
Fund’s ability to obtain exposure to Bitcoin Futures
Contracts in accordance with its investment objective is disrupted
for any reason including, because of limited liquidity in the
bitcoin futures market, a disruption to the bitcoin futures market,
or as a result of margin requirements or position limits imposed by
the Fund’s futures commission merchants, the CME, or the
CFTC, the Fund may not be able to achieve its investment objective
and may experience significant losses. Any disruption in the
Fund’s ability to obtain exposure to Bitcoin Futures
Contracts will cause the Fund’s performance to deviate from
the performance of Bitcoin Futures Contracts. In addition, the Fund
might grow to a size where a lack of liquidity in the futures
market meant that the Fund could not sell enough futures contracts
to honor redemption requests. For further information regarding the
impact if suspending redemptions, see “Suspension or
Rejection of Redemption” on page 54.
23
A
market disruption, such as a government taking regulatory or other
actions that disrupt the market in bitcoin, 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.
The Fund and Other Funds with Similar Investment Strategies May Try
To Exit Positions at the Same Time.
If the
Fund and other funds with similar investment strategies try to exit
their Bitcoin Futures Contract positions at the same time, such a
mass exit could have detrimental effect on price and liquidity and
you could incur losses in your investment in Shares of the
Fund.
Hedging Risk
If the nature of the purchasers in the futures market shifts such
that bitcoin purchasers are the predominant hedgers in the market,
the Fund might have to reinvest at higher futures prices or choose
other bitcoin interests.
The
changing nature of the purchasers in the bitcoin market will
influence whether bitcoin futures prices are above or below the
expected future spot price. Holders of bitcoin will typically seek
to hedge against falling bitcoin prices by selling Bitcoin Futures
Contracts. Therefore, if holders of bitcoin become the predominant
hedgers in the futures market, prices of Bitcoin Futures Contracts
will typically be below expected future spot prices. Conversely, if
the predominant hedgers in the futures market are the holders of
bitcoin who purchase Bitcoin Futures Contracts to hedge against a
rise in prices, prices of Bitcoin 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 Bitcoin Futures
Contract that is no longer a Benchmark Component Futures Contract
and purchase a new Bitcoin Futures Contract or to sell a Bitcoin
Futures Contract to meet redemption requests.
The price relationship between the Benchmark Component Futures
Contracts at any point in time and the Bitcoin 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
bitcoin price indices.
The
design of the Fund’s Benchmark is such that the Benchmark
Component Futures Contracts will change on a monthly basis, and the
Fund’s investments may be rolled periodically to reflect the
changing composition of the Benchmark. In the event of a bitcoin
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 bitcoin 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 may be selling more
expensive contracts and buying less expensive ones on an ongoing
basis. Conversely, in the event of a bitcoin 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 bitcoin 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 may 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 bitcoin. In the event of a prolonged
period of contango, and absent the impact of rising or falling
bitcoin 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.
The
design of the Fund’s Benchmark is such that the Benchmark
Component Futures Contracts will change on a monthly basis, with
the contracts with the shortest maturity being replaced with
contracts with a longer maturity. Sometimes the Fund will have to
pay more for longer maturity contracts to replace existing shorter
maturity contracts about to expire. This situation is known as
“contango” in the futures markets. In the event of a
prolonged period of contango, and absent the impact of rising or
falling bitcoin prices, this could have a negative impact on the
Fund’s NAV and total return, which in turn may have a
negative impact on your investment in the Fund. By way of example,
during the period from 1/1/2019 to 3/31/2022, the market for
Bitcoin Component Futures Contracts were in contango approximately
89% of the time, which resulted in an average annual negative roll
yield of approximately 7%.
24
If the
futures market is in contango (i.e., when the price of bitcoin in
the future is to be more than the current price), the Fund will buy
later to expire contracts for a higher price than the soon to
expire contracts that it sells. All other things being equal, a
situation involving prolonged periods of contango may adversely
impact the returns of the Fund.
Regulatory Risk
Lack of Regulation of the Bitcoin Market.
Bitcoin, the
Bitcoin Network and the bitcoin trading venues are relatively new
and, in most cases, largely unregulated. As a result of this lack
of regulation, individuals, or groups may engage in insider
trading, fraud or market manipulation with respect to bitcoin. Such
manipulation could cause investors in bitcoin to lose money,
possibly the entire value of their investments. Over the past
several years, a number of bitcoin trading venues have been closed
due to fraud, failure or security breaches. The nature of the
assets held at bitcoin trading venues make them appealing targets
for hackers and a number of bitcoin trading venues have been
victims of cybercrimes and other fraudulent activity. These
activities have caused significant, in some cases total, losses for
bitcoin investors. Investors in bitcoin may have little or no
recourse should such theft, fraud or manipulation occur. There is
no central registry showing which individuals or entities own
bitcoin or the quantity of bitcoin that is owned by any particular
person or entity. There are no regulations in place that would
prevent a large holder of bitcoin or a group of holders from
selling their bitcoins, which could depress the price of bitcoin,
or otherwise attempting to manipulate the price of bitcoin or the
Bitcoin Network. Events that reduce user confidence in bitcoin, the
Bitcoin Network and the fairness of bitcoin trading venues could
have a negative impact on the price of bitcoin and the value of an
investment in the Fund.
Risk of Illicit Activities.
As
bitcoins have grown in both popularity and market size, the U.S.
Congress and a number of U.S. federal and state agencies (including
the Financial Crimes Enforcement Network of the U.S. Department of
the Treasury (“FinCEN”), SEC, CFTC, the Financial
Industry Regulatory Authority, Inc. (“FINRA”), the
Consumer Financial Protection Bureau (“CFPB”), the
Department of Justice, the Department of Homeland Security, the
Federal Bureau of Investigation, the IRS, and state financial
institution regulators) have been examining the Bitcoin Network,
bitcoin users and the Bitcoin Exchange Market, with particular
focus on the extent to which bitcoins can be used to launder the
proceeds of illegal activities or fund criminal or terrorist
enterprises and the safety and soundness of exchanges or other
service providers that hold bitcoins for users. The imposition of
stricter governmental regulation of the bitcoin market may
adversely impact the activities of the Fund, for example, by
reducing the liquidity of the bitcoin markets.
Regulation of futures markets, futures contracts and futures
exchanges is extensive and constantly changing; future regulatory
developments are impossible to predict but may significantly and
adversely affect the Fund. This risk is especially heightened for
cryptocurrency derivatives and cryptocurrencies.
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 dynamic price limits and the
suspension of trading on an exchange or trading
facility.
The
regulation of bitcoin interest and crypto derivatives 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 and crypto derivatives 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.
25
The
regulation of cryptocurrency derivatives and cryptocurrencies
continues to evolve. Inconsistent, changing and sometimes
conflicting regulations may make it more difficult for Bitcoin
businesses to provide services, which may slow the adoption of the
Bitcoin economy and may impede consumer adoption of Bitcoin. Future
regulatory changes may materially alter the ability to buy and sell
Bitcoin and Bitcoin futures, or could impact the ability of the
Fund to achieve its investment objective. This may alter the nature
of an investment in the Fund or the ability of the Fund to continue
to operate as planned.
The Fund’s Operating Risks
The Fund may change its investment objective, Benchmark or
investment strategies at any time without Shareholder approval or
advance notice.
Consistent with its
authority under the Trust Agreement and Delaware law, the Fund, in
its sole discretion and without Shareholder approval or advance
notice, may change the Fund’s investment objective, Benchmark
or investment strategies, subject to applicable regulatory
requirements, including, but not limited to, any requirement to
amend applicable listing rules of the NYSE. The reasons for and
circumstances that may trigger any such changes may vary widely and
cannot be predicted. By way of example, the Fund may change the
term structure or underlying components of the Benchmark in
furtherance of the Fund’s investment objective if, due to
market conditions, a potential or actual imposition of position
limits by the CFTC or futures exchange rules, or the imposition of
risk mitigation measures by a futures commission merchant restricts
the ability of the Fund to invest in the current Benchmark Futures
Contracts. Shareholders may experience losses on their investments
in the Fund as a result of such changes.
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 expressly provided by that statute,
including preventing Fund insiders from managing the Fund to their
benefit and to the detriment of Fund Shareholders; preventing the
Fund from issuing securities having inequitable or discriminatory
provisions; preventing Fund management by irresponsible persons;
preventing the use of unsound or misleading methods of computing
Fund earnings and asset value; and preventing changes in the Fund's
character without the consent of Fund Shareholders.
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.
26
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.
You cannot be assured of the Sponsor’s continued services,
and discontinuance may be detrimental to the Fund.
You
cannot be assured that the Sponsor will be willing or able to
continue to service the Fund for any length of time. The Sponsor
was formed for the purpose of sponsoring the Fund and other
commodity pools and has limited financial resources and no
significant source of income apart from its management fees from
such commodity pools to support its continued service for the Fund.
If the Sponsor discontinues its activities on behalf of the Fund or
another series of the Trust, the Fund may be adversely affected. If
the Sponsor’s registrations with the CFTC or memberships in
the NFA were revoked or suspended, the Sponsor would no longer be
able to provide services to the Fund.
The Fund could terminate at any time and cause the liquidation and
potential loss of your investment and could upset the overall
maturity and timing of your investment portfolio.
The
Fund may terminate at any time, regardless of whether the Fund has
incurred losses, subject to the terms of the Trust Agreement. For
example, the dissolution or resignation of the Sponsor would cause
the Trust to terminate unless Shareholders holding a majority of
the outstanding Shares of the Trust, voting together as a single
class, elect within 90 days of the event to continue the Trust and
appoint a successor Sponsor. In addition, the Sponsor may terminate
the Fund if it determines that the Fund’s aggregate net
assets in relation to its operating expenses make the continued
operation of the Fund unreasonable or imprudent. As of the date of
this prospectus, the Sponsor pays the fees, costs, and expenses of
the Fund. If the Sponsor and the Fund are unable to raise
sufficient funds so that the expenses are reasonable in relation to
the Fund’s 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
Sponsor 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.
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.
27
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.
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 seeks to earn interest on cash balances available for
investment. If actual interest rates earned were lower than the
current rate estimated 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 positions. Under normal circumstances, the NAV
reflects the quoted CME 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, when a bitcoin futures contract has closed
at its price fluctuation limit the Fund will use the daily CME
settlement price for the determination of NAV.
Purchases or redemptions of creation units in cash may cause the
Fund to incur certain costs or recognize gains or
losses.
Purchases
and redemptions of creation units will be transacted in cash rather
than ‘in-kind’ where creation units are purchased and
redeemed in exchange for underlying constituent securities.
Purchases of creation baskets with cash may cause the Fund to incur
certain costs including brokerage commissions and redemptions of
creation baskets with cash may result in the recognition of gains
or losses that the Fund might not have incurred if it had made
redemptions in-kind.
28
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 0.94% 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 purchasers 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 purchaser 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 five baskets. The minimum level of
Shares specified for the Fund is subject to change. (The current
number of Shares outstanding will be posted daily on our website,
http://hashdex-etfs.com/.)
The postponement, suspension or rejection of purchase or redemption
orders could adversely affect a Shareholder redeeming their Shares
in the Fund.
The
postponement, suspension or rejection of creation or redemption
orders may adversely affect an investment in the Shares of the
Fund. To the extent orders are suspended or rejected, the arbitrage
mechanism resulting from the process through which Authorized
Purchasers create and redeem Shares directly with the Fund may fail
to closely link the price of the Shares to the value of the
underlying Bitcoin Futures Contracts, as measured using the
Benchmark. If this is the case, the liquidity of the Shares may
decline and the price of the Shares may fluctuate independently of
the Benchmark and may fall.
There are no
limitations on the Sponsor’s discretion to postpone, suspend
or reject purchase or redemption orders under the Securities Act,
NYSE Arca rules, or SEC listing orders permitting the listing and
trading of the fund’s Shares on NYSE Arca. In addition,
Shareholders of the Fund will not have the protections provided in
this regard that are applicable to funds regulated under the
Investment Company Act of 1940.
Investors may not be able to buy or sell Shares of the Fund through
their current brokerages.
Because
of volatility and other risks associated with bitcoin-related
investments, brokerage firms may limit or not permit trading in
such investments. Because of current or future brokerage policies
regarding bitcoin-linked securities, investors could have
difficulty selling Shares through their brokerage and potentially
face restrictions when or how they could trade their
Shares.
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 bitcoin 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 bitcoin 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.
29
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 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 cryptocurrency derivative 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.
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 who buy the Fund’s Shares at a
market price that is a premium to NAV face a risk of loss if the
market price of their Shares subsequently converges with NAV per
Share. Investors buying or selling Fund Shares in the secondary
market will pay brokerage commissions or other charges imposed by
brokers as determined by that broker. Brokerage commissions are
often a fixed amount and may be a significant proportional cost for
investors seeking to buy or sell relatively small amounts of
Shares.
30
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 by the
NYSE Arca 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. Such market conditions or other
reasons may include when there is significant news directly related
to the Fund that, in NYSE Arca’s view or per existing NYSE
Arca rules, requires a trading halt, such as when the Sponsor
announces news relating to changes/disruptions in the Fund’s
create/redeem process during market trading hours. In addition,
market conditions that would result in trading halts may also
include extraordinary market volatility that trigger rules
requiring trading to be halted for a specified period based on a
specified market decline. NYSE Arca might also halt trading if
there is insufficient trading in BTC or MBT Contracts. 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.
A Pause in Bitcoin Futures Contracts May lead To Gaps Between
Prices in Spot and Futures Markets.
On May
19, 2021 the CME Group temporarily paused trading of bitcoin
futures after the bitcoin futures market opened to a large price
gap between the derivatives and the underlying crypto asset that
triggered CME circuit breakers. Due to the misaligned trading
periods between spot and futures markets, such gaps, which can be
positive or negative, have the potential to frequently exist and,
when CME circuit breakers limit the trading in bitcoin futures
markets, bid/ask spreads in Shares of the Fund trading on the NYSE
ARCA may be significantly wider than when bitcoin futures markets
are trading without restrictions, which may adversely impact your
ability to buy or sell Shares in the Fund at a particular
price.
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.
The Fund is newly formed and may not be successful in implementing
its investment objective or attracting sufficient
assets.
The
Fund is a new fund, with a limited or no operating history and a
small asset base. There can be no assurance that the Fund will grow
to or maintain a viable size. Due to the Fund’s small asset
base, the Fund’s portfolio transaction costs and any costs
that are not paid by the Sponsor pursuant to the Management Fee,
may be relatively higher than those of a fund with a larger asset
base. To the extent that the Fund does not grow to or maintain a
viable size, it may be liquidated, and the expenses, timing and tax
consequences of such liquidation may not be favorable to some
Shareholders. In this regard, as of the date of this prospectus
there are three bitcoin futures-based ETFs. The first fund launched
has obtained significantly more assets than the other two. To the
extent that this "first mover" advantage continues to favor the
first fund launched, this might constrain the Fund's
growth.
Sponsoring the Fund will be the Sponsor’s first experience in
the crypto asset markets.
There
are risks related to the Sponsor’s lack of experience in the
crypto asset markets, particularly with respect to marketing the
Fund. To address this risk, the Sponsor has entered into the
Support Agreement discussed above, under which Hashdex and Victory
Capital will provide crypto asset related marketing services. To
the extent that Hashdex and Victory Capital are not effective in
marketing the Fund, the Sponsor may not possess the requisite
marketing knowledge to grow the Fund or maintain a viable
size.
Existing or future bitcoin futures based ETFs may have
significantly lower management fees, which may impede the growth of
the Fund.
Existing and future
bitcoin futures based ETFs may have fees that are significantly
lower than the Fund's. To the extent that the Fund has relatively
higher fees than other such funds, this could impede growth of the
Fund, possibly result in a lower NAV per Share, and otherwise pose
a material risk to investors.
There are risks related to the Support Agreement and the planned
transfer of operations to new management.
There
are risks related to the Support Agreement and the planned transfer
of operations to new management. Among other things, following the
transfer of operations to Toroso, Toroso may not manage the Fund as
effectively as the Sponsor. In addition, because a timeline for the
transfer has not yet been determined, it is not known when the
transfer of management will occur.
31
The Market for Bitcoin Futures-Based ETFs May Reach
Saturation
The
market for bitcoin futures-based ETFs like the Fund may reach a
point where there is little or no additional investor demand. If
this happens, there can be no assurance that the Fund will grow to
or maintain a viable size. Due to the Fund’s small asset
base, certain of the Fund’s expenses and its portfolio
transaction costs may be higher than those of a fund with a larger
asset base. To the extent that the Fund does not grow to or
maintain a viable size, it may be liquidated, and the expenses,
timing and tax consequences of such liquidation may not be
favorable to some Shareholders.
Potential Conflicts of Interest
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.
The Sponsor’s principals, officers or employees may trade
securities and futures and related contracts for their own
accounts.
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.
Shareholder Voting Rights and Liability
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.
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.
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.
32
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 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.
Event Risk
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 Fund 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 past, current and future global
economic impact may cause the underlying assumptions and
expectations of the Fund to become outdated quickly or inaccurate,
resulting in significant losses.
33
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
Bitcoin Futures Contracts or other bitcoin 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 bitcoin Futures Contracts
or other bitcoin interests are traded or cleared, or
counterparties.
Risk of Volatility
The price of bitcoin can be volatile which could cause large
fluctuations in the price of Shares.
As
discussed in more detail above, price movements for bitcoin are
influenced by, among other things, the environment, natural or
man-made disasters, governmental oversight and regulation,
demographics, economic conditions, infrastructure limitations,
existing and future technological developments, and a variety of
other factors now known and unknown, any and all of which can have
an impact on the supply, demand, and price fluctuations in the
bitcoin markets. More generally, cryptocurrency 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 purchasers. Because the
Fund invests in futures contracts in a single cryptocurrency, 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 or cryptocurrency
pool.
Volatility is a
statistical measure of the dispersion of returns for a given
security or market index. Volatility represents how large an
asset’s prices swing around the mean price—it is a
statistical measure of its dispersion of returns.
According to
Bloomberg from 1/1/2019 to 5/27/2022 front month Bitcoin Futures
Contracts exhibited an average implied 30-Day volatility of 67.71.
The highest volatility during that period was 134.07 on 7/25/19 and
the lowest was 25.62 on 4/1/2019.
Bitcoin
can be highly volatile, for example after a 774% price increase
from 1/1/2020 prices peaked in May 2021 and front month Bitcoin
Futures Contracts began to decline with a peak to trough
retracement of 47.06% by 7/20/2021. Prices then rose from that low
until 11/9/2021 resulting in a price increase of 127.58%. Front
month Bitcoin Futures Contracts prices peaked on 11/9/2021 and have
since seen a retracement of 57.05% as of 5/27/2022. Front month
bitcoin futures prices have declined 54.51% since May
2021.
The
table below includes significant single day price declines since
inception of the Bitcoin Futures Contracts in December 2017 for
both bitcoin (as measured by the BRR) and for Bitcoin Futures
Contracts (as measured by the front month Bitcoin Futures
Contract), including the single day price decline that occurred on
September 7, 2021, followed by a brief narrative disclosure
describing the significant declines:
|
Date
|
BTC1
Daily % Change
|
BRR
Daily % Change
|
Notes
|
|
3/12/2020
|
-23.49%
|
-21.89%
|
The
selloff in Bitcoin futures coincided with broader financial market
duress at the onset of the COVID pandemic
|
|
6/27/2019
|
-21.82%
|
-9.31%
|
Potentially
signals near term profit taking as the front month contract gained,
after gaining approximately 22% in the prior session
|
|
6/13/2022
|
-20.09%
|
-15.45%
|
Selling
picked up after failing to hold the $30,000 level, filling the gap
created on the way up during December 2020
|
|
1/16/2018
|
-19.97%
|
-13.50%
|
Bitcoin
futures were relatively new and there was significant selling
interest early on that carried through December 2018
|
|
2/5/2018
|
-15.43%
|
-14.16%
|
Bitcoin
futures were relatively new and there was significant selling
interest early on that carried through December 2018
|
|
9/7/2021
|
-7.75%
|
-3.35%
|
The
selling may have been the result of profit taking as Bitcoin
futures closed over $50,000 for the first time in the prior
session
|
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.
The Fund could be treated as a corporation for U.S. 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 more likely than not 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 Internal Revenue Code of 1986, as amended (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 U.S.
federal income tax purposes. Opinions of counsel are not binding on
the Internal Revenue Service (the “IRS”) and no
assurance can be given that the IRS or a court will agree with
counsel’s opinion. Although the Sponsor anticipates that the
Fund will satisfy the “qualifying income” requirement
for all of its taxable years, that result cannot be assured. There
is very limited authority on the U.S. federal income tax treatment
of bitcoin and no direct authority on bitcoin derivatives. 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 U.S. federal income tax purposes. If the IRS were
to successfully assert that the Fund is taxable as a corporation
for U.S. 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 such 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.
34
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. Assuming the Fund
qualifies to be taxed as a partnership for U.S. federal income tax
purposes, you will be required to pay U.S. federal income tax and,
in some cases, state, local, or foreign income tax, on your
allocable share of the Fund’s taxable income, without regard
to whether you receive distributions or the amount of any
distributions. Therefore, the tax liability resulting from your
ownership of Shares may exceed the amount of cash or value of
property (if any) distributed.
Your allocable share of income or loss for U.S. federal income tax
purposes may differ from your economic income or loss on your
Shares.
Due to
the application of the assumptions and conventions applied by the
Fund in making allocations for U.S. federal income tax purposes and
other factors, your allocable share of the Fund’s income,
gain, deduction or loss may be different than your economic profit
or loss from your Shares for a taxable year. This difference could
be temporary or permanent and, if permanent, could result in your
being taxed on amounts in excess of your economic
income.
Items of income, gain, deduction, loss and credit with respect to
Shares could be reallocated and 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 consequences
for you.
The
Fund intends to be treated as a partnership for U.S. 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 will apply 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 Code, and applicable Treasury Regulations,
however, and it is possible that 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.
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 tax 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, all Shareholders may bear the cost of such
withholding.
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, all Shareholders may bear
the economic cost of the withholding, not just the Shareholders on
whose behalf such amounts were withheld. This could have a material
impact on the value of your Shares.
Shareholders will receive partner information tax returns on
Schedule K-1, which could increase the complexity of tax
returns.
The
partner information tax returns on Schedule K-1, which the Fund
will distribute to Shareholders, will contain information regarding
the income items and expense items of the Fund. If you have not
received Schedule K-1s from other investments, you may find that
preparing your income tax returns may require additional time, or
it may be necessary for you to retain an accountant or other tax
preparer, at an additional expense to you, to assist you in the
preparation of your returns.
Shareholders of the Fund may recognize significant amounts of
ordinary income and short-term capital gain.
Due to
the investment strategy of the Fund, the Fund may realize and pass
through to Shareholders significant amounts of ordinary income and
short-term capital gains as opposed to long-term capital gains.
Ordinary income and short-term capital gains are generally taxed at
higher U.S. federal income tax rates than the preferential U.S.
federal income rates applicable to long-term capital
gains.
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.
35
THE OFFERING
The Fund in General
The
Fund seeks to provide investors with a way to gain price exposure
to the bitcoin market. In furtherance of this goal, the
Fund’s investment objective is for changes in the
Shares’ NAV to reflect the daily changes of the price of the
Benchmark, less expenses from the Fund’s operations. The
Sponsor developed the Benchmark as a representation of the bitcoin
market. The Fund does not invest
directly in bitcoin.
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 bitcoin market, as
measured by the Benchmark. However, the Fund may not be successful
in implementing its investment objective because the Fund is newly
formed and because the BTC Contracts and MBT Contracts listed on
the CME are a relatively new type of futures contract that may be
less developed than more established futures markets (such as the
futures markets for corn or wheat). The Fund will purchase MBT
contracts only if the Fund has proceeds remaining from the sale of
a Creation Basket that are less than the price of a BTC contract.
BTC and MBT will count toward an aggregate position
limit.
Consistent with
applicable provisions of the Trust Agreement and Delaware law, the
Fund has broad authority to make changes to the Fund’s
operations. Consistent with this authority, the Fund, in its sole
discretion and without Shareholder approval or advance notice, may
change its investment objective, Benchmark, or investment
strategies. The Fund has no current intention to make any such
change, and any change is subject to applicable regulatory
requirements, including, but not limited to, any requirement to
amend applicable listing rules of the NYSE.
The
reasons for and circumstances that may trigger any such changes may
vary widely and cannot be predicted. However, by way of example,
the Fund may change the term structure or underlying components of
the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of the Benchmark Component Futures
Contracts if, due to market conditions, a potential or actual
imposition of position limits by the CFTC or futures exchange
rules, or the imposition of risk mitigation measures by a futures
commission merchant restricts the ability of the Fund to invest in
the current Benchmark Futures Contracts. The Fund would file a
current report on Form 8-K and a prospectus supplement to describe
any such change and the effective date of the change. Shareholders
may modify their holdings of the Fund’s Shares in response to
any change by purchasing or selling Fund Shares through their
broker-dealer.
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 six series that are
separate operating commodity pools: the Teucrium Corn Fund, the
Teucrium Wheat Fund, the Teucrium Soybean Fund, the Teucrium Sugar
Fund, the Teucrium Agricultural Fund, and the Hashdex Bitcoin
Futures ETF. 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.
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 is 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. The Sponsor has sponsored the
Trust since 2010. Sponsoring the Fund will be the Sponsor’s
first experience in the crypto asset markets. The Sponsor’s
responsibilities are discussed in the following paragraph. Teucrium
Investment Advisors, LLC, a wholly owned subsidiary of Teucrium
Trading, LLC, is a Delaware limited liability company, which was
formed on January 4, 2022. Teucrium Investment Advisors, LLC is a
U.S. SEC registered investment advisor. Teucrium Investment
Advisors, LLC was registered with the CFTC as a CPO on May 2, 2022,
a CTA on May 2, 2022, and a Swap Firm on May 9, 2022. Teucrium
Investment Advisors, LLC became a member of the NFA on May 9,
2022.
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. 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 has
discretion to appoint one or more of its affiliates as additional
Sponsors. No person other than the Sponsor and its principals was
involved in the organization of the Trust or the Fund. The Sponsor
maintains a public website on behalf of the Fund, http://hashdex-etfs.com/, which
contains information about the Trust, the Fund, and the Shares, and
oversees certain services for the benefit of
Shareholders.
36
The
Fund pays the Sponsor a Management Fee, monthly in arrears, in an
amount equal to 0.94% per annum of the daily NAV of the Fund. The
Management Fee is paid in consideration of the Sponsor’s
services related to the management of the Fund’s business and
affairs, including the provision of commodity futures trading
advisory services. The Fund is newly organized and as of the date
of this prospectus has not paid any management fees to the Sponsor.
The Sponsor pays all of the routine operational, administrative and
other ordinary expenses of each Fund, generally as determined by
the Sponsor, including but not limited to, fees and expenses of the
Administrator, Custodian, Distributor, Transfer Agent, licensors,
accounting and audit fees and expenses, tax preparation expenses,
legal fees, ongoing SEC registration fees, individual Schedule K-1
preparation and mailing fees, and report preparation and mailing
expenses. None of the costs and expenses related to the initial
registration, offer and sale of Shares, which are estimated to be
approximately $160,000, will be 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
Since
the inception of the CORN fund in 2010, the Sponsor has sponsored
all of the funds of the Trust and an ETF registered and regulated
under the Investment Company Act of 1940. Sponsoring the Fund will
be the Sponsor’s first experience in the crypto asset
markets. 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.
37
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. Mr. Gilbertie is an officer of Teucrium Investment
Advisors, LLC, a wholly owned subsidiary of Teucrium Trading, LLC
effective January 21, 2022. Mr. Gilbertie was approved by the NFA
as a Principal of Teucrium Investment Advisors, LLC on April 28,
2022. Mr. Gilbertie was registered as an associated person of
Teucrium Investment Advisors LLC on May 2, 2022. 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 62 years old.
Cory Mullen-Rusin
has been the Chief Financial Officer, Chief Accounting Officer and
Chief Compliance Officer of the Sponsor since September 17, 2018
and Ms. Mullen-Rusin has primary responsibility for the financial
management, compliance and reporting of the Sponsor and is in
charge of its books of account and accounting records, and its
accounting procedures. She maintains her main business office at
Three Main Street, Suite 215, Burlington, Vermont 05401. Ms.
Mullen-Rusin was approved by the NFA as a Principal of the Sponsor
on October 8, 2018. Ms. Mullen-Rusin 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 is an officer of
Teucrium Investment Advisors, LLC, a wholly owned subsidiary of
Teucrium Trading, LLC effective January 21, 2022. Ms. Mullen-Rusin
was approved by the NFA as a Principal of Teucrium Investment
Advisors, LLC on April 28, 2022. 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 34 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 is
primarily responsible for making trading and investment decisions
for the Funds, and for directing each Fund’s trades for
execution. Mr. Kahler was listed as a Principal of the Sponsor from
May 16, 2012 to September 7, 2018 and again was listed as a
Principal on October 16, 2018. Mr. Kahler was registered as an
Associated Person of the Sponsor on November 8, 2011 to September
7, 2018 and re-registered as an Associated Person on October 5,
2018. Mr. Kahler was registered as a Branch Manager of the Sponsor
on March 16, 2012 to September 7, 2018 and was registered again
from October 5, 2018 to September 29, 2021. Mr. Kahler is an
officer of Teucrium Investment Advisors, LLC, a wholly owned
subsidiary of Teucrium Trading, LLC effective January 21, 2022. Mr.
Kahler was approved by the NFA as a Principal of Teucrium
Investment Advisors, LLC on June 2, 2022. Mr. Kahler was registered
as an associated person of Teucrium Investment Advisors LLC on May
2, 2022. 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 54 years
old.
Messrs.
Gilbertie, Riker, Kahler and Ms. Mullen-Rusin are individual
“principals,” as that term is defined in CFTC Rule 3.1,
of Teucrium Trading, LLC and Teucrium Investment Advisors, LLC.
These individuals are principals due to their positions and/or due
to their ownership interests in Teucrium. GFI Group LLC is a
principal under CFTC Rules due to its ownership of certain
non-voting securities of Teucrium Trading, LLC and Teucrium
Investment Advisors, LLC. NMSIC Classic LLC is a principal under
CFTC Rules due to its greater than 10% capital contribution to
Teucrium Trading, LLC. Teucrium Trading, LLC is a listed principal
of Teucrium Investments Advisors, LLC due to its 100% ownership of
the entity.
38
Prior Performance of the Fund
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY
PERFORMANCE HISTORY.
For
performance information of the Sponsor’s other commodity
pools, see “General Pool Disclosure — Performance of
the Other Commodity Pools Operated by the Commodity Pool
Operator” on page 77.
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 for changes in the
Shares’ NAV to reflect the daily changes of the price of the
Benchmark, less expenses from the Fund’s operations. Under
normal market conditions, the Fund expects that the Fund’s
assets will be used to invest in Bitcoin Futures Contracts and cash
and cash equivalents, such as short-term Treasury bills, money
market funds, and demand deposit accounts. The term “normal
market conditions” includes, but is not limited to, the
absence of: trading halts in the applicable financial markets
generally; operational issues (e.g., systems failure) causing
dissemination of inaccurate market information; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption or any similar
intervening circumstance. The NYSE Arca rule under which the Shares
will be listed and traded prevents the Fund from utilizing
leverage.
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/or merely holds such assets in cash in
interest-bearing accounts. The Fund seeks to earn interest and
other income from the cash equivalents that it purchases, and on
the cash it holds at financial institutions.
39
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, less expenses from the Fund’s operations. The
Benchmark is the average of the closing settlement prices for the
first to expire and second to expire Bitcoin futures contracts
listed on the CME. The Benchmark will roll prior the expiration of
the spot month CME Bitcoin Futures. The Benchmark is not designed to track the spot
price of bitcoin. 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 total portfolio composition is disclosed each business
day that the NYSE Arca is open for trading on the Fund’s
website at http://hashdex-etfs.com/. The website
disclosure of portfolio holdings is made daily and includes, as
applicable, the security name, market price,, CUSIP, and total
weight of each futures contract month reflected as a percentage,
and value of each cash and cash equivalents held in the Fund. The
Fund’s website also includes the NAV, the 4 p.m. (ET) Bid/Ask
Midpoint as reported by the NYSE Arca, the last trade price as
reported by the NYSE Arca, the Median bid-ask spread for the past
30 days, the Shares outstanding, the Shares available for issuance.
Historical premium/discount information will be updated quarterly
and daily as needed. 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.
The
Fund’s investment objective is to provide investors with a
way to gain price exposure to the bitcoin market. The Sponsor
developed the Benchmark as a representation of the bitcoin market.
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 bitcoin market, as measured by the
Benchmark.
An
investment in the Shares can potentially provide a means for
diversifying an investor’s portfolio or hedging exposure to
changes in bitcoin prices. An investment in the Shares allows both
retail and institutional investors to easily gain this exposure to
the bitcoin 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 bitcoin market. Such
investors may include those seeking to hedge the risk of losses in
their bitcoin related transactions as well as investors seeking
exposure to the bitcoin market. Accordingly, depending on the
investment objective of an individual investor, the risks generally
associated with investing in the bitcoin 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 bitcoin 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 bitcoin, 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 bitcoin.
The
Shares issued by the Fund may only be purchased by Authorized
Purchasers and only in blocks of 10,000 Shares called Creation
Baskets. The amount of the purchase payment for a Creation Basket
is equal to the total NAV of Shares in the Creation Basket.
Similarly, only Authorized Purchasers may redeem Shares and only in
blocks of 10,000 Shares called Redemption Baskets. The amount of
the redemption proceeds for a Redemption Basket is equal to the
total 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.
40
While
the Fund issues Shares only in Creation Baskets, Shares may also be
purchased and sold in much smaller increments on the NYSE Arca.
These transactions, however, are effected at the bid and ask prices
established by the specialist firm(s). Like any listed security,
Shares can be purchased and sold at any time a secondary market is
open.
The Fund’s Investment Strategy
In
managing the Fund’s assets, the Sponsor does not use a
technical trading system that automatically issues buy and sell
orders. Instead, each time one or more baskets are purchased or
redeemed, the Sponsor purchases or sells Benchmark Component
Futures Contracts with an aggregate market value that approximates
the amount of cash received or paid upon the purchase or redemption
of the basket(s).
As an
example, assume that a Creation Basket is sold by the Fund, and
that the Fund’s closing NAV per Share is $25.00. In that
case, the Fund would receive $250,000 in proceeds from the sale of
the Creation Basket ($25.00 NAV per Share multiplied by 10,000
Shares and ignoring the Creation Basket fee of $300). 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 $188,175 (or otherwise not a round
number), the Fund would be unable to buy an exact number of Bitcoin
Futures Contracts with an aggregate market value equal to $250,000.
In this case, the Fund would be able to purchase 1 BTC Contract with an aggregate
market value of approximately $188,175 and 16 MBT Contracts (each
of which represent 0.10 bitcoin) at $3,763 per contract with an
aggregate market value of approximately $60,208, bringing the
aggregate value of proceeds to $248,383. Assuming a margin
requirement equal to 32% of the notional amount based on the
previous settlement price of the BTC Contracts and MBT Contracts,
the Fund would be required to deposit approximately $79,483 in cash
with the FCM through which the Bitcoin Futures Contracts were
purchased. The remainder of the proceeds from the sale of the
Creation Basket, approximately $170,517, composed of the
approximately $168,900 not deposited with the FCM and the remaining
$1,617 that was unable to be invested in Bitcoin Futures
Contracts, would remain
invested in cash and/or cash equivalents, as determined by the
Sponsor from time to time based on factors such as potential calls
for margin or anticipated redemptions.
The
Benchmark Component Futures Contracts are cash-settled, and the
Fund will not be required to take delivery of bitcoin. 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. Bitcoin Futures Contacts are financially settled,
which means that one party agrees to buy a commodity such as
bitcoin from the other party at a later date at a price and
quantity agreed upon when the contract is made, but instead of
taking physical delivery of the commodity at such later date,
settlement occurs in a dollar amount that is equivalent to the
amount of bitcoin agreed to in the contract. 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 financial settlement 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 cryptocurrency 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 bitcoin
cryptocurrency 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, the Fund
intends to hold only long positions in bitcoin futures contracts
and intends to roll its CME Bitcoin Futures Contracts prior to
expiration via sales of existing long positions and the acquisition
of new long positions as replacements for contracts sold. Futures
contracts are typically traded on futures exchanges (i.e. DCMs)
such as the CME, 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.
41
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.
Bitcoin Futures Contracts
CME
began offering trading in BTC Contracts in 2017 (and in MBT
Contracts in 2021). The CME needed a transparent and readily
available way to determine the price of bitcoin for its futures
contract customers. However, there are numerous exchanges on which
one can buy and sell bitcoin, and the prices of bitcoin can differ
greatly from exchange to exchange. CME wanted to use pricing
information from what it considered to be reputable bitcoin
exchanges to calculate a once-a-day reference rate of the U.S.
dollar price of bitcoin.
The CME
developed the CME CF Bitcoin Reference Rate (the "BRR") to serve
these purposes. Each of the BTC and MBT contract’s final
daily cash settlement is based on the BRR. It serves as a
once-a-day reference rate of the U.S. dollar price of bitcoin and
is used as the rate on which bitcoin futures contracts are
cash-settled in U.S. dollars at the close of CME daily trading. The
BRR is calculated by collecting purchase and sale transactions from
specified constituent bitcoin exchanges, which currently include
Bitstamp, Coinbase, Gemini, itBit, Kraken and LMAX Digital, during
a calculation window between 3:00 p.m. and 4:00 p.m. London time.
It is published at 4:00 p.m. London time each day.
Impact of Position Limits, Accountability Levels, and Price
Fluctuation Limits.
Position Limits,
Accountability Levels, and Dynamic 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 bitcoin related
losses or as a way to indirectly invest in bitcoin.
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 Bitcoin Futures Contracts, it could force
the Fund to limit the number of Creation Baskets that it
sells.
Price Volatility
Despite
dynamic 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 Bitcoin Futures Contracts include but are
not limited to cost of electricity, regulation, market disruptions,
cyber-attacks, political events and existing and future technologic
developments. There are also various other factors now known and
unknown, any and all of which can have an impact on the supply,
demand, and price fluctuations in the bitcoin markets. See
“Risks Associated with Investing Directly or Indirectly in
Bitcoin.” 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 bitcoin fluctuates based on a number of market
factors, including demand for bitcoin. The value of Bitcoin Futures
Contracts likewise fluctuates in reaction to a number of market
factors. Because the Fund seeks to maintain its holdings in Bitcoin
Futures Contracts, the Fund must periodically “roll”
futures contract positions, closing out soon to expire contracts
that will no longer be 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.
42
If the
futures market is in a state of backwardation (i.e., when the price
of bitcoin 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
bitcoin prices or the price relationship between 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 bitcoin 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. All other things being
equal, a situation involving prolonged periods of contango may
adversely impact the returns of the Fund; conversely a situation
involving prolonged periods of backwardation may positively impact
the returns of the Fund.
Margin Requirements and Marking to Market Futures
Positions
“Initial
margin” is an amount of funds that must be deposited by a
bitcoin 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
bitcoin 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.
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 total 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 BTC
Contract with a stated or notional amount of $188,175 would not
require the Fund to pay $188,175 upon entering into the contract;
rather, only a margin deposit, approximately 32% of the notional
amount based on the previous settlement price, would be required.
To secure its BTC 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, or in
money-market funds. Such remaining assets may be used to meet
future margin payments that the Fund is required to make on its BTC
Contracts and/or MBT Contracts.
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 90 days 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.
43
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.
Liquidity
The
Fund invests only in Bitcoin 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 or
other bitcoin interests based on the spot price of
bitcoin.
Spot Commodities
While
most futures contracts can be physically settled, the Bitcoin
Futures Contracts are cash settled.
Borrowings
The
Fund does not intend to nor foresee the need to borrow money or
establish credit lines. The Fund maintains cash and cash
equivalents, either held by the Fund or posted as margin or
collateral, with a value that at all times approximates the
aggregate market value of its obligations under Benchmark Component
Futures Contracts. The Fund meets its liquidity needs in the normal
course of business from the proceeds of the sale of its investments
or from the cash and cash equivalents that it intends to hold at
all times.
The Bitcoin Industry
Bitcoin
Bitcoin
is a digital asset that serves as the unit of account on an
open-source, decentralized, peer-to-peer computer network. Bitcoin
may be used to pay for goods and services, stored for future use,
or converted to a fiat currency. As of the date of this prospectus,
the adoption of bitcoin for these purposes has been limited. The
value of bitcoin is not backed by any government, corporation, or
other identified body.
The
value of bitcoin is determined in part by the supply of (which is
limited), and demand for, bitcoin in the markets for exchange that
have been organized to facilitate the trading of bitcoin. By
design, the supply of bitcoin is limited to 21 million bitcoins. As
of the date of this prospectus, there are approximately 19 million
bitcoins in circulation.
Bitcoin
is maintained on the decentralized, open source, peer-to-peer
computer network (the “Bitcoin Network”). No single
entity owns or operates the Bitcoin Network. The Bitcoin Network is
accessed through software and governs bitcoin’s creation and
movement. The source code for the Bitcoin Network, often referred
to as the Bitcoin Protocol, is open-source, and anyone can
contribute to its development.
The Bitcoin Network
The
infrastructure of the Bitcoin Network is collectively maintained by
purchasers in the Bitcoin Network, which include miners,
developers, and users. Miners validate transactions and are
currently compensated for that service in bitcoin. Developers
maintain and contribute updates to the Bitcoin Network’s
source code, often referred to as the Bitcoin Protocol. Users
access the Bitcoin Network using open-source software. Anyone can
be a user, developer, or miner.
Bitcoin
is “stored” on a digital transaction ledger commonly
known as a “blockchain.” A blockchain is a type of
shared and continually reconciled database, stored in a
decentralized manner on the computers of certain users of the
digital asset and is protected by cryptography. The Bitcoin
Blockchain contains a record and history for each bitcoin
transaction.
New
bitcoin is created by “mining.” Miners use specialized
computer software and hardware to solve a highly complex
mathematical problem presented by the Bitcoin Protocol. The first
miner to successfully solve the problem is permitted to add a block
of transactions to the Bitcoin Blockchain. The new block is then
confirmed through acceptance by a majority of users who maintain
versions of the blockchain on their individual computers. Miners
that successfully add a block to the Bitcoin Blockchain are
automatically rewarded with a fixed amount of bitcoin for their
effort plus any transaction fees paid by transferors whose
transactions are recorded in the block. This reward system is the
means by which new bitcoin enter circulation and is the mechanism
by which versions of the blockchain held by users on a
decentralized network are kept in consensus.
44
The Bitcoin Protocol
The
Bitcoin Protocol is an open source project with no official company
or group in control. Anyone can review the underlying code and
suggest changes. There are, however, a number of individual
developers that regularly contribute to a specific distribution of
bitcoin software known as the “Bitcoin Core.”
Developers of the Bitcoin Core loosely oversee the development of
the source code. There are many other compatible versions of the
bitcoin software, but Bitcoin Core is the most widely adopted and
currently provides the de facto standard for the Bitcoin Protocol.
The core developers are able to access, and can alter, the Bitcoin
Network source code and, as a result, they are responsible for
quasi-official releases of updates and other changes to the Bitcoin
Network’s source code.
However, because
bitcoin has no central authority, the release of updates to the
Bitcoin Network’s source code by the core developers does not
guarantee that the updates will be automatically adopted by the
other purchasers. Users and miners must accept any changes made to
the source code by downloading the proposed modification and that
modification is effective only with respect to those bitcoin users
and miners who choose to download it. As a practical matter, a
modification to the source code becomes part of the Bitcoin Network
only if it is accepted by purchasers that collectively have a
majority of the processing power on the Bitcoin Network. If a
modification is accepted by only a percentage of users and miners,
a division will occur such that one network will run the
pre-modification source code and the other network will run the
modified source code. Such a division is known as a
“fork.”
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 0.94% per annum.
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. 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. 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 material.
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.
Marketing Agents
Toroso
Investments, LLC (“Toroso”), Tidal ETF Services LLC
(“Tidal”) and Victory Capital Management Inc.
(“Victory Capital”) “(the “Marketing
Agents”) assist the Fund and the Sponsor with certain
functions and duties relating to distribution and marketing, which
include the following: marketing and sales strategy, and marketing
and distribution related services.
Digital Asset Adviser
Hashdex
Asset Management Ltd. (“Hashdex” or the “Digital
Asset Adviser”“) is a Cayman Islands investment manager
(and an Exempt Reporting Advisor under SEC rules) that specializes
in, among other things, the management, research, investment
analysis and other investment support services of funds and ETFs
with investment strategies involving bitcoin and other crypto
assets. As Digital Asset Adviser, Hashdex is responsible for
providing the Sponsor and Marketing Agents with research and
analysis regarding bitcoin and bitcoin markets for use in the
operation and marketing of the Fund. Hashdex has no responsibility
for the investment or management of the Fund’s portfolio or
for the overall performance or operation of the Fund.
The
Marketing Agents, Digital Asset Advisor and Sponsor (the
“Parties”) have entered into an agreement (the
“Support Agreement”) that sets forth certain terms and
conditions applicable to the launch, marketing, promotion,
development, and ongoing operation of the Fund, as well the
respective rights in profits and obligations for expenses. The
Support Agreement also provides that the Parties expect that Toroso
will use commercially reasonable efforts to organize a new Delaware
statutory trust (the “New Trust”) and a new series
thereof (the “New Fund”) and enter into an agreement
pursuant to which, among other things, the assets of the Fund (and
certain other assets as applicable) will be transferred to the New
Fund as a series of the New Trust, as successor to the Fund and the
Trustee will transfer to Toroso sponsorship of the Fund. There is
no timeline for this transaction.
45
●
The Support
Agreement provides that Hashdex will provide to the other Parties
research and analysis regarding bitcoin and bitcoin markets for use
in the operation and marketing of the Fund. Subject to mutual
agreement of the Parties, Victory Capital will provide sub-advisory
and sales support services for the Fund.
●
Teucrium, Toroso,
Hashdex and Victory Capital are responsible for paying for all
listing, legal, and regulatory costs and expenses incurred in
connection with the regulatory process related to the launch of the
Fund, including drafting the Fund’s registration statement,
exchange listing fees, and other regulatory or service provider
fees, as determined in the Support Agreement (“Start-Up
Costs”). The Fund will not be responsible for the Start-Up
Costs. Each Party is responsible for its own internal
expenses.
●
Teucrium will
receive a sponsor fee, administrative fee and trading fee, which
are paid out of the proceeds from the Management Fee of the Fund
(if sufficient) and/or from Toroso and Hashdex/Victory
Capital.
●
The Support
Agreement specifies that profits and losses for the Fund will be
shared equally among Toroso, on the one hand, and Hashdex and
Victory Capital, on the other.
●
Teucrium’s
responsibilities as Sponsor will cease. Toroso’s
responsibilities as sponsor are expected to be substantially the
same as Teucrium’s existing responsibilities. As sponsor of
the New Fund, Toroso will be generally authorized to perform all
acts deemed necessary to carry out the purposes of the New Trust
and the New Fund. Toroso is expected to be responsible for
management of the New Fund (and, as noted below, it is anticipated
that Victory Capital will provide sub-advisory services for the New
Fund). Toroso is expected to oversee the purchase and sale of
Shares by Authorized Purchasers, manage the Fund’s
investments, and evaluate the credit risk of FCMs and swap
counterparties and review daily positions and margin/collateral
requirements. The Sponsor is also expected to be responsible for
selecting the service providers to the New Trust and New Fund and
preparing and filing periodic reports on behalf of the Trust with
the SEC and provide any required certification for such
reports.
●
Tidal will provide
fund administration and related services for the New Fund. Hashdex
will provide to Toroso research and analysis regarding bitcoin and
bitcoin markets for use in the operation and marketing of the New
Fund. Victory Capital shall provide sub-advisory and sales support
services for the New Fund. The formalization of such roles with
respect to the New Fund will be made in the format and at a time
mutually agreed among Teucrium, Toroso, Tidal, Hashdex, and Victory
Capital, taking into account the operations of the New Fund and any
applicable regulatory requirements. The Support Agreement specifies
that profits and losses for the New Fund will be shared equally
amoung Toroso, on the one hand, and Hashdex and Victory Capital, on
the other. The Management Fee for the New Fund is not expected to
change .
●
Teucrium will be
entitled to receive a monthly amount equal to seven (7) percent of
the Management Fee of the New Fund; provided, however, that such
fee will never be less than 0.04% of monthly average net assets of
the Fund.
Clearing Brokers
StoneX
Financial Inc. (StoneX), formerly known as INTL FCStone Financial
Inc., and Phillip Capital Inc. serve as the Fund’s clearing
brokers (the “Clearing Brokers”) to execute and clear
the Fund’s futures transactions and provide other
brokerage-related services. The Clearing Brokers are each
registered as an FCM with the CFTC, are members of the National
Futures Association (“NFA”) and are clearing members of
all major U.S. futures exchanges. The Clearing Brokers are
registered as broker-dealers (“BDs”) with the U.S.
Securities and Exchange Commission (“SEC”) and are each
a member of the Financial Industry Regulatory Authority, Inc.
(“FINRA”).
Except
as indicated below, there have been no material civil,
administrative, or criminal proceedings pending, on appeal, or
concluded against the Clearing Brokers or their principals in the
past five (5) years.
46
Litigation disclosure for Phillip Capital Inc.
Phillip Capital Inc. (“Phillip
Capital”) is a registered futures commission merchant and is
a member of the NFA. Its main office is located at 141 West Jackson
Blvd., Suite 1531A, Chicago, Illinois 60604. In the normal course
of its business, Phillip Capital is involved in various legal
actions incidental to its commodities business. None of these
actions are expected eitherindividually or in aggregate to have a
material adverse impact on Phillip Capital. Except for the below,
neither Phillip Capital nor any of its principals have been the
subject of any material administrative, civil or criminal actions
within the past five years.
On September 12, 2019, the U.S. Commodity
Futures Trading Commission issued an order settling charges
against Phillip Capital Inc. (PCI) for allowing cyber
criminals to breach PCI email systems, access customer information,
and successfully withdrawing $1 million in PCI customer funds.
The order found that PCI failed to disclose the cyber breach
to its customers in a timely manner and that PCI failed to
supervise its employees with respect to cybersecurity policy and
procedures, a written information systems security program, and
customer disbursements. The order imposed monetary sanctions
totaling $1.5 million, which includes a civil monetary penalty of
$500,000, and a $1 million in restitution. PCI was credited the $1
million restitution based on its prompt reimbursement of the
customer funds when the fraud was discovered. The order also
required PCI to, among other things, provide reports to the
Commission on its remediation efforts.
On June 11, 2021, pursuant to an offer of
settlement in which Phillip Capital Inc. neither admitted nor
denied the rule violation upon which the penalty is based, the
Clearing House Risk Committee found that Phillip Capital Inc.
violated CME Rule 980.A – Required Records and Reports. In
accordance with the settlement offer, the Committee imposed a
$50,000 fine for non-current books and records due to an issue with
the firm’s middleware provider. In a related matter, the CME
Group had previously fined Phillip Capital Inc. on March 19, 2021,
for its violation of Rule 811 and 561. During the month of February
2021, Phillip Capital Inc. inaccurately reported its open interest
and large trader positions in several instances of CME, CBT, NYMEX,
and COMEX contracts due to the aforementioned middleware issue. A
fine in the amount of $5,000 was assessed against Phillip Capital
Inc.
Litigation disclosure for StoneX Financial Inc.
Below
is a list of material, administrative, civil, enforcement, or
criminal complaints or actions filed against StoneX Financial Inc.
– FCM (f/k/a INTL FCStone Financial Inc. - FCM Division) that
are outstanding, and any enforcement actions or complaints filed
against the StoneX Financial Inc. - FCM Division in the past five
years which meet the materiality thresholds in CTFC regulations
4.24.(l) and 4.34(k).
|
●
|
On
November 14, 2017, INTL FCStone Financial Inc., without admission,
denial, or liability, entered into a settlement with the Commodity
Futures Trading Commission (“CFTC”). The CFTC found
that INTL FCStone Financial Inc. failed to have adequate compliance
controls to identify trades improperly designated as EFRPs.
According to the CFTC Order, the firm failed to determine that the
EFPs at issue had the necessary corresponding and related cash or
OTC derivative position required for EFRPs. The CFTC Order also
found that the firm failed to ensure that the EFPs at issue were
documented properly. Finally, the firm failed to ensure that its
employees involved in the execution, handling, and processing of
EFRPs understood the requirements for executing, handing, and
processing valid EFRPs. INTL FCStone Financial Inc., and its
affiliate FCStone Merchant Services, jointly paid a $280,000 civil
monetary penalty to the CFTC.
|
|
●
|
After a
historic move in the natural gas market in November of 2018, INTL
FCStone Financial Inc. – FCM Division (“IFF”)
experienced a number of customer deficits. IFF soon thereafter
initiated NFA arbitrations, seeking to collect these debits, and
has also been countersued and sued in a number of these
arbitrations. These accounts were managed by Optionsellers.com,
(“Optionsellers”) who is a Commodity Trading Advisor
(“CTA”) authorized by investors to act as
attorney-in-fact with exclusive trading authority over these
investors’ trading accounts. These accounts cleared through
IFF. After this significant and historic natural gas market
movement, the accounts declined below required maintenance margin
levels. IFF’s role in managing the accounts was limited. As a
clearing firm, IFF did not provide any investment advice, trading
advice, or recommendations to customers of Optionsellers who chose
to clear with IFF. Instead, it simply executed and cleared trades
placed by Optionsellers on behalf of Optionsellers’
customers. Optionsellers is a CFTC registered CTA operating under a
CFTC Rule 4.7 exemption from registration. Optionsellers engaged in
a strategy that primarily involved selling options on futures
products. The arbitrations between IFF, Optionsellers, and the
Optionsellers customers are currently ongoing.
|
“”StoneX
is subject to litigation and regulatory enforcement in the normal
course of business. Except as discussed above, the current or
pending civil litigation, administrative proceedings, or
enforcement actions in which the firm is involved are not expected
to have a material effect upon its condition, financial or
otherwise. The firm vigorously defends, as a matter of policy,
civil litigation, reparation, arbitration proceedings, and
enforcement actions brought against it.
The
clearing brokers, in their capacity as registered FCMs, will serve
as the Fund’s clearing brokers and, as such, will arrange for
the execution and clearing of the Fund’s futures and options
on futures transactions. Each broker acts as clearing broker for
many other funds and individuals.
47
Investors should be
advised that the Clearing Brokers are not affiliated with and do
not act as a supervisor of the Fund or the Fund’s Sponsor,
investment managers, members, officers, administrators, transfer
agents, registrars or organizers. Additionally, the Clearing
Brokers do not act as an underwriter or sponsor of the offering of
any Shares or interests in the Fund and have 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, the
Clearing Brokers do not provide any commodity trading advice
regarding the Fund’s trading activities. Investors should not
rely upon the Clearing Brokers 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 one or both Clearing Brokers as the Fund’s clearing
brokers.
Commodity Trading Advisor
Currently, the
Sponsor does not employ commodity trading advisors. If, in the
future, the Sponsor does employ commodity trading advisors, it will
choose each advisor based on arm’s length negotiations and
will consider the advisor’s experience, fees, and
reputation.
Contractual Fees and Compensation Arrangements with the Sponsor and
Third-Party Service Providers
|
Service Provider
|
Compensation Paid by the Fund
|
|
Teucrium
Trading, LLC, Sponsor
|
0.94%
of average net assets annually
|
|
|
|
|
Phillip
Capital Inc., Futures Commission Merchant and Clearing
Broker
|
The
Fund pays $35.00-$45.00 per Futures Contract half-turn exclusive of
pass through fees for the exchange, NFA, execution fees, and
platform and exchange data fees.
|
|
|
|
|
StoneX
Financial Inc., Futures Commission Merchant and Clearing
Broker
|
The
Fund pays $10.00-$25.00 per Futures Contract half-turn exclusive of
pass through fees for the exchange and NFA. Additionally, if the
monthly commissions paid do not equal or exceed 20% return on the
StoneX Capital Requirement at 9.6% of Exchange Maintenance Margin,
the Fund will pay a true up to meet that return at the end of each
month.
|
|
|
|
|
Wilmington
Trust Company, Trustee
|
$3,300
annually for the Trust
|
Other Non-Contractual Payments by the Fund
The
Fund pays the Sponsor a Management Fee, monthly in arrears, in an
amount equal to 0.94% per annum of the daily NAV of the Fund. The
Management Fee is paid in consideration of the Sponsor’s
services related to the management of the Fund’s business and
affairs, including the provision of commodity futures trading
advisory services. Purchases of creation units with cash may cause
the Fund to incur certain costs including brokerage commissions and
redemptions of creation units with cash may result in the
recognition of gains or losses that the Fund might not have
incurred if it had made redemptions in-kind. The Fund pays all of
its respective brokerage commissions, including applicable exchange
fees, NFA fees and give-up fees, and other transaction related fees
and expenses charged in connection with trading activities for each
Fund’s investments in CFTC regulated investments. The Fund
bears other transaction costs related to the FCM capital
requirements on a monthly basis. The Sponsor pays all of the
routine operational, administrative and other ordinary expenses of
the Fund, generally as determined by the Sponsor, including but not
limited to, fees and expenses of the Administrator, Custodian,
Distributor, Transfer Agent, licensors, accounting and audit fees
and expenses, tax preparation expenses, legal fees, ongoing SEC
registration fees, individual Schedule K-1 preparation and mailing
fees, and report preparation and mailing expenses. The Fund pays
all of its non-recurring and unusual fees and expenses, if any, as
determined by the Sponsor. Non-recurring and unusual fees and
expenses are unexpected or unusual in nature, such as legal claims
and liabilities and litigation costs or indemnification or other
unanticipated expenses. Extraordinary fees and expenses also
include material expenses which are not currently anticipated
obligations of the Fund. Routine operational, administrative and
other ordinary expenses are not deemed extraordinary
expenses.
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 purchasers and/or accountholders in
DTC.
48
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) purchasers in DTC such as banks, brokers, dealers and trust
companies, (2) those who maintain, either directly or indirectly, a
custodial relationship with a DTC purchaser, and (3) those who hold
interests in the Shares through DTC purchasers or Indirect
purchasers, in each case who satisfy the requirements for transfers
of Shares. DTC purchasers acting on behalf of investors holding
Shares through such purchasers’ 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 purchasers’ 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 purchasers and
facilitates the clearance and settlement of transactions between
DTC purchasers through electronic book-entry changes in accounts of
DTC purchasers.
Transfer of Shares
The
Shares are only transferable through the book-entry system of DTC.
Shareholders who are not DTC purchasers may transfer their Shares
through DTC by instructing the DTC purchaser holding their Shares
(or by instructing the Indirect purchaser 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 Purchasers and/or accountholders of DTC. Because DTC can
only act on behalf of DTC Purchasers, who in turn act on behalf of
Indirect Purchasers, 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 purchasers 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 purchaser or purchasers has or have given such
direction.
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.
49
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 “DEFI.” 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 10,000
Shares at their NAV through the Distributor, to Authorized
Purchasers. Goldman Sachs & Co. is expected to be the initial
Authorized Purchaser. It is expected that on the effective date,
the initial Authorized Purchaser will purchase ten initial Creation
Baskets of 10,000 Shares at a per Share price of $25.00. The
initial offering price of $25.00 was set as an appropriate and
convenient price that would facilitate secondary market trading of
Shares, and the Shares of the Fund acquired by the Sponsor in
connection with its initial capital contribution were purchased at
a price of $25.00 per Share. All Authorized Purchasers pay a $300
fee for each Creation Basket order.
The
following entities have entered into Authorized Purchaser
Agreements with respect to the Fund: 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
purchasers 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
purchaser is an underwriter must take into account all the facts
and circumstances pertaining to the activities of the broker-dealer
or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the
activities that would lead to designation as an underwriter and
subject them to the prospectus delivery and liability provisions of
the 1933 Act.
Dealers
who are neither Authorized Purchasers nor
“underwriters” but are nonetheless participating in a
distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an
“unsold allotment” within the meaning of Section
4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of
the 1933 Act.
50
Investors are
cautioned that they might not be able to buy or sell Shares of the
Fund through their current brokerages. Moreover, even if an
investor were able to purchase Shares through their current
brokerage, that brokerage might decide to stop trading in
bitcoin-linked securities and the investor would potentially face
restrictions on when and or how they could trade their existing
bitcoin position.
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:
|
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taking
the current market value of its total assets, and
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subtracting
any liabilities and dividing the balance by the number of
Shares.
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Global
Fund Services, in its capacity as the Administrator calculates the
NAV of the Fund once each trading day. It calculates the NAV as of
the earlier of the close of the New York Stock Exchange or 4:00
p.m. (ET). The NAV for a particular trading day is released after
4:15 p.m. (ET).
In determining the
value of Bitcoin Futures Contracts, the Administrator uses the
settlement price for the Benchmark Component Futures Contracts, as
reported on the CME. CME Group staff determines the daily
settlements for the Benchmark Component Futures Contracts based on
trading activity on CME Globex exchange between 14:59:00 and
15:00:00 Central Time (CT), the settlement period, except that the
“fair value” of Bitcoin Futures Contracts (as described
in more detail below) may be used when Bitcoin 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. (ET), in accordance with the current Services Agreement
between the Administrator and the Trust. NAV includes any
unrealized profit or loss on open bitcoin interests and any other
credit or debit accruing to the Fund but unpaid or not received by
the Fund.
The
fair value of a bitcoin interest is determined by the Sponsor in
good faith and in a manner that assesses the bitcoin
interest’s value based on a consideration of all available
facts and all available information on the valuation date. When a
Bitcoin Futures Contract has closed at its daily price fluctuation
limit, that limit price will be the daily settlement price that the
CME publishes. The Fund will use the published settlement price to
price its Shares on that day. If the CME halted trading in Bitcoin
Futures Contracts for other reasons, including if trading were
halted for an entire trading day or several trading days, the Fund
would value its Bitcoin Futures Contracts by using the settlement
price that the CME publishes.
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
bitcoin 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.
51
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. (ET) to
4:00 p.m. (ET). The trading hours for the CME can be found at:
https://www.cmegroup.com/education/bitcoin/cme-bitcoin-futures-frequently-asked-questions.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 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. To the extent
creations and redemptions involve the exchange of cash and cash
equivalents, the Fund may incur certain costs including brokerage
costs or recognize gains or losses that it might not have incurred
if the transaction were made in-kind. 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 purchasers, such as banks and other
financial institutions, which are not required to register as
broker-dealers to engage in securities transactions as described
below, and (2) DTC purchasers. 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 and cash equivalents 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 $300 to the Custodian for each creation order they place and a
fee of $300 per order for redemptions, which is a nominal fee.
Authorized Purchasers who make deposits with the Fund in exchange
for baskets receive no fees, commissions or other form of
compensation or inducement of any kind from either the Trust or the
Sponsor, and no such person will have any obligation or
responsibility to the Trust or the Sponsor to effect any sale or
resale of Shares.
Certain
Authorized Purchasers are expected to be capable of participating
directly in the physical bitcoin and the bitcoin interest markets.
Some Authorized Purchasers or their affiliates may from time to
time buy or sell bitcoin or bitcoin interests and may profit in
these instances.
Each
Authorized Purchaser will be required to be registered as a
broker-dealer under the Exchange Act and a member in good standing
with FINRA, or be exempt from being or otherwise not required to be
registered as a broker-dealer or a member of FINRA, and will be
qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires. Certain
Authorized Purchasers may also be regulated under federal and state
banking laws and regulations. Each Authorized Purchaser has its own
set of rules and procedures, internal controls and information
barriers it deems appropriate in light of its own regulatory
regime.
Under
the Authorized Purchaser Agreement, the Sponsor has agreed to
indemnify the Authorized Purchasers against certain liabilities,
including liabilities under the 1933 Act, and to contribute to the
payments the Authorized Purchasers may be required to make in
respect of those liabilities.
The
following description of the procedures for the creation and
redemption of baskets is only a summary and an investor should
refer to the relevant provisions of the Trust Agreement and the
form of Authorized Purchaser Agreement for more detail, each of
which has been incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part. See
“Where You Can Find More Information” for information
about where you can obtain the registration statement.
Creation Procedures
On any
business day, an Authorized Purchaser may place an order with
Global Fund Services in its capacity as the transfer agent to
create one or more baskets. For purposes of processing purchase and
redemption orders, a “business day” means any day other
than a day when any of the NYSE Arca, the CME, or the New York
Stock Exchange is closed for regular trading. Purchase orders must
be placed by 3:00 p.m. (ET) 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 and/orcash equivalents 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.
52
Determination of Required Deposits
The
total deposit required to create each basket (“Creation
Basket Deposit”) is the amount of cash and/or cash
equivalents 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 and/or cash equivalents, including the
remaining maturities of the cash equivalents, which 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 and cash equivalents 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 3:00 p.m., (ET), but
the total payment required to create a basket during the continuous
offering period will not be determined until 4:00 p.m., (ET), on
the date the purchase order is received, Authorized Purchasers will
not know the total amount of the payment required to create a
basket at the time they submit an irrevocable purchase order for
the basket. The Fund’s NAV and the total amount of the
payment required to create a basket could rise or fall
substantially between the time an irrevocable purchase order is
submitted and the time the amount of the purchase price in respect
thereof is determined.
Rejection of Purchase Orders
The
Sponsor acting by itself or through the Distributor or transfer
agent may reject a purchase order or a Creation Basket Deposit
if:
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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;
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it
determines that the purchase order or the Creation Basket Deposit
is not in proper form;
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it
believes that acceptance of the purchase order or the Creation
Basket Deposit would have adverse tax consequences to the Fund or
its Shareholders;
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●
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the
acceptance or receipt of the Creation Basket Deposit would, in the
opinion of counsel to the Sponsor, be unlawful;
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●
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circumstances
outside the control of the Sponsor, Distributor or transfer agent
make it, for all practical purposes, not feasible to process
creations of baskets;
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there
is a possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CME from which the NAV of the Fund is
calculated will be priced at a dynamic price limit restriction;
or
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●
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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.
53
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 3:00 p.m. (ET) 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 and/or cash
equivalents 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 and/or cash
equivalents, including the remaining maturities of the cash
equivalents and cash, which 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.
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 noon (ET) 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 CME is closed other than customary weekend
or holiday closings, or trading on the NYSE Arca or CME 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 CME 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, 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 below 50,000
Shares (i.e., five baskets of 10,000 Shares each) or less, unless
the Sponsor has reason to believe that the placer of the redemption
order does in fact possess all the outstanding Shares of the Fund
and can deliver them.
54
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 $300 per order to the Custodian. The transaction
fees may be reduced, increased or otherwise changed by the
Sponsor.
Tax Responsibility
Authorized
Purchasers are responsible for any transfer tax, sales or use tax,
stamp tax, recording tax, value added tax or similar tax or
governmental charge applicable to the creation or redemption of
baskets, regardless of whether or not such tax or charge is imposed
directly on the Authorized Purchaser, and agree to indemnify the
Sponsor and the Fund if they are required by law to pay any such
tax, together with any applicable penalties, additions to tax and
interest thereon.
Secondary Market Transactions
As
noted, the Fund will create and redeem Shares from time to time,
but only in one or more Creation Baskets or Redemption Baskets. The
creation and redemption of baskets are only made in exchange for
delivery to the Fund or the distribution by the Fund of the amount
of cash and cash equivalents equal to the total 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 purchasers, 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 bitcoin 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 bitcoin interest markets. While the Shares trade on the NYSE
Arca until 4:00 p.m. (ET), liquidity in the markets for bitcoin
interests may be reduced after the close of the CME. 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. 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 FCMs 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 32% of the previous day settlement price of a
Benchmark Component Futures Contracts as initial margin. Ongoing
margin and collateral payments will generally be required for
exchange-traded bitcoin interests based on changes in the value of
the bitcoin interests. In light of the differing requirements for
initial payments under exchange-traded bitcoin 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 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.
The
approximate 8-10% of the Fund’s assets held by the FCM are
held in segregation pursuant to the CEA and CFTC
regulations.
The Trust Agreement
The
following paragraphs are a summary of certain provisions of the
Trust Agreement. The following discussion is qualified in its
entirety by reference to the Trust Agreement.
55
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 (excluding any taxes on the
compensation received for services as Sponsor or on indemnity
payments received), and amounts paid in settlement of any claims
sustained by it in connection with its activities for the Trust,
provided that (i) the Sponsor was acting on behalf of or performing
services for the Trust and has determined, in good faith, that such
course of conduct was in the best interests of the Trust and such
liability or loss was not the result of gross negligence, willful misconduct, or
a breach of the Trust Agreement on the part of the Sponsor and (ii)
any such indemnification will only be recoverable from the assets
of the applicable series. The Sponsor’s rights to
indemnification permitted under the Trust Agreement shall not be
affected by the dissolution or other cessation to exist of the
Sponsor, or the withdrawal, adjudication of bankruptcy or
insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy
Code by or against the Sponsor.
Notwithstanding the
above, the Sponsor shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation
of U.S. federal or state securities laws unless (i) there has been
a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs), or (iii) a court of
competent jurisdiction approves a settlement of the claims against
a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The
payment of any indemnification shall be allocated, as appropriate,
among the Trust’s series. The Trust and its series shall not
incur the cost of that portion of any insurance which insures any
party against any liability, the indemnification of which is
prohibited under the Trust Agreement.
56
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.
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.
57
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 Fund. Notwithstanding obligations and
expectations related to the management of the Sponsor, the
Sponsor’s principals, officers and employees may be
directors, officers or employees of other entities, and may manage
assets of other entities, including the other Teucrium Funds,
through the Sponsor or otherwise. As a result, the principals could
have a conflict between responsibilities to the Fund on the one
hand and to those other entities on the other.
The
Sponsor and its principals, officers and employees may trade
securities, futures and related contracts for their own accounts,
creating the potential for preferential treatment of their own
accounts. Shareholders will not be permitted to inspect the trading
records of such persons, or any written policies of the Sponsor
related to such trading. A conflict of interest may exist if their
trades are in the same markets and at approximately the same times
as the trades for the Fund. A potential conflict also may occur
when the Sponsor’s principals trade their accounts more
aggressively or take positions in their accounts which are
opposite, or ahead of, the positions taken by the
Fund.
The
Sponsor has sole current authority to manage the investments and
operations of the Fund, and this may allow it to act in a way that
furthers its own interests which may create a conflict with your
best interests, including the authority of the Sponsor to allocate
expenses to and between the Teucrium Funds. Shareholders have very
limited voting rights with respect to the Fund, which will limit
the ability to influence matters such as amendment of the Trust
Agreement, change in the Fund’s basic investment policies, or
dissolution of the Fund or the Trust.
The
Sponsor serves as the Sponsor to the Teucrium Funds and may in the
future serve as the Sponsor or investment adviser to commodity
pools other than the Teucrium Funds. The Sponsor may have a
conflict to the extent that its trading decisions for the Fund may
be influenced by the effect they would have on the other pools it
manages. In addition, the Sponsor may be required to indemnify the
officers and directors of the other pools, if the need for
indemnification arises. This potential indemnification will cause
the Sponsor’s assets to decrease. If the Sponsor’s
other sources of income are not sufficient to compensate for the
indemnification, it could cease operations, which could in turn
result in Fund losses and/or termination of the Fund.
58
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.
The Sponsor might
have a potential future conflict of interest if the Sponsor, a new
sponsor, or sub-adviser were to register as a broker-dealer or
become affiliated with a broker-dealer. In such case, the Sponsor,
new sponsor, or sub-adviser, as the case may be, would develop and
implement appropriate procedures designed to prevent the use and
dissemination of material non-public information regarding the
Fund’s holdings. Although
the Sponsor’s principals, officers and employees may trade
securities and futures and related contracts for their own
accounts, neither the Sponsor nor any of its principals, officers
or employees believe that their bitcoin or bitcoin-related exposure
would create conflicts of interest.
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.
Ownership or Beneficial Interest in the Fund
As of
the date of this prospectus, the Sponsor owns four (4) Shares of
the Fund. As of the date of this Prospectus, none of the principals
of the Sponsor have an ownership interest in the Fund.
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.
59
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.
Statements, Filings, and Reports to
Shareholders
The
Trust will furnish annual reports (as of the end of each fiscal
year) for the Fund to DTC purchasers for distribution to
Shareholders, as 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
(http://hashdex-etfs.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: http://hashdex-etfs.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”) will provide tax information in accordance with
the Code and applicable U.S. Treasury Regulations. Persons treated
as intermediaries for purposes of these regulations may obtain tax
information regarding the Fund from PwC or from the Fund’s
website, http://hashdex-etfs.com/.
Fiscal Year
The
fiscal year of the Fund is the calendar year.
60
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.
Legal Matters
Litigation and Claims
On
November 30, 2020, certain officers and members of Teucrium
Trading, LLC (the “Sponsor”), along with the Sponsor,
filed a Verified Complaint (as amended through the Amended Verified
Complaint filed on February 18, 2021) (the “Gilbertie
complaint”) in the Delaware Court of Chancery, C.A. No.
2020-1018-AGB. The Gilbertie complaint asserts various
claims against Dale Riker, the Sponsor’s former Chief
Executive Officer and Barbara Riker, the Sponsor’s former
Chief Financial Officer and Chief Compliance Officer. Sal Gilbertie v. Dale Riker,
et al., C.A. No.
2020-1018-AGB (Del. Ch.) (the “Gilbertie
case”).
Among
other things, the Gilbertie complaint responded to and addressed
certain allegations that Mr. Riker had made in a draft complaint
that he threatened to file (and subsequently did file) in New York
Supreme Court. See Dale Riker v.
Sal Gilbertie, et al., No. 656794-2020 (N.Y. Sup. Ct.). On
April 22, 2021, the Supreme Court of the State of New York, New
York County dismissed Mr. Riker’s case without prejudice to
the case being refiled after the conclusion of the Gilbertie case in Delaware Chancery
Court. See Dale Riker, et al. v.
Teucrium Trading, LLC et al, Decision + Order on Motions,
No. 6567943-2020 (N.Y. Sup. Ct) (Apr. 22, 2021).
The
Gilbertie complaint asserts claims for a declaration concerning the
effects of the final order and judgment in an earlier books and
records action; for a declaration concerning Mr. Riker’s
allegation that Mr. Gilbertie had entered into an agreement to
purchase Mr. Riker’s equity in the Sponsor; for an order
compelling the return of property from Mr. Riker; for a declaration
concerning Mr. Riker’s allegations that the Sponsor and
certain of the plaintiffs had improperly removed him as an officer
and caused purportedly false financial information to be published;
for breach of Ms. Riker’s separation agreement with the
Sponsor; for tortious interference by Mr. Riker with Ms.
Riker’s separation agreement; for a declaration concerning
the releases that had been provided to Ms. Riker through her
separation agreement; for breach of the Sponsor’s Operating
Agreement by Mr. Riker; and for breach of fiduciary duty by Mr.
Riker. The claims for declaratory relief and for return of property
have since been dismissed.
On June
28, 2021, Dale Riker, individually and derivatively on behalf of
the Sponsor, filed a new suit in the Court of Chancery of the State
of Delaware against the Sponsor’s officers and certain of the
Sponsor’s Class A Members. See Dale Riker v. Salvatore Gilbertie et
al., C.A. No. 2021-0561-LWW. (the “Riker case”). The Court ordered
Mr. Riker’s newly filed Delaware action consolidated with the
Gilbertie case. As a
result, on September 7, 2021, Dale Riker and Barbara Riker filed
their answers to the Gilbertie complaint, and the claims in
the Riker case were
re-filed as counterclaims in the Gilbertie case, along with claims by
Barbara Riker, which accompanied the Rikers’ answers. The
now-consolidated Gilbertie
case and the Riker
case is captioned Sal
Gilbertie, Cory Mullen-Rusin, Steve Kahler, Carl Miller III, and
Teucrium Trading LLC v. Dale Riker and Barbara Riker, C.A.
No. 2020-1018-LWW.
Through
their counterclaims, the Rikers asserted direct and derivative
claims for breach of fiduciary duty, breach of contract,
declaratory relief, specific performance, unjust enrichment, fraud,
and conspiracy to commit fraud. The Sponsor and the individual
plaintiffs/counterclaim-defendants moved to dismiss the
Rikers’ claims.
61
On
April 6, 2022, the Court announced its decision on the motion to
dismiss in an oral ruling, which was subsequently implemented in a
written order dated April 18, 2022. The Court dismissed all of the
Rikers’ counterclaims, except for a portion of one count
alleging breach of contract against Messrs. Gilbertie and Miller.
All of the dismissals were with prejudice, with the exception of
the dismissal of Mr. Riker’s claim against Mr. Gilbertie that
sought specific performance of an alleged agreement for Mr.
Gilbertie to purchase Mr. Riker’s equity in the Company. The
Court dismissed that claim without prejudice. On April 25, 2022,
Mr. Riker filed a motion for reconsideration of the Court’s
dismissal of his derivative claims for breach of contract against
Mr. Gilbertie and for unjust enrichment against Mr. Gilbertie, Mr.
Miller, Mr. Kahler, and Ms. Mullen-Rusin, both of which concern the
Company’s advancement of legal fees on behalf of those
individuals. On May 11, 2022, the Court denied Mr. Riker’s
motion for reconsideration. On May 2, 2022, the Rikers filed an
amended counterclaim, which reasserted the claim against Mr.
Gilbertie that the Court had dismissed without
prejudice.
The
Sponsor intends to pursue its claims and defend vigorously against
the Rikers’ counterclaims in Delaware.
Except
as described above, 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 U.S. federal income tax matters
addressed below in “U.S. Federal Income Tax
Considerations.”
Experts
The
financial statements of the Trust and Fund incorporated by
reference in this prospectus and elsewhere in the registration
statement have been so incorporated by reference in reliance upon
the reports of Grant Thornton LLP (“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.
62
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 U.S.
federal income 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, regulated
investment companies (except as discussed below), 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 U.S. 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.
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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 will not be 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. No statutory, administrative
or judicial authority directly addresses the treatment of the
Shares or instruments similar to the Shares for U.S. federal income
tax purposes. As a result, the Trust cannot assure investors that
the IRS or the courts will agree with the tax consequences
described herein. A different treatment from that described below
could adversely affect the amount, timing and character of income,
gain or loss in respect of an investment in the Shares and could
adversely affect the value of the Shares.
As used
herein, the term “U.S. Shareholder” means a Shareholder
that is, for U.S. 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 U.S. 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 not be
classified as a trust for U.S. federal income tax purposes, but
rather will be classified as a partnership for such purposes. The
trading of Shares on the NYSE Arca will cause the Fund to be
classified as a “publicly traded partnership” for U.S.
federal income tax purposes. Under section 7704 of the Code, a
publicly traded partnership is generally taxable as a corporation.
In the case of an entity not registered under the Investment
Company Act of 1940 as amended, (such as the Fund) 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.
64
There
is very limited authority on the U.S. federal income tax treatment
of bitcoin and no direct authority on bitcoin derivatives, such as
Bitcoin Futures Contracts. Vedder Price is of the opinion that
Bitcoin Futures Contracts more likely than not will be considered
futures with respect to commodities for purposes of the qualifying
income exception under section 7704 of the Code. Based on the
opinion of Vedder Price and a CFTC determination that treats
bitcoin as a commodity under the CEA, the Fund intends to take the
position that Bitcoin Futures Contracts consist of futures on
commodities for purposes of the qualifying income exception under
section 7704 of the Code. Shareholders should be aware that the
Fund’s position is not binding on the IRS, and no assurance
can be given that the IRS will not challenge the Fund’s
position, or that the IRS or a court will not ultimately reach a
contrary conclusion, which would result in the material adverse
consequences to Shareholders and the Fund discussed
below.
The
Trust and the Sponsor have represented the following to Vedder
Price:
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assuming
Bitcoin Futures Contracts consist of futures on commodities for
purposes of the qualifying income exception under section 7704(d)
of the Code, 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);
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the
Fund is organized and will be operated in accordance with its
governing documents and applicable law; and
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the
Fund has not elected, and will not elect, to be classified as a
corporation for U.S. federal income tax purposes.
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Based
in part on these representations, Vedder Price is of the opinion
that the Fund more likely than not 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 U.S. federal income
tax purposes and would pay U.S. federal income tax on its income at
regular corporate tax 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
U.S. federal income tax purposes as a partnership that it is not
taxable as a corporation.
65
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 partnership 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. Shareholders subject to this provision may be required
to pay this 3.8% tax on interest income and capital gains allocated
to them by the Fund.
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, the Fund will use a convention whereby 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.
66
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 intends
to make the election permitted by section 754 of the Code, which
election is irrevocable without the consent of the IRS. The effect
of this election is that when a secondary market sale of Shares
occurs, the Fund adjusts the purchaser’s proportionate share
of the tax basis of the Fund’s assets to fair market value,
as reflected in the price paid for the Shares, as if the purchaser
had directly acquired an interest in the Fund’s assets. The
section 754 election is intended to eliminate disparities between a
partner’s basis in its partnership interest and its share of
the tax basis of the partnership’s assets, so that the
partner’s allocable share of taxable gain or loss on a
disposition of an asset will correspond to its share of the
appreciation or depreciation in the value of the asset since it
acquired its interest. Depending on the price paid for Shares and
the tax basis of the Fund’s assets at the time of the
purchase, the effect of the section 754 election on a purchaser of
Shares may be favorable or unfavorable. In order to make the
appropriate basis adjustments in a cost-effective manner, the Fund
will use certain simplifying conventions and assumptions. In
particular, the Fund will obtain information regarding secondary
market transactions in its Shares and use this information to
adjust the Shareholders’ indirect basis in 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 (a
“qualified board or exchange”), 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”).
The
Sponsor expects that many of the Fund’s Bitcoin Futures
Contracts will qualify as “section 1256 contracts”
under the Code. Some other bitcoin interests that are cleared
through a qualified board or exchange will also constitute section
1256 contracts. Any gain or loss recognized as a result of the
disposition, termination or marking to market of the Fund’s
section 1256 contracts 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.
67
Limitations on Deductibility of Losses and
Certain Expenses. A number of different provisions of the
Code may defer or disallow the deduction of losses or expenses
allocated to Shareholders by the Fund, including but not limited to
those described below.
A
Shareholder’s deduction of its allocable share of any loss of
the Fund is limited to the lesser of (1) the tax basis in its
Shares or (2) in the case of a Shareholder that is an individual or
a closely held corporation, the amount which the Shareholder is
considered to have “at risk” with respect to the
Fund’s activities. In general, the amount at risk initially
will be a Shareholder’s invested capital. Losses in excess of
the amount at risk must be deferred until years in which the Fund
generates additional taxable income against which to offset such
carryover losses or until additional capital is placed at
risk.
Individuals and
other non-corporate taxpayers are permitted to deduct capital
losses only to the extent of their capital gains for the taxable
year plus $3,000 of other income. Unused capital losses can be
carried forward and used in future years, subject to these same
limitations. In addition, an individual taxpayer may elect to carry
back net losses on section 1256 contracts to each of the three
preceding years and use them to offset section 1256 contract gains
in those years, subject to certain limitations. Corporate taxpayers
generally may deduct capital losses only to the extent of capital
gains, subject to special carryback and carryforward
rules.
The
deduction for expenses incurred by non-corporate taxpayers
constituting “miscellaneous itemized deductions,”
generally including investment-related expenses (other than
interest and certain other specified expenses), is suspended for
taxable years beginning after December 31, 2017 and before January
1, 2026. During these taxable years, non-corporate taxpayers will
not be able to deduct miscellaneous itemized deductions. Provided
the suspension is not extended, for taxable years ending on or
after January 1, 2026, miscellaneous itemized deductions are
deductible only to the extent they exceed 2% of the
taxpayer’s adjusted gross income for the year. Although the
matter is not free from doubt, we believe management fees the Fund
pays to the Sponsor and other expenses of the Fund will 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:
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3% of
the individual’s adjusted gross income in excess of certain
threshold amounts; or
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80% of
the amount of certain itemized deductions otherwise allowable for
the taxable year.
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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 that is treated as allocable to a trade or
business, the Fund’s ability to deduct interest on such
indebtedness allocable is limited to an amount equal to the sum of
(1) the Fund’s business interest income during the year and
(2) 30% of the Fund’s adjusted taxable income for such
taxable year. If the Fund is not entitled to fully deduct its
business interest in any taxable year, such excess business
interest expense will be allocated to each Shareholder as excess
business interest and can be carried forward by the Shareholder to
successive taxable years and used to offset any excess taxable
income allocated by the Fund to such Shareholder. Any excess
business interest expense allocated to a Shareholder will reduce
such Shareholder’s basis in its Shares in the year of the
allocation even if the expense does not give rise to a deduction to
the Shareholder in that year. Immediately prior to a
Shareholder’s disposition of its Shares, the
Shareholder’s basis will be increased by the amount by which
such basis reduction exceeds the excess interest expense that has
been deducted by such Shareholder.
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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 tax advisor
regarding the effect of limitations under the Code on their ability
to deduct their allocable share of the Fund’s losses and
expenses.
Tax Basis of Shares
A
Shareholder’s tax basis in its Shares is important in
determining (1) the amount of taxable gain or loss it will realize
on the sale or other disposition of its Shares, (2) the amount of
non-taxable distributions that it may receive from the Fund, and
(3) its ability to utilize its distributive share of any losses of
the Fund on its U.S. 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
U.S. 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.
69
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.
If some
or all of a Shareholder’s Shares are lent by its broker or
other agent to a third party — for example, for use by the
third party in covering a short sale — the Shareholder may be
considered as having made a taxable disposition of the loaned
Shares, in which case —
|
●
|
the
Shareholder may recognize taxable gain or loss to the same extent
as if it had sold the Shares for cash;
|
|
●
|
any of
the income, gain, loss or deduction allocable to those Shares
during the period of the loan is not reportable by the Shareholder
for U.S. federal income tax purposes; and
|
|
●
|
any
distributions the Shareholder receives with respect to the Shares
under the loan agreement will be fully taxable to the Shareholder,
most likely as ordinary income for U.S. federal income tax
purposes.
|
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.
70
Other U.S. Federal Income 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 U.S. 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 U.S. federal income 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 U.S.
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 U.S.
federal income tax information furnished by the Fund.
Partnership Audit
Procedures. The IRS may audit the U.S. federal income tax returns
filed by the Fund. Partnerships are generally treated as separate
entities for purposes of U.S. 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.
Tax
deficiencies (including interest and penalties) that arise from an
adjustment to partnership items generally are assessed and
collected from the partnership (rather than from the partners), and
generally are 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 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, 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.
The
Trust Agreement provides 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) that take such adjustments to taxable income, gain,
loss, deduction or credit into account, resulting in each such
Shareholder taking those adjustments into account on its tax
returns.
71
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 U.S.
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.
The
U.S. federal income 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 U.S. 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. While the tax treatment of bitcoin derivatives is not
entirely clear, it is possible that the Fund may be a qualified
publicly traded partnership. However, such qualification is not
assured and prospective RIC investors should consult a tax advisor
regarding the treatment of an investment in the Fund under current
tax rules and in light of their particular
circumstances.
72
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 in 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. As noted above, there is
limited authority on the U.S. federal income tax treatment of
bitcoin and no direct authority on bitcoin derivatives. However,
based on the CFTC treatment of bitcoin as a commodity and on the
assumption that the Fund will invest in Bitcoin Futures Contracts
through the CME, the Fund intends to take the position that
investing in Bitcoin Futures Contracts falls within the commodities
trading safe harbor. Thus, the Fund anticipates that the activities
directly conducted by the Fund should not result in the Fund being
engaged in a trade or business within the United States for
purposes of this rule. However, there can be no assurance that the
IRS would not successfully assert, or that a court would not
decide, 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 transfers of interests in publicly
traded partnerships that occur before January 1, 2023. Such
withholding will be required on transactions occurring on or after
January 1, 2023. In the case of a transfer made through a broker,
the obligation to withhold will generally be imposed on the
transferor’s broker. A Non-U.S. Shareholder with ECI will
generally be required to file a U.S. federal income tax return, and
the return will provide the Non-U.S. Shareholder with the mechanism
to seek a refund of any withholding in excess of such
Shareholder’s actual U.S. federal income tax liability. Any
amount withheld by the Fund will be treated as a distribution to
the Non-U.S. Shareholder to the extent possible. In some cases, the
Fund may not be able to match the economic cost of satisfying its
withholding obligations to a particular Non-U.S. Shareholder, which
may result in said cost being borne by the Fund, generally, and
accordingly, by all Shareholders.
If the
Fund is not treated as engaged in a U.S. trade or business, a
Non-U.S. Shareholder may nevertheless be treated as having FDAP
income, which would be subject to a 30% withholding tax (possibly
subject to reduction by treaty), with respect to some or all of its
distributions from the Fund or its allocable share of Fund income.
Amounts withheld on behalf of a Non-U.S. Shareholder will be
treated as being distributed to such Shareholder. If the Fund is
not able to match the economic cost of satisfying its withholding
obligation to a particular Non-U.S. Shareholder, said cost may have
to be borne by the Fund and accordingly by all
Shareholders.
To the
extent any interest income allocated to a Non-U.S. Shareholder that
otherwise constitutes FDAP is considered “portfolio
interest,” neither the allocation of such interest income to
the Non-U.S. Shareholder nor a subsequent distribution of such
interest income to the Non-U.S. Shareholder will be subject to
withholding, provided that the Non-U.S. Shareholder is not
otherwise engaged in a trade or business in the U.S. and provides
the Fund with a timely and properly completed and executed IRS Form
W-8BEN or other applicable form. In general, portfolio interest is
interest paid on debt obligations issued in registered form, unless
the recipient owns 10% or more of the voting power of the issuer. A
Non-U.S. Shareholder’s allocable share of interest on U.S.
bank deposits, certificates of deposit and discount obligations
with maturities from original issue of 183 days or less should also
not be subject to withholding. Generally, other interest from U.S.
sources paid to the Fund and allocable to Non-U.S. Shareholders
will be subject to withholding.
73
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.
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 U.S. 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 U.S. federal income taxes, a Shareholder 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 Shareholder resides. 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 and its
opinion on U.S. federal tax issues is limited to those issues
discussed under the heading “U.S. Federal Income Tax
Considerations.”
74
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) entity whose underlying assets include
“plan assets” by reason of an employee benefits plan or
other plan’s investment in the entity (“plan asset
entity”) who has investment discretion should take into
account before deciding to invest the plan’s assets in the
Fund. Employee benefit plans under ERISA, plans under the Code and
plan asset entities are collectively referred to below as
“plans,” and fiduciaries with investment discretion are
referred to below as “plan fiduciaries.”
This
summary is based on the provisions of ERISA and the Code as of the
date hereof. This summary is not intended to be complete, but only
to address certain questions under ERISA and the Code likely to be
raised by your advisors. The summary does not include state or
local law.
Potential
plan investors are urged to consult with their own professional
advisors concerning the appropriateness of an investment in the
Fund and the manner in which Shares should be
purchased.
Special Investment Considerations
Each
plan fiduciary must consider the facts and circumstances that are
relevant to an investment in the Fund, including the role that an
investment in the Fund would play in the plan’s overall
investment portfolio. Each plan fiduciary, before deciding to
invest in the Fund, must be satisfied that the investment is
prudent for the plan, that the investments of the plan are
diversified so as to minimize the risk of large losses, and that an
investment in the Fund complies with the terms of the plan. The
Sponsor is not undertaking to provide investment advice, or to give
advice in a fiduciary capacity, in connection with a plan’s
investment in the Fund.
The Fund and Plan Assets
A
regulation issued under ERISA contains rules for determining when
an investment by a plan in an equity interest of a statutory trust
will result in the underlying assets of the statutory trust being
deemed plan assets for purposes of ERISA and Section 4975 of the
Code. Those rules provide that assets of a statutory trust will not
be plan assets of a plan that purchases an equity interest in the
statutory trust if the equity interest purchased is a publicly
offered security. If the underlying assets of a statutory trust are
considered to be assets of any plan for purposes of ERISA or
Section 4975 of the Code, the operations of that trust would be
subject to and, in some cases, limited by the provisions of ERISA
and Section 4975 of the Code.
The
publicly offered security exception described above applies if the
equity interest is a security that is:
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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.
75
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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●
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exercise
any discretionary authority or discretionary control with respect
to management of the plan;
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●
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exercise
any authority or control with respect to management or disposition
of the assets of the plan;
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render
investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the
plan;
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●
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have
any authority or responsibility to render investment advice with
respect to any monies or other property of the plan;
or
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●
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have
any discretionary authority or discretionary responsibility in the
administration of the plan.
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Also, a
prohibited transaction may occur under ERISA or the Code when
circumstances indicate that (1) the investment in Shares is made or
retained for the purpose of avoiding application of the fiduciary
standards of ERISA, (2) the investment in Shares constitutes an
arrangement under which the Fund is expected to engage in
transactions that would otherwise be prohibited if entered into
directly by the plan purchasing the Shares, (3) the investing plan,
by itself, has the authority or influence to cause the Fund to
engage in such transactions, or (4) a person who is prohibited from
transacting with the investing plan may, but only with the aid of
certain of its affiliates and the investing plan, cause the Fund to
engage in such transactions with such person.
Special IRA Rules
IRAs
are not subject to ERISA’s fiduciary standards, but are
subject to their own rules, including the prohibited transaction
rules of Section 4975 of the Code, which generally mirror
ERISA’s prohibited transaction rules. For example, IRAs are
subject to special custody rules and must maintain a qualifying IRA
custodial arrangement separate and distinct from the Fund and its
custodial arrangement. If a separate qualifying custodial
arrangement is not maintained, an investment in the Shares will be
treated as a distribution from the IRA. Second, IRAs are prohibited
from investing in certain commingled investments, and the Sponsor
makes no representation regarding whether an investment in Shares
is an inappropriate commingled investment for an IRA. Third, in
applying the prohibited transaction provisions of Section 4975 of
the Code, in addition to the rules summarized above, the individual
for whose benefit the IRA is maintained is also treated as the
creator of the IRA. For example, if the owner or beneficiary of an
IRA enters into any transaction, arrangement, or agreement
involving the assets of his or her IRA to benefit the IRA owner or
beneficiary (or his or her relatives or business affiliates)
personally, or with the understanding that such benefit will occur,
directly or indirectly, such transaction could give rise to a
prohibited transaction that is not exempted by any available
exemption. Moreover, in the case of an IRA, the consequences of a
non-exempt prohibited transaction are that the IRA’s assets
will be treated as if they were distributed, causing immediate U.S.
federal income 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.
76
GENERAL POOL DISCLOSURE
PERFORMANCE OF THE OTHER COMMODITY POOLS
OPERATED BY THE COMMODITY POOL OPERATOR
All summary performance information is as of April 30, 2022.
Performance information is set forth, in accordance with CFTC
regulations, on a monthly basis for each other commodity
pool’s past five calendar years and for the year to date. No
performance information is presented with respect to the Hashdex
Bitcoin Futures ETF, which has not commenced investment operations
prior to the date of this Prospectus and which will not begin
trading until after the initial creation units of the Fund are
purchased by the initial Authorized Participant (all as described
in the “Plan of Distribution” Section of this
Prospectus). The performance of the Hashdex Bitcoin Futures ETF
will be materially different from the funds and the past
performance summaries of the other funds below are generally not
representative of how the funds might perform in the future.
Teucrium Trading, LLC serves as the commodity trading advisor for
two series of the ConvexityShares Trust registrant, which have not
commended operations as of the date of this
prospectus.
The
monthly rate of return for each fund presented below 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.
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.
Teucrium Corn Fund (TICKER: CORN)
The
Teucrium Corn Fund commenced trading and investment operations on
June 9, 2010. The Fund is listed on NYSE Arca and is neither: (i) a
privately offered pool pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended; (ii) a multi-advisor pool as
defined in CFTC Regulation 4.10(d)(2); or (iii) a
principal-protected pool as defined in CFTC Regulation
4.10(d)(3).
|
Units
of beneficial interest issued (from inception until April 30,
2022)
|
42,950,000
|
|
Aggregate
gross sale price for units issued
|
$946,362,422
|
|
Pool
NAV as of April 30, 2022
|
$308,724,364
|
|
NAV
per Share as of April 30, 2022
|
$29.97
|
|
Largest
monthly percentage drawdown
|
-8.82% / June 2018
|
|
Worst
peak to valley drawdown
|
-76.94% / Aug 2012 - Jul 2020
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
|
Rates of Return
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
|
January
|
2.24
|
%
|
2.51
|
%
|
0.50
|
%
|
(2.64)
|
%
|
8.71
|
%
|
4.63
|
%
|
|
February
|
1.56
|
%
|
2.74
|
%
|
(3.09)
|
%
|
(4.44)
|
%
|
1.72
|
%
|
8.39
|
%
|
|
March
|
(2.36)
|
%
|
1.98
|
%
|
(3.00)
|
%
|
(6.11)
|
%
|
2.47
|
%
|
11.02
|
%
|
|
April
|
(1.37)
|
%
|
0.94
|
%
|
(1.12)
|
%
|
(6.81)
|
%
|
17.62
|
%
|
10.31
|
%
|
|
May
|
1.23
|
%
|
(0.77)
|
%
|
11.03
|
%
|
0.43
|
%
|
(2.07)
|
%
|
|
%
|
|
June
|
0.58
|
%
|
(8.82)
|
%
|
(1.86)
|
%
|
2.37
|
%
|
5.72
|
%
|
|
%
|
|
July
|
(1.36)
|
%
|
3.41
|
%
|
(3.14)
|
%
|
(5.48)
|
%
|
(6.07)
|
%
|
|
%
|
|
August
|
(6.00)
|
%
|
(4.71)
|
%
|
(6.86)
|
%
|
7.39
|
%
|
(0.56)
|
%
|
|
%
|
|
September
|
(0.56)
|
%
|
(2.16)
|
%
|
2.87
|
%
|
4.43
|
%
|
1.04
|
%
|
|
%
|
|
October
|
(2.27)
|
%
|
1.83
|
%
|
(0.42)
|
%
|
1.84
|
%
|
5.38
|
%
|
|
%
|
|
November
|
(1.28)
|
%
|
0.37
|
%
|
(4.34)
|
%
|
5.48
|
%
|
(1.40)
|
%
|
|
%
|
|
December
|
(1.35)
|
%
|
(0.49)
|
%
|
2.21
|
%
|
10.02
|
%
|
2.63
|
%
|
|
%
|
|
Annual Rate of Return
|
(10.76)
|
%
|
(3.82)
|
%
|
(8.00)
|
%
|
4.83
|
%
|
38.88
|
%
|
38.90
|
%
|
77
Teucrium Soybean Fund (TICKER: SOYB)
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 April 30,
2022)
|
14,950,000
|
|
Aggregate
gross sale price for units issued
|
$260,276,769
|
|
Pool
NAV as of April 30, 2022
|
$77,098,303
|
|
NAV
per Share as of April 30, 2022
|
$28.55
|
|
Largest
monthly percentage drawdown
|
-13.03% / Jun 2018
|
|
Worst
peak to valley drawdown
|
-52.02% / Aug 2012 - May 2020
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
|
Rates of Return
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
|
January
|
1.68
|
%
|
3.31
|
%
|
2.16
|
%
|
(7.92)
|
%
|
3.63
|
%
|
9.30
|
%
|
|
February
|
0.52
|
%
|
3.69
|
%
|
(1.75)
|
%
|
(0.00)
|
%
|
4.15
|
%
|
7.40
|
%
|
|
March
|
(7.13)
|
%
|
(0.42)
|
%
|
(2.89)
|
%
|
(4.07)
|
%
|
2.59
|
%
|
0.11
|
%
|
|
April
|
(0.28)
|
%
|
(0.63)
|
%
|
(4.56)
|
%
|
(2.08)
|
%
|
6.16
|
%
|
6.70
|
%
|
|
May
|
(3.05)
|
%
|
(1.43)
|
%
|
2.46
|
%
|
(0.50)
|
%
|
2.17
|
%
|
|
%
|
|
June
|
3.37
|
%
|
(13.03)
|
%
|
1.81
|
%
|
2.52
|
%
|
1.61
|
%
|
|
%
|
|
July
|
4.70
|
%
|
4.38
|
%
|
(3.35)
|
%
|
1.67
|
%
|
(2.81)
|
%
|
|
%
|
|
August
|
(3.27)
|
%
|
(7.03)
|
%
|
(1.36)
|
%
|
5.94
|
%
|
(2.57)
|
%
|
|
%
|
|
September
|
(2.02)
|
%
|
0.57
|
%
|
3.45
|
%
|
5.32
|
%
|
(2.38)
|
%
|
|
%
|
|
October
|
2.73
|
%
|
(1.01)
|
%
|
1.48
|
%
|
1.81
|
%
|
(0.99)
|
%
|
|
%
|
|
November
|
0.11
|
%
|
4.47
|
%
|
(5.36)
|
%
|
9.72
|
%
|
(2.80)
|
%
|
|
%
|
|
December
|
(3.36)
|
%
|
(1.04)
|
%
|
6.42
|
%
|
9.98
|
%
|
7.59
|
%
|
|
%
|
|
Annual Rate of Return
|
(6.45)
|
%
|
(9.24)
|
%
|
(2.16)
|
%
|
22.98
|
%
|
16.82
|
%
|
25.40
|
%
|
Teucrium Sugar Fund (TICKER: CANE)
The
Teucrium Sugar 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 April 30,
2022)
|
10,225,000
|
|
Aggregate
gross sale price for units issued
|
$90,664,552
|
|
Pool
NAV as of April 30, 2022
|
$34,752,412
|
|
NAV
per Share as of April 30, 2022
|
$9.59
|
|
Largest
monthly percentage drawdown
|
-23.51% / Mar 2020
|
|
Worst
peak to valley drawdown
|
-78.60% / Sep 2011 - Apr 2020
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
|
Rates of Return
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
|
January
|
6.62
|
%
|
(8.58)
|
%
|
6.36
|
%
|
3.83
|
%
|
2.81
|
%
|
(3.86)
|
%
|
|
February
|
(5.34)
|
%
|
(1.56)
|
%
|
0.13
|
%
|
(1.68)
|
%
|
7.93
|
%
|
(0.89)
|
%
|
|
March
|
(10.14)
|
%
|
(5.90)
|
%
|
(3.05)
|
%
|
(23.51)
|
%
|
(5.73)
|
%
|
9.43
|
%
|
|
April
|
(5.17)
|
%
|
(7.48)
|
%
|
(1.78)
|
%
|
(2.76)
|
%
|
13.55
|
%
|
(0.34)
|
%
|
|
May
|
(6.89)
|
%
|
4.95
|
%
|
(1.95)
|
%
|
1.25
|
%
|
3.01
|
%
|
|
%
|
|
June
|
(7.40)
|
%
|
(5.34)
|
%
|
1.00
|
%
|
5.83
|
%
|
3.17
|
%
|
|
%
|
|
July
|
7.57
|
%
|
(9.84)
|
%
|
(1.70)
|
%
|
4.77
|
%
|
1.25
|
%
|
|
%
|
|
August
|
(3.09)
|
%
|
(1.89)
|
%
|
(7.08)
|
%
|
0.89
|
%
|
12.51
|
%
|
|
%
|
|
September
|
(6.17)
|
%
|
(1.63)
|
%
|
2.58
|
%
|
0.90
|
%
|
(0.97)
|
%
|
|
%
|
|
October
|
3.08
|
%
|
15.99
|
%
|
(0.87)
|
%
|
0.16
|
%
|
(2.31)
|
%
|
|
%
|
|
November
|
0.82
|
%
|
(2.34)
|
%
|
2.09
|
%
|
4.00
|
%
|
(3.42)
|
%
|
|
%
|
|
December
|
(0.10)
|
%
|
(5.86)
|
%
|
4.56
|
%
|
5.64
|
%
|
2.22
|
%
|
|
%
|
|
Annual Rate of Return
|
(24.52)
|
%
|
(27.78)
|
%
|
(0.48)
|
%
|
(4.51)
|
%
|
37.31
|
%
|
3.91
|
%
|
78
Teucrium Wheat Fund (TICKER: WEAT)
The
Teucrium Wheat Fund commenced trading and investment operations on
September 19, 2011. The Teucrium Wheat Fund is listed on NYSE Arca
and is neither: (i) a privately offered pool pursuant to Section
4(a)(2) of the Securities Act of 1933, as amended. (ii) a
multi-advisor pool as defined in CFTC Regulation 4.10(d)(2). or
(iii) a principal protected pool as defined in CFTC Regulation
4.10(d)(3).
|
Units
of beneficial interest issued (from inception until April 30,
2022)
|
89,525,000
|
|
Aggregate
gross sale price for units issued
|
$850,483,327
|
|
Pool
NAV as of April 30, 2022
|
$500,917,612
|
|
NAV
per Share as of April 30, 2022
|
$10.52
|
|
Largest
monthly percentage drawdown
|
-11.52% / Aug 2017
|
|
Worst
peak to valley drawdown
|
-80.30% / Sept 2011 - Apr 2019
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
|
Rates of Return
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
|
January
|
2.90
|
%
|
5.68
|
%
|
1.51
|
%
|
(1.87)
|
%
|
2.18
|
%
|
(0.91)
|
%
|
|
February
|
2.26
|
%
|
5.85
|
%
|
(11.26)
|
%
|
(4.81)
|
%
|
0.33
|
%
|
19.78
|
%
|
|
March
|
(4.41)
|
%
|
(7.61)
|
%
|
(1.12)
|
%
|
5.87
|
%
|
(5.08)
|
%
|
12.24
|
%
|
|
April
|
(1.73)
|
%
|
8.40
|
%
|
(6.98)
|
%
|
(6.75)
|
%
|
18.28
|
%
|
7.02
|
%
|
|
May
|
(0.29)
|
%
|
2.53
|
%
|
14.00
|
%
|
(1.01)
|
%
|
(6.94)
|
%
|
|
%
|
|
June
|
15.46
|
%
|
(7.41)
|
%
|
2.31
|
%
|
(5.49)
|
%
|
2.31
|
%
|
|
%
|
|
July
|
(7.02)
|
%
|
8.95
|
%
|
(7.47)
|
%
|
7.11
|
%
|
2.75
|
%
|
|
%
|
|
August
|
(11.52)
|
%
|
(4.18)
|
%
|
(6.38)
|
%
|
2.51
|
%
|
2.12
|
%
|
|
%
|
|
September
|
1.86
|
%
|
(6.17)
|
%
|
6.57
|
%
|
3.39
|
%
|
(0.20)
|
%
|
|
%
|
|
October
|
(6.09)
|
%
|
(1.92)
|
%
|
2.21
|
%
|
1.82
|
%
|
6.55
|
%
|
|
%
|
|
November
|
(1.30)
|
%
|
(1.14)
|
%
|
4.23
|
%
|
(1.74)
|
%
|
0.69
|
%
|
|
%
|
|
December
|
(1.64)
|
%
|
(1.65)
|
%
|
3.12
|
%
|
7.65
|
%
|
(2.66)
|
%
|
|
%
|
|
Annual Rate of Return
|
(13.06)
|
%
|
(0.67)
|
%
|
(1.91)
|
%
|
5.48
|
%
|
19.84
|
%
|
42.56
|
%
|
Teucrium Agricultural Fund (TICKER: TAGS)
The
Teucrium Agricultural Fund commenced trading and investment
operations on March 28, 2012. The Teucrium Agricultural 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 April 30,
2022)
|
1,625,000
|
|
Aggregate
gross sale price for units issued
|
$54,829,498
|
|
Pool
NAV as of April 30, 2022
|
$34,810,335
|
|
NAV
per Share as of April 30, 2022
|
$34.38
|
|
Largest
monthly percentage drawdown
|
-8.65% / Jun 2018
|
|
Worst
peak to valley drawdown
|
-70.07% / Jul 2012 - Apr 2020
|
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
|
Rates of Return
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
|
January
|
3.34
|
%
|
0.57
|
%
|
2.61
|
%
|
(2.19)
|
%
|
4.18
|
%
|
2.22
|
%
|
|
February
|
(0.29)
|
%
|
2.67
|
%
|
(3.98)
|
%
|
(2.75)
|
%
|
3.46
|
%
|
8.52
|
%
|
|
March
|
(5.97)
|
%
|
(2.98)
|
%
|
(2.60)
|
%
|
(7.41)
|
%
|
(1.53)
|
%
|
8.33
|
%
|
|
April
|
(2.16)
|
%
|
0.09
|
%
|
(3.59)
|
%
|
(4.63)
|
%
|
13.71
|
%
|
5.93
|
%
|
|
May
|
(2.32)
|
%
|
1.32
|
%
|
6.17
|
%
|
0.03
|
%
|
(1.02)
|
%
|
|
%
|
|
June
|
2.91
|
%
|
(8.65)
|
%
|
0.85
|
%
|
1.21
|
%
|
3.26
|
%
|
|
%
|
|
July
|
1.00
|
%
|
1.47
|
%
|
(3.94)
|
%
|
1.99
|
%
|
(1.21)
|
%
|
|
%
|
|
August
|
(6.47)
|
%
|
(4.48)
|
%
|
(5.42)
|
%
|
4.23
|
%
|
2.70
|
%
|
|
%
|
|
September
|
(0.72)
|
%
|
(2.20)
|
%
|
3.86
|
%
|
3.50
|
%
|
(0.60)
|
%
|
|
%
|
|
October
|
(1.27)
|
%
|
3.65
|
%
|
0.59
|
%
|
1.39
|
%
|
2.16
|
%
|
|
%
|
|
November
|
(0.47)
|
%
|
0.34
|
%
|
(0.87)
|
%
|
4.29
|
%
|
(1.70)
|
%
|
|
%
|
|
December
|
(1.60)
|
%
|
(2.31)
|
%
|
4.05
|
%
|
8.28
|
%
|
2.34
|
%
|
|
%
|
|
Annual Rate of Return
|
(13.60)
|
%
|
(10.64)
|
%
|
(3.02)
|
%
|
7.14
|
%
|
27.85
|
%
|
27.29
|
%
|
79
INCORPORATION BY REFERENCE OF CERTAIN
INFORMATION
The
Trust is a reporting company and files annual, quarterly and
current reports and other information with the SEC. The rules of
the SEC allow the Trust to “incorporate by reference”
information that the Trust files with them, which means that the
Trust 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 the Trust makes with
the SEC under Section 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934 (in each case other than those documents or
portions of those documents not deemed to have been filed in
accordance with SEC rules) between the date of this prospectus and
the termination of the offering of the securities to be issued
under the registration statement:
●
our Annual Report on Form 10-K for the fiscal
year ended December 31, 2021, filed with the SEC on March 16, 2022;
and
●
our Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2022,
filed with the SEC on May 10, 2022.
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:
Hashdex
Bitcoin Futures ETF
Attention:
Cory Mullen-Rusin
Three
Main Street, Suite 215
Burlington,
VT 05401
(802)
540-0019
The
Trust’s Internet website is www.teucrium.com. The Trust makes
its electronic filings with the SEC, including its 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 the
Trust’s website free of charge as soon as practicable after
we file or furnish them with the SEC. The information contained on
the Trust’s website is not incorporated by reference in this
prospectus and should not be considered a part of this
prospectus.
80
INFORMATION YOU SHOULD KNOW
This
prospectus contains information you should consider when making an
investment decision about the Shares. You should rely only on the
information contained in this prospectus or any applicable
prospectus supplement. None of the Trust, the Fund or the Sponsor
has authorized any person to provide you with different information
and, if anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an
offer to sell the Shares in any jurisdiction where the offer or
sale of the Shares is not permitted.
The
information contained in this prospectus was obtained from us and
other sources believed by us to be reliable.
You
should disregard anything we said in an earlier document that is
inconsistent with what is included in this prospectus or any
applicable prospectus supplement. Where the context requires, when
we refer to this “prospectus,” we are referring to this
prospectus and (if applicable) the relevant prospectus
supplement.
You
should not assume that the information in this prospectus or any
applicable prospectus supplement is current as of any date other
than the date on the front page of this prospectus or the date on
the front page of any applicable prospectus
supplement.
We
include cross references in this prospectus to captions in these
materials where you can find further related discussions. The table
of contents tells you where to find these captions.
WHERE YOU CAN FIND MORE
INFORMATION
The
Trust has filed on behalf of the Fund a registration statement with
the SEC under the 1933 Act. This prospectus does not contain all of
the information set forth in the registration statement (including
the exhibits to the registration statement), parts of which have
been omitted in accordance with the rules and regulations of the
SEC. For further information about the Trust, the Fund or the
Shares, please refer to the registration statement, which you may
inspect online at www.sec.gov. Information about
the Trust, the Fund and the Shares can also be obtained from the
Fund’s website, which is http://hashdex-etfs.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.
FINANCIAL STATEMENTS
The
financial statements of the Trust have been incorporated into this
prospectus and registration statement as described above under
“Incorporation By Reference of Certain
Information.”
The
financial statements of the Fund are set forth below.
81
HASHDEX BITCOIN FUTURES ETF
INDEX TO FINANCIAL STATEMENTS
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|
|
Page
|
|
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|
|
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Report
of Independent Registered Public Accounting Firm
|
|
83
|
|
|
|
|
|
Statement
of Assets and Liabilities
|
|
84
|
|
|
|
|
|
Notes
to Statement of Assets and Liabilities
|
|
85
|
82
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
To the
Sponsor and Shareholders of
Hashdex
Bitcoin Futures ETF
Opinion on the financial statement
We have
audited the accompanying statement of assets and liabilities of
Hashdex Bitcoin Futures ETF (the “Fund”) as of May 31,
2022 and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Fund as of
May 31, 2022, in conformity with accounting principles generally
accepted in the United States of America.
Basis for opinion
These
financial statements are the responsibility of the Fund’s
management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audit. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Fund in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Fund is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part
of our audit we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Fund’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statement, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statement. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
Critical audit matters
Critical
audit matters are matters arising from the current period audit of
the financial statement that were communicated or required to be
communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial
statement (2) involved especially challenging, subjective, or
complex judgements. We determined that there are no critical audit
matters.
/s/
GRANT THORNTON LLP
We have
served as the auditor of one or more of the series of Teucrium
Commodity Trust since 2014.
New
York, New York
July
20, 2022
83
HASHDEX BITCOIN FUTURES ETF
STATEMENT OF ASSETS AND LIABILITIES
|
|
May 31, 2022
|
|
|
|
|
Assets
|
|
|
Cash
|
$100
|
|
Total
assets
|
100
|
|
|
|
|
Liabilities
|
|
|
Total
liabilities
|
$-
|
|
|
|
|
Net assets
|
$100
|
|
|
|
|
Shares outstanding
|
4
|
|
|
|
|
NAV per Share
|
$25.00
|
The accompanying notes are an integral part of these financial
statements.
84
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
May 31, 2022
Note 1 — Organization and Business
Hashdex Bitcoin Futures ETF (the
“Fund”) is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust organized on
September 11, 2009. The Fund operates pursuant to the Fifth
Amended and Restated Declaration of Trust and Trust Agreement
("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/1471824/000165495419004865/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”). The Fund intends to be treated as
a partnership for U.S. federal income tax purposes.
On
May 20, 2021, an initial registration statement was filed with the
Securities and Exchange Commission (“SEC”). As of May
31, 2022, the Sponsor was waiting for the SEC to declare that
registration statement effective.
The Fund’s investment objective is for
changes in the Shares’ NAV to reflect the daily changes of
the price of a specified benchmark (the “Benchmark”),
less expenses from the Fund’s operations. The
Benchmark currently is the average of the closing settlement prices
for the first to expire and second to expire bitcoin futures
contracts (“Bitcoin Futures Contracts”) listed on the
CME. These futures contracts are the Benchmark Component Futures
Contracts. The CME currently offers two Bitcoin Futures Contracts,
one contract representing 5 bitcoin (“BTC Contracts”)
and another contract representing 0.10 bitcoin (“MBT
Contracts”). The Fund will invest in BTC Contracts and MBT
Contracts to the extent necessary to achieve maximum exposure to
the bitcoin futures market.
Because
BTC Contracts and MBT Contracts are exchange-listed, they allow
investors to gain price exposure to bitcoin without having to hold
the underlying cryptocurrency. Like a futures contract on a
commodity or stock index, BTC Contracts and MBT Contracts provide a
means for investors to hedge investment positions or speculate on
the future price of the bitcoin market.
The
Fund seeks to achieve its investment objective by investing in
Benchmark Component Futures Contracts. Under normal market
conditions, the Fund expects that the Fund’s assets will be
invested in Benchmark Component Futures Contracts and in cash and
cash equivalents, such as short-term Treasury bills, money market
funds, and demand deposit accounts. The term “normal market
conditions” includes, but is not limited to, the absence of:
trading halts in the applicable financial markets generally;
operational issues (e.g., systems failure) causing dissemination of
inaccurate market information; or force majeure type events such as
natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
Because
the Fund seeks to maintain its holdings in Benchmark Component
Futures Contracts with a roughly constant expiration profile, the
Fund’s positions are changed or “rolled” on a
regular basis in order to track the changing nature of the
Benchmark by closing out soon to
expire contracts prior to settlement or on settlement date that are
no longer part of the Benchmark and entering into later 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 bitcoin 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 soon to expire contracts that it sells. If the
futures market is in contango, the Fund will buy later to expire
contracts for a higher price than the soon to expire contracts that
it sells. 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.
85
Consistent with
applicable provisions of the Trust Agreement and Delaware law, the
Fund has broad authority to make changes to the Fund’s
operations. Consistent with this authority, the Fund, in its sole
discretion and without shareholder approval or advance notice, may
change its investment objective, Benchmark, or investment
strategies. The Fund has no current intention to make any such
change, and any change is subject to applicable regulatory
requirements, including, but not limited to, any requirement to
amend applicable listing rules of the NYSE.
The
reasons for and circumstances that may trigger any such changes may
vary widely and cannot be predicted. However, by way of example,
the Fund may change the term structure or underlying components of
the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of the Benchmark Component Futures
Contracts if, due to market conditions, a potential or actual
imposition of position limits by the CFTC or futures exchange
rules, or the imposition of risk mitigation measures by a futures
commission merchant restricts the ability of the Fund to invest in
the current Benchmark Component Futures Contracts. The Fund would
file a current report on Form 8-K and a prospectus supplement to
describe any such change and the effective date of the change.
Shareholders may modify their holdings of the Fund’s shares
in response to any change by purchasing or selling Fund shares
through their broker-dealer.
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.”
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 bitcoin 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 bitcoin market, as
measured by the Benchmark.
The
CFTC and U.S. designated contract markets, such as the CME, have
established position limits and accountability levels on the
maximum net long or net short Bitcoin Futures Contracts that the
Fund may hold, own or control. The current CME established position
limit level for investments in BTC Contracts for the spot month is
4,000 contracts. A position accountability level of 5,000 contracts
will be applied to positions in single months outside the spot
month and in all months combined. The MBT Contracts have a spot
month limit of 200,000 contracts and a position accountability
level of 250,000 contracts. Open positions in MBT Contracts will
count as 1/50 of a BTC Contract for the purposes of determining the
aggregate position limit. Accountability levels are not fixed
ceilings but rather thresholds above which the exchange may
exercise greater scrutiny and control over an investor, including
limiting the Fund to holding no more Bitcoin Futures Contracts than
the amount established by the accountability levels. The potential
for the Fund to reach position or accountability limits will depend
on if and how quickly the Fund’s net assets
increase.
86
In
addition to position limits and accountability limits, the CME and
other exchanges have set dynamic price fluctuation limits on
Bitcoin Futures Contracts. The dynamic price limit functionality
under the special price fluctuation limits mechanism assigns a
price limit variant which equals a percentage of the prior trading
day’s settlement price, or a price deemed appropriate. During
the trading day, the dynamic variant is utilized in continuous
rolling 60-minute look-back periods to establish dynamic upper and
lower price fluctuation limits. Once the dynamic price fluctuation
limit has been reached in a particular Bitcoin Futures Contract, no
trades may be made at a price beyond that limit. The CME has
adopted daily dynamic price fluctuation limit functionality
effective March 11, 2019, specifically Rule 589 found in the
following link:
https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2019/03/SER-8351.pdf.
Volatility
in the bitcoin futures market may lead one or more of the
Fund’s FCMs to impose risk mitigation procedures that could
limit the Fund’s investment in Bitcoin Futures Contracts
beyond the accountability, position and dynamic pricing limits
imposed by futures contract exchanges as discussed
above.
Position limits,
accountability limits, dynamic price fluctuation limits and
FCM-imposed limits may limit the Fund’s ability to invest the
proceeds of Creation Baskets in Bitcoin Futures Contracts. As a
result, when the Fund offers to sell Creation Baskets it may be
limited in its ability to invest in Bitcoin Futures Contracts,
including the Benchmark Component Futures Contracts. The Fund may
hold larger amounts of cash and cash equivalents, which will impair
the Fund’s ability to meet its investment objective of
tracking the Benchmark.
The
Sponsor maintains a public website on behalf of the Fund,
http://hashdex-etfs.com/,
which contains information about the Trust, the Fund, and the
Shares.
As
of May 31, 2022, the Sponsor has contributed $100 to the Fund which
is reflected on the Statement of Assets and Liabilities as cash and
net assets.
Income Taxes
The Trust is organized and will be operated as a
Delaware statutory trust. For U.S. federal income tax purposes, the
Fund will be classified as a publicly traded partnership. A
publicly traded partnership is generally taxable as a corporation
for U.S. federal income tax purposes unless 90% or more of the
publicly traded partnership’s gross income for each taxable
year of its existence consists of qualifying income as defined in
section 7704(d) of the Internal Revenue Code of 1986, as amended
(the “Code”). Qualifying income is defined as generally
including, in pertinent part, interest (other than from a financial
business), dividends, and gains from the sale or disposition of
capital assets held for the production of interest or dividends. In
the case of a partnership of which a principal activity is the
buying and selling of commodities, other than as inventory, or of
futures, forwards, and options with respect to commodities,
qualifying income also includes income and gains from commodities
and from futures, forwards, options with respect to commodities
and, provided the partnership is a trader or investor with respect
to such assets, swaps and other notional principal contracts with
respect to commodities. There is very limited authority on
the U.S. federal income tax treatment of bitcoin and no direct
authority on bitcoin derivatives, such as Bitcoin Futures
Contracts. Based on an opinion received by the Sponsor from Vedder
Price P.C. and a CFTC determination that treats bitcoin as a
commodity under the Commodity Exchange Act, the Fund intends to
take the position that Bitcoin Futures Contracts consist of futures
on commodities for purposes of the qualifying income exception
under section 7704 of the Code. Accordingly, the Fund expects that at least 90% of the
Fund’s gross income for each taxable year will consist of
qualifying income and that the Fund will be taxed as a partnership
for U.S. federal income tax purposes. Therefore, the Fund does not
record a provision for income taxes because the shareholders report
their share of the Fund’s income or loss on their income tax
returns.
The
Fund is required to determine whether a tax position is more likely
than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The Fund will file income tax returns in the U.S. federal
jurisdiction and may file income tax returns in various U.S. states
and foreign jurisdictions. The tax benefit recognized is measured
as the largest amount of benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement.
De-recognition of a tax benefit previously recognized results in
the Fund recording a tax liability that reduces net
assets.
87
The
Fund recognizes interest accrued related to unrecognized tax
benefits and penalties related to unrecognized tax benefits in
income tax fees payable, if assessed.
The
Fund may be subject to potential examination by U.S. federal, U.S.
state, or foreign jurisdictional authorities in the area of income
taxes. These potential examinations may include among other things
questioning the tax classification of the Fund, the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws.
Creations and Redemptions
Authorized Purchasers may purchase Creation
Baskets consisting of 10,000 shares from the Fund. The
amount of the proceeds required to purchase a Creation Basket will
be equal to the NAV of the shares in the Creation Basket determined
as of 4:00 p.m. (ET) time on the day the order to create the basket
is received in good order.
Authorized Purchasers may redeem shares from the
Fund only in blocks of 10,000 shares called “Redemption
Baskets.” The amount of the redemption proceeds
for a Redemption Basket will be equal to the NAV of the shares in
the Redemption Basket determined as of 4:00 p.m. (ET) on the day
the order to redeem the basket is received in good
order.
The
Fund receives or pays the proceeds from shares sold or redeemed
within three business days after the trade date of the purchase or
redemption. The amounts due from Authorized Purchasers are
reflected in the statements of assets and liabilities as capital
shares receivable. Amounts payable to Authorized Purchasers upon
redemption are reflected in the statements of assets and
liabilities as payable for shares redeemed.
There
is a minimum number of baskets and associated Shares specified for
the Fund. If the Fund experiences redemptions that cause 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 five baskets. The minimum level of Shares
specified for the Fund is subject to change.
Calculating the Net Asset Value
The NAV
of the Fund is calculated by:
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●
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taking
the current market value of its total assets, and
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●
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subtracting
any liabilities.
|
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. (ET). The NAV for a particular trading
day is released after 4:15 p.m. (ET).
88
In
determining the value of the Futures Contracts for the Fund, the
Administrator uses the closing price on the exchange on which the
commodity is traded, commonly referred to as the settlement price.
The time of settlement for such exchange is determined by that
exchange and may change from time to time. The current settlement
time for the exchange can be found at the website for the
CME: https://www.cmegroup.com/trading-hours.html.
The
Administrator determines the value of all other investments for the
Fund as of the earlier of the close of the New York Stock Exchange
or 4:00 p.m., (ET), in accordance with the current Services
Agreement between the Administrator and the Trust.
For
purposes of financial statements and reports, the Sponsor will
recalculate the NAV of the Fund where necessary to reflect the
“fair value” of a Futures Contract when the Futures
Contract of the Fund closes at its price fluctuation limit for the
day. Treasury Securities held by the Fund are valued by the
Administrator using values received from recognized third-party
vendors (such as Reuters) and dealer quotes. The NAV includes any
unrealized profit or loss on open Commodity Interests and any other
credit or debit accruing to each Fund but unpaid or not received by
the Fund.
In
addition, in order to provide updated information relating to the
Funds for use by investors and market professionals, ICE Data
Indices, LLC calculates and disseminates throughout the trading day
an updated indicative fund value for each Fund. 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
holdings during the trading day. Changes in the value of short-term
Treasury Securities and cash equivalents will not be included in
the calculation of indicative value throughout the day. 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 for each Fund. The NAV is calculated only once at
the end of each trading day.
The
indicative fund value is disseminated on a per Share basis every 15
seconds during regular NYSE Arca trading hours of 9:30 a.m. (ET),
to 4:00 p.m. (ET). The CME is generally open for trading only
during specified hours which vary by exchange and may be adjusted
by the exchange. However, the futures markets on these exchanges do
not currently operate twenty-four hours per day. In addition, there
may be some trading hours which may be limited to electronic
trading only. 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, when, for example, real-time
CME trading prices for Bitcoin Futures Contracts traded on such
Exchange are not available. As a result, during those gaps there
will be no update to the indicative fund values. The most current
trading hours for each exchange may be found on the website of that
exchange as listed above.
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 may be 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.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of the revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
The
Sponsor has engaged the following Service Providers:
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. 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.
89
Distributor
The
Fund employs Foreside Fund Services, LLC as the Distributor for the
Fund. 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 material.
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.
Marketing Agents
Toroso
Investments, LLC (“Toroso”), Tidal ETF Services LLC
(“Tidal”) and Victory Capital Management Inc.
(“Victory Capital”) “(the “Marketing
Agents”) assist the Fund and the Sponsor with certain
functions and duties relating to distribution and marketing, which
include the following: marketing and sales strategy, and marketing
and distribution related services.
Digital Asset Adviser
Hashdex
Asset Management Ltd. (“Hashdex” or the “Digital
Asset Adviser” “) is a Cayman Islands investment
manager (and an Exempt Reporting Advisor under SEC rules) that
specializes in, among other things, the management, research,
investment analysis and other investment support services of funds
and ETFs with investment strategies involving bitcoin and other
crypto assets. As Digital Asset Adviser, Hashdex is responsible for
providing the Sponsor and Marketing Agents with research and
analysis regarding bitcoin and bitcoin markets for use in the
operation and marketing of the Fund. Hashdex has no responsibility
for the investment or management of the Fund’s portfolio or
for the overall performance or operation of the Fund.
Clearing Brokers
StoneX
Financial Inc. (StoneX), formerly known as INTL FCStone Financial
Inc., and Phillip Capital Inc. serve as the Fund’s clearing
brokers (the “Clearing Brokers”) to execute and clear
the Fund’s futures transactions and provide other
brokerage-related services. The Clearing Brokers are each
registered as an FCM with the CFTC, are members of the National
Futures Association (“NFA”) and are clearing members of
all major U.S. futures exchanges. The Clearing Brokers are
registered as broker-dealers (“BDs”) with the U.S.
Securities and Exchange Commission (“SEC”) and are each
a member of the Financial Industry Regulatory Authority, Inc.
(“FINRA”).
Note 2 - Organizational and Offering Costs
Expenses incurred
in organizing the Trust and the initial offering of the Shares of
the Fund, including applicable SEC registration fees were borne
directly by the Sponsor. The total expenses incurred by the Sponsor
total $164,920 for legal fees and registration fees. The Fund will
not be obligated to reimburse the Sponsor.
Note 3 – Subsequent Events
In
preparing these financial statements, management has evaluated
subsequent events through the date of issuance of the financial
statements included herein. There have been no subsequent events
that occurred during such period that would require disclosure or
would be required to be recognized in the financial
statements.
90
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.
91
APPENDIX A
Glossary
of Defined Terms
In this
prospectus, each of the following terms have the meanings set forth
after such term:
Administrator: U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services.
Authorized Purchaser: One that purchases or redeems Creation
Baskets or Redemption Baskets, respectively, from or to the
Fund.
Benchmark: The mean average of the closing settlement prices
for the first to expire and second to expire CME Bitcoin Futures
Contracts.
Benchmark Component Futures Contracts: The Bitcoin Futures
Contracts that at any given time make up the
Benchmark.
Business Day: Any day other than a day when any of the NYSE
Arca, CME, or the New York Stock Exchange is closed for regular
trading.
CFTC: Commodity Futures Trading Commission, an independent
federal agency with the mandate to regulate commodity futures and
options in the United States.
Code: Internal Revenue Code of 1986, as
amended.
Commodity Pool: An enterprise in which several individuals
contribute funds in order to trade futures contracts or options on
futures contracts collectively.
Commodity Pool Operator or CPO: Any person engaged in a
business which is of the nature of an investment trust, syndicate,
or similar enterprise, and who, in connection therewith, solicits,
accepts, or receives from others, funds, securities, or property,
either directly or through capital contributions, the sale of stock
or other forms of securities, or otherwise, for the purpose of
trading in any swap or commodity for future delivery or commodity
option on or subject to the rules of any contract
market.
Creation Basket: A block of 10,000 Shares used by the Fund
to issue Shares.
Custodian: U.S. Bank, N.A.
Distributor: Foreside Fund Services, LLC.
DTC: The Depository Trust Company. DTC will act as the
securities depository for the Shares.
DTC Purchaser: An entity that has an account with
DTC.
Exchange Act: The Securities Exchange Act of
1934.
Exchange for Related Position: A privately negotiated and
simultaneous exchange of a futures contract position is exchanged
for cash or physical, swap, over the counter instrument or other
financial instrument such as the creation or redemption of shares
in a fund.
FINRA: Financial Industry Regulatory Authority.
Futures Contract: An exchange-traded contract traded with
standard terms that calls for the delivery of a specified quantity
of a cryptocurrency 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 cryptocurrency is required.
Indirect Purchasers: Banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a DTC purchaser, either directly or indirectly.
Limited Liability Company (LLC): A type of business
ownership combining several features of corporation and partnership
structures.
92
Margin: The amount of equity required for an investment in
futures contracts.
NAV: Net Asset Value of the Fund.
NFA: National Futures Association.
NSCC: National Securities Clearing Corporation.
1933 Act: The Securities Act of 1933.
Redemption Basket: A block of 10,000 Shares used by the Fund
to redeem Shares.
SEC: Securities and Exchange Commission.
Secondary Market: The stock exchanges and the over the
counter market. Securities are first issued as a primary offering
to the public. When the securities are traded from that first
holder to another, the issued securities trade in these secondary
markets.
Shareholders: Holders of Shares.
Shares: Common units representing fractional undivided
beneficial interests in the Fund.
Sponsor: Teucrium Trading, LLC, a Delaware limited liability
company, which is registered as a Commodity Pool Operator, who
controls the investments and other decisions of the
Fund.
Spot Contract: A cash market transaction in which the buyer
and seller agree to the immediate purchase and sale of a
cryptocurrency, usually with a two-day settlement.
Bitcoin Futures Contracts: Futures contracts for
bitcoin.
Swap Agreement: An over the counter derivative that
generally involves an exchange of a stream of payments between the
contracting parties based on a notional amount and a specified
index.
Tracking Error: Possibility that the daily NAV of the Fund
will not track the Benchmark.
Trust Agreement: The Fifth Amended and Restated Declaration
of Trust and Trust Agreement of the Trust effective as of April 26,
2019.
Valuation Day: Any day as of which the Fund calculates its
NAV.
You: The owner of Shares.
93
STATEMENT OF ADDITIONAL
INFORMATION
Hashdex Bitcoin Futures ETF
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 17.
This
statement of additional information and accompanying disclosure
document are both dated July 20, 2022.
94
Hashdex Bitcoin Futures ETF
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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Page
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Cryptocurrency
Derivatives Market Purchasers
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96
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Regulation
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96
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Potential
Advantages of Investment
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99
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Fund
Performance
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99
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95
Cryptocurrency Derivatives Market Purchasers
Two
broad classes of persons who trade cryptocurrency futures are
hedgers and speculators. Hedgers include financial institutions and
entities that manage or deal in cryptocurrency instruments or
crypto related stock portfolios, and commercial market purchasers,
such as crypto mining companies or Decentralized Finance (DeFi)
purchasers, that mine, lend, accept, or otherwise conduct business
using cryptocurrencies. 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 or
cryptocurrency, such as the adverse price movement between the time
a producer enters into a contract to sell a product for
cryptocurrency at a certain price and the time it acquires the
cryptocurrency against the delivery of the product to the customer.
For example, if a manufacturer contracts to physically sell its
product at a future date for a fixed amount of cryptocurrency, it
may simultaneously sell a futures or forward contract for the
necessary equivalent quantity of the cryptocurrency. At the time
the producer delivers the physical product to the customer, the
producer/hedger will accept customer payment in cryptocurrency, the
value of which will offset the producer’s short
cryptocurrency futures contract thereby locking in the original
financial value of the amount of cryptocurrency the producer had
accepted when it agreed to sell its product in return for a fixed
amount of cryptocurrency.
Futures
markets enable the hedger to shift the risk of price fluctuations.
The usual objective of the hedger is to protect the profit it
expects to earn from its ordinary business activities rather than
to profit from trading. Unlike the hedger, the speculator generally
expects neither to make nor take delivery of cryptocurrencies in
return for a product or services. Instead, the speculator risks his
capital with the hope of making profits from price fluctuations in
the cryptocurrency markets. The speculator is, in effect, the risk
bearer who assumes the risks that the hedger seeks to avoid.
Speculators attempt to close out their positions prior to the
expiration of a futures contract. A speculator who takes a long
position generally will make a profit if the price of the
underlying cryptocurrency or futures contract goes up in value and
incur a loss if the price of the cryptocurrency or futures contract
goes down, while a speculator who takes a short position generally
will make a profit if the price of the cryptocurrency or futures
contract goes down and incur a loss if the price of the
cryptocurrency or futures contract goes up.
Regulation
The
regulation of futures markets, futures contracts, and futures
exchanges has historically been comprehensive. The CFTC and the
exchanges are authorized to take extraordinary actions in the event
of a market emergency including, for example, the retroactive
implementation of speculative position limits, increased margin
requirements, the establishment of daily price limits and the
suspension of trading on an exchange or trading
facility.
Pursuant to
authority in the CEA, the NFA has been formed and registered with
the CFTC as a registered futures association. At the present time,
the NFA is the only SRO for commodity interest professionals, other
than futures exchanges. The CFTC has delegated to the NFA
responsibility for the registration of CPOs and FCMs and their
respective associated persons. The Sponsor and the Fund’s
clearing broker are members of the NFA. As such, they will be
subject to NFA standards relating to fair trade practices,
financial condition and consumer protection. The NFA also
arbitrates disputes between members and their customers and
conducts registration and fitness screening of applicants for
membership and audits of its existing members. Neither the Trust
nor the Teucrium Funds are required to become a member of the NFA.
The regulation of commodity interest transactions in the United
States is a rapidly changing area of law and is subject to ongoing
modification by governmental and judicial action. Considerable
regulatory attention has been focused on non-traditional investment
pools that are publicly distributed in the United States. There is
a possibility of future regulatory changes within the United States
altering, perhaps to a material extent, the nature of an investment
in the Fund, or the ability of 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 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,
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.
96
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 purchasers; capital and
margin requirements for “swap dealers” and “major
swap ps,” 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 OTC market, but are now designated as subject
to the clearing requirement; and margin requirements for OTC swaps
that are not subject to the clearing requirements.
In
addition, considerable regulatory attention has recently been
focused on non-traditional publicly distributed investment pools
such as the Fund. Furthermore, various national governments have
expressed concern regarding the disruptive effects of speculative
trading in certain commodity markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory
change on the Teucrium Funds is impossible to predict but could be
substantial and adverse.
The
Dodd-Frank Act was intended to reduce systemic risks that may have
contributed to the 2008/2009 financial crisis. Since the first
draft of what became the Dodd-Frank Act, supporters and opponents
have debated the scope of the legislation. As the Administrations
of the U.S. change, the interpretation and implementation will
change along with them. Nevertheless, regulatory reform of any kind
may have a significant impact on U.S. regulated
entities.
97
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 cryptocurrencies and a number of
commodities (e.g., corn, oats, wheat, soybeans and cotton) and US
futures exchanges currently impose speculative position limits on
many other commodities. The 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 the 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.
Aggregate position
limits for BTC and MBT count toward open positions across the
bitcoin product suite (Bitcoin futures contracts (BTC), options on
Bitcoin futures contracts and Micro Bitcoin futures contracts
(MBT)) will count toward an aggregate position limit which is
established in terms of the larger BTC contract limits. For
example, a long position of 1,000 BTC and a long position of 1,000
MBT, would be, in this case, 1,020 contracts (1,000 BTC + 1,000
MBT/50) that go toward the position limit test. The aggregate
position limits currently in place under the current position
limits and the Aggregation Requirements are as follows for each of
the cryptocurrency derivatives traded by the Fund:
|
Cryptocurrency
|
Spot
Month Position Limit
|
All
Month and Single Month (excluding spot month) Aggregate
Accountability Level
|
|
Bitcoin
Futures Contract
|
4,000
contracts
|
5,000
contracts
|
|
Micro
Bitcoin Futures Contract
|
200,000
contracts
|
250,000
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. 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
dynamic 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 purchasers with greater
flexibility on managing their business risks, the proposal also
provides guidance on whether and when market purchasers 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
purchaser 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 purchaser 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 purchaser
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.
98
It is
unknown at this time the effect that such passage, adoption or
modification will have, positively or negatively, on our industry
or on the Fund. The size or duration of positions available to the
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 Fund 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 the Fund.
These
new regulations and the resulting increased costs and regulatory
oversight requirements may result in market purchasers 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 purchasers are
likely to be higher due to the increased costs of compliance with
the new regulations. These consequences could adversely affect the
Fund’s returns.
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
purchasers 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
AS OF THE DATE OF THIS PROSPECTUS THE FUND HAS NOT COMMENCED
TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
99
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.
|
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Amount
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SEC
registration fee (actual)
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(1)
|
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NYSE
Arca Listing Fee (actual)
|
$7,000
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FINRA
filing fees (actual)
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$1,000
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Blue
Sky expenses
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n/a
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Auditor’s
fees and expenses
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$25,000
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Legal
fees and expenses
|
$165,000
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Printing
expenses
|
n/a
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Miscellaneous
expenses
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n/a
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Total
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(2)
|
(1)
Applicable SEC
registration fees have been deferred in accordance with Rules
456(d) and 457(u) of the Securities Act and will be paid
on an annual net basis no later than 90 days after the end of each
fiscal year and are therefore not estimable at this
time.
(2)
Because an
indeterminable amount of securities is covered by this registration
statement, the total expenses in connection with the issuance and
distribution of the securities are, therefore, not currently
determinable.
Item
14.
Indemnification
of Directors and Officers.
The
Trust’s Fifth Amended and Restated Declaration of Trust and
Trust Agreement (the “Trust Agreement”) provides
that the Sponsor shall be indemnified by the Trust (or, by a series
of the Trust separately to the extent the matter in question
relates to a single series or disproportionately affects a series
in relation to other series) against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with its activities for the Trust,
provided that (i) the Sponsor was acting on behalf of or
performing services for the Trust and has determined, in good
faith, that such course of conduct was in the best interests of the
Trust and such liability or loss was not the result of gross
negligence, willful misconduct, or a breach of the Trust Agreement
on the part of the Sponsor and (ii) any such indemnification
will only be recoverable from the applicable trust estate or trust
estates. All rights to indemnification permitted by the Trust
Agreement and payment of associated expenses shall not be affected
by the dissolution or other cessation to exist of the Sponsor, or
the withdrawal, adjudication of bankruptcy or insolvency of the
Sponsor, or the filing of a voluntary or involuntary petition in
bankruptcy under Title 11 of the Bankruptcy Code by or against the
Sponsor.
Notwithstanding the
foregoing, the Sponsor shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation
of U.S. federal or state securities laws unless (i) there has
been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee and the court approves the indemnification of such
expenses (including, without limitation, litigation costs),
(ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular
indemnitee and the court approves the indemnification of such
expenses (including, without limitation, litigation costs) or
(iii) a court of competent jurisdiction approves a settlement
of the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should be
made.
100
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.
101
Item
16.
Exhibits and Financial Statement
Schedules.
(a)
Exhibits
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23.1
|
Consents of Vedder
Price P.C. (included in Exhibits 5.1 and 8.1).*
|
* Filed
Herewith.
(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.
(13)
Previously filed as
a like-numbered exhibit to Registrant’s Report on Form 10-K
for the fiscal year ended December 31, 2020, filed on
March 16, 2021.
(14)
Previously filed as
Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2021, filed on
March 10, 2021, and incorporated by reference
herein.
(15)
Previously filed as
a like-numbered exhibit to Post-Effective Amendment No. 3 to
Registrant’s Registration Statement on Form S-1 (333-256339),
filed on June 2, 2022, 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.
102
Item
17.
Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To file,
during any period in which offers, or sales are being made, a
post-effective amendment to this registration
statement:
(i) To include
any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however,
that paragraphs (a)(1)(i), (ii), and (iii) of this
section do not apply if the registration statement is on Form
S-1, Form S-3, Form SF-3 or Form F-3 and the information required
to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement, or, as
to a registration statement on Form S-3, is contained in a form of
prospectus filed pursuant to § 230.424(b) that is
part of the registration statement.
(2) That, for
the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof.
(3) To remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4) That, for
the purpose of determining liability under the Securities Act of
1933 to any purchaser:
(i) If the
registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to
an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first
use.
103
(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.
(6) That, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant’s annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee
benefit plan’s annual report pursuant to
Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration
statement 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.
(7) 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.
104
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 July 20,
2022.
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Teucrium Commodity Trust
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||
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||
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By:
Teucrium Trading, LLC, Sponsor
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||
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By:
|
/s/ Sal
Gilbertie
|
Date:
July 20, 2022
|
|
|
Sal
Gilbertie
Principal
Executive Officer, Secretary and Member
|
|
Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities and on the dates as indicated. 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 each of 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
|
|
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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July
20, 2022
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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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July
20, 2022
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/s/
Steve Kahler
Steve
Kahler
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Chief
Operating Officer
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July
20, 2022
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105
Exhibit Index
106
July
20, 2022
|
Teucrium
Trading, LLC
as
Sponsor to Teucrium Commodity Trust
Three
Main Street, Suite 215
Burlington,
VT 05401
|
Re:
Teucrium
Commodity Trust, and
Hashdex Bitcoin Futures ETF, 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 an indeterminate number of common units of
fractional undivided beneficial interest (the “Shares”)
in the Hashdex Bitcoin Futures ETF, 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 as of April 26, 2019 (the “Trust Agreement”),
between the Sponsor and Wilmington Trust Company, a Delaware
banking corporation, as trustee of the Trust (the
“Trustee”);
(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
as of October 26, 2009, as amended by the First Amendment to the
Amended and Restated Limited Liability Company Agreement of the
Sponsor, dated as of September 30, 2011, Second Amendment to the
Amended and Restated Limited Liability Company Agreement of the
Sponsor, dated as of May 24, 2012, and Third Amendment to the
Amended and Restated Limited Liability Company Agreement of the
Sponsor, dated as of 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)
the Instrument
Establishing New Series of Teucrium Commodity Trust, dated May 23,
2022;
(h)
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;
(i)
a Certificate of
Good Standing for the Trust, dated June 13, 2022, obtained from the
Secretary of State;
(j)
a Certificate of
Good Standing for the Sponsor, dated June 13, 2022, obtained from
the Secretary of State; and
(k)
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
herein, 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 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
|
|
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.
|
July
20, 2022
|
Teucrium
Commodity Trustc/o Teucrium Trading, LLC
Three
Main Street, Suite 215
Burlington,
Vermont 05401
|
Re:
Hashdex Bitcoin
Futures ETF
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 Hashdex Bitcoin Futures ETF (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 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.
This
opinion is furnished to the Fund for its benefit in connection with
the Registration Statement and is not to be relied upon, for any
other purpose, in whole or in part, without our express prior
written consent. Shareholders of the Fund may rely on this opinion,
it being understood that we are not establishing any
attorney-client relationship with any shareholder of the Fund. This
letter is not to be relied upon for the benefit of any other
person.
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.
|
Very
truly yours,
/s/
Vedder Price P.C.
VEDDER
PRICE P.C.
|
|
|
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.
|
VP/#56223733.1
Exhibit 10.8
SIXTH AMENDMENT
TO AMENDED AND RESTATED
DISTRIBUTION SERVICES
AGREEMENT
This sixth amendment (the
“Amendment”) to the Amended and Restated Distribution
Agreement (the “Agreement”) dated as of November 17,
2010, by and among Teucrium Trading, LLC (the
“Sponsor”), Teucrium Commodity Trust (the
“Trust”) and Foreside Fund Services, LLC
(“Foreside”) is entered into as of ___July 6, 2022______, 2022 (the
“Effective Date”).
WHEREAS, the Sponsor, the Trust and
Foreside (the “Parties”) desire to amend the Agreement
to reflect an updated list of Funds; and
WHEREAS, the Parties desire to amend the
Agreement to reflect an updated Fee Schedule;
and
WHEREAS, pursuant to Section 8(b) of the
Agreement, no provisions may be changed, waived, discharged or
terminated except by an instrument in writing and signed by the
Parties.
NOW
THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are acknowledged, the Parties hereby agree
as follows:
1.
Exhibit A to the Agreement is
hereby deleted and replaced in its entirety by the Exhibit A
attached hereto.
2.
Exhibit B to the Agreement is
hereby deleted and replaced in its entirety by the Exhibit B
attached hereto.
3.
Except as expressly amended hereby,
all of the provisions of the Agreement shall remain unamended and
in full force and effect to the same extent as if fully set forth
herein.
4.
This Amendment shall be governed
by, and the provisions of this Amendment shall be construed and
interpreted under and in accordance with, the laws of the State of
Delaware.
IN
WITNESS WHEREOF, the Parties hereto have caused this
Amendment to be executed in their names and on their behalf by and
through their duly authorized officers, as of the Effective
Date.
By:
____/s/
Theresa Cowan____________
Teresa Cowan,
President
TEUCRIUM
TRADING, LLC
By:
__/s/_Sal
Gilbertie________________
Name: Sal
Gilbertie
Tile: CEO
TEUCRIUM
COMMODITY TRUST
By:
__/s/_Cory
Mullen-Rusin___________
Name: Cory
Mullen-Rusin
Tile: CFO
EXHIBIT A
Teucrium Corn
Fund
Teucrium Soybean
Fund
Teucrium Sugar Fund
Teucrium Wheat
Fund
Teucrium Water
Fund
Hashdex
Bitcoin Futures ETF
EXHIBIT B
Fee Schedule*
|
Fixed
Fee
|
Rate
|
|
Base Fee
|
$100,000 per annum, calculated and
billed monthly
|
|
|
|
|
Asset-Based
Fee
|
Rate
|
|
Basis point fee on all assets under
management for Funds listed in Exhibit A
|
One basis point (0.01%) per annum
on the total average net assets of the Funds listed in Exhibit A.
Such fee to be calculated and billed monthly.
|
The maximum fees to be received by Foreside per Fund over the two
years of each Offering:
CORN:
$370,000 (Allocated base fee plus 1
basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has $1,201,888,182 in average net
assets over the first two years of
distribution.
SOYBEAN:
$85,270.66 (Allocated base fee plus
1 basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has a constant $250 million in
average net assets over the first two years of
distribution.
SUGAR:
$85,270.66 (Allocated base fee plus
1 basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has a constant $250 million in
average net assets over the first two years of
distribution.
WHEAT:
$85,270.66 (Allocated base fee plus
1 basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has a constant $250 million in
average net assets over the first two years of
distribution.
WATER:
$85,270.66 (Allocated base fee plus
1 basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has a constant $250 million in
average net assets over the first two years of
distribution.
BITCOIN:
$85,270.66 (Allocated base fee plus
1 basis point per annum on total gross offering proceeds). This
maximum assumes that the Fund has a constant $250 million in
average net assets over the first two years of
distribution.
Out-Of-Pocket
and Related Expenses
The Adviser shall also reimburse
Distributor for all FINRA filing fees related to
Distributor’s review of sales and advertising materials for
the each Fund.
Maximum out-of-pocket expenses to be
received by Foreside per Fund over the two years of each
offering:
CORN:
$6,000 sales & advertising
FINRA filing fees
SOYBEAN:
$6,000 sales & advertising FINRA filing
fees
SUGAR:
$6,000
sales & advertising FINRA filing fees
WHEAT:
$6,000 sales
& advertising FINRA filing fees
WATER:
$6,000 sales
& advertising FINRA filing fees
BITCOIN:
$6,000 sales &
advertising FINRA filing fees
Sales and
advertising FINRA filing fees are Issuer Costs as defined pursuant
to FINRA Rule 2310(b)(4)(C) and are not considered part of the
Distributor’s underwriting compensation.
Exhibit 10.11
SECOND AMENDMENT
TO THE CUSTODY
AGREEMENT
THIS SECOND AMENDMENT effective as of the last date on the
signature block, to the Custody Agreement (the “Agreement”) dated as of August 14, 2015, as
amended, is entered into by and between TEUCRIUM COMMODITY TRUST, a Delaware
statutory trust (the “Trust”), TEUCRIUM TRADING, LLC, a Delaware
limited liability company, the sponsor of the Funds
(“Sponsor”) and U.S.
BANK NATIONAL ASSOCIATION, a national banking association
organized and existing under the laws of the United States of
America (the “Custodian”)
RECITALS
WHEREAS, the parties have entered into the Agreement;
and
WHEREAS, the parties
desire to add the Hashdex Bitcoin Futures ETF to Exhibit A of the
Agreement, and
WHEREAS, Section 15.02 of the Agreement allows for its
amendment by a written instrument executed by all
parties.
NOW, THEREFORE, the parties agree as follows:
1.
Exhibit A of the Agreement is hereby superseded and replaced in its
entirety with Exhibit A attached hereto.
2.
Except to the extent amended hereby, the
Agreement shall remain in full force and
effect.
SIGNATURES
IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be executed by a duly
authorized officer or one or more counterparts as of the date and
year first written above.
U.S. BANK, N.A.
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
_______________________________
TEUCRIUM COMMODITY TRUST
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
_______________________________
TEUCRIUM TRADING, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
_______________________________
EXHIBIT A
to the Custody Agreement
Separate
Series of Teucrium Commodity Trust
|
|
|
Name of Series
|
|
Teucrium
Corn Fund
Teucrium
Wheat Fund
Teucrium
Soybean Fund
Teucrium
Sugar Fund
Teucrium
Agricultural Fund
Hashdex
Bitcoin Futures ETF
|
Exhibit
10.14
SECOND AMENDMENT
TO THE FUND ACCOUNTING SERVICING AGREEMENT
THIS SECOND AMENDMENT effective as of the last date on the
signature block, to the Fund Accounting Servicing Agreement (the
“Agreement”) dated as of August 14, 2015, as
amended, is entered into by and between TEUCRIUM COMMODITY TRUST, a Delaware
statutory trust (the “Trust”), TEUCRIUM TRADING, LLC, a Delaware
limited liability company, the sponsor of the Funds (the
“Sponsor”), and U.S.
BANCORP FUND SERVICES, LLC d/b/a U.S. BANK GLOBAL FUND
SERVICES, a Wisconsin limited liability company
(“USBFS”).
RECITALS
WHEREAS, the parties have entered into the Agreement;
and
WHEREAS, the parties
desire to add the Hashdex Bitcoin Futures ETF to Exhibit A of the
Agreement, and
WHEREAS, Section 15 of the Agreement allows for its
amendment by a written instrument executed by all
parties.
NOW, THEREFORE, the parties agree as follows:
1.
Exhibit A of the Agreement is hereby superseded and replaced in its
entirety with Exhibit A attached hereto.
2.
Except to the extent amended hereby, the
Agreement shall remain in full force and
effect.
SIGNATURES
IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be executed by a duly
authorized officer or one or more counterparts as of the date and
year first written above.
TEUCRIUM COMMODITY TRUST
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
TEUCRIUM TRADING, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
U.S. BANCORP FUND SERVICES, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
Exhibit A to the Fund Accounting Servicing Agreement –
Teucrium Commodity Trust
Separate
Series of Teucrium Commodity Trust
|
Name of Series
Teucrium
Corn Fund
Teucrium
Wheat Fund
Teucrium
Soybean Fund
Teucrium
Sugar Fund
Teucrium
Agricultural Fund
Hashdex
Bitcoin Futures ETF
|
|
Exhibit 10.17
SECOND AMENDMENT
TO THE TRANSFER AGENT SERVICING AGREEMENT
THIS SECOND AMENDMENT effective as of the last date on the
signature block, to the Transfer Agent Servicing Agreement (the
“Agreement”) dated as of August 14, 2015, as
amended, is entered into by and between TEUCRIUM COMMODITY TRUST, a Delaware
statutory trust (the “Trust”), TEUCRIUM TRADING, LLC, a Delaware
limited liability company, the sponsor of the Funds (the
“Sponsor”), and U.S.
BANCORP FUND SERVICES, LLC d/b/a U.S. BANK GLOBAL FUND
SERVICES, a Wisconsin limited liability company
(“USBFS”).
RECITALS
WHEREAS, the parties have entered into the Agreement;
and
WHEREAS, the parties
desire to add the Hashdex Bitcoin Futures ETF to Exhibit A of the
Agreement, and
WHEREAS, Section 12 of the Agreement allows for its
amendment by a written instrument executed by all
parties.
NOW, THEREFORE, the parties agree as follows:
1.
Exhibit A of the Agreement is hereby superseded and replaced in its
entirety with Exhibit A attached hereto.
2.
Except to the extent amended hereby, the
Agreement shall remain in full force and
effect.
SIGNATURES
IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be executed by a duly
authorized officer or one or more counterparts as of the date and
year first written above.
TEUCRIUM COMMODITY TRUST
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
TEUCRIUM TRADING, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
U.S. BANCORP FUND SERVICES, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
Exhibit A to the Transfer Agent Servicing Agreement –
Teucrium Commodity Trust
Separate
Series of Teucrium Commodity Trust
|
Name of Series
Teucrium
Corn Fund
Teucrium
Wheat Fund
Teucrium
Soybean Fund
Teucrium
Sugar Fund
Teucrium
Agricultural Fund
Hashdex
Bitcoin Futures ETF
|
|
Exhibit
10.20
SECOND AMENDMENT
TO THE FUND ADMINISTRATION SERVICING AGREEMENT
THIS SECOND AMENDMENT effective as of the last date of the
signature block, to the Fund Administration Servicing Agreement
(the “Agreement”) dated as of August 14, 2015, as
amended, is entered into by and between TEUCRIUM COMMODITY TRUST, a Delaware
statutory trust (the “Trust”), TEUCRIUM TRADING, LLC, a Delaware
limited liability company, the sponsor of the Funds (the
“Sponsor”), and U.S.
BANCORP FUND SERVICES, LLC d/b/a U.S. BANK GLOBAL FUND
SERVICES, a Wisconsin limited liability company
(“USBFS”).
RECITALS
WHEREAS, the parties have entered into the Agreement;
and
WHEREAS, the parties
desire to add the Hashdex Bitcoin Futures ETF to Exhibit A of the
Agreement, and
WHEREAS, Section 12 of the Agreement allows for its
amendment by a written instrument executed by all
parties.
NOW, THEREFORE, the parties agree as follows:
1.
Exhibit A of the Agreement is hereby superseded and replaced in its
entirety with Exhibit A attached hereto.
2.
Except to the extent amended hereby, the
Agreement shall remain in full force and
effect.
SIGNATURES
IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be executed by a duly
authorized officer or one or more counterparts as of the date and
year first written above.
TEUCRIUM COMMODITY TRUST
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
TEUCRIUM TRADING, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
U.S. BANCORP FUND SERVICES, LLC
By:________________________________
Name:
_____________________________
Title:
______________________________
Date:
______________________________
Exhibit A to the Fund Administration Servicing Agreement –
Teucrium Commodity Trust
Separate
Series of Teucrium Commodity Trust
|
|
|
Name of Series
Teucrium
Corn Fund
Teucrium
Wheat Fund
Teucrium
Soybean Fund
Teucrium
Sugar Fund
Teucrium
Agricultural Fund
Hashdex
Bitcoin Futures ETF
|
Exhibit
10.21
‘33 Act Fund Platform Support Agreement
This ‘33 Act Fund Platform Support
Agreement (the “Agreement”)
is made and entered into by and among Toroso Investments, LLC
(“Toroso”),
Tidal ETF Services
LLC (“Tidal”),
Hashdex Asset
Management Ltd. (“Hashdex”),
Victory Capital
Management Inc.
(“Victory
Capital”) and
Teucrium Trading,
LLC (“Teucrium”)
as of May 23, 2022 (the “Effective
Date”). Each of Toroso, Tidal, Hashdex, Victory Capital,
and Teucrium may be referred to herein as a
“Party,”
or collectively, as the “Parties.”
BACKGROUND:
A. Toroso is a Delaware limited liability company,
and is an investment adviser registered with the Securities and
Exchange Commission (the “SEC”) pursuant to the Investment Advisers Act
of 1940 as amended (the “Advisers
Act”).
B. Toroso is also 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”).
C. Tidal
is a Delaware limited liability company that specializes in, among
other things, consulting and administrative support services to
pooled investment vehicles.
D. Hashdex
is a Cayman Islands investment manager that specializes in, among
other things, the management, research, investment analysis and
other investment support services of funds and ETFs with investment
strategies involving bitcoin and other cryptoassets.
E. Victory
Capital is a New York corporation, and is an investment adviser
registered with the SEC pursuant to the Advisers Act.
F. Teucrium
is registered as a CPO and a CTA with the CFTC and is a member of
the NFA.
G. Teucrium has developed the Hashdex Bitcoin Futures
Fund (formerly Teucrium Bitcoin Futures Fund) (the
“Fund”),
which as of the date of this Agreement is a series of the Teucrium
Commodity Trust (the “Trust”),
which Trust is governed by a certain Fifth Amended and Restated
Declaration of Trust and Trust Agreement dated as of April 26, 2019
by and between Teucrium Trading, LLC as Sponsor and Wilmington
Trust as Delaware Trustee (the “Current
Trustee”).
H. It is the
expectation of the Parties that Toroso will use commercially
reasonable efforts to organize a new Delaware statutory trust (the
“New
Trust”) and a new series thereof (the
“New
Fund”) and enter into a Sponsorship and Asset Transfer Agreement pursuant
to which, among other things, the assets of the Fund (and certain
other assets as applicable) will be transferred to the New Fund as
a series of the New Trust, as successor to the Fund and the Trustee
will transfer to Toroso sponsorship of the
Fund.
I. The Parties intend that each Party’s
respective financial obligations and rights to any profits
associated with the Fund (and the New Fund) shall be as set forth
in Schedule A attached hereto (the “Schedule”).
J. The
Parties mutually desire to set forth in this Agreement the terms
and conditions applicable to the launch, marketing, promotion,
development, and ongoing operation of the Fund (and the New Fund),
as well as to establish the Parties’ respective rights in
profits and obligations for expenses of the Fund (and the New
Fund).
K. This
Background section and the Schedule attached hereto are
incorporated by reference into and made a part of this
Agreement.
TERMS:
NOW, THEREFORE, in
consideration of the mutual promises and consideration contained
herein, the receipt and sufficiency of which is acknowledged by
each Party, intending to be legally bound, agree as
follows:
1. Definitions.
For the purposes of this
Agreement:
“Affiliate”
means, when used with respect to a Party, any other Entity directly
or indirectly Controlling, Controlled by, or under common Control
with the subject Party.
“Approved Stock
Exchange” or
“Arca”
means the NYSE Arca stock exchange for the Fund during such period
it remains a series of the Trust. If the Fund is transitioned to
the New Trust, the term “Approved Stock Exchange” shall
mean a U.S. securities exchange selected by Toroso and Hashdex and
set forth in the New Fund’s registration
statement.
“Confidential
Information” means: (i)
any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited
to, information about product plans, marketing strategies,
finances, operations, customer relationships, customer profiles,
customer lists, sales estimates, business plans, and internal
performance results relating to the past, present or future
business activities of a Party or the Trust or the New Trust; (ii)
any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable
and secret in the sense that its confidentiality affords the
disclosing Party a competitive advantage over its competitors; or
(iii) anything designated as confidential or in the case of data or
information communicated orally, is declared as confidential or
proprietary at the time of disclosure and confirmed in writing by
the disclosing Party, summarizing such data or information, within
a reasonable period of time thereafter.
“Control”
means the direct or indirect ownership of at least 50% of the
outstanding voting securities of an Entity, or the right to control
the policy decisions of an Entity.
“Entity”
means any corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust,
unincorporated organization, or other legal
entity.
“Net
Assets” means the
Fund’s net assets or the New Fund’s net assets, as the
case may be.
“New
Fund” has the meaning set
forth in the Background.
“New
Trust” has the meaning
set forth in the Background.
“Profit”
shall have the meaning set forth in the
Schedule.
“Reasonable
efforts” shall include taking into account relevant
commercial and regulatory factors.
“Regulations”
(or “regulatory
proceedings”) means
regulations and proceedings by governmental agencies (such as the
SEC) and self-regulatory organizations (such as FINRA, and
securities or futures exchanges).
“Wind-Down
Costs” has the meaning
set forth on the Schedule.
2. Obligations of the
Parties.
2.1. Each
Party shall bear its respective financing and/or payment
responsibilities as more fully described in Schedule
A.
2.2. Each
of Toroso, Tidal, Teucrium, Victory Capital, and Hashdex
shall:
2.2.1.
to
the extent permitted by applicable law, incorporate the Fund (and
the New Fund) into its marketing activities where appropriate,
which may include, but is not limited to providing a Fund/New Fund
launch press release, website data content, Fund launch webinars,
follow-on webinars, and Fund promotion via social media outlets;
and
2.2.2.
use
Reasonable Efforts to cooperate with each other Party as necessary
to fulfill its respective obligations under this Agreement. For the
avoidance of doubt, and without limitation of the foregoing, each
Party shall use Reasonable Efforts to cooperate with each other
Party and to implement and launch the Fund and to effect the
transition of the Fund to the New Fund under the terms contemplated
by the Schedule.
NOTE:
Each Party acknowledges and agrees that none of the Parties are
registered as a broker-dealer and that none of the Parties shall
take, nor be obligated to take, any actions that would require a
Party to be so registered as a broker-dealer, although certain of
the affiliates of certain Parties may be broker-dealers registered
with the SEC. In addition, if any of the Parties takes any action
required to be undertaken by a registered person, such person shall
be a duly registered representative of a U.S. registered
broker-dealer. For purposes of Sections 2.3 and 2.4, no Party or
its affiliated broker-dealer, if applicable, shall be required to
take any action that is in contravention with any law that is
applicable to such Party or any affiliated
broker-dealer.
2.3. Existing
Fund: During such time as the
Fund remains a series of the Trust, each Party shall
have the following
obligations:
2.3.1.
Teucrium
Obligations:* Unless the
Parties otherwise mutually agree, Teucrium shall act as
“Sponsor” of the Fund (as that term is used in the
prospectus).
2.3.2.
Toroso
Obligations:
None.
2.3.3.
Tidal
Obligations:
None.
2.3.4.
Hashdex
Obligations: Hashdex shall
provide to the other Parties research and analysis regarding
bitcoin and bitcoin markets for use in the operation and marketing
of the Fund. The Parties agree that, except as otherwise agreed by
Hashdex, Hashdex shall be described in the registration statement
and prospectus for the Fund as the “Digital Asset
Adviser” to the Fund and its Sponsor with an obligation to
provide the foregoing services in connection with the
Fund.
2.3.5.
Victory Capital
Obligations: Subject to mutual
agreement of the Parties, Victory Capital shall provide
sub-advisory and sales support services for the
Fund.
*
It is the intention of the Parties to transition some or all of
Teucrium’s obligations to Toroso, Tidal, Hashdex, and/or
Victory Capital on a time schedule to be mutually agreed. For the
avoidance of doubt, Teucrium shall remain the sole Sponsor of the
Fund until an amended registration statement is
effective.
2.4. New
Fund. If the Fund transitions
to the New Trust, each Party shall have the following obligations
with respect to the New Fund:*
2.4.1.
Teucrium
Obligations:
None.
2.4.2.
Toroso
Obligations: Toroso shall serve
as the “Sponsor” of the New Fund (as that term is used
in the prospectus).
2.4.3.
Tidal
Obligations: Tidal shall
provide fund administration and related services for the New
Fund.
2.4.4.
Hashdex
Obligations: Subject to mutual
agreement of the Parties, Hashdex shall provide to Toroso research
and analysis regarding bitcoin and bitcoin markets for use in the
operation and marketing of the New Fund. The Parties agree that,
except as otherwise agreed by Hashdex, Hashdex shall be described
in the registration statement and prospectus for the New Fund as
the “Digital Asset Adviser” to the New Fund and its
Sponsor with an obligation to provide the foregoing services in
connection with the New Fund.
2.4.5.
Victory Capital
Obligations: Subject to mutual
agreement of the Parties, Victory shall provide sub-advisory and
sales support services for the New Fund.
*
The formalization of such roles with respect to the New Fund shall
be made in the format and at a time mutually agreed between
Teucrium, Toroso, Tidal, Hashdex, and Victory Capital, taking into
account the operations of the New Fund and any applicable
regulatory requirements.
3. Fund’s
Name.
3.1. The
name of the Fund includes “Hashdex”, and it shall not
be changed without the written consent of Hashdex. Hashdex hereby
represents, warrants and covenants to the other Parties, that
Hashdex or its Affiliates is the owner or licensee of the
trademarks, service marks and other intellectual property rights in
the name of the Fund, and any logos provided by or on behalf of
Hashdex in connection with this Agreement (collectively, the
“Hashdex
Marks”). Hashdex hereby
further represents, warrants, and covenants to the other Parties,
that Hashdex has the authority to grant all such licenses
contemplated hereby. Hashdex hereby provides each of the other
Parties a fully paid up, royalty free license to use the Hashdex
Marks for purposes related to this Agreement, which shall include,
without limitation, including such Hashdex Marks in the
Fund’s registration statement and marketing materials.
Hashdex hereby grants each of the other Parties the authority to
sub-license such Hashdex Marks to one or more of the Trust, and the
Trust’s service providers for use in connection with this
Agreement. This license and such grant of authority will remain in
effect for the Term and will apply to the Hashdex Marks
notwithstanding the transfer of any such Hashdex Marks by operation
of law or otherwise to any permitted successor, corporation,
organization, or individual. For the avoidance of doubt, the
foregoing license and grant of authority shall terminate upon
Hashdex’s withdrawal from this Agreement.
4. Condition.
4.1. This
Agreement is subject to the completion of the review of the
Fund’s registration statement by the NFA.
4.2. If
the condition of the Section 4.1 is not timely met, each Party
shall have the right to terminate this Agreement by providing
thirty (30) days’ prior written notice to the other Parties.
Such notice shall specify with particularity the nature of the
existence of the foregoing conditions and shall be effective on the
date of such termination specified therein unless the breaching
Party shall correct such foregoing condition within the notice
period. If the failure to satisfy the condition is due to
Teucrium’s failure to use Reasonable Efforts, Teucrium shall
reimburse Toroso and Hashdex for their payments under this
Agreement and be responsible for all Wind-Down Costs.
5. Term
and Termination.
5.1.
Indefinite
Term. This Agreement shall be
effective as of the Effective Date and shall continue in effect
until the earliest of (i) its termination in accordance with
Section 4 (Conditions) above, (ii) the Fund or the New Fund, as the
case may be, withdraw its registration statement from the SEC or
completely liquidates (in either case, other than, in the case of
the Fund, to reorganize into the New Fund or another successor
entity), (iii) at any time there is only one Party remaining to
this Agreement, or (iv) upon written agreement of all of the
then-remaining Parties.
5.2.
Forced
Withdrawal. A Party may be
forced to withdraw (or elect to withdraw pursuant to clause (ii),
(iii) or (iv) below) as a Party to this Agreement upon one or more
of the following occurrences:
(i)
in
accordance with subsection 5.3 below upon such Party’s
uncured material breach of this Agreement;
(ii)
upon
ninety (90) days’ prior written notice by a Party to the
other Parties (or such lesser period of time as may be necessary
pursuant to law, rule, regulation or court order) if any
legislation or regulation is finally adopted or any government
interpretation is issued that prevents that Party from fulfilling
any of its material obligations contained in this
Agreement;
(iii)
after
the first anniversary of this Agreement, a Party may withdraw from
this Agreement by providing the other Parties at least 180
days’ written notice; provided that such Party and the
remaining Parties shall promptly work together in good faith to
address all of such withdrawing Party’s obligations under
this Agreement by: (x) assuming one or more of the withdrawing
Party’s obligations under this Agreement; (y) engaging a
third-party, reasonably satisfactory to all remaining Parties, to
assume one or more of the withdrawing Party’s obligations
through an amendment of this Agreement; and/or (z) waiving future
performance of one or more of the withdrawing Party’s
obligations; or
(iv)
any
Party may withdraw from this Agreement by providing the other
Parties at least thirty (30) days’ prior written notice if
the Fund does not commence operations prior to another ’33
Act bitcoin futures fund.
5.3.
Breach.
In the case of (i) breach of any term or condition of the Agreement
by a Party that has a material adverse effect on the business,
assets, liabilities, operations, condition (financial or otherwise)
or results of operations of the Fund (or the New Fund) or the Trust
(or the New Trust), or (ii) material breach of any payment
obligation of the Agreement, a non-breaching Party or Parties
may remove such breaching Party as a party to this Agreement by
giving at least thirty (30) days’ prior written notice to all
of the other Parties of its intent to cause such removal if such
breach is not remedied. Such notice shall specify with
particularity the nature of the alleged breach. The date of the
breaching Party’s removal as a party from this Agreement
shall be set forth in such notice shall be the effective date of
such withdrawal unless the breaching Party shall correct such
breach within the notice period.
5.4.
Effect of
Withdrawal. In the event of a
Party’s voluntary or forced withdrawal as a party to this
Agreement, the withdrawing Party shall forfeit all rights to any
revenue or profit generated by the Fund after the date of such
withdrawal (but not revenue or profits generated prior to such
time, including those that have not been distributed). Subject to
Sections 5.5, 6, 7, 8 and 9 below, upon a Party’s withdrawal
from this Agreement, the Agreement shall be deemed terminated with
respect to such Party and such Party shall have no further
financial obligations with respect to Fund costs or expenses that
arise after such date.
The
remaining Parties shall promptly work together in good faith to
address all of such withdrawing Party’s obligations under
this Agreement by: (i) assuming one or more of the withdrawing
Party’s obligations under this Agreement; (ii) engaging a
third-party to assume one or more of the withdrawing Party’s
obligations; and/or (iii) waiving future performance of one or more
of the withdrawing Party’s obligations.
5.5.
Effect of
Termination. In the event of
the Fund’s wind-down, each then-remaining Party shall bear
its respective financial obligation set forth on the Schedule with
respect to any Fund Wind-Down Costs. If the Fund is wound down and
liquidated within 180 days of a Party’s withdrawal from this
Agreement, such Party shall remain obligated to pay its respective
portion of the Fund’s Wind-Down Costs unless a third-party
successor assumed such Party’s responsibilities under Section
5.2(iii)(y).
6. Warranties.
6.1.
Each
Party hereby represents and warrants to the other Parties
that:
6.1.1. it
has the full right, power and authority to execute, deliver and
perform this Agreement in accordance with its terms;
6.1.2. this
Agreement has been duly executed and delivered by or on behalf of
such Party and constitutes a legal, valid, and binding obligation
of such Party, enforceable against such Party in accordance with
its terms; and
6.1.3. unless
expressly set forth herein, no consent, approval, authorization or
order of any person or entity is required for the execution
delivery or performance of this Agreement by such Party, and
neither the execution, delivery nor performance of this Agreement
by such Party will (a) conflict with, or result in a breach of, or
constitute a default under, or result in a violation of, any
organizational document of such Party or any agreement or
instrument to which such Party is subject or by which it is bound,
or (b) result in the violation of any applicable law, rule, or
regulation to which such Party is subject.
6.2.
The
representations and warranties set forth in this Section 6
(Warranties) shall survive the execution, delivery, and termination
of this Agreement.
7. Limitations
of Liability
7.1.
Except for (i) Operational Costs and Profits as contemplated by
Schedule A, (ii) breach of Section 9 (Confidentiality), and (iii)
as otherwise expressly contemplated by this Agreement, no party
shall be liable for any, special or punitive damages arising out of
or relating to this Agreement, including, but not limited to, any
lost profits or revenues, harm to business, or lost savings of any
kind or nature whatsoever, regardless of the form of action,
whether in contract, warranty, strict liability, or tort
(including, without limitation, negligence of any kind, whether
active or passive) even if such party has been notified of the
possibility of such loss.
7.2.
Except
for a Party’s financial obligations with respect to Fund
costs and expenses, a Party’s indemnification obligations,
and except if otherwise expressly specified in this Agreement or in
the Schedule, in no event will the aggregate liability of any
Party, whether in contract , in tort (including negligence), under
a warranty, under statute or otherwise, for any claim, direct or
otherwise, arising out of or in connection with this Agreement,
exceed $500,000, regardless of the cause or form of action. For the
avoidance of doubt, any Start-Up Costs, Operational Costs, Profits,
and/or Wind-Down Costs payable under this Agreement shall be
excluded from the foregoing liability cap.
7.3.
Teucrium
shall not be liable for actions of any other Party, including but
not limited to breach of applicable law, that occur following the
transfer of the assets of the Fund to the New Fund as a series of
the New Trust, and the transfer to Toroso of sponsorship of the
Fund.
7.4.
This
provision shall survive the termination or expiration of this
Agreement.
8. Indemnification.
8.1.
Each Party (such Party, the
“Indemnifying
Party”) shall indemnify,
defend and hold harmless the other Parties (the
“Indemnified
Parties”), their
respective affiliates, and their respective officers, directors,
and employees, against any and all judgments, damages, costs or
losses of any kind as a result of any claim, action or proceeding
(whether pending or threatened) that arises out of or relates to
(i) any breach by the Indemnifying Party of its representations or
warranties or agreements under this Agreement, (ii) such
Indemnifying Party’s gross negligence or willful misconduct,
including the gross negligence or willful misconduct of the
Indemnifying Party’s directors, officers, employees, and
agents, unless such gross negligence or willful misconduct is
carried out at the express written instruction of an Indemnified
Party; and/or (iii) any breach of the confidentiality provisions of
this Agreement by the Indemnifying Party.
8.2.
Each
Party shall indemnify, defend, and hold harmless each of the other
Parties, and their respective affiliates, and their respective
officers, directors, and employees, against any and all judgments,
damages, costs or losses of any kind as a result of any claim,
action or proceeding (whether pending or threatened) that arises
directly out of or relates directly to any untrue statement of a
material fact provided by or on behalf of such Party that is
intended to be contained in the Fund’s or the New
Fund’s registration statement, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to
the Fund or New Fund, as the case may be, by such Indemnifying
Party or the omission to state therein a material fact known to the
Indemnifying Party which was required to be stated therein or
necessary to make the statements therein not
misleading.
8.3.
Hashdex
shall indemnify, defend and hold harmless each of the other
Parties, and their respective affiliates, officers, directors, and
employees, against any and all judgments, damages, costs or losses
of any kind as a result of any claim, action or proceeding (whether
pending or threatened) that arises out of or relates to third-party
claim with regard to a Party’s, or any of the Fund’s
service provider’s use of any Hashdex Marks as contemplated
by this Agreement, or in the Trust’s registration
statement.
8.4.
Each Party (such Party, the
“Post-Transfer
Indemnifying Party”)
shall indemnify, defend and hold harmless Teucrium, and its
respective affiliates, officers, directors, and employees, against
any and all judgments, damages, costs or losses of any kind as a
result of any claim, action or proceeding (whether pending or
threatened) relating to actions of such Post-Transfer Indemnifying
Party, including but not limited to breach of applicable law, that
occur following the transfer of the assets of the Fund to the New
Fund as a series of the New Trust, and the transfer to Toroso of
sponsorship of the Fund.
8.5.
A
Party’s indemnification obligations are subject to the
following: (i) such Indemnified Party notifies the Indemnifying
Party within fifteen (15) days of such claim, action or proceeding,
and (ii) such Indemnified Party cooperates with the Indemnifying
Party in the defense thereof. Notwithstanding the foregoing, a
delay in notice does not relieve an Indemnifying Party of any
liability to an Indemnified Party, except to the extent the
indemnifying Party shows that the delay prejudiced the defense of
the action. The Indemnified Party shall have no right to settle any
claim, action, or proceeding without the written consent of the
Indemnifying Party without waiving the indemnity hereunder. The
Indemnifying Party, in the defense of any such claim, action or
proceeding, except with the written consent of such Indemnified
Party, shall not consent to entry of any judgment or enter into any
settlement which either (i) does not include, as an unconditional
term, the grant by the claimant to such Indemnified Party of a
release of all liabilities in respect of such claims or (ii)
otherwise adversely affects the rights of such Indemnified Party.
Notwithstanding the foregoing, the Indemnifying Party shall not be
required to indemnify such Indemnified Party to the extent any
claims, actions or proceeding arise out of or relate to (i) a
breach by such Indemnified Party of its representations or
warranties or agreements made herein, or (ii) such Indemnified
Party’s negligence or willful misconduct.
8.6.
This
provision shall survive the termination or expiration of this
Agreement.
9. Confidential
Information.
9.1.
No
Party will use, copy, or disclose, or permit any unauthorized
person access to, another Party’s Confidential Information,
except as expressly directed by such other Party or as permitted
herein.
9.2.
Each
Party agrees that: (a) all Confidential Information shall remain
the exclusive property of the owner and the receiving Party shall
not use any Confidential Information for any purpose except in
furtherance of this Agreement; (b) it shall maintain, and shall use
prudent methods to cause its employees and agents to maintain, the
confidentiality and secrecy of the Confidential Information; (c) it
shall disclose Confidential Information only to those of its
employees and agents who have a need to know such information in
furtherance of this Agreement and who are aware of the confidential
nature of such information or are under an obligation of
confidentiality; and (d) it shall use prudent methods to ensure
that its employees and agents do not, copy, publish, disclose to
others or use (other than pursuant to the terms hereof) the
Confidential Information.
9.3.
Confidential
Information shall not be subject to the above confidentiality
obligation to the extent: (i) it is already known to the receiving
Party at the time it is obtained; (ii) it is or becomes publicly
known or available through no wrongful act of the receiving Party;
(iii) it is rightfully received from a third party who, to the
receiving Party’s knowledge, is not under a duty of
confidentiality; (iv) it is released by the protected Party to a
third party without restriction; or (v) it has been or is
independently developed or obtained by the receiving Party without
reference to the Confidential Information provided by the protected
Party.
9.4.
Confidential
Information may be disclosed by a Party without violating its
confidentiality obligations under this Agreement to third parties
to the limited extent that: (i) release of the information is
necessary or appropriate in connection with the provision of
services contemplated by this Agreement (including services to the
Fund); (ii) it is required to be disclosed by the receiving Party
pursuant to a requirement of a court order, subpoena, governmental
or regulatory authority or agency, law, or binding discovery
request in pending litigation (provided the receiving Party will
provide the disclosing Party written notice of such requirement, to
the extent such notice is permitted); (iii) it is requested to be
disclosed by a governmental or regulatory authority or agency with
jurisdiction over the disclosing Party; or (iv) it is relevant to
any claim or cause of action between the Parties or the defense of
any claim or cause of action asserted against the receiving Party.
Confidential Information shared with third parties in accordance
with the foregoing sentence shall otherwise remain subject to the
confidentiality obligations of this Section 9. The Parties
acknowledge that this Agreement (other than, to the extent
permitted by applicable law, Schedule A) may be filed as an exhibit
to the Trust’s and the New Trust’s registration
statement.
9.5.
Each
Party shall promptly report to the other Parties any actual or
suspected violation of the terms of this Section 9, and shall take
all reasonable steps to prevent, control, or remedy such
violation.
9.6.
Each
Party acknowledges that each other Party is heavily reliant on the
confidentiality of its Confidential Information and that the
substantial and irreparable damages which such other Party and its
affiliates would sustain upon any violation of this Section 9 may
be impossible to ascertain with precision and that money damages
alone will not provide an adequate remedy to such other Party. In
the event of any violation of the undertakings contained in this
Section 9, the non-breaching Party shall be entitled, in addition
to any other rights or remedies which it may have, to maintain an
action for damages, and preliminary and permanent injunctive and
other equitable relief, including an accounting for any profits
arising from any breach of this Section 9. Any action or proceeding
seeking to enforce any provision of, or based on any right arising
out of, this Section 9 may be brought in the courts competent
jurisdiction in New York, New York, and each Party consents to the
jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection
to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on a Party anywhere. In
the case of any trade secrets or other confidential information,
each Party waives any requirement that another Party prove the
economic value thereof and waives any requirement that such other
Party post a bond or other security in connection with the
enforcement of its rights hereunder.
10. Advertising.
10.1.
Except
as otherwise set forth in this Agreement, a Party shall not use the
name, logos, symbols, trademarks, or other images of another Party
in connection with any marketing, advertising, or other promotional
material, either on-line (e.g., social media) or off-line (e.g.,
newspapers), relating to this Agreement without the prior written
(including email) approval of the relevant other
Party.
10.2.
Each
Party agrees that relevant trademarks may be used during the term
of this Agreement in the marketing of the Fund (unless, for the
avoidance of doubt, such Party has withdrawn from this Agreement),
including Fund prospectuses, statements of additional information,
fact sheets, press releases, the Fund’s website and marketing
campaigns directly connected with the Funds, provided, however,
that prior to any such use of a Party’s trademark, such Party
is afforded at least three (3) business days to consent to such use
by receiving a copy of such materials and a request for the
Party’s consent. If materials using a Party’s trademark
do not differ in a material way from use of such trademark in
substantially similar materials to which the Party has consented,
then no further consent need be procured from such
Party.
10.3.
The
Fund’s initial press release (including any promotional
material) shall be previously approved by all the Parties in
writing (including through email).
11. Miscellaneous.
11.1.
Compliance with
Laws. Each Party shall comply with and give all notices
required by laws, ordinances, rules, regulations and lawful orders
of any public authority (including without limitation child labor
laws) bearing on its performance of its duties and obligations
under this Agreement. Furthermore, each Party at all times shall
observe and comply with all applicable national, supranational
(e.g., European Union) and local laws, ordinances and
regulations that in any manner affect its performance under this
Agreement, and with all applicable orders or decrees as exist at
present and those which may be enacted later by bodies or tribunals
having jurisdiction or authority over the performance of this
Agreement. Each Party agrees that all transactions in connection
with this Agreement will be accurately reflected in its books and
records, and that no funds or other assets shall be paid directly
or indirectly to government officials or persons acting on their
behalf for the purpose of influencing government decisions or
actions with respect to the Fund. Each Party shall notify the other
Parties if it becomes aware of any non-compliance in connection
with this Agreement and shall take all appropriate action necessary
to ensure compliance by itself and by its subcontractors with such
laws, ordinances, rules, applicable regulations, and other policies
and procedures bearing on the performance of this
Agreement.
11.2.
Expense Verification
Rights. The records of each Party to be reviewed for
purposes of costs and expenses verification (the
“Reviewed
Party”), which shall include, but not be limited to,
accounting records, reports, receipts, and any other documentation
relating directly to the costs and expenses incurred by a Party in
connection with performance of this Agreement shall be reviewable
and subject to reproduction, during normal working hours, by the
Reviewing party (the “Reviewing
Party”) or its authorized representative to the extent
necessary to adequately evaluate costs and expenses submitted by
the Reviewed Party, or as required by governmental authorities or
as desirable for any other valid business purpose. The Reviewing
Party or its authorized representative shall give the Reviewed
Party reasonable advanced notice of intent to review expense
records, and shall execute a non-disclosure agreement acceptable to
the Reviewed Party in its good faith opinion. Reviews conducted
under this provision shall be limited to once per calendar year.
Each such review shall be conducted in a manner designed to
minimize the impact to the Reviewed Party’s business,
including the provision of documents by U.S. mail, email, or
similar means of delivery.
11.3.
Entire
Agreement. This Agreement, including any appendices,
schedules, or exhibits hereto (which are hereby expressly
incorporated into and made a part of this Agreement), is solely and
exclusively among the Parties hereto, and represents the entire
understanding and agreement among the Parties with respect to the
subject matter hereof, and supersedes all other negotiations,
understandings and representations (if any) made by and among such
Parties, without prejudice to the agreement between Hashdex and
Victory Capital with respect to the split of their share of
revenues and expenses (and exclusively in relation to Hashdex and
Victory Capital and in connection with such
issue.
11.4.
Amendments.
The provisions of this Agreement may
not be amended, supplemented, waived, or changed orally, except
only by a writing signed by all of the Parties to this Agreement.
There are no oral or written collateral representations, agreements
or understandings except as provided herein. The delay or failure
by any Party to insist, in any one or more instances, upon strict
performance of any of the terms or conditions of this Agreement or
to exercise any right or privilege herein conferred shall not be
construed as a waiver of any such term, condition, right or
privilege, but the same shall continue in full force and
effect.
11.5.
Assignments.
This Agreement may not be assigned by
a Party to any other person or entity without each of the other
Party’s prior written consent, which consent shall not be
unreasonably withheld if the assignee provides written assurances
that it has the requisite licenses and registrations and functional
and financial capacity necessary to fully perform all of the
assignee’s duties and obligations contemplated by this
Agreement. Any assignment or transfer in contravention of this
Section 11.5 shall be null and void. For the avoidance of doubt,
subject to the provision of the written assurances set forth in
first sentence of this Section 11.5 to the other Parties, Teucrium
may, without the consent of any of the other Parties, assign this
Agreement to its parent, subsidiaries and other affiliates that it
controls.
11.6.
Binding
Effect. All of the terms and provisions of this Agreement,
whether so expressed or not, shall be binding upon, inure to the
benefit of, and be enforceable by the Parties and their respective
legal representatives, successors, and permitted
assigns.
11.7.
Notices.
Any notice required or permitted to be
given by a Party to another Party shall be in writing and shall be
deemed to have been given on the date delivered personally or by
courier service, or three days after sent by e-mail, registered or
certified mail, postage prepaid, return receipt requested, or on
the date sent and confirmed received by facsimile transmission to
the other Party’s address set forth below, or such other
address(es) as may be specified in writing by one Party to another
Party.
If
to Toroso:
Toroso
Investments, LLC:
Attn:
Dan Carlson
898
N. Broadway, Suite 2
Massapequa,
NY 11758
e-mail: dcarlson@torosoinv.com
If
to Tidal:
Tidal
ETF Services LLC
Attn:
Eric Falkeis
898
N. Broadway, Suite 2
Massapequa,
NY 11758
e-mail: ericf@tidaletfservices.com
If
to Hashdex:
Hashdex
Asset Management Ltd.
Attn.:
Bruno Ramos de Sousa / Nicole Dyskant
Av.
Ataulfo de Paiva, 1120, Loja A, Leblon
Rio
de Janeiro, RJ, 22440-035 – Brazil
e-mail: bruno.sousa@hashdex.com
/ nicole.dyskant@hashdex.com
If
to Teucrium:
Teucrium
Trading, LLC
Attn:
Sal Gilbertie/Cory Mullen-Rusin
Three
Main Street, Suite 215
Burlington,
VT 05401
email: sal.gilbertie@teucrium.com
/ cory.mullenrusin@teucrium.com
If
to Victory Capital:
Victory
Capital Management Inc.
Attn:
Mannik Dhillon
15935
La Cantera Parkway
San
Antonio, TX 78256
e-mail: mdhillon@vcm.com / cc: legal@vcm.com
or,
to such other address as any Party may designate by notice
complying with the terms of this Section 11.7 and deemed given upon
receipt.
11.8.
Headings.
The headings contained in this
Agreement are for convenience of reference only, and shall not
limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
11.9.
Severability.
If any part of this Agreement or any
other agreement entered into pursuant hereto is contrary to,
prohibited by, or deemed invalid under applicable law or
regulation, such provision shall be inapplicable and deemed omitted
to the extent so contrary, prohibited, or invalid, but the
remainder hereof shall not be invalidated thereby and shall be
given full force and effect so far as possible.
11.10.
Governing
Law.
This Agreement will be governed by and
construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of
laws.
11.11.
Counterparts.
This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
11.12.
Force
Majeure. A Party shall be excused from delays in performing
or from its failure to perform hereunder to the extent that such
delays or failures result from causes beyond the reasonable control
of such Party; provided, however,
in order to be excused from delay or
failure to perform, such Party must act diligently to remedy the
cause of such delay or failure, and shall give the other Parties
prompt written notice of any such delays or
failures.
11.13.
Required
Approvals. Where agreement, approval, acceptance, or consent
by a Party is required by any provision of this Agreement, such
action shall not be unreasonably delayed, conditioned, or
withheld.
11.14.
Independent
Contractors. Nothing in this Agreement shall be deemed to
constitute, create, give effect to or otherwise recognize a joint
venture, partnership or similar business arrangement or entity of
any kind, nor, unless expressly stated herein, make any of the
Parties the agent of another Party, and the rights and obligations
of each Party shall be limited to those expressly stated in this
Agreement.
In Witness Whereof, each Party
has caused this Agreement to be signed and delivered by a duly
authorized officer.
Toroso Investments, LLC
By:
Print Name:
Title:
Date:
Tidal ETF Services LLC
By:
Print Name:
Title:
Date:
Hashdex Asset Management Ltd.
By:
Print Name:
Title:
Date:
Teucrium Trading, LLC
By:
Print Name:
Title:
Date:
By:
Print Name:
Title:
Date:
Victory Capital Management Inc.
By:
Print Name:
Title:
Date:
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We have
issued our reports dated March 16, 2022, with respect to the
combined financial statements of Teucrium Commodity Trust, and the
individual financial statements of each of the funds comprising
Teucrium Commodity Trust included in the Annual Report on Form 10-K
for the year ended December 31, 2021, 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”.
We have
issued our report dated July 20, 2022, with respect to the
financial statement of Hashdex Bitcoin Futures ETF, a series of
Teucrium Commodity Trust, as of May 31, 2022, which is included in
this Registration Statement. We consent to the inclusion of the
aforementioned report 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
July
20, 2022