Teucrium Commodity Trust S-1/A, filed Jun 2, 2022
Teucrium Commodity Trust (BTCK)
S-1/A
2022-06-02
View Original
Added on
October 21, 2026
As filed with the Securities and Exchange Commission on June 2,
2022
Registration No. 333-256339
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 3 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.
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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 June 2, 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 3), 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 swings.
Accordingly, the price of the Fund’s shares may move between
the time an investor places an order to sell with its broker-dealer
and the time of the actual sale.
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 related services. The Marketing
Agents, Digital Asset Advisor and the Sponsor have entered into an
agreement, which sets forth the terms and conditions applicable to
the launch, marketing, promotion, development, ongoing operation of
the Fund and respective rights in profits and obligations for
expenses.
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 33. 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. [●] 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.
Investing
in the Fund involves significant risks. See “What Are the
Risk Factors Involved with an Investment in the Fund?”
beginning on page 10. 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 16.
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 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”).
THE
COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS
OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
This
prospectus is in two parts: a disclosure document and a statement
of additional information. These parts are bound together, and both
contain important information.
The
date of this prospectus is [●]
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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 TO THIS POOL AT
PAGE 32 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO
BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL
INVESTMENT, AT PAGE 8.
THIS
BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL,
YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT
PAGE 7.
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TABLE OF CONTENTS
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Page
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| Prospectus Summary |
2
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| The Offering |
8
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| What are the Risk Factors Involved with an Investment in the Fund? |
10
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| The Offering |
24
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| General Other Pool Disclosure |
52
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| Incorporation By Reference of Certain Information |
57
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| Information You Should Know |
57
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| Where You Can Find More Information |
58
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| Statement Regarding Forward-Looking Statements |
59
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| Appendix A Glossary of Defined Terms |
60
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| Statement of Additional Information |
63
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| Cryptocurrency Derivatives Market Purchasers |
64
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| Regulation |
64
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| Potential Advantages of Investment |
66
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| Fund Performance |
66
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-1-
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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 10, 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. 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 of
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.
●
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.
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.
-2-
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.
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. The Benchmark will only include BTC Contracts. The
Fund's futures contract positions will be rolled on a monthly basis
by closing out the first to expire contracts prior to settlement
and then entering into the third to expire contracts which will
become the new second to expire - maintaining the 50% equal weight,
first to expire and second to expire. Fund rolling will take place
on the market business day preceding the last trading day of the
first to expire contract. The last trade day of the first to expire
contact is currently defined as the last business Friday of the
month.
-3-
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 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
(i.e., when the price pf 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;
conversely, a situation involving prolonged periods of
backwardation may positively impact the returns of the
Fund.
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.
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.
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.
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.
-4-
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 trademarks 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.
Principal Investment Risks of an Investment in the
Fund
An
investment in the Fund involves a degree of risk and you could
incur a partial or total loss of your investment in the Fund. Some
of the risks you may face are summarized below. A more extensive
discussion of these risks appears beginning on page
10.
●
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.
●
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.
●
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.
●
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.
●
Unlike
mutual funds, commodity pools and other investment pools that
manage their investments so as to realize income and gains for
distribution to their investors, the Fund generally does not
distribute dividends to holders of Fund Shares
(“Shareholders”). You should not invest in the Fund if
you will need cash distributions from the Fund to pay taxes on your
Share of income and gains of the Fund, if any, or for other
purposes.
●
Investors may
choose to use the Fund as a means of investing indirectly in
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.
●
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.
●
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.
-5-
●
You
will have no rights to participate in the management of the Fund
and will have to rely on the duties and judgment of the Sponsor to
manage the Fund.
●
The
Sponsor pays fees and expenses that are incurred regardless of
whether it is profitable.
●
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).
●
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.
●
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.
●
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.
●
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.
●
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.
●
The
occurrence of a severe weather event, natural disaster, terrorist
attack, geopolitical events, 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.
●
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 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.
●
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.
●
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.
For
additional risks, see “What Are the Risk Factors Involved
with an Investment in the Fund?”
-6-
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.
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.
|
|
Per
Share
|
|
|
|
|
Assumed initial
selling price per Share (1)
|
$25.00
|
|
Management Fee
(0.94%) (2)
|
$0.24
|
|
Estimated Brokerage
Commissions and Fees (3)
|
$0.10
|
|
Other Fund Fees and
Expenses(2)
|
$0.00
|
|
Interest and Other
Income (0.76%) (5)
|
$(0.10)
|
|
Amount of trading
income (loss) required for the redemption value at the end of
one year to equal the selling price of the Share
|
$0.24
|
|
Percentage of
initial selling price per Share (6)
|
0.96%
|
(1)
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.
(2)
From the Management
Fee, the Sponsor, is responsible for paying certain fees and
expenses of the Administrator, Custodian, Distributor, Transfer
Agent and all routine operational, administrative and other
ordinary expenses of the Fund. These fees and expenses are not
included in the Breakeven Table.
(3)
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 waive a portion of these fees.
(4)
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.
(5)
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.
-7-
THE OFFERING
Offering
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.
Use of
Proceeds
The Sponsor applies
substantially all of the Fund’s assets toward investing in
Benchmark Component Futures Contracts, cash, and cash equivalents.
The Sponsor deposits a portion of the Fund’s net assets with
its futures commission merchant (“FCM”) or other
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.
NYSE Arca
Symbol
“DEFI”
Creation and
Redemption
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.
Inter-Series Limitation on
Liability
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.
Registration Clearance and
Settlement
Individual
certificates are not issued for the Shares. Instead, Shares will be
represented by one or more global certificates, which are deposited
by the transfer agent with the Depository Trust Company
(“DTC”) and registered in the name of
Cede & Co., as nominee for DTC. The global certificates
evidence all of the Shares outstanding at any time. Beneficial
interests in Shares are held through DTC’s book-entry system,
which means that Shareholders are limited to: (1) 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.
Net Asset
Value
The NAV is
calculated by taking the current market value of the Fund’s
total assets and subtracting any liabilities and dividing the
balance by the number of Shares. Under the Fund’s current
operational procedures, U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services (“Global Fund
Services”), the Fund’s “Administrator”
calculates the NAV of the Fund’s Shares as of the earlier of
4:00 p.m. (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.
Fund
Expenses
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 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 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. 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 which
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 $___,___, 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.
-8-
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.
Termination
Events
The Trust and the
Fund shall continue in existence from the date of their formation
in perpetuity, unless the Trust or the Fund, as the case may be, is
sooner terminated upon the occurrence of certain events specified
in the Trust Agreement, including the following: (1) the
filing of a certificate of dissolution or cancellation of the
Sponsor or revocation of the Sponsor’s charter or the
withdrawal of the Sponsor, unless Shareholders holding a majority
of the outstanding Shares of the Trust, voting together as a single
class, elect within ninety (90) days after such event to
continue the business of the Trust and appoint a successor Sponsor;
(2) the occurrence of any event which would make the existence
of the Trust or the Fund unlawful; (3) the suspension,
revocation, or termination of the Sponsor’s registration as a
CPO with the CFTC or membership with the NFA; (4) the
insolvency or bankruptcy of the Trust or the Fund; (5) a vote
by the Shareholders holding at least seventy-five percent
(75%) of the outstanding Shares of the Trust, voting together
as a single class, to dissolve the Trust subject to certain
conditions; (6) the determination by the Sponsor to dissolve
the Trust or the Fund, subject to certain conditions.; (7) the
Trust is required to be registered as an investment company under
the Investment Company Act of 1940, and (8) DTC is unable or
unwilling to continue to perform its functions and a comparable
replacement is unavailable. Upon termination of the Fund, the
affairs of the Fund shall be wound up and all of its debts and
liabilities discharged or otherwise provided for in the order of
priority as provided by law. The fair market value of the remaining
assets of the Fund shall then be determined by the Sponsor.
Thereupon, the assets of the Fund shall be distributed pro rata to
the Shareholders in accordance with their Shares.
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 33. 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.
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 40.
-9-
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 a significant
and unexpected declines in the value of bitcoin, Bitcoin Futures
Contracts, and the Fund.
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 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.
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.
-10-
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.
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.
-11-
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.
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. These
expenses, to the extent these expenses are not covered by the
Management Fee, and income may cause imperfect correlation between
changes in the Fund’s NAV and changes in the
Benchmark.
The
Sponsor may not be able to invest the Fund’s assets in
Benchmark Component Futures Contracts having an aggregate notional
amount exactly equal to the Fund’s NAV. As a standardized
contract, a single 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 Contracts 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.
-12-
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 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 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.
Prior to
introducing the current Dynamic Circuit Breaker (DCB) functionality
in March 2019, there were 116 circuit breaker events on the CME
Bitcoin futures contracts which launched on December 18, 2017.
Since the DCB deployment, there have been 89 events and one hard
limit move (30%) on May 19, 2021. The circuit breaker methodology
in place prior to March 2019, triggered at 7%, 13% and 20%
(up/down). The 7% and 13% resulted in two-minute halts and
the 20% did not trigger a halt, but market participants could not
trade beyond the limit 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 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
Futures Contracts. The Fund may be required to temporarily 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.
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.
-13-
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
37.
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.
-14-
From
1/1/2019 to 3/31/2022, the 1st to 2nd month bitcoin
futures contracts at the point of expiration / roll were in a state
of contango 92% of the time. During the same time period, the
1st to
3rd month
bitcoin futures contracts were also in a state of contango 92% of
the time. Rolling 100% of a portfolio on a monthly basis from
1st to
2nd month
bitcoin futures contracts resulted in an average annual roll yield
of 8.16% while rolling 50% of the portfolio on a monthly basis from
1st to
3rd month
bitcoin futures contacts resulted in an average annual negative
roll yield of 3.47%.
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 on 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.
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.
-15-
The Fund is not a registered investment company, so you do not have
the protections of the Investment Company Act of 1940.
The
Fund is not an investment company subject to the Investment Company
Act of 1940. Accordingly, you do not have the protections afforded
by that statute, which, for example, requires investment companies
to have a board of directors with a majority of disinterested
directors and regulates the relationship between the investment
company and its investment manager.
The Sponsor is leanly staffed and relies heavily on key personnel
to manage trading activities.
In
managing and directing the day to day activities and affairs of the
Fund, the Sponsor relies almost entirely on a small number of
individuals, including Mr. Sal Gilbertie, Mr. Steve
Kahler and Ms. Cory Mullen-Rusin. If Mr. Gilbertie,
Mr. Kahler or Ms. Mullen-Rusin were to leave or be unable
to carry out their present responsibilities, it may have an adverse
effect on the management of the Fund. To the extent that the
Sponsor establishes additional commodity pools, even greater
demands will be placed on these individuals.
The Sponsor has limited capital and may be unable to continue to
manage the Fund if it sustains continued losses.
The
Sponsor was formed for the purpose of managing the Trust, including
the Fund, the other Teucrium Funds, and any other series of the
Trust that may be formed in the future, and has been provided with
capital primarily by its principals and a small number of outside
investors. If the Sponsor operates at a loss for an extended
period, its capital will be depleted, and it may be unable to
obtain additional financing necessary to continue its operations.
If the Sponsor were unable to continue to provide services to the
Fund, the Fund would be terminated if a replacement sponsor could
not be found. Any expenses related to the operation of the Fund
would need to be paid by the Fund at the time of
termination.
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
its operations. 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.
-16-
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, the Sponsor will recalculate the NAV where
necessary to reflect the “fair value” of a Futures
Contract when the Futures Contract closes at its price fluctuation
limit for the day.
An unanticipated number of redemption requests during a short
period of time could have an adverse effect on the NAV of the
Fund.
If a
substantial number of requests for redemption of Redemption Baskets
are received by the Fund during a relatively short period of time,
the Fund may not be able to satisfy the requests from the
Fund’s assets not committed to trading. As a consequence, it
could be necessary to liquidate the Fund’s trading positions
before the time that its trading strategies would otherwise call
for liquidation, which may result in losses.
Fund assets may be depleted if investment performance does not
exceed fees.
In
addition to certain fees paid to the Fund’s service
providers, the Fund pays the Sponsor a fee of 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.
-17-
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 under
Securities Act, NYSE Arca rules, or SEC listing orders permitting
the listing and trading of the fund’s Shares on NYSE Arca. To
the extent there are no such limitations, Shareholders of the Fund
will therefore not enjoy the protections provided in this regard
applicable to funds regulated under the Investment Company Act of
1940.
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.
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.
-18-
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.
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 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 as when there may be significant news directly
related to the Fund that, in ARCA’s view or per existing 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,
trading is subject to trading halts caused by extraordinary market
volatility pursuant to “circuit breaker” rules that
require trading to be halted for a specified period based on a
specified market decline. There can be no assurance that the
requirements necessary to maintain the listing of the Shares will
continue to be met or will remain unchanged. The Fund will be
terminated if its Shares are delisted.
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. Sponsoring the Fund will be the Sponsor's first
experience in the crypto asset markets.
-19-
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.
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.
-20-
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 Funds from receiving necessary
regulatory review or approvals. The types of events discussed
above, including the COVID-19 pandemic, are highly disruptive to
economies and markets and have recently led, and may continue to
lead, to increased market volatility and significant market
losses.
More
generally, a climate of uncertainty and panic, including the
contagion of the COVID-19 virus and other infectious viruses or
diseases, may adversely affect global, regional, and local
economies and reduce the availability of potential investment
opportunities, and increases the difficulty of performing due
diligence and modeling market conditions, potentially reducing the
accuracy of financial projections. Under these circumstances, the
Fund may have difficulty achieving its investment objective which
may adversely impact performance. Further, such events can be
highly disruptive to economies and markets, significantly disrupt
the operations of individual companies (including, but not limited
to, the Fund’s Sponsor and third party service providers),
sectors, industries, markets, securities and commodity exchanges,
currencies, interest and inflation rates, credit ratings, investor
sentiment, and other factors affecting the value of the
Fund’s investments. These factors could cause substantial
market volatility, exchange trading suspensions and closures that
could impact the ability of the Fund to complete redemptions and
otherwise affect Fund performance and Fund trading in the secondary
market. A widespread crisis may also affect the global economy in
ways that cannot necessarily be foreseen at the current time. How
long such events will last and whether they will continue or recur
cannot be predicted. Impacts from these events could have
significant impact on the Fund’s performance, resulting in
losses to your investment. The 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.
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 Leverage and Volatility
The Fund may become leveraged and may result in losses on all or
substantially all of your investment if the Fund’s trading
positions suddenly turn unprofitable.
Commodity
pools’ trading positions in futures contracts are typically
required to be secured by the deposit of margin funds that
represent only a small percentage of a futures contract’s
entire market value. This feature permits commodity pools to
“leverage” their assets by purchasing or selling
futures contracts with an aggregate notional amount in excess of
the commodity pool’s assets. While this leverage can increase
a pool’s profits, relatively small adverse movements in the
price of the pool’s futures contracts can cause significant
losses to the pool. While the Sponsor does not intend to leverage
the Fund’s assets, it is not prohibited from doing so under
the Trust Agreement. If the Sponsor were to cause or permit the
Fund to become leveraged, you could lose all or substantially all
of your investment if the Fund’s trading positions suddenly
turn unprofitable.
-21-
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.
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.
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.
-22-
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.
-23-
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).
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.
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.
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 $55,000, 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.
-24-
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.
The
Officers of the Sponsor, one of whom is a Class A Member of the
Sponsor, are the following:
Sal Gilbertie has
been the President of the Sponsor since its inception, its Chief
Investment Officer since September 2011, and its Chief
Executive Officer and Secretary since September 17, 2018, and
was approved by the NFA as a principal of the Sponsor on
September 23, 2009 and registered as an associated person of
the Sponsor on November 10, 2009. He maintains his main
business office at 65 Adams Road, Easton, Connecticut 06612.
Effective July 16, 2012, Mr. Gilbertie was registered
with the NFA as the Branch Manager for this location. Since
October 18, 2010, Mr. Gilbertie has been an associated
person of the Distributor under the terms of the Securities
Activities and Services Agreement (“SASA”) between
the Sponsor and the Distributor. Additional information regarding
the SASA can be found in the section of this disclosure
document entitled “Plan of Distribution.” Mr. Gilbertie
is an officer of Teucrium Investment Advisors, LLC, a wholly owned
subsidiary of Teucrium Trading, LLC effective January 21, 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 OTC 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 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 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. 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. Mr. Kahler is primarily responsible for making trading
and investment decisions for the Fund and other Teucrium Funds, and
for directing Fund and other Teucrium Fund trades for
execution.
Messrs.
Gilbertie, Riker, and Kahler and Ms. Mullen-Rusin are
individual “principals,” as that term is defined in
CFTC Rule 3.1, of the Sponsor. These individuals are principals due
to their positions and/or due to their ownership interests in the
Sponsor. Beneficial ownership interests of the principals, if any,
are shown under the section entitled “Security Ownership
of Principal Shareholders and Management” below and any of
the principals may acquire beneficial interests in the Fund in the
future. GFI Group LLC is a principal for the Sponsor under CFTC
Rules due to its ownership of certain non-voting securities of the
Sponsor. NMSIC Classic LLC is a principal of the Sponsor under CFTC
Rules due to its greater than 10% capital contribution to the
Sponsor.
-25-
Prior Performance of the Fund
THE POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY
PERFORMANCE HISTORY.
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
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.
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.
-26-
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.
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.
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
As
noted above, CME began offering trading in BTC Contracts in 2017,
and in MBT Contracts in 2021. Each of the contract’s final
cash settlement is based on the CME CF Bitcoin Reference Rate (the
“BRR”). The BRR was created to facilitate financial
products based on bitcoin. It serves as a once-a-day reference rate
of the U.S. dollar price of bitcoin (USD/BTC). The BRR is the rate
on which bitcoin futures contracts are cash-settled in U.S. dollars
at expiration at the CME. The BRR, which has been calculated and
published since November 2016, aggregates the trade flow of
specified bitcoin spot exchanges during a calculation window into
the U.S. dollar price of one Bitcoin as of 4:00 p.m. London
time.
-27-
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.
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.
-28-
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.
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.
-29-
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.
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.
-30-
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”).
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.
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 either individually 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.
On June 21, 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 the FCM Division of INTL FCStone
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.
The
Futures Commission Merchant division of the INTL FCStone Financial,
Inc. (“IFF”) 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.
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.
-31-
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. 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 which
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.
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.
-32-
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.
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. [●] 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.
-33-
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.
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:
●
taking
the current market value of its total assets, and
●
subtracting any
liabilities and dividing the balance by the number of
Shares.
Global
Fund Services, in its capacity as the Administrator calculates the
NAV of the Fund once each trading day. It calculates 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 BTC Contract settlement price. CME Group
staff determines the daily settlements for BTC futures 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 price fluctuation limit
the Fund will use the daily CME settlement price.
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.
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.
-34-
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 will incur certain costs including brokerage
costs or taxable 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, cash equivalents, bitcoin futures and/or a combination
thereof with the Fund, as described below. Prior to the delivery of
baskets for a purchase order, the Authorized Purchaser must also
have wired to the Sponsor the non-refundable transaction fee due
for the purchase order. Authorized Purchasers may not withdraw a
purchase order without the prior consent of the Sponsor in its
discretion.
Determination of Required Deposits
The
total deposit required to create each basket (“Creation
Basket Deposit”) is the amount of cash, cash equivalents
and/or bitcoin futures that is in the same proportion to the total
assets of the Fund (net of estimated accrued but unpaid fees,
expenses and other liabilities) on the purchase order date as
the number of Shares to be created under the purchase order is in
proportion to the total number of Shares outstanding on the
purchase order date. The Sponsor determines, directly in its sole
discretion or in consultation with the Custodian and the
Administrator, the requirements for cash, cash equivalents and/or
bitcoin futures, 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.
-35-
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:
●
it
determines that, due to position limits or otherwise, investment
alternatives that will enable the Fund to meet its investment
objective are not available or practicable at that
time;
●
it
determines that the purchase order or the Creation Basket Deposit
is not in proper form;
●
it
believes that acceptance of the purchase order or the Creation
Basket Deposit would have adverse tax consequences to the Fund or
its Shareholders;
●
the
acceptance or receipt of the Creation Basket Deposit would, in the
opinion of counsel to the Sponsor, be unlawful;
●
circumstances
outside the control of the Sponsor, Distributor or transfer agent
make it, for all practical purposes, not feasible to process
creations of baskets;
●
there
is a possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CME from which the NAV of the Fund is
calculated will be priced at a dynamic price limit restriction;
or
●
if, in
the sole discretion of the Sponsor, the execution of such an order
would not be in the best interest of the Fund or its
Shareholders.
None of
the Sponsor, Distributor or transfer agent will be liable for the
rejection of any purchase order or Creation Basket
Deposit.
Redemption Procedures
The
procedures by which an Authorized Purchaser can redeem one or more
baskets mirror the procedures for the creation of baskets. On any
business day, an Authorized Purchaser may place an order with the
transfer agent to redeem one or more baskets. Redemption orders
must be placed by 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, cash
equivalents and/or bitcoin futures that is in the same proportion
to the total assets of the Fund (net of estimated accrued but
unpaid fees, expenses and other liabilities) on the date the
order to redeem is properly received as the number of Shares to be
redeemed under the redemption order is in proportion to the total
number of Shares outstanding on the date the order is received. The
Sponsor, directly or in consultation with the Custodian and the
Administrator, determines the requirements for cash, cash
equivalents and/or bitcoin futures, 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.
-36-
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.
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.
-37-
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. Further, under recently adopted CFTC rules, the
Fund may be obligated to post both initial and variation margin
with respect to swaps (and options that qualify as swaps) and
traded over-the-counter, and, where applicable, on
SEFs.
The
approximate 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.
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.
-38-
The
payment of any indemnification shall be allocated, as appropriate,
among the Trust’s series. The Trust and its series shall not
incur the cost of that portion of any insurance which insures any
party against any liability, the indemnification of which is
prohibited under the Trust Agreement.
Expenses incurred
in defending a threatened or pending action, suit or proceeding
against the Sponsor shall be paid by the Trust in advance of the
final disposition of such action, suit or proceeding, if
(i) the legal action relates to the performance of duties or
services by the Sponsor on behalf of the Trust; (ii) the legal
action is initiated by a party other than the Trust; and
(iii) the Sponsor undertakes to repay the advanced funds with
interest to the Trust in cases in which it is not entitled to
indemnification.
The
Trust Agreement provides that the Sponsor and the Trust shall
indemnify the Trustee and its successors, assigns, legal
representatives, officers, directors, Shareholders, employees,
agents and servants (the “Trustee Indemnified
Parties”) against any liabilities, obligations, losses,
damages, penalties, taxes (excluding any taxes on the compensation
received for services as Trustee or on indemnity payments
received), claims, actions, suits, costs, expenses or disbursements
which may be imposed on a Trustee Indemnified Party relating to or
arising out of the formation, operation or termination of the
Trust, the execution, delivery and performance of any other
agreements to which the Trust is a party, or the action or inaction
of the Trustee under the Trust Agreement or any other agreement,
except for expenses resulting from the gross negligence or willful
misconduct of a Trustee Indemnified Party. Further, certain
officers of the Sponsor are insured against liability for certain
errors or omissions which an officer may incur or that may arise
out of his or her capacity as such.
In the
event the Trust is made a party to any claim, dispute, demand or
litigation or otherwise incurs any liability or expense as a result
of or in connection with any Shareholder’s (or
assignee’s) obligations or liabilities unrelated to the
Trust business, such Shareholder (or assignees
cumulatively) is required under the Trust Agreement to
indemnify the Trust for all such liability and expense incurred,
including attorneys’ and accountants’
fees.
Withdrawal of the Sponsor
The
Sponsor may withdraw voluntarily as the Sponsor of the Trust only
upon ninety (90) days’ prior written notice to the
holders of the Trust’s outstanding Shares and the Trustee. If
the withdrawing Sponsor is the last remaining Sponsor, Shareholders
holding a majority (over 50%) of the outstanding Shares of the
Teucrium Funds, voting together as a single class (not including
Shares acquired by the Sponsor through its initial capital
contribution) may vote to elect a successor Sponsor. The
successor Sponsor will continue the business of the Trust.
Shareholders have no right to remove the Sponsor.
In the
event of withdrawal, the Sponsor is entitled to a redemption of the
Shares it acquired through its initial capital contribution to any
of the series of the Trust at their NAV per Share. If the Sponsor
withdraws and a successor Sponsor is named, the withdrawing Sponsor
shall pay all expenses as a result of its withdrawal.
Meetings
Meetings of the
Trust’s Shareholders may be called by the Sponsor and will be
called by it upon the written request of Shareholders holding at
least 25% of the outstanding Shares of the Trust or the Fund, as
applicable (not including Shares acquired by the Sponsor through
its initial capital contribution). The Sponsor shall deposit in the
United States mail or electronically transmit written notice to all
Shareholders of the Fund of the meeting and the purpose of the
meeting, which shall be held on a date not less than 30 nor more
than 60 days after the date of mailing of such notice, at a
reasonable time and place. Where the meeting is called upon the
written request of the Shareholders of the Fund, or any other
Teucrium Fund, as applicable, such written notice shall be mailed
or transmitted not more than 45 days after such written request for
a meeting was received by the Sponsor.
Voting Rights
Shareholders have
no voting rights with respect to the Trust or the Fund except as
expressly provided in the Trust Agreement. The Trust Agreement
provides that Shareholders representing at least a majority (over
50%) of the outstanding Shares of the Teucrium Funds voting
together as a single class (excluding Shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to (i) continue the Trust by
electing a successor Sponsor as described above, and
(ii) approve amendments to the Trust Agreement that impair the
right to surrender Redemption Baskets for redemption. (Trustee
consent to any amendment to the Trust Agreement is required if the
Trustee reasonably believes that such amendment adversely affects
any of its rights, duties or liabilities.) In addition,
Shareholders holding Shares representing seventy-five percent
(75%) of the outstanding Shares of the Teucrium Funds, voting
together as a single class (excluding Shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to dissolve the Trust upon not less
than ninety (90) days’ notice to the
Sponsor.
Limited Liability of Shareholders
Shareholders shall
be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under
the general corporation law of Delaware, and no Shareholder shall
be liable for claims against, or debts of the Trust or the Fund in
excess of his Share of the Fund’s assets. The Trust or the
Fund shall not make a claim against a Shareholder with respect to
amounts distributed to such Shareholder or amounts received by such
Shareholder upon redemption unless, under Delaware law, such
Shareholder is liable to repay such amount.
-39-
The
Trust or the Fund shall indemnify to the full extent permitted by
law and the Trust Agreement each Shareholder (excluding the Sponsor
to the extent of its ownership of any Shares acquired through its
initial capital contribution) against any claims of liability
asserted against such Shareholder solely because of its ownership
of Shares (other than for taxes on income from Shares for which
such Shareholder is liable).
The
Trust Agreement provides that every written note, bond, contract,
instrument, certificate or undertaking made or issued by or on
behalf of the Fund shall give notice to the effect that the
obligations of such instrument are not binding upon the
Shareholders individually but are binding only upon the assets and
property of the Fund.
The Sponsor Has Conflicts of Interest
There
are present and potential future conflicts of interest in the
Trust’s structure and operation you should consider before
you purchase Shares. The Sponsor may use this notice of conflicts
as a defense against any claim or other proceeding
made.
The
Sponsor’s principals, officers and employees, do not devote
their time exclusively to the Funds. Notwithstanding obligations
and expectations related to the management of the Sponsor, the
Sponsor’s principals, officers and employees may be
directors, officers or employees of other entities, and may manage
assets of other entities, including the other Teucrium Funds,
through the Sponsor or otherwise. As a result, the principals could
have a conflict between responsibilities to the Fund on the one
hand and to those other entities on the other.
The
Sponsor and its principals, officers and employees may trade
securities, futures and related contracts for their own accounts,
creating the potential for preferential treatment of their own
accounts. Shareholders will not be permitted to inspect the trading
records of such persons, or any written policies of the Sponsor
related to such trading. A conflict of interest may exist if their
trades are in the same markets and at approximately the same times
as the trades for the Fund. A potential conflict also may occur
when the Sponsor’s principals trade their accounts more
aggressively or take positions in their accounts which are
opposite, or ahead of, the positions taken by the
Fund.
The
Sponsor has sole current authority to manage the investments and
operations of the Fund, and this may allow it to act in a way that
furthers its own interests which may create a conflict with your
best interests, including the authority of the Sponsor to allocate
expenses to and between the Teucrium Funds. Shareholders have very
limited voting rights with respect to the Fund, which will limit
the ability to influence matters such as amendment of the Trust
Agreement, change in the Fund’s basic investment policies, or
dissolution of the Fund or the Trust.
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.
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 conflict
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. Neither the Sponsor nor
any of its executive officers have bitcoin or bitcoin-related
exposure that in their belief 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 Funds
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.
-40-
Interests of Named Experts and Counsel
No
expert hired by the Fund to give advice on the preparation of this
offering document has been hired on a contingent fee basis, nor do
any of them have any present or future expectation of interest in
the Sponsor, Distributor, Authorized Purchasers,
Custodian/Administrator or other service providers to the
Fund.
Provisions of Federal and State Securities Laws
This
offering is made pursuant to federal and state securities laws. The
SEC and state securities agencies take the position that
indemnification of the Sponsor that arises out of an alleged
violation of such laws is prohibited unless certain conditions are
met. Those conditions require that no indemnification of the
Sponsor or any underwriter for the Fund may be made in respect of
any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless:
(i) there has been a successful adjudication on the merits of
each count involving alleged securities law violations as to the
party seeking indemnification and the court approves the
indemnification; (ii) such claim has been dismissed with
prejudice on the merits by a court of competent jurisdiction as to
the party seeking indemnification; or (iii) a court of
competent jurisdiction approves a settlement of the claims against
the party seeking indemnification and finds that indemnification of
the settlement and related costs should be made, provided that,
before seeking such approval, the Sponsor or other indemnitee must
apprise the court of the position held by regulatory agencies
against such indemnification.
Books and Records
The
Trust keeps its books of record and account at its office located
at Three Main Street, Suite 215, Burlington, VT 05401, or at the
offices of the Administrator, U.S. Bancorp Fund Services, LLC,
doing business as U.S. Bank Global Fund Services, located at 777 E.
Wisconsin Ave, Milwaukee, Wisconsin 53202, or such office,
including of an administrative agent, as it may subsequently
designate upon notice. The books of account of the Fund are open to
inspection by any Shareholder (or any duly constituted designee of
a Shareholder) at all times during the usual business hours of
the Fund upon reasonable advance notice to the extent such access
is required under CFTC rules and regulations. In addition, the
Trust keeps a copy of the Trust Agreement on file in its office
which will be available for inspection by any Shareholder at all
times during its usual business hours upon reasonable advance
notice.
Statements, Filings, and Reports to Shareholders
The
Trust will furnish to DTC purchasers for distribution to
Shareholders annual reports (as of the end of each fiscal
year) for the Fund as are required to be provided to
Shareholders by the CFTC and the NFA. These annual reports will
contain financial statements prepared by the Sponsor and audited by
an independent registered public accounting firm designated by the
Sponsor. The Trust will also post monthly reports to the
Fund’s website (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.
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.
-41-
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.
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 management’s assessment
of the effectiveness of internal control over financial reporting
of the Trust 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. The financial statements of the
Fund included in this prospectus have been so included in reliance
upon the reports of Grant Thornton, independent registered public
accountants, upon the authority of said firm as experts in
accounting and auditing.
Privacy Policy
The
following discussion is qualified in its entirety by reference to
the privacy policy. A copy of the privacy policy is available at
www.teucrium.com.
The
Sponsor, the Trust, and the Teucrium Funds have adopted a privacy
policy relating to the collection, maintenance, and use of
nonpublic personal information about the Teucrium Funds’
current and former investors, as required under federal law.
Federal law gives investors the
right to limit some but not all sharing of their nonpublic personal
information. Federal law also requires the Sponsor to tell
investors how it collects, Shares, and protects such nonpublic
personal information.
-42-
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.
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.
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.
-43-
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.
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:
●
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);
●
the Fund is
organized and will be operated in accordance with its governing
documents and applicable law; and
●
the Fund has not
elected, and will not elect, to be classified as a corporation for
U.S. federal income tax purposes.
Based
in part on these representations, Vedder Price is of the opinion
that the Fund 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.
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.
-44-
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.
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.
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Foreign
exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt
securities, certain futures contracts, forward contracts, options
and similar investments denominated in a foreign currency, and
payables or receivables denominated in a foreign currency are
subject to section 988 of the Code, which generally causes
such gain and loss to be treated as ordinary income or loss. To the
extent the Fund hold foreign investments, it may be subject to
withholding and other taxes imposed by foreign countries. Tax
treaties between certain countries and the United States may reduce
or eliminate such taxes. Because the amount of the Fund’s
investments in various countries will change from time to time, it
is not possible to determine the effective rate of such taxes in
advance.
Limitations on Deductibility of Losses and
Certain Expenses. A number of different provisions of the
Code may defer or disallow the deduction of losses or expenses
allocated to Shareholders by the Fund, including but not limited to
those described below.
A
Shareholder’s deduction of its allocable Share of any loss of
the Fund is limited to the lesser of (1) the tax basis in its
Shares or (2) in the case of a Shareholder that is an
individual or a closely held corporation, the amount which the
Shareholder is considered to have “at risk” with
respect to the Fund’s activities. In general, the amount at
risk initially will be a Shareholder’s invested capital.
Losses in excess of the amount at risk must be deferred until years
in which the Fund generates additional taxable income against which
to offset such carryover losses or until additional capital is
placed at risk.
Individuals and
other non-corporate taxpayers are permitted to deduct capital
losses only to the extent of their capital gains for the taxable
year plus $3,000 of other income. Unused capital losses can be
carried forward and used in future years, subject to these same
limitations. In addition, an individual taxpayer may elect to carry
back net losses on section 1256 contracts to each of the three
preceding years and use them to offset section 1256 contract
gains in those years, subject to certain limitations. Corporate
taxpayers generally may deduct capital losses only to the extent of
capital gains, subject to special carryback and carryforward
rules.
The
deduction for expenses incurred by non-corporate taxpayers
constituting “miscellaneous itemized deductions,”
generally including investment-related expenses (other than
interest and certain other specified expenses), is suspended for
taxable years beginning after December 31, 2017 and before
January 1, 2026. During these taxable years, non-corporate
taxpayers will not be able to deduct miscellaneous itemized
deductions. Provided the suspension is not extended, for taxable
years ending on or after January 1, 2026, miscellaneous
itemized deductions are deductible only to the extent they exceed
2% of the taxpayer’s adjusted gross income for the year.
Although the matter is not free from doubt, we believe management
fees the Fund pays to the Sponsor and other expenses of the Fund
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:
●
3% of
the individual’s adjusted gross income in excess of certain
threshold amounts; or
●
80% of
the amount of certain itemized deductions otherwise allowable for
the taxable year.
Non-corporate
Shareholders generally may deduct “investment interest
expense” only to the extent of their “net investment
income.” Investment interest expense of a Shareholder will
generally include any interest expense accrued by the Fund and any
interest paid or accrued on direct borrowings by a Shareholder to
purchase or carry its Shares, such as interest with respect to a
margin account. Net investment income generally includes gross
income from property held for investment (including
“portfolio income” under the passive loss rules but
not, absent an election, long-term capital gains or certain
qualifying dividend income) less deductible expenses other
than interest directly connected with the production of investment
income.
If the
Fund incurs indebtedness 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.
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.
-46-
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.
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.
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.
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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.
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.
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.
-48-
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.
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.
-49-
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.”
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:
(1)
freely transferable
(determined based on the relevant facts and
circumstances);
(2)
part of a class of
securities that is widely held (meaning that the class of
securities is owned by 100 or more investors independent of the
issuer and of each other); and
(3)
either
(a) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act or
(b) sold to the plan as part of a public offering pursuant to
an effective registration statement under the 1933 Act and the
class of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be allowed
by the SEC) after the end of the fiscal year of the issuer in
which the offering of such security occurred.
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.
-50-
Prohibited Transactions
ERISA
and the Code generally prohibit certain transactions involving a
plan and persons who have certain specified relationships to the
plan. In general, Shares may not be purchased with the assets of a
plan if the Sponsor, the clearing brokers, the trading advisors (if
any), or any of their affiliates, agents or employees
either:
●
exercise any
discretionary authority or discretionary control with respect to
management of the plan;
●
exercise any
authority or control with respect to management or disposition of
the assets of the plan;
●
render
investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the
plan;
●
have
any authority or responsibility to render investment advice with
respect to any monies or other property of the plan;
or
●
have
any discretionary authority or discretionary responsibility in the
administration of the plan.
Also, a
prohibited transaction may occur under ERISA or the Code when
circumstances indicate that (1) the investment in Shares is
made or retained for the purpose of avoiding application of the
fiduciary standards of ERISA, (2) the investment in Shares
constitutes an arrangement under which the Fund is expected to
engage in transactions that would otherwise be prohibited if
entered into directly by the plan purchasing the Shares,
(3) the investing plan, by itself, has the authority or
influence to cause the Fund to engage in such transactions, or
(4) a person who is prohibited from transacting with the
investing plan may, but only with the aid of certain of its
affiliates and the investing plan, cause the Fund to engage in such
transactions with such person.
Special IRA Rules
IRAs
are not subject to ERISA’s fiduciary standards, but are
subject to their own rules, including the prohibited transaction
rules of Section 4975 of the Code, which generally mirror
ERISA’s prohibited transaction rules. For example, IRAs are
subject to special custody rules and must maintain a qualifying IRA
custodial arrangement separate and distinct from the Fund and its
custodial arrangement. If a separate qualifying custodial
arrangement is not maintained, an investment in the Shares will be
treated as a distribution from the IRA. Second, IRAs are prohibited
from investing in certain commingled investments, and the Sponsor
makes no representation regarding whether an investment in Shares
is an inappropriate commingled investment for an IRA. Third, in
applying the prohibited transaction provisions of Section 4975
of the Code, in addition to the rules summarized above, the
individual for whose benefit the IRA is maintained is also treated
as the creator of the IRA. For example, if the owner or beneficiary
of an IRA enters into any transaction, arrangement, or agreement
involving the assets of his or her IRA to benefit the IRA owner or
beneficiary (or his or her relatives or business
affiliates) personally, or with the understanding that such
benefit will occur, directly or indirectly, such transaction could
give rise to a prohibited transaction that is not exempted by any
available exemption. Moreover, in the case of an IRA, the
consequences of a non-exempt prohibited transaction are that the
IRA’s assets will be treated as if they were distributed,
causing immediate 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.
-51-
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,
since each fund’s inception of trading. The performance of
the Hashdex Bitcoin Futures ETF which is summarized herein is
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. 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). 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
|
%
|
-52-
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
|
%
|
-53-
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
|
%
|
-54-
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% / Aug 2012 - 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
|
%
|
-55-
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
|
%
|
-56-
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:
[to be
completed by pre-effective amendment]
[to be
completed by pre-effective amendment]
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.
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.
-57-
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.
Hashdex Bitcoin Futures ETF
|
|
|
|
Page
|
|
|
Hashdex
Bitcoin Futures ETF
|
|
|
|
|
|
Report
of Independent Registered Accounting Firm
|
|
|
F-2
|
|
|
Statement of
Financial Condition as of _________ __, 2022
|
|
|
F-3
|
|
|
Notes
to statement of financial condition
|
|
|
|
|
CONTENTS
[Fund financial statements to be added by pre-effective
amendment.]
-58-
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.
-59-
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.
-60-
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.
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 issues trade in these secondary
markets.
Shareholders: Holders of Shares.
Shares: Common units representing fractional undivided
beneficial interests in the Fund.
Sponsor: Teucrium Trading, LLC, a Delaware limited liability
company, which is registered as a Commodity Pool Operator, who
controls the investments and other decisions of the
Fund.
Spot Contract: A cash market transaction in which the buyer
and seller agree to the immediate purchase and sale of a
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
-61-
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 10.
This
statement of additional information and accompanying disclosure
document are both dated June 2, 2022.
-62-
Hashdex Bitcoin Futures ETF
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
|
|
Page
|
|
Cryptocurrency
Derivatives Market Purchasers
|
|
|
Regulation
|
64
|
|
Potential
Advantages of Investment
|
66
|
|
Fund
Performance
|
66
|
-63-
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 a Fund to continue to implement its
investment strategy. In addition, various national governments
outside of the United States have expressed concern regarding the
disruptive effects of speculative trading in the commodities
markets and the need to regulate the derivatives markets in
general. The effect of any future regulatory change on the Teucrium
Funds is impossible to predict but could be substantial and
adverse.
The
CFTC possesses exclusive jurisdiction to regulate the activities of
commodity pool operators and commodity trading advisors with
respect to “commodity interests,” such as futures,
swaps, and options, and has adopted regulations with respect to the
activities of those persons and/or entities. Under the Commodity
Exchange Act (“CEA”), a registered commodity pool
operator, such as the Sponsor, is required to make annual filings
with the CFTC and the NFA describing its organization, capital
structure, management and controlling persons. In addition, the CEA
authorizes the CFTC to require and review books and records of, and
documents prepared by, registered commodity pool operators.
Pursuant to this authority, the CFTC requires commodity pool
operators to keep accurate, current and orderly records for each
pool that they operate. The CFTC may suspend the registration of a
commodity pool operator (1) if the CFTC finds that the
operator’s trading practices tend to disrupt orderly market
conditions, (2) if any controlling person of the operator is
subject to an order of the CFTC denying such person trading
privileges on any exchange, and (3) in certain other
circumstances. Suspension, restriction or termination of the
Sponsor’s registration as a commodity pool operator would
prevent it, until that registration were to be reinstated, from
managing the Fund, and might result in the termination of the Fund
if a successor sponsor is not elected pursuant to the Trust
Agreement. Neither the Trust nor the Fund is required to be
registered with the CFTC in any capacity.
The
Fund’s investors are afforded prescribed rights for
reparations under the CEA. Investors may also be able to maintain a
private right of action for violations of the CEA. The CFTC has
adopted rules implementing the reparation provisions of the CEA,
which provide that any person may file a complaint for a
reparations award with the CFTC for violation of the CEA against a
floor broker or an FCM, introducing broker, commodity trading
advisor, CPO, and their respective associated persons.
The
regulations of the CFTC and the NFA prohibit any representation by
a person registered with the CFTC or by any member of the NFA, that
registration with the CFTC, or membership in the NFA, in any
respect indicates that the CFTC or the NFA has approved or endorsed
that person or that person’s trading program or objectives.
The registrations and memberships of the parties described in this
summary must not be considered as constituting any such approval or
endorsement. Likewise, no futures exchange has given or will give
any similar approval or endorsement.
Trading
venues in the United States are subject to varying degrees of
regulation under the CEA depending on whether such exchange is a
designated contract market (i.e. a futures exchange) or a swap
execution facility. Clearing organizations are also subject to the
CEA and the rules and regulations adopted thereunder as
administered by the CFTC. The CFTC’s function is to implement
the CEA’s objectives of preventing price manipulation and
excessive speculation and promoting orderly and efficient commodity
interest markets. In addition, the various exchanges and clearing
organizations themselves as SROs exercise regulatory and
supervisory authority over their member firms.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”) was enacted in response to the
economic crisis of 2008 and 2009 and it significantly altered the
regulatory regime to which the securities and commodities markets
are subject. To date, the CFTC has issued proposed or final
versions of almost all of the rules it is required to promulgate
under the Dodd-Frank Act, and it continues to issue proposed
versions of additional rules that it has authority to promulgate.
Provisions of the new law include the requirement that position
limits be established on a wide range of commodity interests,
including agricultural, energy, and metal-based commodity futures
contracts, options on such futures contracts and uncleared swaps
that are economically equivalent to such futures contracts and
options (“Reference Contracts”); new registration and
recordkeeping requirements for swap market 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.
-64-
In
addition, considerable regulatory attention has recently been
focused on non-traditional publicly distributed investment pools
such as the Fund. Furthermore, various national governments have
expressed concern regarding the disruptive effects of speculative
trading in certain commodity markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory
change on the Teucrium Funds is impossible to predict but could be
substantial and adverse.
The
Dodd-Frank Act was intended to reduce systemic risks that may have
contributed to the 2008/2009 financial crisis. Since the first
draft of what became the Dodd-Frank Act, supporters and opponents
have debated the scope of the legislation. As the Administrations
of the U.S. change, the interpretation and implementation will
change along with them. Nevertheless, regulatory reform of any kind
may have a significant impact on U.S. regulated
entities.
Position Limits, Aggregation Limits, Price Fluctuation
Limits
The
CFTC and US futures exchanges impose limits on the maximum net long
or net short speculative positions that any person may hold or
control in any particular futures or options contracts traded on US
futures exchanges. For example, the CFTC currently imposes
speculative position limits on 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. A Fund could be required to liquidate
positions it holds in order to comply with position limits or may
not be able to fully implement trading instructions generated by
its trading models, in order to comply with position limits. Any
such liquidation or limited implementation could result in
substantial costs to a Fund.
The
Dodd-Frank Act significantly expanded the CFTC’s authority to
impose position limits with respect to futures contracts and
options on futures contracts, swaps that are economically
equivalent to futures or options on futures, and swaps that are
traded on a regulated exchange and certain swaps that perform a
significant price discovery function.
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.
It is
unknown at this time the effect that such passage, adoption or
modification will have, positively or negatively, on our industry
or on a Fund. The size or duration of positions available to a Fund
may be severely limited. Pursuant to the CFTC’s and the
exchanges’ aggregation requirements, all accounts owned or
managed by the Sponsor are likely to be combined for speculative
position limits purposes. The Funds could be required to liquidate
positions it holds in order to comply with such limits, or may not
be able to fully implement trading instructions generated by its
trading models, in order to comply with such limits. Any such
liquidation or limited implementation could result in substantial
costs to a Fund.
These
new regulations and the resulting increased costs and regulatory
oversight requirements may result in market 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 a
Fund’s returns.
-65-
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.
-66-
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.
[To be
added by pre-effective amendment]
|
|
Amount
|
|
SEC
registration fee (actual)
|
(1)
|
|
NYSE
Arca Listing Fee (actual)
|
$7,000
|
|
FINRA
filing fees (actual)
|
$1,000
|
|
Blue
Sky expenses
|
$[●]
|
|
Auditor’s
fees and expenses
|
$5,000
|
|
Legal
fees and expenses
|
$55,000
|
|
Printing
expenses
|
$[●]
|
|
Miscellaneous
expenses
|
$[●]
|
|
Total
|
(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.
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.
-67-
Item
16
Exhibits and Financial Statement
Schedules.
(a) Exhibits
|
3.1
|
Fifth Amended and
Restated Declaration of Trust and Trust Agreement. (1)
|
|
3.2
|
Certificate of
Trust of the Registrant. (2)
|
|
3.3
|
Instrument
Establishing the Fund.**
|
|
5.1
|
Opinion of [_____]
relating to the legality of the Shares.*
|
|
8.1
|
Opinion of [_____]
with respect to federal income tax consequences.*
|
|
10.1
|
Form of Authorized
Purchaser Agreement (included as Exhibit B to the Fifth
Amended and Restated Declaration of Trust and Trust
Agreement).(1)
|
|
10.2
|
Amended and
Restated Distribution Services Agreement. (3)
|
|
10.3
|
Amendment to
Amended and Restated Distribution Services Agreement.
(4)
|
|
10.4
|
Second Amendment to
Amended and Restated Distribution Services Agreement.
(5)
|
|
10.5
|
Third Amendment to
Amended and Restated Distribution Services Agreement.
(6)
|
|
10.6
|
Fourth Amendment to
Amended and Restated Distribution Services Agreement.
(7)
|
|
10.7
|
Fifth Amendment to
Amended and Restated Distribution Services Agreement.
(14)
|
|
10.8
|
Custody Agreement.
(8)
|
|
10.9
|
First Amendment to
the Custody Agreement. (13)
|
|
10.10
|
Fund Accounting
Servicing Agreement. (9)
|
|
10.11
|
First Amendment to
the Fund Accounting Servicing Agreement. (13)
|
|
10.12
|
Transfer Agent
Servicing Agreement. (10)
|
|
10.13
|
First Amendment to
the Transfer Agent Servicing Agreement. (13)
|
|
10.14
|
Fund Administration
Servicing Agreement. (11)
|
|
10.15
|
First Amendment to
the Fund Administration Servicing Agreement. (13)
|
|
10.16
|
Marketing Services
Agreement.*
|
|
23.1
|
Consents of [_____]
(included in Exhibits 5.1 and 8.1).*
|
|
23.2
|
Consent of [_____],
Independent Registered Public Accounting Firm.*
|
|
24.1
|
Power of Attorney
(included on signature page to this Registration Statement as
filed herein).
|
|
107
|
Filing Fee
Table.**
|
* To be
filed by amendment.
**
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
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.
(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.
-68-
Item
17.
Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To file,
during any period in which offers, or sales are being made, a
post-effective amendment to this registration
statement:
(i) To include
any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however,
that paragraphs (a)(1)(i), (ii), and (iii) of this
section do not apply if the registration statement is on Form
S-1, Form S-3, Form SF-3 or Form F-3 and the information required
to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement, or, as
to a registration statement on Form S-3, is contained in a form of
prospectus filed pursuant to § 230.424(b) that is
part of the registration statement.
(2) That, for
the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof.
(3) To remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4) That, for
the purpose of determining liability under the Securities Act of
1933 to any purchaser:
(i) If the
registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to
an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first
use.
(5) That, for
the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution
of the securities: The undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
(ii) Any free
writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(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.
-69-
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 June 2,
2022.
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Teucrium Commodity Trust
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By:
Teucrium Trading, LLC, Sponsor
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By:
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/s/ Sal
Gilbertie
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Date:
June 2, 2022
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Sal
Gilbertie
Principal
Executive Officer, Secretary and Member
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Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities and on the dates as indicated. The document may be
executed by signatories hereto on any number of counterparts, all
of which shall constitute one and the same instrument. The
undersigned members and officers of Teucrium Trading, LLC, the
sponsor of Teucrium Commodity Trust, hereby constitute and appoint
Sal Gilbertie, Cory Mullen Rusin and Steve Kahler and 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
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Date
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/s/ Sal
Gilbertie
Sal
Gilbertie
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President/Chief
Executive Officer/Chief Investment Officer/Member of the
Sponsor
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June 2,
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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June 2,
2022
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/s/
Steve Kahler
Steve
Kahler
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Chief
Operating Officer
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June 2,
2022
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-70-
Exhibit Index
-71-
TEUCRIUM TRADING, LLC
(A
DELAWARE LIMITED LIABILITY COMPANY)
Instrument Establishing New Series of Teucrium Commodity
Trust
MAY 23, 2022
WHEREAS, Section 3.2(b) of the
Fifth Amended and Restated Declaration of Trust and Trust Agreement
(the “Trust Agreement”) of Teucrium Commodity Trust
(the “Trust”) provides that new series of the Trust may
be established and designated upon the execution by Teucrium
Trading, LLC (the “Company”), the Trust’s
sponsor, of an instrument setting forth such establishment and
designation and the relative rights and preferences of such
series;
WHEREAS, Section 4.6 of the Amended
and Restated Limited Liability Company Agreement of the Company
(the “LLC Agreement”) provides that the President of
the Company may do all such lawful acts and things as are not
required to be exercised or done by the members of the Company by
statute, by the LLC Agreement or by the Company’s certificate
of trust, and the establishment of new series is not so required to
be done by the Company’s members;
NOW, THEREFORE, BE IT RESOLVED that, in
consideration of the foregoing, the Company hereby establishes and
designates the following new series of the Trust (the
“Fund”):
Hashdex
Bitcoin Futures ETF
FURTHER RESOLVED, that each Fund shall
have the rights and preferences of a Fund under the Trust
Agreement, including, without limitation, that each Fund shall own
those assets specified in Section 3.7 of the Trust Agreement
and be subject to the liabilities specified in Section 3.8 of
the Trust Agreement.
Executed by the
undersigned, the President of TEUCRIUM TRADING, LLC, as of the date
first written above.
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TEUCRIUM
TRADING, LLC:
By:/s/ Sal
Gilbertie
Sal Gilbertie
President
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