Teucrium Commodity Trust S-1, filed Mar 4, 2022
Teucrium Commodity Trust (BTCK)
S-1
2022-03-04
View Original
Added on
October 21, 2026
As filed with the Securities
and Exchange Commission on March 4, 2022
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Registration
Statement on
FORM
S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Teucrium
Commodity Trust
(Registrant)
Delaware
(State
or other jurisdiction of incorporation or
organization)
6799
(Primary
Standard Industrial Classification Code Number)
27-6715895
(I.R.S.
Employer Identification No.)
c/o
Teucrium Trading, LLC
Three
Main Street
Suite
215
Burlington,
VT 05401
Phone:
(802) 540-0019
(Address,
including zip code, and telephone number, including area code, of
Registrant’s principal executive offices)
Sal
Gilbertie
Chief
Executive Officer
Teucrium
Trading, LLC
Three
Main Street
Suite
215
Burlington,
VT 05401
Phone:
(802) 540-0019
(Name,
address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
W.
Thomas Conner, Esq.
VedderPrice
P.C.
1401 I
Street NW
Suite
1100
Washington,
DC 20005
Approximate date of
commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration
Statement.
If any of the
securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this Form is
filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer ☐
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Accelerated filer ☒
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Non-accelerated filer ☒
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Smaller reporting company ☐
Emerging growth company ☐
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.
☐
The registrant hereby
amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
Subject
to Completion
Preliminary
Prospectus dated March 4, 2022
Teucrium Wheat
Fund
23,375,000
Shares
Teucrium Wheat Fund (the “Fund” or
“Us” or “We” or “WEAT”) is
designed to provide investors with a cost-effective means to gain
price exposure to the wheat market for future delivery. The Fund
issues shares (“Shares”) that trade on the NYSE Arca
stock exchange (“NYSE Arca”) under the symbol
“WEAT” and that can be purchased and sold by investors
through their broker-dealer. The Fund’s investment objective
is for changes in the Shares’ NAV to reflect the daily
changes of the price of wheat for future delivery, as measured by
the Fund’s Benchmark (as defined below). Under normal market
conditions, the Fund invests in wheat futures contracts and cash
and cash equivalents. The sponsor to the Fund is Teucrium Trading,
LLC (the “Sponsor”), which receives a management fee.
The principal office address and telephone number of both the Fund
and the Sponsor is Three Main Street, Suite 215, Burlington,
Vermont 05401 and (802) 540-0019.
While most investors will purchase and sell
Shares through their broker-dealer, the Fund continuously offers
creation baskets consisting of 25,000 Shares (“Creation
Baskets”) at their net asset value (“NAV”) to
certain parties who have entered into an agreement with the Sponsor
(“Authorized Purchasers”). Authorized Purchasers, in
turn, may sell such Shares, which are listed on NYSE Arca, to the
public at per-Share offering prices that are expected to reflect,
among other factors, the trading price of the Shares on the NYSE
Arca, the NAV of the Fund at the time the Authorized Purchaser
purchased the Creation Baskets and the NAV at the time of the offer
of the Shares to the public, the supply of and demand for Shares at
the time of sale, and the liquidity of the markets for wheat
futures contracts in which the Fund invests. A list of the
Fund’s Authorized Purchasers as of the date of this
Prospectus can be found under “Plan of Distribution –
Distributor and Authorized
Purchasers,” on page 41. The prices of Shares offered
by Authorized Purchasers are expected to fall between the
Fund’s NAV and the trading price of the Shares on the NYSE
Arca at the time of sale. The Fund’s Shares may trade in the
secondary market on the NYSE Arca at prices that are lower or
higher than their NAV per Share.
This is a best efforts offering; the
distributor, Foreside Fund Services, LLC (the
“Distributor”), is not required to sell any specific
number or dollar amount of Shares but will use its best efforts to
sell Shares. An Authorized Purchaser is under no obligation to
purchase Shares. This is intended to be a continuous offering that
will terminate on [______], 2025 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
5. The Fund is not a mutual fund registered under the Investment
Company Act of 1940 and is not subject to regulation under such
Act.
NEITHER THE SECURITIES AND
EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED IN
THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Teucrium Wheat Fund is a commodity pool and
Teucrium Trading, LLC is a commodity pool operator subject to
regulation by the Commodity Futures Trading Commission and the
National Futures Association under the Commodity Exchange Act
(“CEA”).
THE COMMODITY FUTURES TRADING
COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS
POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF
THIS DISCLOSURE DOCUMENT.
This prospectus is in two
parts: a disclosure document and a statement of additional
information. These parts are bound together, and both contain
important information.
Thank you for your interest in the Teucrium Wheat
Fund.
The date of this prospectus is [________],
2022.
COMMODITY FUTURES TRADING
COMMISSION
RISK DISCLOSURE
STATEMENT
YOU SHOULD CAREFULLY CONSIDER
WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A
COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY
INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE
POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN
ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO
WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY
BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND
BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE
SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE
DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE
CHARGED THIS POOL AT PAGE 36 AND A STATEMENT OF THE PERCENTAGE
RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF
YOUR INITIAL INVESTMENT, AT PAGE 3.
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 2.
YOU SHOULD ALSO BE AWARE THAT
THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS.
TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES,
INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED
PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES
REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF
THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NONUNITED
STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE
EFFECTED.
SWAPS TRANSACTIONS, LIKE
OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT
RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP
TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION
AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS
INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY
CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL
RISK.
HIGHLY CUSTOMIZED SWAPS
TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY
RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED
TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS
A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN
UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND
CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP
TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION
MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY
NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE
COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL'S
OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS ASSOCIATED WITH A
TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION
DATE.
TEUCRIUM WHEAT
FUND
TABLE OF
CONTENTS
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PAGE
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PART ONE – DISCLOSURE
DOCUMENT
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PROSPECTUS SUMMARY
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1
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Principal Offices of the Fund and the
Sponsor
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1
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Breakeven Point
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1
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Operation of the Fund
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1
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Principal Investment Risks of an Investment in
the Fund
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2
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Determination of NAV
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3
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Defined Terms
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3
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Breakeven Analysis
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3
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The Offering
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4
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WHAT ARE THE RISK FACTORS INVOLVED WITH AN
INVESTMENT IN THE FUND?
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5
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Risks Associated with Investing Directly or
Indirectly in Wheat
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5
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The Fund’s Operating
Risks
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8
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Risk of Leverage and
Volatility
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19
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Over the counter Contract
Risk
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19
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Risk of Trading in International
Markets
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20
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Tax Risk
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21
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THE OFFERING
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23
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The Fund in General
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23
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The Sponsor
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23
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Prior Performance of the
Fund
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27
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The Trustee
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29
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Operation of the Fund
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29
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Futures Contracts
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32
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Over the counter Derivatives
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34
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The Fund’s Investments in Cash and Cash
Equivalents
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34
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Other Trading Policies of the
Fund
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34
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Benchmark Performance
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35
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The Wheat Market
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36
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The Fund’s Service
Providers
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36
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Form of Shares
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40
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Transfer of Shares
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40
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Inter-Series Limitation on
Liability
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41
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Plan of Distribution
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41
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Calculating NAV
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42
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Creation and Redemption of
Shares
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43
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Secondary Market
Transactions
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46
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Use of Proceeds
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47
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The Trust Agreement
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47
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The Sponsor Has Conflicts of
Interest
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50
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Interests of Named Experts and
Counsel
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51
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Provisions of Federal and State Securities
Laws
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51
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Books and Records
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51
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Statements, Filings, and Reports to
Shareholders
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51
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Fiscal Year
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52
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Governing Law
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52
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Security Ownership of Principal Shareholders and
Management
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52
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Legal Matters
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52
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Privacy Policy
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53
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U.S. Federal Income Tax
Considerations
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54
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Investment by ERISA Accounts
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64
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INCORPORATION BY REFERENCE OF CERTAIN
INFORMATION
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68
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INFORMATION YOU SHOULD KNOW
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69
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WHERE YOU CAN FIND MORE
INFORMATION
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70
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STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
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71
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APPENDIX A - Glossary of Defined
Terms
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72
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PART TWO – STATEMENT
OF ADDITIONAL INFORMATION
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76
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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 5, 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.
The Fund is a series of Teucrium Commodity Trust
(the “Trust”). The principal offices of the Sponsor,
the Trust and the Fund are located at Three Main Street, Suite 215,
Burlington, Vermont 05401. The telephone number is (802)
540-0019.
Breakeven
Point
The amount of trading income required for the
redemption value of a Share at the end of one year to equal the
selling price of the Share, assuming a selling price of $8.76 (the
NAV per Share as of February 28, 2022), is $0.10 or 1.14% of the
selling price. For more information, see “Breakeven
Analysis” below.
Operation of the
Fund
The Fund is a commodity pool that issues Shares
that may be purchased and sold on NYSE Arca. The investment
objective of the Fund is to have the daily changes in the
Shares’ NAV reflect the daily changes of the price of wheat
for future delivery, as measured by a benchmark (the
“Benchmark”) as described below. The Benchmark for the
Fund is the Teucrium Wheat Index (“TWEAT”). Under
normal market conditions, the Fund invests in wheat futures
contracts and cash and cash equivalents. The Fund is organized as a
series of the Trust, a Delaware statutory trust organized on
September 11, 2009. The Trust and the Fund operate pursuant to the
Trust’s Fifth Amended and Restated Declaration of Trust and
Trust Agreement (the “Trust Agreement”), dated April
26, 2019. The Trust Agreement may be found on the SEC’s EDGAR
filing database at https://www.sec.gov/Archives/edgar/data/1471824/000165495419004852/ex31.htm.
The Fund was formed and is managed and controlled by the Sponsor, a
limited liability company formed in Delaware on July 28, 2009. The
Sponsor is registered as a commodity pool operator
(“CPO”) and a commodity trading adviser
(“CTA”) with the Commodity Futures Trading Commission
(“CFTC”) and is a member of the National Futures
Association (“NFA”).
The investment objective of the Fund is to have
the daily changes in the NAV of the Fund’s Shares reflect the
daily changes in the wheat market for future delivery as measured
by the Benchmark. The Benchmark is a weighted average of the
closing settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”). The three Wheat
Futures Contracts that at any given time make up the Benchmark are
referred to herein as the “Benchmark Component Futures
Contracts.”
The Fund seeks to achieve its investment
objective by investing in Benchmark Component Futures Contracts.
Under normal market conditions, the Fund expects that 100% of the
Fund’s assets will be invested in Benchmark Component Futures
Contracts and in cash and cash equivalents. The Fund reserves the
right to invest in swap agreements, forward contracts and options,
a brief description of which may be found in “Appendix A
– “Glossary of Defined
Terms.”
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 wheat
for future delivery 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 invests in Benchmark Component Futures
Contracts to the fullest extent possible without being leveraged or
unable to satisfy its expected current or potential margin or
collateral obligations with respect to its investments in Benchmark
Component Futures Contracts. After fulfilling such margin and
collateral requirements, the Fund invests the remainder of its
proceeds from the sale of baskets in short term financial
instruments of the type commonly known as “cash and cash
equivalents.” Cash and cash equivalents may include
short-term Treasury bills, money market funds, demand deposit
accounts, and commercial paper.
The Sponsor employs a “neutral”
investment strategy intended to track the changes in the Benchmark
regardless of whether the Benchmark goes up or goes down. The
Fund’s “neutral” investment strategy is designed
to permit investors generally to purchase and sell the Fund’s
Shares for the purpose of investing indirectly in the wheat market
in a cost-effective manner. The Sponsor endeavors to place the
Fund’s trades in Benchmark Component Futures Contracts and
otherwise manage the Fund’s investments so that the
Fund’s average daily tracking error against the Benchmark
will be less than 10 percent over any period of 30 trading days.
However, the Fund incurs certain expenses in connection with its
operations, which cause imperfect correlation between changes in
the Fund’s NAV and changes in the Benchmark because the
Benchmark does not reflect expenses or income. As a result,
investors may incur a partial or complete loss of their investment
even when the performance of the Benchmark is
positive.
Investors
may purchase and sell Shares through their broker-dealers. However,
the Fund creates and redeems Shares only in blocks called
“Creation Baskets” and “Redemption
Baskets,” respectively, and only Authorized Purchasers may
purchase or redeem Creation Baskets or Redemption Baskets. An
Authorized Purchaser is under no obligation to create or redeem
baskets, and an Authorized Purchaser is under no obligation to
offer to the public Shares of any baskets it does create. Baskets
are generally created when there is a demand for Shares, including,
but not limited to, when the market price per share is at (or
perceived to be at) a premium to the NAV per Share. Similarly,
baskets are generally redeemed when the market price per share is
at (or perceived to be at) a discount to the NAV per Share. Retail
investors seeking to purchase or sell Shares on any day are
expected to effect 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.
1
The Sponsor believes that by investing in
Benchmark Component Futures Contracts, the Fund’s net asset
value (“NAV”) will closely track the Benchmark. The
Sponsor also believes that because of market arbitrage
opportunities, the market price at which investors will purchase
and sell Shares through their broker-dealer will closely track the
Fund’s NAV. The Sponsor believes that the net effect of these
relationships is that the Fund’s market price on the NYSE
Arca at which investors purchase and sell Shares will closely track
the wheat market for future delivery, as measured by the
Benchmark.
The Sponsor maintains a public website on behalf
of the Fund, www.teucrium.com,
which contains information about the Trust, the Fund, and the
Shares.
Note to
Secondary Market Investors: Except when aggregated in Redemption Baskets,
Shares are not individually redeemable. Shares can be directly
purchased from the Fund only in Creation Baskets, and only by
Authorized Purchasers. Each Creation Basket consists of 25,000
Shares and therefore requires a significant financial commitment to
purchase. Accordingly, investors who do not have such resources or
who are not Authorized Purchasers should be aware that some of the
information contained in this prospectus, including information
about purchases and redemptions of Shares directly with the Fund,
is only relevant to Authorized Purchasers. There is no guarantee
that Shares will trade at prices that are at or near the per-Share
NAV. When buying or selling Shares on the secondary market through
a broker, most investors incur customary brokerage commissions and
charges.
As noted, the Fund invests in
Wheat Futures Contracts, including those traded on the CBOT or its
affiliates. The Fund expressly disclaims any association with the
CBOT or endorsement of the Fund by such exchange and acknowledges
that “CBOT” and “Chicago Board of Trade”
are registered trademarks of such exchange.
Principal Investment Risks of
an Investment in the Fund
An investment in the Fund involves a degree of
risk 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
5.
●
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
wheat, and there are risks involved in this investment strategy.
The risks and hazards that are inherent in wheat production may
cause the price of wheat to fluctuate widely.
●
Only an
Authorized Purchaser may engage in creation or redemption
transactions with the Fund. The Fund has a limited number of
institutions that act as Authorized Purchasers. To the extent that
these institutions exit the business or are unable or unwilling to
proceed with creation and/or redemption orders with respect to the
Fund, Fund Shares may, particularly in times of market stress,
trade at a discount to the NAV per Share and possibly face trading
halts and/or delisting.
●
The price
relationship between the near month Wheat Futures Contract to
expire and the Benchmark Component Futures Contracts will vary and
may impact both the Fund’s total return over time and the
degree to which such total return tracks the total return of wheat
price indices. In some cases, the near month contract’s price
is lower than later expiring contracts’ prices (a situation
known as “contango” in the futures markets). In the
event of a prolonged period of contango, and absent the impact of
rising or falling wheat prices, this could have a significant
negative impact on the Fund’s NAV and total return, and you
could incur a partial or total loss of your investment in the
Fund.
●
You will
have no rights to participate in the management of the Fund and
will have to rely on the duties and judgment of the Sponsor to
manage the Fund.
●
The Fund
pays fees and expenses that are incurred regardless of whether it
is profitable.
●
The Fund
seeks to have the changes in its Shares’ NAV track changes in
the Benchmark, rather than profit from speculative trading of Wheat
Futures Contracts or from the use of leverage (i.e., the Sponsor
manages the Fund so that the aggregate value of the Fund’s
exposure to losses from its investments in Benchmark Component
Futures Contracts at any time will not exceed the value of the
Fund’s assets). There is no assurance that the Sponsor will
successfully implement this investment strategy, and if the Fund
becomes leveraged, you could lose all or substantially all of your
investment if the Fund’s trading positions suddenly turn
unprofitable.
●
In addition
to Benchmark Component Futures Contracts, the Fund reserves the
right to invest in other wheat interests. To the extent that these
other wheat interests are contracts individually negotiated between
their parties, they may not be as liquid as Benchmark Component
Futures Contracts and will expose the Fund to credit risk that its
counterparty may not be able to satisfy its obligations to the
Fund.
●
The
regulation of commodity interest transactions in the United States
has historically been comprehensive and is a rapidly changing area
of law and is subject to ongoing modification by governmental and
judicial action. Future U.S. or foreign regulatory changes may
alter the nature of an investment in the Fund, or the ability of
the Fund to continue to implement its investment
strategy.
●
Failures or
breaches of the electronic systems of the Fund, the Sponsor, or
third parties 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.
●
War and
other geopolitical events in eastern Europe, including but not
limited to Russia and Ukraine, may cause volatility in commodity
prices including energy and grain prices, due to the region’s
importance to these markets, potential impacts to global
transportation and shipping, and other supply chain disruptions.
These events are unpredictable and may lead to extended periods of
price volatility.
For additional risks, see “What Are the
Risk Factors Involved with an Investment in the
Fund?”
2
Determination of
NAV
The Fund’s NAV is determined as of the
earlier of the close of the New York Stock Exchange or 4:00 p.m.
(EST) on each day that the NYSE Arca is open for
trading.
Defined
Terms
For a glossary of defined terms, see Appendix
A.
Breakeven
Analysis
The breakeven analysis 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 $8.76 per share, which equals the NAV per share at the
close of trading February 28, 2022, 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
$8.76 per share, the investment would have to generate a 1.14% or
$0.10 return.
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Per Share
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Assumed initial selling price per share
(1)
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$8.76
|
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Management Fee (1.00%) (2)
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$0.09
|
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Estimated Brokerage Commissions (3)
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$0.01
|
|
Other Fund Fees and Expenses (4)
(5)
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$0.07
|
|
Interest and Other Income (0.76%) (6)
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$(0.07)
|
|
Amount of trading income (loss) required for the
redemption value at the end of one year to equal the selling price
of the share
|
$0.10
|
|
Percentage of initial selling price per share
(7)
|
1.14%
|
(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 $8.76per share,
which is based on the NAV per share of WEAT at the close of trading
on February 28, 2022. Investors should note that, because
WEAT’S NAV changes on a daily basis, the breakeven amount on
any given day could be higher or lower than the amount reflected
here.
(2) The Fund is
obligated to pay the Sponsor a management fee at the annual rate of
1.00% of the Fund’s average daily net assets, payable
monthly. The Sponsor can elect to waive the payment of the fee in
any amount at its sole discretion, at any time and from time to
time, in order to reduce the Fund’s expenses or for any other
purpose.
(3) Reflects estimated
brokerage commissions and fees for Wheat Futures Contract purchase
or sale and reflected on a per trade basis. The estimated fee is
based on the actual brokerage commissions and trading fees paid for
the year ending December 31, 2021.
(4) In connection with
orders to create or redeem baskets, Authorized Purchasers will pay
a transaction fee in the amount of $250 per order. Because these
transaction fees are de minimis in amount, are paid to the
Fund’s custodian, U.S. Bank, N.A. (the
“Custodian”) and charged on a
transaction-by-transaction basis (and not on a Basket by Basket
basis), and are borne by the Authorized Participants, they have not
been included in the Breakeven Table. See “Creation and Redemption Transaction
Fees,” page 46.
(5) Other Fund Fees
and Expenses are an estimate based on an allocation to the Fund of
the total estimated expenses anticipated to be incurred by the
Trust on behalf of the Fund, net of any expenses or management fee
waived by the Sponsor, and include: Professional fees (primarily
legal, auditing and tax-preparation related costs); Custodian and
Administrator fees and expenses, Distribution and Marketing fees
(primarily fees paid to the Distributor, costs related to
regulatory compliance activities and other costs related to the
trading activities of the Fund); Business Permits and Licenses;
General and Administrative expenses (primarily insurance and
printing), and Other Expenses. The expenses presented are based on
estimated expenses for the current fiscal year, and do not
represent the maximum amounts payable under the contracts with
third-party service providers, as discussed below in the section of
this disclosure document entitled “Contractual Fees and
Compensation Arrangements with the Sponsor and Third-Party Service
Providers.” The cost of these fixed or estimated fees has
been calculated assuming that the Fund has $131.5 million in
assets, which was the approximate amount of assets as of February
28, 2022. The Sponsor can elect to pay (or waive reimbursement for)
certain fees or expenses that would generally be paid by the Fund,
although it has no contractual obligation to do so. Any election to
pay or waive reimbursement for fees and expenses that would
generally be paid by the Fund can be changed at the discretion of
the Sponsor.
(6) 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, money market funds
and investments in commercial paper. Management estimates that the
blended interest rate will be 0.76% based on the current interest
rate environment and outlook as of February 28, 2022. The actual
rate may vary and not all assets of the Fund will earn
interest.
(7) 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 before waived
expenses is 1.48% or $0.13 per share, based on the Fund assets, net
asset value per share and shares outstanding as of February 28,
2022. The fees waived by the Sponsor is an estimate, can be applied
to any expense related to the Fund, and may be terminated at any
time at the discretion of the Sponsor.
3
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 25,000 Shares through the Distributor to Authorized
Purchasers. Authorized Purchasers may purchase Creation Baskets
consisting of 25,000 Shares at the Fund’s
NAV.
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Use of
Proceeds
|
The Sponsor applies
substantially all of the Fund’s assets toward investing
in Benchmark Component Futures Contracts, cash, and cash equivalents. The Sponsor deposits
a portion of the Fund’s net assets with its futures
commission merchant (“FCM”) or other financial
institutions to be used to meet its current or potential margin or
collateral requirements in connection with its investment in
Benchmark Component Futures Contracts.
The Fund uses only cash and cash equivalents to satisfy these
requirements. The Sponsor expects that all entities that will hold
or trade the Fund’s assets will be based in the United States
and will be subject to United States regulations. The Sponsor
believes that approximately 4-6% of the Fund’s assets will
normally be committed as margin for Benchmark Component
Futures Contracts. However, from time
to time, the percentage of assets committed as margin/collateral
may be substantially more, or less, than such range. The remaining
portion of the Fund’s assets is held in cash or cash
equivalents. All interest or other income earned on these
investments is retained for the Fund’s
benefit.
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NYSE Arca
Symbol
|
“WEAT”
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Creation and
Redemption
|
Authorized Purchasers pay a
$250 fee per order to create Creation Baskets, and a $250 fee per
order for Redemption Baskets, which is paid to the Custodian.
Authorized Purchasers are not required to sell any specific number
or dollar amount of Shares. The per share price of Shares offered
in Creation Baskets is the total NAV of the Fund calculated as of
the close of the NYSE Arca on that day, divided by the number of
issued and outstanding Shares.
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InterSeries
Limitation on Liability
|
While the Fund is currently
one of five separate series of the Trust, additional series may be
created in the future. The Trust has been formed and will be
operated with the goal that the Fund and any other series of the
Trust will be liable only for obligations of such series, and a
series will not be responsible for or affected by any liabilities
or losses of or claims against any other series. If any creditor or
shareholder in any particular series (such as the Fund) were to
successfully assert against a series a claim with respect to its
indebtedness or Shares, the creditor or shareholder could recover
only from that particular series and its assets. Accordingly, the
debts and other obligations incurred, contracted for or otherwise
existing solely with respect to a particular series will be
enforceable only against the assets of that series, and not against
any other series or the Trust generally or any of their respective
assets. The assets of the Fund and any other series will include
only those funds and other assets that are paid to, held by or
distributed to the series on account of and for the benefit of that
series, including, without limitation, amounts delivered to the
Trust for the purchase of Shares in a series.
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Registration Clearance and
Settlement
|
Individual certificates are
not issued for the Shares. Instead, Shares will be represented by
one or more global certificates, which are deposited by the
transfer agent with the Depository Trust Company
(“DTC”) and registered in the name of Cede & Co.,
as nominee for DTC. The global certificates evidence all of the
Shares outstanding at any time. Beneficial interests in Shares are
held through DTC’s book-entry system, which means that
Shareholders are limited to: (1) participants in DTC such as banks,
brokers, dealers and trust companies (“DTC
Participants”), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant
(“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect
Participants, in each case who satisfy the requirements for
transfers of Shares. DTC Participants acting on behalf of investors
holding Shares through such DTC Participants’ accounts in DTC
will follow the delivery practice applicable to securities eligible
for DTC’s Same-Day Funds Settlement System. Shares are
credited to DTC Participants’ securities accounts following
confirmation of receipt of payment.
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Net Asset
Value
|
The NAV is
calculated by taking the current market value of the Fund’s
total assets and subtracting any liabilities and dividing the
balance by the number of Shares. Under the Fund’s current
operational procedures, U.S. Bancorp Fund Services, LLC,
doing business as U.S. Bank Global Fund Services (“Global
Fund Services”), the Fund’s “Administrator”
calculates the NAV of the Fund’s
Shares as of the earlier of 4:00 p.m. (EST) or the close of the New
York Stock Exchange each day. ICE Data Indices, LLC calculates an
approximate net asset value every 15 seconds throughout each day
that the Fund’s Shares are traded on the NYSE Arca for as
long as the CBOT’s main pricing mechanism is
open.
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Fund
Expenses
|
The Fund pays the
Sponsor a management fee at an annual rate of 1.00% of the
Fund’s average daily net assets. The Fund is also responsible
for other ongoing fees, costs and expenses of its operations,
including (i) brokerage and other fees and commissions incurred in
connection with the trading activities of the Fund; (ii) expenses
incurred in connection with registering additional Shares of the
Fund or offering Shares of the Fund; (iii) the routine expenses
associated with the preparation and, if required, the printing and
mailing of monthly, quarterly, annual and other reports required by
applicable U.S. federal and state regulatory authorities, Trust
meetings and preparing, printing and mailing proxy statements to
Shareholders; (iv) the payment of any distributions related to
redemption of Shares; (v) payment for routine services of the
Trustee, legal counsel and independent accountants; (vi) payment
for routine accounting, bookkeeping, custody and transfer agency
services, whether performed by an outside service provider or by
Affiliates of the Sponsor; (vii) postage and insurance; (viii)
costs and expenses associated with investor relations and services;
(ix) costs of preparation of all federal, state, local and foreign
tax returns and any taxes payable on the income, assets or
operations of the Fund; (x) payment for marketing services; and
(xi) extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto). The estimated
amount of fees and expenses that are anticipated to be incurred in
a single Share during the first twelve (12) months of ownership is
$0.10 or 1.14% of the selling price. The total estimated fees and
expenses are expressed as a percentage of the net asset value as of
February 28, 2022. These fees and expenses are net of any expenses
or management fees waived by the Sponsor. The Sponsor may, in its
discretion, pay or reimburse the Fund for, or waive a portion of
its management fee to offset, expenses that would otherwise be
borne by the Fund.
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|
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|
General expenses of the
Trust will be allocated among the existing Teucrium Funds and any
future series of the Trust as determined by the Sponsor in its
discretion. The Trust may be required to indemnify the Sponsor, and
the Trust and/or the Sponsor may be required to indemnify the
Trustee, Distributor or Administrator, under certain
circumstances.
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Termination
Events
|
The Trust and the Fund
shall continue in existence from the date of their formation in
perpetuity, unless the Trust or the Fund, as the case may be, is
sooner terminated upon the occurrence of certain events specified
in the Trust Agreement, including the following: (1) the filing of
a certificate of dissolution or cancellation of the Sponsor or
revocation of the Sponsor’s charter or the withdrawal of the
Sponsor, unless shareholders holding a majority of the outstanding
shares of the Trust, voting together as a single class, elect
within ninety (90) days after such event to continue the business
of the Trust and appoint a successor Sponsor. (2) the occurrence of
any event which would make the existence of the Trust or the Fund
unlawful. (3) the suspension, revocation, or termination of the
Sponsor’s registration as a CPO with the CFTC or membership
with the NFA. (4) the insolvency or bankruptcy of the Trust or the
Fund. (5) a vote by the shareholders holding at least seventy
five percent (75%) of the outstanding shares of the Trust,
voting together as a single class, to dissolve the Trust subject to
certain conditions. (6) the determination by the Sponsor to
dissolve the Trust or the Fund, subject to certain conditions. (7)
the Trust is required to be registered as an investment company
under the Investment Company Act of 1940, and (8) DTC is unable or
unwilling to continue to perform its functions and a comparable
replacement is unavailable. Upon termination of the Fund, the
affairs of the Fund shall be wound up and all of its debts and
liabilities discharged or otherwise provided for in the order of
priority as provided by law. The fair market value of the remaining
assets of the Fund shall then be determined by the Sponsor.
Thereupon, the assets of the Fund shall be distributed pro rata to
the Shareholders in accordance with their
Shares.
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|
Authorized
Purchasers
|
A list of the
Fund’s Authorized Purchasers as of the date of this
Prospectus can be found under “Plan of Distribution –
Distributor and Authorized
Purchasers,” on page 41. Authorized Purchasers must be (1) registered
broker-dealers or other securities market participants, such as
banks and other financial institutions, that are not required to
register as broker-dealers to engage in securities transactions,
and (2) DTC Participants. To become an Authorized Purchaser, a
person must enter into an Authorized Purchaser Agreement with the
Sponsor.
|
4
WHAT ARE THE RISK FACTORS
INVOLVED WITH AN INVESTMENT IN THE FUND?
You should consider
carefully the risks described below before making an investment
decision. You should also refer to the other information included
in this prospectus, and the Fund’s and the Trust’s
financial statements and the related notes incorporated by
reference herein. See “Incorporation by Reference of Certain
Information.”
Risks Associated with
Investing Directly or Indirectly in Wheat
Investing
in Benchmark Component Futures Contracts subjects the Fund to the
risks of the wheat market, and this could result in substantial
fluctuations in the price of the Fund’s
Shares.
The Fund is subject to the risks and hazards of
the wheat market because it invests in Benchmark Component Futures
Contracts. The risks and hazards that are inherent in the wheat
market may cause the price of wheat and the Fund’s Shares to
fluctuate widely and you could incur a partial or total loss of
your investment in the Fund.
●
The price
and availability of wheat is influenced by economic and industry
conditions, including but not limited to supply and demand factors
such as: crop disease, weed control, water availability, various
planting, growing, or harvesting problems, severe weather
conditions such as drought, floods, or frost that are difficult to
anticipate and which cannot be controlled. Demand for food products
made from wheat flour is affected by changes in consumer tastes,
national, regional and local economic conditions, and demographic
trends. More specifically, demand for such food products in the
United States is relatively unaffected by changes in wheat prices
or disposable income but is closely tied to tastes and preferences.
Export demand for wheat fluctuates yearly, based largely on crop
yields in the importing countries.
●
Wheat
production is subject to United States federal, state and local
policies and regulations that materially affect operations.
Governmental policies affecting the agricultural industry, such as
taxes, tariffs, duties, subsidies, incentives, acreage control, and
import and export restrictions on agricultural commodities and
commodity products, can influence the planting of certain crops,
the location and size of crop production, the volume and types of
imports and exports, the availability and competitiveness of
feedstocks as raw materials, and industry profitability.
Additionally, wheat production is affected by laws and regulations
relating to, but not limited to, the sourcing, transporting,
storing and processing of agricultural raw materials as well as the
transporting, storing and distributing of related agricultural
products. U.S. Wheat producers also must comply with various
environmental laws and regulations, such as those regulating the
use of certain pesticides, and local laws that regulate the
production of genetically modified crops. In addition,
international trade disputes can adversely affect agricultural
commodity trade flows by limiting or disrupting trade between
countries or regions.
●
Seasonal
fluctuations in the price of wheat may cause risk to an investor
because of the possibility that Share prices will be depressed
because of the wheat harvest cycle. In the United States, the
market for winter wheat, the type of wheat upon which CBOT Wheat
Futures Contracts are based, is generally at its lowest point, and
wheat prices are generally lowest, shortly before and during the
harvest (in the spring or early summer), due to the high supply of
wheat in the market. Conversely, winter wheat prices are generally
highest in the fall or early winter, when the wheat harvested that
year has largely been sold and used. In the futures market, these
seasonal fluctuations are typically reflected in contracts expiring
in the relevant season (e.g., contracts expiring during the harvest
season are typically priced lower than contracts expiring in the
fall and early winter). Thus, seasonal fluctuations could result in
an investor incurring losses upon the sale of Fund Shares,
particularly if the investor needs to sell Shares when the
Benchmark Component Futures Contracts are in whole or part, Wheat
Futures Contracts expiring in the spring.
An
investment in the Fund is subject to correlation risk. Your return
on an investment in the Fund may differ from the return of the
Benchmark, changes in the Fund’s NAV and the spot price of
wheat.
There is a risk that changes in the price of
Shares on the NYSE Arca will not correlate with changes in the
Fund’s NAV; that changes in the NAV will not correlate with
changes in the price of the Benchmark; and/or changes in the price
of the Benchmark will not correlate with changes in the spot price
of wheat. Depending on certain factors associated with each of
these correlations which are discussed in more detail below, you
could incur a partial or total loss of your investment in the
Fund.
The
Benchmark is not designed to correlate with the spot price of
wheat, and this could cause the changes in the price of the Shares
to substantially vary from the changes in the spot price of wheat.
Therefore, you may not be able to effectively use the Fund to hedge
against wheat related losses or to indirectly invest in
wheat.
The Benchmark Component Futures Contracts
reflect the price of wheat for future delivery, not the current
spot price of wheat, so at best the correlation between changes in
such Wheat Futures Contracts and the spot price of wheat will be
only approximate. Weak correlation between the Benchmark and the
spot price of wheat may result from the typical seasonal
fluctuations in wheat prices discussed above. Imperfect correlation
may also result from speculation in Benchmark Component Futures
Contracts, technical factors in the trading of Benchmark Component
Futures Contracts and expected inflation in the economy as a whole.
If there is a weak correlation between the Benchmark and the spot
price of wheat, then the price of Shares may not accurately track
the spot price of wheat, and you may not be able to effectively use
the Fund as a way to hedge the risk of losses in your wheat related
transactions or as a way to indirectly invest in
wheat.
5
Changes
in the Fund’s NAV may not correlate well with changes in the
price of the Benchmark. If this were to occur, you may not be able
to effectively use the Fund as a way to hedge against wheat related
losses or as a way to indirectly invest in
wheat.
The Sponsor endeavors to invest the Fund’s
assets as fully as possible in Benchmark Component Futures
Contracts so that the changes in the NAV closely correlate with the
changes in the Benchmark. However, changes in the Fund’s NAV
may not correlate with the changes in the Benchmark for various
reasons, including those set forth below.
The Fund incurs certain expenses in connection
with its operations and holds most of its assets in income
producing, short-term financial instruments for margin and other
liquidity purposes and to meet redemptions that may be necessary on
an ongoing basis. These expenses and income cause imperfect
correlation between changes in the Fund’s NAV and changes in
the Benchmark.
The Sponsor may not be able to invest the
Fund’s assets in Benchmark Component Futures Contracts having
an aggregate notional amount exactly equal to the Fund’s NAV.
As a standardized contract, a single Wheat Futures Contract is for
a specified amount of wheat, and the Fund’s NAV and the
proceeds from the sale of a Creation Basket is unlikely to be an
exact multiple of that amount. In such case, the Fund could not
invest the entire proceeds from the purchase of the Creation Basket
in such futures contracts. (For example, assuming the Fund receives
$375,000 for the sale of a Creation Basket and that the value
(i.e., the notional amount) of a Wheat Futures Contract is $32,500,
the Fund could only enter into 11 Wheat Futures Contracts with an
aggregate value of $357,500). While the Fund may be better able to
achieve the exact amount of exposure to the wheat market through
the use of over the counter other wheat interests, there is no
assurance that the Sponsor will be able to continually adjust the
Fund’s exposure to such other wheat interests to maintain
such exact exposure. Any amounts not invested in Benchmark
Component Futures Contracts are held in cash and cash
equivalents.
As Fund assets increase, there may be more or
less correlation. On the one hand, as the Fund grows it should be
able to invest in 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 wheat market. On the other
hand, if the Fund’s NAV is equal to 100.9 times the value of
a single Wheat Futures Contract, it can purchase 100 such
contracts, resulting in 99.1% exposure. However, at certain asset
levels the Fund may be limited in its ability to purchase Wheat
Futures Contracts due to position limits imposed by the CFTC or
position limits or accountability levels imposed by the relevant
exchanges. In these instances, the Fund would likely invest to a
greater extent in wheat interests not subject to these position
limits or accountability levels. To the extent that the Fund
invests in other wheat interests, the correlation between the
Fund’s NAV and the Benchmark may be lower. In certain
circumstances, position limits or accountability levels could limit
the number of Creation Baskets that will be
sold.
If changes in the Fund’s NAV do not
correlate with changes in the Benchmark, then investing in the Fund
may not be an effective way to hedge against wheat related losses
or indirectly invest in wheat.
Changes
in the price of the Fund’s Shares on the NYSE Arca may not
correlate perfectly with changes in the NAV of the Fund’s
Shares. If this variation occurs, then you may not be able to
effectively use the Fund to hedge against wheat related losses or
to indirectly invest in wheat.
While it is expected that the trading prices of
the Shares will fluctuate in accordance with the changes in the
Fund’s NAV, the prices of Shares may also be influenced by
other factors, including the supply of and demand for the Shares,
whether for the short term or the longer term. There is no
guarantee that the Shares will not trade at appreciable discounts
from, and/or premiums to, the Fund’s NAV. This could cause
the changes in the price of the Shares to substantially vary from
the changes in the spot price of wheat, even if the Fund’s
NAV was closely tracking movements in the spot price of wheat. If
this occurs, you may not be able to effectively use the Fund to
hedge the risk of losses in your wheat related transactions or to
indirectly invest in wheat.
The Fund
may experience a loss if it is required to sell cash equivalents at
a price lower than the price at which they were
acquired.
If the Fund is required to sell its cash
equivalents at a price lower than the price at which they were
acquired, the Fund will experience a loss. This loss may adversely
impact the price of the Shares and may decrease the correlation
between the price of the Shares, the Benchmark, and the spot price
of wheat. The value of cash equivalents held by the Fund generally
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.
6
Certain
of the Fund’s investments could be illiquid, which could
cause large losses to investors at any time or from time to
time.
The Fund may not always be able to liquidate its
positions in its investments at the desired price for reasons
including, among others, insufficient trading volume, limits
imposed by exchanges or other regulatory organizations, or lack of
liquidity. As to futures contracts, it may be difficult to execute
a trade at a specific price when there is a relatively small volume
of buy and sell orders in a market. Limits imposed by futures
exchanges or other regulatory organizations, such as accountability
levels, position limits and price fluctuation limits, may
contribute to a lack of liquidity with respect to some exchange
traded wheat interests. In addition, over the counter contracts may
be illiquid because they are contracts between two parties and
generally may not be transferred by one party to a third party
without the counterparty’s consent. Conversely, a
counterparty may give its consent, but the Fund still may not be
able to transfer an over the counter wheat interest to a third
party due to concerns regarding the counterparty’s credit
risk.
A market disruption, such as a foreign
government taking political actions that disrupt the market in its
currency, its wheat production or exports, or in another major
export, can also make it difficult to liquidate a position.
Unexpected market illiquidity may cause major losses to investors
at any time or from time to time. In addition, the Fund does not
intend at this time to establish a credit facility, which would
provide an additional source of liquidity, but instead will rely
only on the cash and cash equivalents that it holds to meet its
liquidity needs. The anticipated value of the positions in
Benchmark Component Futures Contracts that the Sponsor will acquire
or enter into for the Fund increases the risk of illiquidity.
Because Benchmark Component Futures Contracts may be illiquid, the
Fund’s holdings may be more difficult to liquidate at
favorable prices in periods of illiquid markets and losses may be
incurred during the period in which positions are being
liquidated.
If the
nature of the participants in the futures market shifts such that
wheat purchasers are the predominant hedgers in the market, the
Fund might have to reinvest at higher futures prices or choose
other wheat interests.
The changing nature of the participants in the
wheat market will influence whether futures prices are above or
below the expected future spot price. Wheat producers will
typically seek to hedge against falling wheat prices by selling
Wheat Futures Contracts. Therefore, if wheat producers become the
predominant hedgers in the futures market, prices of Wheat Futures
Contracts will typically be below expected future spot prices.
Conversely, if the predominant hedgers in the futures market are
the purchasers of the wheat who purchase Wheat Futures Contracts to
hedge against a rise in prices, prices of Wheat Futures Contracts
will likely be higher than expected future spot prices. This can
have significant implications for the Fund when it is time to sell
a Wheat Futures Contract that is no longer a Benchmark Component
Futures Contract and purchase a new Wheat Futures Contract or to
sell a Wheat Futures Contract to meet redemption
requests.
Storage
costs could impact the value of the Benchmark Component Futures
Contracts.
Storage costs associated with purchasing wheat
could result in costs and other liabilities that could impact the
value of Wheat Futures Contracts or certain other wheat interests.
Storage costs include the time value of money invested in wheat as
a physical commodity plus the actual costs of storing the wheat
less any benefits from ownership of wheat that are not obtained by
the holder of a futures contract. In general, Wheat Futures
Contracts have a one-month delay for contract delivery and the
pricing of back month contracts (the back month is any future
delivery month other than the spot month) includes storage costs.
To the extent that these storage costs change for wheat while the
Fund holds Wheat Interests, the value of the Benchmark Component
Futures Contracts, and therefore the Fund’s NAV, may change
as well.
The price
relationship between the Benchmark Component Futures Contracts at
any point in time and the Wheat Futures Contracts that will become
Benchmark Component Futures Contracts on the next roll date will
vary and may impact both the Fund’s total return and the
degree to which its total return tracks that of wheat price
indices.
The design of the Fund’s Benchmark is such
that the Benchmark Component Futures Contracts will change five
times per year, and the Fund’s investments must be rolled
periodically to reflect the changing composition of the Benchmark.
For example, when the second to expire Wheat Futures Contract
becomes the first to expire contract, such contract will no longer
be a Benchmark Component Futures Contract and the Fund’s
position in it will no longer be consistent with tracking the
Benchmark. In the event of a wheat futures market where near to
expire contracts trade at a higher price than longer to expire
contracts, a situation referred to as “backwardation,”
then absent the impact of the overall movement in wheat prices the
value of the Benchmark Component Futures Contracts would tend to
rise as they approach expiration. As a result, the Fund may benefit
because it would be selling more expensive contracts and buying
less expensive ones on an ongoing basis. Conversely, in the event
of a wheat futures market where near to expire contracts trade at a
lower price than longer to expire contracts, a situation referred
to as “contango,” then absent the impact of the overall
movement in wheat prices the value of the Benchmark Component
Futures Contracts would tend to decline as they approach
expiration. As a result, the Fund’s total return may be lower
than might otherwise be the case because it would be selling less
expensive contracts and buying more expensive ones. The impact of
backwardation and contango may lead the total return of the Fund to
vary significantly from the total return of other price references,
such as the spot price of wheat. In the event of a prolonged period
of contango, and absent the impact of rising or falling wheat
prices, this could have a significant negative impact on the
Fund’s NAV and total return, and you could incur a partial or
total loss of your investment in the Fund.
7
Regulation
of the commodity interests and commodity markets is extensive and
constantly changing. future regulatory developments are impossible
to predict but may significantly and adversely affect the
Fund.
The regulation of futures markets, futures
contracts and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Congress enacted the DoddFrank Wall Street Reform and
Consumer Protection Act (the “DoddFrank Act”) in
2010 As the DoddFrank Act continues to be implemented by the
CFTC and the SEC, there is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability for
the Fund to continue to implement its investment strategy. In
addition, various national governments outside of the United States
have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Fund is impossible to predict but
could be substantial and adverse.
If you
are investing in the Fund for purposes of hedging, you might be
subject to several risks unique to the Fund, and the Fund may not
be appropriate for hedging purposes. The Fund was not designed for
hedging purposes; those using the Fund as a hedge of any kind do so
exclusively at their own risk.
An
investment in the Fund may provide you little or no diversification
benefits. Thus, in a declining market, the Fund may have no gains
to offset your losses from other investments, and you may suffer
losses on your investment in the Fund at the same time you incur
losses with respect to other asset classes.
It cannot be predicted to what extent the
performance of Benchmark Component Futures Contracts will or will
not correlate to the performance of other broader asset classes
such as stocks and bonds. If the Fund’s performance were to
move more directly with the financial markets, you will obtain
little or no diversification benefits from an investment in the
Shares. In such a case, the Fund may have no gains to offset your
losses from other investments, and you may suffer losses on your
investment in the Fund at the same time you incur losses with
respect to other investments.
Variables such as drought, floods, weather,
embargoes, market disruptions, tariffs and other political events
may have a larger impact on wheat and wheat interest prices than on
traditional securities and broader financial markets. These
additional variables may create additional investment risks that
subject the Fund’s investments to greater volatility than
investments in traditional securities.
Lower correlation should not be confused with
negative correlation, where the performance of two asset classes
would be opposite of each other. There is no historic evidence that
the spot price of wheat and prices of other financial assets such
as stocks and bonds are negatively correlated. In the absence of
negative correlation, the Fund cannot be expected to be
automatically profitable during unfavorable periods for the stock
market, or vice versa.
The Fund’s Operating
Risks
The Fund
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 of tracking the price of
corn for future delivery 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.
8
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.
Position
limits, accountability levels and daily price fluctuation limits
set by the CFTC and the exchanges have the potential to cause
tracking error, which could cause the price of Shares to
substantially vary from the Benchmark and prevent you from being
able to effectively use the Fund as a way to hedge against wheat
related losses or as a way to indirectly invest in
wheat.
The CFTC and U.S. designated contract markets,
such as the CBOT, may establish position limits on the maximum net
long or net short futures contracts in commodity interests that any
person or group of persons under common trading control (other than
as a hedge, which an investment by the Fund is not) may hold, own
or control. For example, the current position limit for investments
at any one time in the Wheat Futures Contracts are 1,200 spot month
contracts and 19,300 contracts total for all months. These position
limits are fixed ceilings that the Fund would not be able to exceed
without specific CFTC authorization.
Accountability levels differ from position
limits in that they do not represent a fixed ceiling, but rather a
threshold above which a futures exchange may exercise greater
scrutiny and control over an investor’s positions. If a Fund
were to exceed an applicable accountability level for investments
in futures contracts, the exchange will monitor the Fund’s
exposure and may ask for further information on its activities,
including the total size of all positions, investment and trading
strategy, and the extent of liquidity resources of the Fund. If
deemed necessary by the exchange, the Fund could be ordered to
reduce its aggregate net position back
to the accountability level.
9
In addition to position limits and
accountability levels, the exchanges set daily price fluctuation
limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of futures contracts
may vary either up or down from the previous day’s settlement
price. Once the daily price fluctuation limit has been reached in a
particular futures contract, no trades may be made at a price
beyond that limit.
On December 16, 2016, as mandated by the
Dodd-Frank Act, the CFTC adopted a final rule that aggregate all
positions, for purposes of position limits; such positions include
futures contracts, futures-equivalent positions, over the counter
swaps and options (i.e., contracts that are not traded on
exchanges). These aggregation requirements became effective on
February 14, 2017 and could limit the Fund’s ability to
establish positions in commodity over the counter instruments if
the assets of the Fund were to grow
substantially.
As published in the January 14, 2021 Federal
Register, the Commodity Futures Trading Commission (CFTC) voted to
approve a final rule (Final Rule) regarding position limits for
certain futures contracts and economically equivalent
swaps. The Final Rule ends a decade of rulemaking activity in
which the CFTC proposed, amended, and re-proposed its position
limit rules and aggregation standards for speculative positions due
to certain amendments to the Commodity Exchange Act (CEA) by the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank Act). In the Final Rule, the CFTC confirmed that
federal speculative position limits are necessary for 25 core
referenced futures contracts and for any futures contracts and
options on futures contracts that are linked to those
contracts. The 25 core referenced futures contracts include
the nine “legacy” agricultural contracts that are
currently subject to federal position limits and 16 additional
non-legacy contracts. The Final Rule became effective on March 15,
2021, but a number of the requirements in the Final Rule have a
general compliance date of January 1, 2022, and later compliance
date of January 1, 2023 with respect to swaps-related requirements
and the elimination of previously granted risk management
exemptions. The Final Rule became effective on March 15, 2021, but
a number of the requirements in the Final Rule have a general
compliance date of January 1, 2022, and later compliance date of
January 1, 2023 with respect to swaps-related requirements and the
elimination of previously granted risk management
exemptions.
There are technical and fundamental risks inherent in the trading
system the Sponsor intends to employ.
The Sponsor’s trading system is
quantitative in nature, and it is possible that the Sponsor may
make errors. Any errors or imperfections in the Sponsor’s
trading system’s quantitative models, or in the data on which
they are based, could adversely affect the Sponsor’s
effective use of such trading systems. It is not possible or
practicable for the Sponsor’s trading system to factor all
relevant, available data into quantitative systems and/or trading
decision. There is no guarantee that the Sponsor will use any
specific data or type of data in making trading decisions on behalf
of the Fund, nor is there any guarantee that the data actually
utilized in making trading decisions on behalf of the Fund will be
the most accurate data or free from errors. In addition, it is
possible that a computer or software program may malfunction and
cause an error in computation.
The Fund
and the Sponsor may have conflicts of interest, which may cause
them to favor their own interests to your
detriment.
The Fund and the Sponsor may have inherent
conflicts to the extent the Sponsor attempts to maintain the
Fund’s asset size in order to preserve its fee income and
this may not always be consistent with the Fund’s objective
of having the value of its Shares’ NAV track changes in the
Benchmark. The Sponsor’s officers and employees do not devote
their time exclusively to the Fund. These persons may be directors,
officers or employees of other entities. They could have a conflict
between their responsibilities to the Fund and to those other
entities.
In addition, the Sponsor’s principals,
officers or employees may trade securities and futures and related
contracts for their own accounts. A conflict of interest may exist
if their trades are in the same markets and occur at the same time
as the Fund trades using the clearing broker to be used by the
Fund. A potential conflict also may occur if the Sponsor’s
principals, officers or employees trade their accounts more
aggressively or take positions in their accounts that are opposite,
or ahead of, the positions taken by the Fund.
10
The Sponsor has sole current authority to manage
the investments and operations of the Fund, and this may allow it
to act in a way that furthers its own interests and in conflict
with your best interests, including the authority of the Sponsor to
allocate expenses to and between the Funds. Shareholders have very
limited voting rights, which will limit the ability to influence
matters such as amendment of the Trust Agreement, changes in the
Fund’s basic investment policies, dissolution of the Fund, or
the sale or distribution of the Fund’s
assets.
Shareholders
have only very limited voting rights and generally will not have
the power to replace the Sponsor. Shareholders will not participate
in the management of the Fund and do not control the Sponsor so
they will not have influence over basic matters that affect the
Fund.
Shareholders will have very limited voting
rights with respect to the Fund’s affairs. Shareholders may
elect a replacement sponsor only if the current Sponsor resigns
voluntarily or loses its corporate charter. Shareholders will not
be permitted to participate in the management or control of the
Fund or the conduct of its business. Furthermore, any voting rights
on shares held by the Fund will be exercised by the Sponsor,
generally without seeking advice or voting instructions from Fund
Shareholders. Shareholders must therefore rely upon the duties and
judgment of the Sponsor to manage the Fund’s
affairs.
The
Sponsor may manage a large amount of assets, and this could affect
the Fund’s ability to trade profitably.
Increases in assets under management may affect
trading decisions. While the Fund’s assets are currently at
manageable levels, the Sponsor does not intend to limit the amount
of Fund assets. The more assets the Sponsor manages, the more
difficult it may be for it to trade profitably because of the
difficulty of trading larger positions without adversely affecting
prices and performance and of managing risk associated with larger
positions.
The
liability of the Sponsor and the Trustee are limited, and the value
of the Shares will be adversely affected if the Fund is required to
indemnify the Trustee or the Sponsor.
Under the Trust Agreement, the Trustee and the
Sponsor are not liable, and have the right to be indemnified, for
any liability or expense incurred absent gross negligence or
willful misconduct on the part of the Trustee or Sponsor, as the
case may be. That means the Sponsor may require the assets of the
Fund to be sold in order to cover losses or liability suffered by
the Sponsor or by the Trustee. Any sale of that kind would reduce
the NAV of the Fund and the value of its
Shares.
Although
the Shares of the Fund are limited liability investments, certain
circumstances such as bankruptcy could increase a
Shareholder’s liability.
The Shares of the Fund are limited liability
investments. Shareholders may not lose more than the amount that
they invest plus any profits recognized on their investment.
However, Shareholders could be required, as a matter of bankruptcy
law, to return to the estate of the Fund any distribution they
received at a time when the Fund was in fact insolvent or that was
made in violation of its Trust Agreement.
11
You
cannot be assured of the Sponsor’s continued services, and
discontinuance may be detrimental to the Fund.
You cannot be assured that the Sponsor will be
willing or able to continue to service the Fund for any length of
time. The Sponsor was formed for the purpose of sponsoring the Fund
and other commodity pools and has limited financial resources and
no significant source of income apart from its management fees from
such commodity pools to support its continued service for the Fund.
If the Sponsor discontinues its activities on behalf of the Fund or
another series of the Trust, the Fund may be adversely affected. If
the Sponsor’s registrations with the CFTC or memberships in
the NFA were revoked or suspended, the Sponsor would no longer be
able to provide services to the Fund.
The Fund
could terminate at any time and cause the liquidation and potential
loss of your investment and could upset the overall maturity and
timing of your investment portfolio.
The Fund may terminate at any time, regardless
of whether the Fund has incurred losses, subject to the terms of
the Trust Agreement. For example, the dissolution or resignation of
the Sponsor would cause the Trust to terminate unless shareholders
holding a majority of the outstanding shares of the Trust, voting
together as a single class, elect within 90 days of the event to
continue the Trust and appoint a successor Sponsor. In addition,
the Sponsor may terminate the Fund if it determines that the
Fund’s aggregate net assets in relation to its operating
expenses make the continued operation of the Fund unreasonable or
imprudent. As of the date of this prospectus, the Fund pays the
fees, costs, and expenses of its operations. If the Sponsor and the
Fund are unable to raise sufficient funds so that the Fund’s
expenses are reasonable in relation to its NAV, the Fund may be
forced to terminate, and investors may lose all or part of their
investment. Any expenses related to the operation of the Fund would
need to be paid by the Fund at the time of
termination.
However, no level of losses will require the
Sponsor to terminate the Fund. The Fund’s termination would
result in the liquidation of its investments and the distribution
of its remaining assets to the Shareholders on a pro rata basis in
accordance with their Shares, and the Fund could incur losses in
liquidating its investments in connection with a termination.
Termination could also negatively affect the overall maturity and
timing of your investment portfolio.
As a
Shareholder, you will not have the rights enjoyed by investors in
certain other types of entities.
As interests in separate series of a Delaware
statutory trust, the Shares do not involve the rights normally
associated with the ownership of shares of a corporation
(including, for example, the right to bring shareholder oppression
and derivative actions). In addition, the Shares have limited
voting and distribution rights (for example, Shareholders do not
have the right to elect directors, as the Trust does not have a
board of directors, and generally will not receive regular
distributions of the net income and capital gains earned by the
Fund). The Fund is also not subject to certain investor protection
provisions of the Sarbanes Oxley Act of 2002 and the NYSE Arca
governance rules (for example, audit committee
requirements).
A court
could potentially conclude that the assets and liabilities of the
Fund are not segregated from those of another series of the Trust,
thereby potentially exposing assets in the Fund to the liabilities
of another series.
The Fund is a series of a Delaware statutory
trust and not itself a legal entity separate from the other
Teucrium Funds. The Delaware Statutory Trust Act provides that if
certain provisions are included in the formation and governing
documents of a statutory trust organized in series and if separate
and distinct records are maintained for any series and the assets
associated with that series are held in separate and distinct
records and are accounted for in such separate and distinct records
separately from the other assets of the statutory trust, or any
series thereof, then the debts, liabilities, obligations and
expenses incurred by a particular series are enforceable against
the assets of such series only, and not against the assets of the
statutory trust generally or any other series thereof. Conversely,
none of the debts, liabilities, obligations and expenses incurred
with respect to any other series thereof is enforceable against the
assets of such series. The Sponsor is not aware of any court case
that has interpreted this inter-series limitation on liability or
provided any guidance as to what is required for compliance. The
Sponsor intends to maintain separate and distinct records for the
Fund and account for the Fund separately from any other Trust
series, but it is possible a court could conclude that the methods
used do not satisfy the Delaware Statutory Trust Act, which would
potentially expose assets in the Fund to the liabilities of one or
more of the Teucrium Funds and/or any other Trust series created in
the future.
12
The
Sponsor and the Trustee are not obligated to prosecute any action,
suit or other proceeding in respect of any Fund
property.
Neither the Sponsor nor the Trustee is obligated
to, although each may in its respective discretion, prosecute any
action, suit or other proceeding in respect of any Fund property.
The Trust Agreement does not confer upon Shareholders the right to
prosecute any such action, suit or other
proceeding.
The Fund
does not expect to make cash distributions.
The Sponsor intends to reinvest any income
and realized gains of the Fund in additional Benchmark Component
Futures Contracts or cash and cash equivalents rather than
distributing cash to Shareholders. Therefore, unlike mutual funds,
commodity pools or other investment pools that generally distribute
income and gains to their investors, the Fund generally will not
distribute cash to Shareholders. You should not invest in the Fund
if you will need cash distributions from the Fund to pay taxes on
your share of income and gains of the Fund, if any, or for any
other reason. Although the Fund does not intend to make cash
distributions, it reserves the right to do so in the
Sponsor’s sole discretion, in certain situations, including
for example, if the income earned from its investments held
directly or posted as margin may reach levels that merit
distribution, e.g., at levels where such income is not necessary to
support its underlying investments in Benchmark Component Futures
Contracts and investors adversely react to being taxed on such
income without receiving distributions that could be used to pay
such tax. Cash distributions may be made in these and similar
instances.
There is
a risk that the Fund will not have sufficient total net assets to
compensate for the fees and expenses that it must pay and as such
the expense ratio of the Fund may be higher than that filed in this
document.
The Fund pays management fees at an annual rate
of 1.00% of its average net assets, brokerage commissions and
various other expenses from its ongoing operations (e.g., fees of
the Administrator, Trustee and Distributor), resulting in a total
estimated expense ratio of approximately 1.48% of net assets. These
fees and expenses must be paid in all events, regardless of the
Fund’s total net assets.
The Fund
may incur higher fees and expenses upon renewing existing or
entering into new contractual relationships.
The arrangements between clearing brokers and
counterparties on the one hand and the Fund on the other generally
are terminable by the clearing brokers or counterparty upon notice
to the Fund. In addition, the agreements between the Fund and its
third-party service providers, such as the Distributor and the
Custodian, are generally terminable at specified intervals. Upon
termination, the Sponsor may be required to renegotiate or make
other arrangements for obtaining similar services if the Fund
intends to continue to operate. Comparable services from another
party may not be available, or even if available, these services
may not be available on the terms as favorable as those of the
expired or terminated arrangements.
13
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 to
continue to fall and if the Sponsor were not able to waive expenses
sufficient to cover the deficit, the breakeven estimated by the
Fund in this prospectus could be higher.
The Fund
is not actively managed.
The Fund is not actively managed and is designed
to track a benchmark, regardless of whether the price of the
Benchmark Component Futures Contracts is flat, declining or rising.
As a result, the Fund may sustain losses that may have been
avoidable if the Fund was actively managed.
The Net
Asset Value calculation of the Fund may be overstated or
understated due to the valuation method employed when a settlement
price is not available on the date of net asset value
calculation.
The Fund’s NAV includes, in part, any
unrealized profits or losses on open swap agreements, futures or
forward contracts. Under normal circumstances, the NAV reflects the
quoted CBOT settlement price of open futures contracts on the date
when the NAV is being calculated. In instances when the quoted
settlement price of futures contracts traded on an exchange may not
be reflective of fair value based on market condition, generally
due to the operation of daily limits or other rules of the exchange
or otherwise, the NAV may not reflect the fair value of open
futures contracts on such date. For purposes of financial
statements and reports, the Sponsor will recalculate the NAV where
necessary to reflect the “fair value” of a Futures
Contract when the Futures Contract closes at its price fluctuation
limit for the day.
An
unanticipated number of redemption requests during a short period
of time could have an adverse effect on the NAV of the
Fund.
If a substantial number of requests for
redemption of Redemption Baskets are received by the Fund during a
relatively short period of time, the Fund may not be able to
satisfy the requests from the Fund’s assets not committed to
trading. As a consequence, it could be necessary to liquidate the
Fund’s trading positions before the time that its trading
strategies would otherwise call for liquidation, which may result
in losses.
14
Fund
assets may be depleted if investment performance does not exceed
fees.
In addition to certain fees paid to the
Fund’s service providers, the Fund pays the Sponsor a fee of
1.00% of asset under management per annum, regardless of Fund
performance. Over time, the Fund’s assets could be depleted
if investment performance does not exceed such
fees.
The
liquidity of the Shares may be affected by the withdrawal from
participation of Authorized Purchasers, market makers, or other
significant secondary-market participants which could adversely
affect the market price of the Shares.
Only an Authorized Purchaser may engage in
creation or redemption transactions directly with the Fund. The
Fund has a limited number of institutions that act as Authorized
Purchasers. To the extent that these institutions exit the business
or are unable to proceed with creation and/or redemption orders
with respect to the Fund and no other Authorized Purchaser is able
to step forward to create or redeem Creation Units, Fund shares may
trade at a discount to NAV and possibly face trading halts and/or
delisting. In addition, a decision by a market maker, lead market
maker, or other large investor, to cease activities for the Fund or
a decision by a secondary market participant to sell a significant
number of the Fund’s Shares could adversely affect liquidity,
the spread between the bid and ask quotes, and potentially the
price of the Shares. The Sponsor can make no guarantees that
participation by Authorized Purchasers or market makers will
continue.
If a
minimum number of Shares is outstanding, market makers may be less
willing to purchase Shares in the secondary market which may limit
your ability to sell Shares.
There is a minimum number of baskets and
associated Shares specified for the Fund. If the Fund experienced
redemptions that caused the number of Shares outstanding to
decrease to the minimum level of Shares required to be outstanding,
until the minimum number of Shares is again exceeded through the
purchase of a new Creation Basket, there can be no more redemptions
by an Authorized Purchaser. In such case, market makers may be less
willing to purchase Shares from investors in the secondary market,
which may in turn limit the ability of Shareholders of the Fund to
sell their Shares in the secondary market. These minimum levels for
the Fund are 50,000 Shares representing two baskets. The minimum
level of Shares specified for the Fund is subject to change. As of
February 28, 2022, there were 15,025,004 Shares outstanding. (The
current number of Shares outstanding is posted daily on our
website, www.teucrium.com.)
The
postponement, suspension or rejection of redemption orders could
adversely affect a shareholder redeeming their Shares in the
Fund.
The resulting delay of any postponement,
suspension or rejection may adversely affect the value of the
Shareholders’ redemption proceeds if the NAV of the Fund
declines during the period of delay.
15
The
failure or bankruptcy of a clearing broker could result in
substantial losses for the Fund; the clearing broker could be
subject to proceedings that impair its ability to execute the
Fund’s trades.
Under CFTC regulations, a clearing broker with
respect to the Fund’s exchange traded wheat interests must
maintain customers’ assets in a bulk segregated account. If a
clearing broker fails to do so or is unable to satisfy a
substantial deficit in a customer account, its other customers may
be subject to risk of a substantial loss of their funds in the
event of that clearing broker’s bankruptcy. In that event,
the clearing broker’s customers, such as the Fund, are
entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property
available for distribution to all of that clearing broker’s
customers. The Fund also may be subject to the risk of the failure
of, or delay in performance by, any exchanges and markets and their
clearing organizations, if any, on which wheat interests are
traded.
From time to time, the clearing brokers may be
subject to legal or regulatory proceedings in the ordinary course
of their business. A clearing broker’s involvement in costly
or time-consuming legal proceedings may divert financial resources
or personnel away from the clearing broker’s trading
operations, which could impair the clearing broker’s ability
to successfully execute and clear the Fund’s
trades.
The
failure or insolvency of the Fund’s Custodian or other
financial institution in which the Fund has deposits could result
in a substantial loss of the Fund’s
assets.
As noted above, the vast
majority of the Fund’s assets are held in cash and cash
equivalents with the Custodian, 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.
On December 17, 2013, the Sponsor was issued a
patent on certain business methods and procedures used with respect
to the Fund. The patent protects the valuation engine which
calculates asset values of futures contracts corresponding to the
Fund benchmark in a locked position. A U.S. government maintenance
fee is paid every three and one-half years from the issue date. The
Sponsor paid the maintenance fee in 2021. The Sponsor utilizes
certain proprietary software. Any unauthorized use of such
proprietary software, business methods and/or procedures could
adversely affect the competitive advantage of the Sponsor or the
Fund and/or require the Sponsor to take legal action to protect its
rights.
16
The Fund
may experience substantial losses on transactions if the computer
or communications system fails.
The Fund’s trading activities depend on
the integrity and performance of the computer and communications
systems supporting them. Extraordinary transaction volume, hardware
or software failure, power or telecommunications failure, a natural
disaster, cyber-attack or other catastrophe could cause the
computer systems to operate at an unacceptably slow speed or even
fail. Any significant degradation or failure of the systems that
the Sponsor uses to gather and analyze information, enter orders,
process data, monitor risk levels and otherwise engage in trading
activities may result in substantial losses on transactions,
liability to other parties, lost profit opportunities, damages to
the Sponsor’s and Fund’s reputations, increased
operational expenses and diversion of technical
resources.
If the
computer and communications systems are not upgraded when
necessary, the Fund’s financial condition could be
harmed.
The development of complex computer and
communications systems and new technologies may render the existing
computer and communications systems supporting the Fund’s
trading activities obsolete. In addition, these computer and
communications systems must be compatible with those of third
parties, such as the systems of exchanges, clearing brokers and the
executing brokers. As a result, if these third parties upgrade
their systems, the Sponsor will need to make corresponding upgrades
to effectively continue its trading activities. The Sponsor may
have limited financial resources for these upgrades or other
technological changes. The Fund’s future success may depend
on the Sponsor’s ability to respond to changing technologies
on a timely and cost-effective basis.
The Fund
depends on the reliable performance of the computer and
communications systems of third parties, such as brokers and
futures exchanges, and may experience substantial losses on
transactions if they fail.
The Fund depends on the proper and timely
function of complex computer and communications systems maintained
and operated by the futures exchanges, brokers and other data
providers that the Sponsor uses to conduct trading activities.
Failure or inadequate performance of any of these systems could
adversely affect the Sponsor’s ability to complete
transactions, including its ability to close out positions, and
result in lost profit opportunities and significant losses on
commodity interest transactions. This could have a material adverse
effect on revenues and materially reduce the Fund’s available
capital. For example, unavailability of price quotations from third
parties may make it difficult or impossible for the Sponsor to
conduct trading activities so that the Fund will closely track the
Benchmark. Unavailability of records from brokerage firms may make
it difficult or impossible for the Sponsor to accurately determine
which transactions have been executed or the details, including
price and time, of any transaction executed. This unavailability of
information also may make it difficult or impossible for the
Sponsor to reconcile its records of transactions with those of
another party or to accomplish settlement of executed
transactions.
The
occurrence of a severe weather event, natural disaster, terrorist
attack, 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.
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 spread of the novel coronavirus known as
COVID-19), or the continuation or expansion of war or other
hostilities.
War and other geopolitical events in eastern
Europe, including but not limited to Russia and Ukraine, may cause
volatility in commodity prices including energy and grain prices,
due to the region’s importance to these markets, potential
impacts to global transportation and shipping, and other supply
chain disruptions. These events are unpredictable and may lead to
extended periods of price volatility.
Global terrorist attacks, anti-terrorism
initiatives, and political unrest, as well as the adverse impact
the COVID-19 pandemic has had on the global and U.S. markets and
economy, continue to fuel concerns. For example, the COVID-19
pandemic may continue to 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 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.
17
Failures
or breaches of electronic systems could disrupt the Fund’s
trading activity and materially affect the Fund’s
profitability.
Failures or breaches of the electronic systems
of the Fund, the Sponsor, the Custodian or other financial
institutions in which the Fund invests, or the Fund’s other
service providers, market makers, Authorized Purchasers, NYSE Arca,
exchanges on which Wheat Futures Contracts or other wheat interests
are traded or cleared, or counterparties have the ability to cause
disruptions and negatively impact the Fund’s business
operations, potentially resulting in financial losses to the Fund
and its shareholders. Such failures or breaches may include
intentional cyber-attacks that may result in an unauthorized party
gaining access to electronic systems in order to misappropriate the
Fund’s assets or sensitive information. While the Fund has
established business continuity plans and risk management systems
seeking to address system breaches or failures, there are inherent
limitations in such plans and systems. Furthermore, the Fund cannot
control the cyber security plans and systems of the Custodian or
other financial institutions in which the Fund invests, or the
Fund’s other service providers, market makers, Authorized
Purchasers, NYSE Arca, exchanges on which Wheat Futures Contracts
or other wheat interests are traded or cleared, or
counterparties.
An
investment in a Fund faces numerous risks from its shares being
traded in the secondary market, any of which may lead to the
Fund’s shares trading at a premium or discount to
NAV.
Although the Fund’s shares are listed for
trading on the NYSE Arca, there can be no assurance that an active
trading market for such shares will develop or be maintained.
Trading in the Fund’s shares may be halted due to market
conditions or for reasons that, in the view of the NYSE Arca, make
trading in shares inadvisable. There can be no assurance that the
requirements of the NYSE Arca necessary to maintain the listing of
the Fund will continue to be met or will remain unchanged or that
the shares will trade with any volume, or at all. The NAV of the
Fund’s shares will generally fluctuate with changes in the
market value of the Fund’s portfolio holdings. The market
prices of shares will generally fluctuate in accordance with
changes in the Fund’s NAV and supply and demand of shares on
the NYSE Arca. It cannot be predicted whether the Fund’s
shares will trade below at or above their NAV. Investors buying or
selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by
that broker. Brokerage commissions are often a fixed amount and may
be a significant proportional cost for investors seeking to buy or
sell relatively small amounts of shares.
The NYSE
Arca may halt trading in the Shares which would adversely impact
your ability to sell Shares.
Trading in Shares of the Fund may be halted due
to market conditions or, in light of NYSE Arca rules and
procedures, for reasons that, in view of the NYSE Arca, make
trading in Shares inadvisable. In addition, trading is subject to
trading halts caused by extraordinary market volatility pursuant to
“circuit breaker” rules that require trading to be
halted for a specified period based on a specified market decline.
There can be no assurance that the requirements necessary to
maintain the listing of the Shares will continue to be met or will
remain unchanged. The Fund will be terminated if its Shares are
delisted.
The lack
of active trading markets for the Shares of the Fund may result in
losses on your investment in the Fund at the time of disposition of
your Shares.
Although the Shares of the Fund will be listed
and traded on the NYSE Arca, there can be no guarantee that an
active trading market for the Shares of the Fund will be
maintained. If you need to sell your Shares at a time when no
active market for them exists, the price you receive for your
Shares, assuming that you are able to sell them, likely will be
lower than what you would receive if an active market did
exist.
18
Risk of Leverage and
Volatility
The Fund
may become leveraged and may result in losses on all or
substantially all of your investment if the Fund’s trading
positions suddenly turn unprofitable.
Commodity pools’ trading positions in
futures contracts or other commodity interests are typically
required to be secured by the deposit of margin funds that
represent only a small percentage of a futures contract’s (or
other commodity interest’s) entire market value. This feature
permits commodity pools to “leverage” their assets by
purchasing or selling futures contracts (or other commodity
interests) with an aggregate notional amount in excess of the
commodity pool’s assets. While this leverage can increase a
pool’s profits, relatively small adverse movements in the
price of the pool’s commodity interests can cause significant
losses to the pool. While the Sponsor does not intend to leverage
the Fund’s assets, it is not prohibited from doing so under
the Trust Agreement. If the Sponsor 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.
The price
of wheat can be volatile which could cause large fluctuations in
the price of Shares.
As discussed in more detail above, price
movements for wheat are influenced by, among other things, weather
conditions, crop disease, crop failure, transportation and storage
difficulties, production decisions, various planting, growing and
harvesting problems, governmental policies, various economic and
monetary events, changing demand, and seasonal fluctuations in
supply. More generally, commodity prices may be influenced by
economic and monetary events such as changes in interest rates,
changes in balances of payments and trade, U.S. and international
inflation rates, currency valuations and devaluations, U.S. and
international economic events, and changes in the philosophies and
emotions of market participants. Because the Fund invests primarily
in interests in a single commodity, it is not a diversified
investment vehicle, and therefore may be subject to greater
volatility than a diversified portfolio of stocks or bonds or a
more diversified commodity pool.
Over the counter Contract
Risk
Over the
counter transactions are subject to changing
regulation.
A portion of the Fund’s assets may be used
to trade over the counter wheat interests, such as forward
contracts or swaps. The markets for over the counter contracts will
continue to rely upon the integrity of market participants in lieu
of the additional regulation imposed by the CFTC on participants in
the futures markets. To date, the forward markets have been largely
unregulated, except for antimanipulation and antifraud
provisions, forward contracts have been executed bilaterally
and, in general historically, forward contracts have not been
cleared or guaranteed by a third party. While increased regulation
of over the counter commodity interests is likely to result from
changes that are required to be effectuated by the DoddFrank
Act, there is no guarantee that such increased regulation will be
effective to reduce these risks.
The Fund
will be subject to credit risk with respect to counterparties to
over the counter contracts entered into by the
Fund.
The Fund faces the risk of non-performance by
the counterparties to the over the counter contracts. Unlike in
futures contracts, the counterparty to these contracts is generally
a single bank or other financial institution, rather than a
clearing organization backed by a group of financial institutions.
As a result, there will be greater counterparty credit risk in
these transactions. A counterparty may not be able to meet its
obligations to the Fund, in which case the Fund could suffer
significant losses on these contracts.
If a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery in
a bankruptcy or other reorganization proceeding. During any such
period, the Fund may have difficulty in determining the value of
its contracts with the counterparty, which in turn could result in
the overstatement or understatement of the Fund’s NAV. The
Fund may eventually obtain only limited recovery or no recovery in
such circumstances.
The Fund
may be subject to liquidity risk with respect to over the counter
contracts.
Over the counter contracts may have terms that
make them less marketable than Wheat Futures Contracts. Over the
counter contracts are less marketable because they are not traded
on an exchange, do not have uniform terms and conditions, and are
entered into based upon the creditworthiness of the parties and the
availability of credit support, such as collateral, and in general,
they are not transferable without the consent of the counterparty.
These conditions make such contracts less liquid than standardized
futures contracts traded on a commodities exchange and diminish the
ability to realize the full value of such contracts. In addition,
even if collateral is used to reduce counterparty credit risk,
sudden changes in the value of over the counter transactions may
leave a party open to financial risk due to a counterparty default
since the collateral held may not cover a party’s exposure on
the transaction in such situations.
19
In general, valuing OTC derivatives is less
certain than valuing actively traded financial instruments such as
exchange traded futures contracts and securities because the price
and terms on which such OTC derivatives are entered into or can be
terminated are individually negotiated, and those prices and terms
may not reflect the best price or terms available from other
sources. In addition, while market makers and dealers generally
quote indicative prices or terms for entering into or terminating
OTC contracts, they typically are not contractually obligated to do
so, particularly if they are not a party to the transaction. As a
result, it may be difficult to obtain an independent value for an
outstanding OTC derivatives transaction.
The foregoing liquidity risks could impact
adversely affect the Fund’s ability to meet its investment
objective.
In addition, regulations adopted by global
prudential regulators that are now in effect require certain
prudentially regulated entities and certain of their affiliates and
subsidiaries (including swap dealers) to include in their
derivatives contracts and certain other financial contracts, terms
that delay or restrict the rights of counterparties (such as the
Funds) to terminate such contracts, foreclose upon collateral,
exercise other default rights or restrict transfers of credit
support in the event that the prudentially regulated entity and/or
its affiliates are subject to certain types of resolution or
insolvency proceedings. Similar regulations and laws have been
adopted in non-US jurisdictions that may apply to a Fund’s
counterparties located in those jurisdictions. It is possible that
these new requirements, as well as potential additional related
government regulation, could adversely affect a Fund’s
ability to terminate existing derivatives contracts, exercise
default rights or satisfy obligations owed to it with collateral
received under such contracts.
Risk of Trading in
International Markets
Trading
in international markets would expose the Fund to credit and
regulatory risk.
A significant portion of the Wheat Futures
Contracts entered into by the Fund are traded on United States
exchanges including the CBOT. However, a portion of the
Fund’s trades may take place on markets or exchanges outside
the United States. Some nonU.S. markets present risks because
they are not subject to the same degree of regulation as their U.S.
counterparts. None of the CFTC, NFA, or any domestic exchange
regulates activities of any foreign boards of trade or exchanges,
including the execution, delivery and clearing of transactions, has
the power to compel enforcement of the rules of a foreign board of
trade or exchange or of any applicable nonU.S. laws.
Similarly, the rights of market participants, such as the Fund, in
the event of the insolvency or bankruptcy of a nonU.S. market
or broker are also likely to be more limited than in the case of
U.S. markets or brokers. As a result, in these markets, the Fund
has less legal and regulatory protection than it does when it
trades domestically. Currently the Fund does not place trades on
any markets or exchanges outside of the United States and does not
anticipate doing so in the near future.
In some of these nonU.S. markets, the
performance on a futures contract is the responsibility of the
counterparty and is not backed by an exchange or clearing
corporation and therefore exposes the Fund to credit risk.
Additionally, trading on nonU.S. exchanges is subject to the
risks presented by exchange controls, expropriation, increased tax
burdens and exposure to local economic declines and political
instability. An adverse development with respect to any of these
variables could reduce the profit or increase the loss earned on
trades in the affected international markets.
20
International
trading activities subject the Fund to foreign exchange
risk.
The price of any nonU.S. wheat interest
and, therefore, the potential profit and loss on such investment,
may be affected by any variance in the foreign exchange rate
between the time the order is placed and the time it is liquidated,
offset or exercised. However, a portion of the trades for the Fund
may take place in markets and on exchanges outside of the U.S. Some
non-U.S. markets present risks because they are not subject to the
same degree of regulation as their U.S. counterparts. As a result,
changes in the value of the local currency relative to the U.S.
dollar may cause losses to the Fund even if the contract is
profitable.
The CFTC’s implementation of its
regulations under the DoddFrank Act may further affect the
Fund’s ability to enter into foreign exchange contracts and
to hedge its exposure to foreign exchange
losses.
The
Fund’s international trading could expose it to losses
resulting from non-U.S. exchanges that are less developed or less
reliable than United States exchanges.
Some non-U.S. exchanges also may be in a more
developmental stage so that prior price histories may not be
indicative of current price dynamics. In addition, the Fund may not
have the same access to certain positions on foreign trading
exchanges as do local traders, and the historical market data on
which the Sponsor bases its strategies may not be as reliable or
accessible as it is for U.S. exchanges.
Tax Risk
Please refer to “U.S. Federal Income Tax
Considerations” for information regarding the U.S. federal
income tax consequences of the purchase, ownership and disposition
of Shares.
Your tax
liability from holding Shares may exceed the amount of
distributions, if any, on your Shares.
Cash or property will be distributed by the Fund
at the sole discretion of the Sponsor, and the Sponsor currently
does not intend to make cash or other distributions with respect to
Shares. You will be required to pay U.S. federal income tax and, in
some cases, state, local, or foreign income tax, on your allocable
share of the Fund’s taxable income, without regard to whether
you receive distributions or the amount of any distributions.
Therefore, the tax liability resulting from your ownership of
Shares may exceed the amount of cash or value of property (if any)
distributed.
Your
allocable share of income or loss for U.S. federal income tax
purposes may differ from your economic income or loss on your
Shares.
Due to the application of the assumptions and
conventions applied by the Fund in making allocations for U.S.
federal income tax purposes and other factors, your allocable share
of the Fund’s income, gain, deduction or loss may be
different than your economic profit or loss from your Shares for a
taxable year. This difference could be temporary or permanent and,
if permanent, could result in your being taxed on amounts in excess
of your economic income.
Items of
income, gain, deduction, loss and credit with respect to Shares
could be reallocated (or for taxable years beginning after December
31, 2017, the Fund itself could be liable for U.S. federal income
tax along with any interest or penalties) if the IRS does not
accept the assumptions and conventions applied by the Fund in
allocating those items, with potential adverse tax consequences for
you.
The Fund intends to be treated as a partnership
for United States federal income tax purposes. The U.S. tax rules
pertaining to entities taxed as partnerships are complex and their
application to publicly traded partnerships such as the Fund, is in
many respects uncertain. The Fund applies certain assumptions and
conventions in an attempt to comply with the intent of the
applicable rules and to report taxable income, gains, deductions,
losses and credits in a manner that properly reflects
Shareholders’ economic gains and losses. These assumptions
and conventions may not fully comply with all aspects of the
Internal Revenue Code of 1986, as amended (the “Code”),
and applicable Treasury Regulations, however, and it is possible
that the U.S. Internal Revenue Service (the “IRS”) will
successfully challenge our allocation methods and require us to
reallocate items of income, gain, deduction, loss or credit in a
manner that adversely affects you. If this occurs, you may be
required to file an amended tax return and to pay additional taxes
plus deficiency interest.
21
In addition, for taxable years beginning after
December 31, 2017, the Fund may be liable for U.S. federal income
tax on any “imputed underpayment” of tax resulting from
an adjustment as a result of an IRS audit. The amount of the
imputed underpayment generally includes increases in allocations of
items of income or gains to any investor and decreases in
allocations of items of deduction, loss, or credit to any investor
without any offset for any corresponding reductions in allocations
of items of income or gain to any investor or increases in
allocations of items of deduction, loss, or credit to any investor.
If the Fund is required to pay any U.S. federal income 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.
The Fund
could be treated as a corporation for federal income tax purposes,
which may substantially reduce the value of your
Shares.
The Trust has received an opinion of counsel
that, under current U.S. federal income tax laws, the Fund will be
treated as a partnership that is not taxable as a corporation for
U.S. federal income tax purposes, provided that, among other
things, (i) at least 90 percent of the Fund’s annual gross
income consists of “qualifying income” as defined in
the Code, (ii) the Fund is organized and operated in accordance
with its governing agreements and applicable law, and (iii) the
Fund does not elect to be taxed as a corporation for U.S. federal
income tax purposes. Although the Sponsor anticipates that the Fund
has satisfied and will continue to satisfy the “qualifying
income” requirement for all of its taxable years, that result
cannot be assured. The Fund has not requested and will not request
any ruling from the IRS with respect to its classification as a
partnership not taxable as a corporation for 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
distributions would be taxable to Shareholders as dividend income
to the extent of the Fund’s current and accumulated earnings
and profits, then treated as a tax-free return of capital to the
extent of the Shareholder’s basis in the Shares (and will
reduce the basis), and, to the extent it exceeds a
Shareholder’s basis in such Shares, as capital gain for
Shareholders who hold their Shares as capital assets. Taxation of
the Fund as a corporation could materially reduce the after-tax
return on an investment in Shares and could substantially reduce
the value of your Shares.
Tax
legislation that has been or could be enacted may affect you with
respect to your investment in the Fund.
Legislative, regulatory or administrative
changes could be enacted or promulgated at any time, either
prospectively or with retroactive effect, and may adversely affect
the Fund and its Shareholders. Please consult a tax advisor
regarding the implications of an investment in Shares of the
Teucrium Funds, including without limitation the federal, state,
local and foreign tax consequences.
PROSPECTIVE
INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN SHARES; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT
INVESTORS.
22
THE
OFFERING
The Fund in
General
The Fund’s investment objective is to
provide investors with a cost-efficient way to gain price exposure
to the wheat market for future delivery. The Sponsor developed the
Benchmark as a representation of the wheat market for future
delivery.
Under normal market conditions, the Fund will
invest in the Benchmark Component Futures Contracts and cash and
cash equivalents. The Sponsor believes that by investing in
Benchmark Component Futures Contracts, the Fund’s net asset
value (“NAV”) will closely track the Benchmark. The
Sponsor also believes that because of market arbitrage
opportunities, the market price at which investors will purchase
and sell Shares through their broker-dealer will closely track the
Fund’s NAV. The Sponsor believes that the net effect of these
relationships is that the Fund’s market price on the NYSE
Arca at which investors purchase and sell Shares will closely track
the wheat market for future delivery, as measured by the
Benchmark.
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 corn for
future delivery 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 five series that are separate operating commodity pools:
the Teucrium Corn Fund, the Teucrium Wheat Fund, the Teucrium
Soybean Fund, the Teucrium Sugar Fund, and the Teucrium
Agricultural Fund. Additional series of the Trust may be created in
the future at the Sponsor’s discretion. The Fund maintains
its main business office at Three Main Street, Suite 215,
Burlington Vermont 05401. The Fund is a commodity pool. It operates
pursuant to the terms of the Trust Agreement, which is dated as of
April 26, 2019 and grants full management control to the
Sponsor.
See “Prior Performance of the Fund”
on page 27 for more
information about prior performance of the
Fund.
The
Sponsor
The Sponsor of the Trust is Teucrium Trading,
LLC, a Delaware limited liability company. The principal office of
the Sponsor and the Trust are located at Three Main Street, Suite
215, Burlington, Vermont 05401. The Sponsor registered as a CPO
with the CFTC and became a member of the NFA on November 10, 2009.
The Sponsor registered as a Commodity Trading Advisor
(“CTA”) with the CFTC effective September 8,
2017.
Aside from establishing the series of the Trust,
operating those series that have commenced offering their shares,
and obtaining capital from a small number of outside investors in
order to engage in these activities, the Sponsor has not engaged in
any other business activity prior to the date of this prospectus.
Under the Trust Agreement, the Sponsor is solely responsible for
management and conducts or directs the conduct of the business of
the Trust, the Fund, and any series of the Trust that may from time
to time be established and designated by the Sponsor. The Sponsor
is required to oversee the purchase and sale of Shares by
Authorized Purchasers and to manage the Fund’s investments,
including to evaluate the credit risk of FCMs and swap
counterparties and to review daily positions and margin/collateral
requirements. The Sponsor has the power to enter into agreements as
may be necessary or appropriate for the offer and sale of the
Fund’s Shares and the conduct of the Trust’s
activities. Accordingly, the Sponsor is responsible for selecting
the Trustee, Administrator, Distributor, the independent registered
public accounting firm of the Trust, and any legal counsel employed
by the Trust. The Sponsor is also responsible for preparing and
filing periodic reports on behalf of the Trust with the SEC and
will provide any required certification for such reports. No person
other than the Sponsor and its principals was involved in the
organization of the Trust or the Fund.
23
The Sponsor may determine to engage marketing
agents who will assist the Sponsor in marketing the Shares. See
“Plan of Distribution” for more
information.
The Sponsor maintains a public website on behalf
of the Fund, www.teucrium.com,
which contains information about the Trust, the Fund, and the
Shares, and oversees certain services for the benefit of
Shareholders.
The Sponsor has discretion to appoint one or
more of its affiliates as additional Sponsors.
The Sponsor receives a fee as compensation for
services performed under the Trust Agreement. The Sponsor’s
fee accrues daily and is paid monthly at an annual rate of 1.00% of
the average daily net assets of the Fund. For the period from
January 1, 2021 through December 31, 2021, the Fund recognized
$809,682 in management fees to the Sponsor. The Fund is also
responsible for other ongoing fees, costs and expenses of its
operations, including brokerage fees, and legal, printing,
accounting, custodial, administration and transfer agency costs,
although the Sponsor bore the costs and expenses related to the
registration of the Shares. None of the costs and expenses related
to the initial registration, offer and sale of Shares, which
totaled approximately $450,000, were or are chargeable to the Fund,
and the Sponsor did not and may not recover any of these costs and
expenses from the Fund.
Shareholders have no right to elect the Sponsor
on an annual or any other continuing basis or to remove the
Sponsor. If the Sponsor voluntarily withdraws, the holders of a
majority of the Trust’s outstanding Shares (excluding for
purposes of such determination Shares owned by the withdrawing
Sponsor and its affiliates) may elect its successor. Prior to
withdrawing, the Sponsor must give ninety days’ written
notice to the Shareholders and the Trustee.
Ownership or “membership” interests
in the Sponsor are owned by persons referred to as
“members.” The Sponsor currently has three voting or
“Class A” members – Mr. Sal Gilbertie, Mr. Dale
Riker and Mr. Carl N. Miller III – and a small number of
non-voting or “Class B” members who have provided
working capital to the Sponsor. Messrs. Gilbertie and Riker each
currently own 45.7% of the Sponsor’s Class A membership
interests, while Mr. Miller holds the remainder, which is
8.52%.
The Sponsor has an information security program
and policy in place. The program takes reasonable care to look
beyond the security and controls developed and implemented for the
Trust and the Funds directly to the platforms and controls in place
for the key service providers. Such review of cybersecurity and
information technology plans of key service providers are part of
the Sponsor’s disaster recovery and business continuity
planning. The Sponsor provides regular training to all employees of
the Sponsor regarding cybersecurity topics, in addition to
real-time dissemination of information regarding cybersecurity
matters as needed. The information security plan is reviewed and
updated as needed, but at a minimum on an annual
basis.
Management
of the Sponsor
In general, under the Sponsor’s Amended
and Restated Limited Liability Company Operating Agreement, as
amended from time to time, the Sponsor (and as a result the Trust
and each Fund) is managed by the officers of the
Sponsor. The Chief Executive Officer of the Sponsor is
responsible for the overall strategic direction of the Sponsor and
has general control of its business. The Chief Investment Officer
and President of the Sponsor is primarily responsible for new
investment product development with respect to the Funds. The Chief
Operating Officer has primary responsibility for trade operations,
trade execution, and portfolio activities with respect to the Fund.
The Chief Financial Officer, Chief Accounting Officer and Chief
Compliance Officer acts as the Sponsor’s principal financial
and accounting officer. Furthermore, certain fundamental actions
regarding the Sponsor, such as the removal of officers, the
addition or substitution of members, or the incurrence of
liabilities other than those incurred in the ordinary course of
business and de minimis
liabilities, may not be taken without the affirmative vote of a
majority of the Class A members (which is generally defined as the
affirmative vote of Mr. Gilbertie and one of the other two Class A
members). The Sponsor has no board of directors, and the
Trust has no board of directors or officers. The three Class A
members of the Sponsor are Sal Gilbertie, Dale Riker and Carl N.
Miller III.
24
The Officers of the Sponsor, one of whom is a
Class A Member of the Sponsor, are the
following:
Sal Gilbertie has
been the President of the Sponsor since its inception, its Chief
Investment Officer since September 2011, and its Chief Executive
Officer and Secretary since September 17, 2018, and was approved by
the NFA as a principal of the Sponsor on September 23, 2009 and
registered as an associated person of the Sponsor on November 10,
2009. He maintains his main business office at 65 Adams Road,
Easton, Connecticut 06612. Effective July 16, 2012, Mr.
Gilbertie was registered with the NFA as the Branch Manager for
this location. Since October 18, 2010, Mr. Gilbertie has been
an associated person of the Distributor under the terms of the
Securities Activities and Services Agreement (“SASA”)
between the Sponsor and the Distributor. Additional
information regarding the SASA can be found in the section of this
disclosure document entitled “Plan of
Distribution.” From October 2005 until December 2009,
Mr. Gilbertie was employed by Newedge USA, LLC, an FCM and
broker-dealer registered with the CFTC and the SEC, where he headed
the Renewable Fuels/Energy Derivatives OTC Execution Desk and was
an active futures contract and over the counter derivatives trader
and market maker in multiple classes of commodities. (Between
January 2008 and October 2008, he also held a comparable position
with Newedge Financial, Inc., an FCM and an affiliate of Newedge
USA, LLC.) From October 1998 until October 2005, Mr.
Gilbertie was principal and co-founder of Cambial Asset Management,
LLC, an adviser to two private funds that focused on equity
options, and Cambial Financing Dynamics, a private boutique
investment bank. While at Cambial Asset Management, LLC and
Cambial Financing Dynamics, Mr. Gilbertie served as principal and
managed the day to day activities of the business and the portfolio
of both companies. Mr. Gilbertie is 61 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 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. He maintains his main
business office at 13520 Excelsior Blvd., Minnetonka, MN 55345. Mr.
Kahler was registered as an Associated Person of the Sponsor on
November 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. Prior to his employment with the Sponsor, Mr. Kahler worked
for Cargill Inc., an international producer and marketer of food,
agricultural, financial and industrial products and services, from
April 2006 until November 2011 in the Energy Division as Senior
Petroleum Trader. In October 2006 and while employed at Cargill
Inc., Mr. Kahler was approved as an Associated Person of Cargill
Commodity Services Inc., a commodity trading affiliate of Cargill
Inc. from September 13, 2006 to November 9, 2011. Mr. Kahler
graduated from the University of Minnesota with a Bachelors of
Agricultural Business Administration and is 54 years
old.
Messrs. Gilbertie, Riker, 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
Market
Price of Shares
The Fund’s Shares have traded on the NYSE
Arca under the symbol “WEAT” since September 19, 2011.
The following table sets forth the range of reported high and low
sales prices of the Shares as reported on NYSE Arca for the periods
indicated below.
|
Fiscal Year
Ended December 31, 2021:
|
High
|
Low
|
|
Quarter
Ended
|
|
|
|
March 31, 2021
|
$6.50
|
$5.82
|
|
June 30, 2021
|
$7.36
|
$5.92
|
|
September 30, 2021
|
$7.48
|
$6.17
|
|
December 31, 2021
|
$8.31
|
$7.05
|
|
Fiscal Year
Ended December 31, 2020:
|
High
|
Low
|
|
Quarter
Ended
|
|
|
|
March 31, 2020
|
$6.01
|
$5.15
|
|
June 30, 2020
|
$5.77
|
$4.86
|
|
September 30, 2020
|
$5.75
|
$5.04
|
|
December 31, 2020
|
$6.19
|
$5.58
|
As of December 31, 2021, the Fund had
approximately 7,976 Shareholders.
26
Prior
Performance of the Fund
PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS
The Teucrium Wheat Fund commenced trading and
investment operations on September 19, 2011. The Teucrium Wheat
Fund is listed on NYSE Arca and is neither: (i) a privately offered
pool pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended. (ii) a multi-advisor pool as defined in CFTC Regulation
4.10(d)(2). or (iii) a principal protected pool as defined in CFTC
Regulation 4.10(d)(3).
|
Units of beneficial
interest issued (from inception until February 28,
2022)
|
35,475,000
|
|
Aggregate gross sale price
for units issued
|
$318,228,838
|
|
Pool NAV as of February 28,
2022
|
$131,569,855
|
|
NAV per Share as of
February 28, 2022
|
$8.76
|
|
Worst monthly percentage
drawdown*
|
-11.52% / Aug
2017
|
|
Worst peak to valley
drawdown**
|
-80.30% / Sep
2011 – Apr 2019
|
* A drawdown is a loss experienced by the fund
over a specified period. Drawdowns are measured on the basis of
monthly returns only and do not reflect 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.
27
PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of
Return*
|
||||||||||||
|
Month
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2021
|
|
|
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)
|
%
|
|
%
|
|
April
|
(1.73)
|
%
|
8.40
|
%
|
(6.98)
|
%
|
(6.75)
|
%
|
18.28
|
%
|
|
%
|
|
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
|
%
|
18.69
|
%**
|
* The monthly rate of return is calculated by
dividing the ending NAV for a given month by the ending NAV for the
previous month, subtracting 1 and multiplying this number by 100 to
arrive at a percentage increase or decrease.
** Not annualized.
28
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 198900001. The Trustee is unaffiliated
with the Sponsor. The Trustee’s duties and liabilities with
respect to the offering of Shares and the management of the Trust
and the Fund are limited to its express obligations under the Trust
Agreement.
The Trustee will accept service of legal process
on the Trust in the State of Delaware and will make certain filings
under the Delaware Statutory Trust Act. The Trustee does not owe
any other duties to the Trust, the Sponsor or the Shareholders. The
Trustee is permitted to resign upon at least sixty (60) days’
notice to the Sponsor. If no successor trustee has been appointed
by the Sponsor within such sixty day period, the Trustee may,
at the expense of the Trust, petition a court to appoint a
successor. The Trust Agreement provides that the Trustee is
entitled to reasonable compensation for its services from the
Sponsor or an affiliate of the Sponsor (including the Trust), and
is indemnified by the Sponsor against any expenses it incurs
relating to or arising out of the formation, operation or
termination of the Trust, or any action or inaction of the Trustee
under the Trust Agreement, except to the extent that such expenses
result from the gross negligence or willful misconduct of the
Trustee. The Sponsor has the discretion to replace the
Trustee.
The Trustee has not signed the registration
statement of which this prospectus is a part and is not subject to
issuer liability under the federal securities laws for the
information contained in this prospectus and under federal
securities laws with respect to the issuance and sale of the
Shares. Under such laws, neither the Trustee, either in its
capacity as Trustee or in its individual capacity, nor any
director, officer or controlling person of the Trustee is, or has
any liability as, the issuer or a director, officer or controlling
person of the issuer of the Shares.
Under the Trust Agreement, the Trustee has
delegated to the Sponsor the exclusive management and control of
all aspects of the business of the Trust and the Fund. The Trustee
has no duty or liability to supervise or monitor the performance of
the Sponsor, nor does the Trustee have any liability for the acts
or omissions of the Sponsor.
Because the Trustee has delegated substantially
all of its authority over the operation of the Trust to the
Sponsor, the Trustee itself is not registered in any capacity with
the CFTC.
Operation of the
Fund
The investment objective of the Fund is to have
the daily changes in the Shares’ NAV reflect the daily
changes in the wheat market for future delivery, as measured by the
Fund’s Benchmark. The Benchmark is a weighted average of the
closing settlement prices for the Benchmark Component Futures
Contracts
WEAT
Benchmark
|
CBOT Wheat Futures
Contract
|
Weighting
|
|
Second to expire
|
35%
|
|
Third to expire
|
30%
|
|
December following the third to
expire
|
35%
|
The Fund seeks to achieve its investment
objective by investing under normal market conditions in Benchmark
Component Futures Contracts. Under normal market conditions, the
Fund expects that 100% of the Fund’s assets will be used to
trade Wheat Futures Contracts and invest in cash and cash
equivalents. The Fund reserves the right to invest in swap
agreements, forward contracts and options, a brief description of
which may be found in “Appendix A – “Glossary of
Defined Terms.”
The Fund invests in Benchmark Component Futures
Contracts to the fullest extent possible without being leveraged or
unable to satisfy its current or potential margin or collateral
obligations with respect to its investments in Benchmark Component
Futures Contracts. After fulfilling such margin and collateral
requirements, the Fund invests the remainder of its proceeds from
the sale of baskets in cash and cash equivalents, including money
market funds, investment grade commercial paper, 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.
29
The Fund seeks to achieve its investment
objective primarily by investing in Benchmark Component Futures
Contracts such that the changes in its NAV are expected to closely
track the changes in the Benchmark. The Fund’s positions in
Benchmark Component Futures Contracts are changed or
“rolled” on a regular basis in order to track the
changing nature of the Benchmark. For example, five times a year
(on the date on which a Wheat Futures Contract expires), the second
to expire Wheat Futures Contract will become the next to expire
Wheat Futures Contract and will no longer be a Benchmark Component
Futures Contract, and the Fund’s investments will have to be
changed accordingly. In order that the Fund’s trading does
not cause unwanted market movements and to make it more difficult
for third parties to profit by trading based on such expected
market movements, the Fund’s investments may not be rolled
entirely on that day, but rather may be rolled over a period of
days.
The Fund’s total portfolio composition is
disclosed each business day that the NYSE Arca is open for trading
on the Fund’s website at www.teucrium.com. The website
disclosure of portfolio holdings is made daily and includes, as
applicable, the name and value of each commodity futures contract
held and those that are pending, and the value of cash and cash
equivalents held in the Fund. The Fund’s website also
includes the NAV, the 4 p.m. Bid/Ask Midpoint as reported by the
NYSE Arca, the last trade price as reported by the NYSE Arca, the
shares outstanding, the shares available for issuance, and the
shares created or redeemed on that day. The prospectus, Monthly
Statements of Account, Quarterly Performance of the Midpoint versus
the NAV (as required by the CFTC), and the Roll Dates, as well as
Forms 10-Q, Forms 10-K, and other SEC filings for the Fund, are
also posted on the website. The Fund’s website is publicly
accessible at no charge.
In seeking to achieve the Fund’s
investment objective of tracking the Benchmark, the Sponsor
reserves the right to enter into or hold Wheat Futures Contracts
other than the Benchmark Component Futures Contracts and/or other
wheat interests on behalf of the Fund. Over the counter wheat
interests can generally be structured as the parties to the
contract desire. Therefore, the Fund might enter into multiple over
the counter wheat interests intended to exactly replicate the
performance of each of the three Benchmark Component Futures
Contracts, or a single over the counter wheat interest designed to
replicate the performance of the Benchmark as a whole. Assuming
that there is no default by a counterparty to an over the counter
wheat interest, the performance of the wheat interest will
necessarily correlate exactly with the performance of the Benchmark
or the applicable Benchmark Component Futures Contract. The Fund
might also enter into or hold wheat interests other than the
Benchmark Component Futures Contracts to facilitate effective
trading, consistent with the discussion of the Fund’s
“roll” strategy discussed in the preceding paragraph.
In addition, the Fund might enter into or hold wheat interests that
would be expected to alleviate overall deviation between the
Fund’s performance and that of the Benchmark that may result
from certain market and trading inefficiencies or other
reasons.
The Sponsor endeavors to place the Fund’s
trades in Benchmark Component Futures Contracts and otherwise
manage the Fund’s investments so that the Fund’s
average daily tracking error against the Benchmark is less than 10
percent over any period of 30 trading days.
The Fund’s investment objective is to
provide investors with a cost-efficient way to gain exposure to the
wheat market for future delivery. The Sponsor developed the
Benchmark as a representation of the wheat market for future
delivery. Under normal market conditions, the Fund will invest in
the Benchmark Component Futures Contracts. The Sponsor believes
that by investing in Benchmark Component Futures Contracts, the
Fund’s net asset value (“NAV”) will closely track
the Benchmark. The Sponsor also believes that because of market
arbitrage opportunities, the market price at which investors will
purchase and sell Shares through their broker-dealer will closely
track the Fund’s NAV. The Sponsor believes that the net
effect of these relationships is that the Fund’s market price
on the NYSE Arca at which investors purchase and sell Shares will
closely track the wheat market for future delivery, as measured by
the Benchmark.
An investment in the Shares provides a means for
diversifying an investor’s portfolio or hedging exposure to
changes in wheat prices. An investment in the Shares allows both
retail and institutional investors to easily gain this exposure to
the wheat market in a transparent, cost-effective
manner.
30
The Sponsor employs a “neutral”
investment strategy intended to track changes in the Benchmark
regardless of whether the Benchmark goes up or goes down. The
Fund’s “neutral” investment strategy is designed
to permit investors generally to purchase and sell the Fund’s
Shares for the purpose of investing indirectly in the wheat market
in a cost-effective manner. Such investors may include participants
in the wheat industry and other industries seeking to hedge the
risk of losses in their wheat related transactions, as well as
investors seeking exposure to the wheat market. Accordingly,
depending on the investment objective of an individual investor,
the risks generally associated with investing in the wheat market
and/or the risks involved in hedging may exist. In addition, the
Fund does not expect there to be any meaningful correlation between
the performance of the Fund’s investments in cash and cash
equivalents and the changes in the price of wheat or Benchmark
Component Futures Contracts. While the level of interest earned on,
or the market price of, these investments may in some respects
correlate to changes in the price of wheat, this correlation is not
anticipated as part of the Fund’s efforts to meet its
objective. This and certain risk factors discussed in this
prospectus may cause a lack of correlation between changes in the
Fund’s NAV and changes in the price of
wheat.
The Shares issued by the Fund may only be
purchased by Authorized Purchasers and only in blocks of 25,000
Shares called Creation Baskets. The amount of the purchase payment
for a Creation Basket is equal to the aggregate NAV of Shares in
the Creation Basket. Similarly, only Authorized Purchasers may
redeem Shares and only in blocks of 25,000 Shares called Redemption
Baskets. The amount of the redemption proceeds for a Redemption
Basket is equal to the aggregate NAV of Shares in the Redemption
Basket. The purchase price for Creation Baskets and the redemption
price for Redemption Baskets are the actual NAV calculated at the
end of the business day when a request for a purchase or redemption
is received by the Fund. The NYSE Arca publishes an approximate NAV
intra-day based on the prior day’s NAV and the current price
of the Benchmark Component Futures Contracts, but the price of
Creation Baskets and Redemption Baskets is determined based on the
actual NAV calculated at the end of each trading
day.
While the Fund issues Shares only in Creation
Baskets, Shares may also be purchased and sold in much smaller
increments on the NYSE Arca. These transactions, however, are
effected at the bid and ask prices established by the specialist
firm(s). Like any listed security, Shares can be purchased and sold
at any time a secondary market is open.
The
Fund’s Investment Strategy
In managing the Fund’s assets, the Sponsor
does not use a technical trading system that automatically issues
buy and sell orders. Instead, each time one or more baskets are
purchased or redeemed, the Sponsor purchases or sells Benchmark
Component Futures Contracts with an aggregate market value that
approximates the amount of cash received or paid upon the purchase
or redemption of the basket(s).
As an example, assume that a Creation Basket is
sold by the Fund, and that the Fund’s closing NAV per Share
is $15.00. In that case, the Fund would receive $375,000 in
proceeds from the sale of the Creation Basket ($15.00 NAV per Share
multiplied by 25,000 Shares and ignoring the Creation Basket fee of
$250). If one were to assume further that the Sponsor wants to
invest the entire proceeds from the Creation Basket in the
Benchmark Component Futures Contracts and that the market value of
each such Benchmark Component Futures Contracts is $32,500 (or
otherwise not a round number), the Fund would be unable to buy an
exact number of Wheat Futures Contracts with an aggregate market
value equal to $375,000. Instead, the Fund would be able to
purchase 11 Benchmark Component Futures Contracts with an aggregate
market value of $357,500. Assuming a margin requirement equal to
10% of the value of the Wheat Futures Contracts (although the
actual percentage is approximately 5%), the Fund would be required
to deposit $35,750 in cash with the FCM through which the Wheat
Futures Contracts were purchased. The remainder of the proceeds
from the sale of the Creation Basket, $339,250, would remain
invested in cash, and/or cash equivalents as determined by the
Sponsor from time to time based on factors such as potential calls
for margin or anticipated redemptions.
The specific wheat interests purchased depend on
various factors, including a judgment by the Sponsor as to the
appropriate diversification of the Fund’s investments. While
the Sponsor anticipates that under normal market conditions, a
substantial majority of the Fund’s assets will be invested in
CBOT Wheat Futures Contracts and cash and cash equivalents, the
Sponsor reserves the right to enter into other wheat interests on
behalf of the Fund, including swaps in the over the counter
market.
The Sponsor does not anticipate letting its
Benchmark Component Futures Contracts expire and taking delivery of
wheat. Instead, the Sponsor will close out existing positions,
e.g., in response to ongoing changes in the Benchmark or if it
otherwise determines it would be appropriate to do so and reinvest
the proceeds in new Benchmark Component Futures Contracts.
Positions may also be closed out to meet orders for Redemption
Baskets, in which case the proceeds from closing the positions will
not be reinvested.
31
Futures
Contracts
Futures contracts are agreements between two
parties that are executed on a designated contract market
(“DCM”), i.e., a commodity futures exchange, and that
are cleared and margined through a derivatives clearing
organization (“DCO”), i.e., a clearing house. One party
agrees to buy a commodity such as wheat from the other party at a
later date at a price and quantity agreed upon when the contract is
made. In market terminology, a party who purchases a futures
contract is long in the market and a party who sells a futures
contract is short in the market. The contractual obligations of a
buyer or seller may generally be satisfied by taking or making
physical delivery of the underlying commodity or by making an
offsetting sale or purchase of an identical futures contract on the
same or linked exchange before the designated date of delivery. The
difference between the price at which the futures contract is
purchased or sold and the price paid for the offsetting sale or
purchase, after allowance for brokerage commissions, constitutes
the profit or loss to the trader.
If the price of the commodity increases after
the original futures contract is entered into, the buyer of the
futures contract will generally be able to sell a futures contract
to close out its original long position at a price higher than that
at which the original contract was purchased, generally resulting
in a profit to the buyer. Conversely, the seller of a futures
contract will generally profit if the price of the underlying
commodity decreases, as it will generally be able to buy a futures
contract to close out its original short position at a price lower
than that at which the original contract was sold. Because the Fund
seeks to track the Benchmark directly and profit when the price of
wheat increases and, as a likely result of an increase in the price
of wheat, the price of Wheat Futures Contracts increases, the Fund
will generally be long in the market for wheat and will generally
sell Wheat Futures Contracts only to close out existing long
positions.
Futures contracts are typically traded on
futures exchanges (i.e., DCMs), such as the CBOT, which provide
centralized market facilities in which multiple persons may trade
contracts. Members of a particular futures exchange and the trades
executed on such exchange are subject to the rules of that
exchange. Futures exchanges and their related clearing
organizations (i.e., DCOs) are given reasonable latitude in
promulgating rules and regulations to control and regulate their
members.
Trades on a futures exchange are generally
cleared by the DCO, which provides services designed to mutualize
or transfer the credit risk arising from the trading of contracts
on an exchange. The clearing organization effectively becomes the
other party to the trade, and each clearing member party to the
trade looks only to the clearing organization for
performance.
Wheat Futures Contracts are traded on the CBOT
(which is part of the CME Group) in units of 5,000 bushels.
Generally, futures contracts traded on the CBOT are priced by floor
brokers and other exchange members through an electronic,
screen-based system that electronically determines the price by
matching offers to purchase and sell. Futures contracts may also be
based on commodity indices, in that they call for a cash payment
based on the change in the value of the specified index during a
specified period. No futures contracts based on an index of wheat
prices are currently available, although the Fund could enter into
such contracts should they become available in the
future.
Certain typical and significant characteristics
of Wheat Futures Contracts are discussed below. Additional risks of
investing in Wheat Futures Contracts are included in “What
are the Risk Factors Involved with an Investment in the
Fund?”
32
Impact of
Position Limits, Accountability Levels, and Price Fluctuation
Limits.
Position Limits, Accountability Levels, and
Price Fluctuation Limits may potentially cause a tracking error
between the price of the Shares and the Benchmark. This may in turn
prevent you from being able to effectively use the Fund as a way to
hedge against wheat related losses or as a way to indirectly invest
in wheat.
The Fund does not intend to limit the size of
the offering and will attempt to expose substantially all of its
proceeds to Benchmark Component Futures Contracts and cash and cash
equivalents. If the Fund encounters position limits, accountability
levels, or price fluctuation limits for Wheat Futures Contracts on
the CBOT, it may then, if permitted under applicable regulatory
requirements, purchase other wheat interests and/or Wheat Futures
Contracts listed on foreign exchanges. However, the Wheat Futures
Contracts available on such foreign exchanges may have different
underlying sizes, deliveries, and prices. In addition, the Wheat
Futures Contracts available on these exchanges may be subject to
their own position limits and accountability levels. In any case,
notwithstanding the potential availability of these instruments in
certain circumstances, position limits could force the Fund to
limit the number of Creation Baskets that it
sells.
Price
Volatility
Despite daily price limits, the price volatility
of futures contracts generally has been historically greater than
that for traditional securities such as stocks and bonds. Price
volatility often is greater day to day as opposed to
intraday. Economic factors that may cause volatility in Wheat
Futures Contracts include changes in interest rates. governmental,
agricultural, trade, fiscal, monetary and exchange control programs
and policies; weather and climate conditions; changing supply and
demand relationships; changes in balances of payments and trade;
U.S. and international rates of inflation; currency devaluations
and revaluations; U.S. and international political and economic
events; global trade disruption due to outbreaks or public health
emergency as declared by the World Health Organization; and changes
in philosophies and emotions of market participants. Because the
Fund invests a significant portion of its assets in futures
contracts, the assets of the Fund, and therefore the price of the
Fund’s Shares, may be subject to greater volatility than
traditional securities.
Term
Structure of Futures Contracts and the Impact on Total
Return
Over time, the price of wheat fluctuates based
on a number of market factors, including demand for wheat relative
to its supply. The value of Wheat Futures Contracts likewise
fluctuates in reaction to a number of market factors. Because the
Fund seeks to maintain its holdings in Wheat Futures Contracts with
a roughly constant expiration profile and not take delivery of the
wheat, the Fund must periodically “roll” futures
contract positions, closing out soon to expire contracts that are
no longer part of the Benchmark and entering into subsequent to
expire contracts. One factor determining the total return from
investing in futures contracts is the price relationship between
soon to expire contracts and later to expire
contracts.
If the futures market is in a state of
backwardation (i.e., when the price of wheat in the future is
expected to be less than the current price), the Fund will buy
later to expire contracts for a lower price than the sooner to
expire contracts that it sells. Hypothetically, and assuming no
changes to either prevailing wheat prices or the price relationship
between immediate delivery, soon to expire contracts and later to
expire contracts, the value of a contract will rise as it
approaches expiration. Over time, if backwardation remained
constant, the differences would continue to increase. If the
futures market is in contango, the Fund will buy later to expire
contracts for a higher price than the sooner to expire contracts
that it sells. Hypothetically, and assuming no other changes to
either prevailing wheat prices or the price relationship between
the spot price, soon to expire contracts and later to expire
contracts, the value of a contract will fall as it approaches
expiration. Over time, if contango remained constant, the
difference would continue to increase. Historically, the wheat
futures markets have experienced periods of both contango and
backwardation. Frequently, whether contango or backwardation exists
is a function, among other factors, of the seasonality of the wheat
market and the wheat harvest cycle. All other things being equal, a
situation involving prolonged periods of contango may adversely
impact the returns of the Fund; conversely a situation involving
prolonged periods of backwardation may positively impact the
returns of the Fund.
Margin
Requirements and Marking to Market Futures
Positions
“Initial margin” is an amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate an open position in futures
contracts. A margin deposit is like a cash performance bond. It
helps assure the trader’s performance of the futures
contracts that he or she purchases or sells. Futures contracts are
customarily bought and sold on initial margin that represents a
small percentage of the aggregate purchase or sales price of the
contract. The amount of margin required in connection with a
particular futures contract is set by the exchange on which the
contract is traded. Brokerage firms, such as the Fund’s
clearing broker, carrying accounts for traders in commodity
interest contracts may require higher amounts of margin as a matter
of policy to further protect themselves.
Futures contracts are marked to market at the
end of each trading day and the margin required with respect to
such contracts is adjusted accordingly. This process of marking
to market is designed to prevent losses from
accumulating in any futures account. Therefore, if the Fund’s
futures positions have declined in value, the Fund may be required
to post “variation margin” to cover this decline.
Alternatively, if the Fund’s futures positions have increased
in value, this increase will be credited to the Fund’s
account.
33
Over the counter
Derivatives
Under normal market conditions, the Fund expects
that 100% of the Fund’s assets will be used to trade futures
and invest in cash and cash equivalents; however, the Fund has the
ability to trade over the counter contracts and swaps. A
description of such over the counter derivatives is included the
statement of additional information that is part of this prospectus
under the heading “Over the counter
Derivatives.”
The Fund’s Investments
in Cash and Cash Equivalents
The Fund seeks to have the aggregate
“notional” amount of the Benchmark Component Futures
Contracts it holds approximate at all times the Fund’s
aggregate NAV. At any given time, however, most of the Fund’s
investments are in cash and cash equivalents that support the
Fund’s positions in Benchmark Component Futures Contracts.
For example, the purchase of a Wheat Futures Contract with a stated
or notional amount of $10 million would not require the Fund to pay
$10 million upon entering into the contract; rather, only a margin
deposit, approximately 4-6% of the notional amount, would be
required. To secure its Wheat Futures Contract obligations, the
Fund would deposit the required margin with the FCM and would
separately hold its remaining assets through its Custodian or other
financial institution in cash and cash equivalents, specifically in
demand deposits, in short-term Treasury Securities held by the FCM,
in money-market funds or in commercial paper. Such remaining assets
may be used to meet future margin payments that the Fund is
required to make on its Wheat Futures Contracts. Other wheat
interests typically also involve collateral requirements that
represent a small fraction of their notional amounts, so most of
the Fund’s assets dedicated to these wheat interests are also
held in cash and cash equivalents.
The Fund earns interest and other income from
the cash equivalents that it purchases, and on the cash, it holds
through the Custodian or other financial institutions. The earned
interest and other income increase the Fund’s NAV. The Fund
applies the earned interest and other income to the acquisition of
additional investments or uses it to pay its expenses. When the
Fund reinvests the earned interest and other income, it makes
investments that are consistent with its investment
objectives.
Any cash equivalent invested in by the Fund will
have a remaining maturity of less than 3 months at the time of
investment or will be subject to a demand feature that enables that
Fund to sell the security within that time period at approximately
the security’s face value (plus accrued interest). Any cash
equivalents invested in by the Fund will be or will be deemed by
the Sponsor to be of investment 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. It is likely that EFRP mechanisms will
significantly change in the future which may make it uneconomical
or impossible from a regulatory perspective for the Fund to utilize
these mechanisms.
Options
on Futures Contracts
An option on a futures contract gives the buyer
of the option the right, but not the obligation, to buy or sell a
futures contract at a specified price on or before a specified
date. The option buyer deposits the purchase price or
“premium” for the option with his broker, and the money
goes to the option seller. Regardless of how much the market
swings, the most an option buyer can lose is the option premium and
the commissions and fees associated with the transaction. However,
the buyer will typically lose the premium if the exercise price of
the option is above (in the case of an option to buy or
“call” option) or below (in the case of an option to
sell or “put” option) the market value at the time of
exercise. Option sellers, on the other hand, face risks similar to
participants in the futures markets. For example, since the seller
of a call option is assigned a short futures position if the option
is exercised, his risk is the same as someone who initially sold a
futures contract. Because no one can predict exactly how the market
will move, the option seller posts margin to demonstrate his
ability to meet any potential contractual
obligations.
34
In addition to Wheat Futures Contracts, there
are also a number of options on Wheat Futures Contracts listed on
the CBOT. These contracts offer investors and hedgers another set
of financial vehicles to use in managing exposure to the
commodities market. The Fund may purchase and sell (write) options
on Wheat Futures Contracts in pursuing its investment objective,
except that it will not sell call options when it does not own the
underlying Wheat Futures Contract. The Fund would make use of
options on Wheat Futures Contracts if, in the opinion of the
Sponsor, such an approach would cause the Fund to track its
Benchmark more closely or if it would lead to an overall lower cost
of trading to achieve a given level of economic exposure to
movements in wheat prices.
Liquidity
The Fund invests only in Wheat Futures Contracts
that, in the opinion of the Sponsor, are traded in sufficient
volume to permit the ready taking and liquidation of positions in
these financial interests and in over the counter commodity
interests that, in the opinion of the Sponsor, may be readily
liquidated with the original counterparty or through a third party
assuming the Fund’s position.
Spot
Commodities
While most futures contracts can be physically
settled, the Fund does not intend to take or make physical
delivery. However, the Fund may from time to time trade in other
wheat interests based on the spot price of
wheat.
Leverage
The Sponsor endeavors to have the value of the
Fund’s cash and cash equivalents, whether held by the Fund or
posted as margin or collateral, at all times approximate the
aggregate market value of its obligations under the Fund’s
Benchmark Component Futures Contracts. Commodity pools’
trading positions in futures contracts are typically required to be
secured by the deposit of margin funds that represent only a small
percentage of a futures contract’s (or other commodity
interest’s) entire market value.
Borrowings
The Fund does not intend to nor foresee the need
to borrow money or establish credit lines. The Fund maintains cash
and cash equivalents, either held by the Fund or posted as margin
or collateral, with a value that at all times approximates the
aggregate market value of its obligations under Benchmark Component
Futures Contracts. The Fund meets its liquidity needs in the normal
course of business from the proceeds of the sale of its investments
or from the cash and cash equivalents that it intends to hold at
all times.
Benchmark
Performance
The chart below shows the percent change in the
NAV per share for the Fund, the market price of the Fund shares,
represented by the closing price of the Fund on the NYSE Arca, and
the Benchmark for five specific periods. The Benchmark does not
reflect any impact of expenses, which would generally reduce the
Fund’s NAV, or interest income, which would generally
increase the NAV. The actual results for the NAV include the
impacts of both expenses and interest income.
Teucrium Wheat Fund Performance as of 12/31/2021
|
|
Three
Month
|
Year to
Date
|
3 Year
Annualized
|
5 Year
Annualized
|
Inception
Annualized
|
|
NAV
|
4.43%
|
19.84%
|
7.46%
|
1.38%
|
-11.18%
|
|
Price
|
4.38%
|
19.39%
|
7.61%
|
1.44%
|
-11.17%
|
|
Benchmark
(TWEAT)
|
4.89%
|
22.04%
|
9.29%
|
3.27%
|
-7.84%
|
35
The Wheat
Market
Wheat is used to produce flour, the key
ingredient for breads, pasta, crackers and many other food
products, as well as several industrial products such as starches
and adhesives. Wheat by-products are used in livestock feeds. The
United States Department of Agriculture (“USDA”)
publishes weekly, monthly, quarterly and annual updates for U.S.
domestic and worldwide wheat production and consumption, and for
other grains such as soybeans and corn. These reports are available
on the USDA’s website, www.usda.gov, at no charge. For more
information about the Wheat Market, please see the statement of
additional information that is part of this prospectus under the
heading “The Wheat Market.”
The Fund’s Service
Providers
Contractual
Arrangements with the Sponsor and Third-Party Service
Providers
Sponsor
The Sponsor is responsible for investing the
assets of the Fund in accordance with the objectives and policies
of the Fund. In addition, the Sponsor arranges for one or more
third parties to provide administrative, custodial, accounting,
transfer agency and other necessary services to the Fund. For these
third-party services, the Fund pays the fees set forth in the table
below entitled “Contractual Fees and Compensation
Arrangements with the Sponsor and Third-Party Service
Providers.” For the Sponsor’s services, the Fund is
contractually obligated to pay a monthly management fee to the
Sponsor, based on average daily net assets, at a rate equal to
1.00% per annum. The Sponsor can elect to waive the payment of this
fee in any amount at its sole discretion, at any time and from time
to time, in order to reduce the Fund’s expenses or for any
other purpose.
Custodian,
Registrar, Transfer Agent, Fund Accountant, and Fund
Administrator
In its capacity as the Fund’s custodian,
the Custodian, currently U.S. Bank, N.A., holds the Fund’s
securities, cash and/or cash equivalents pursuant to a custodial
agreement. U.S. Bancorp Fund Services, LLC, doing business as U.S.
Bank Global Fund Services (“Global Fund Services”), an
entity affiliated with U.S. Bank, N.A., is the registrar and
transfer agent for the Fund’s Shares. In addition, Global
Fund Services also serves as Administrator for the Fund, performing
certain administrative, accounting services, and preparing certain
SEC and CFTC reports on behalf of the Fund. The Custodian is
located at 1555 North Rivercenter Drive, Suite 302, Milwaukee,
Wisconsin 53212. U.S. Bank N.A. is a nationally chartered bank,
regulated by the Office of the Comptroller of the Currency,
Department of the Treasury, and is subject to regulation by the
Board of Governors of the Federal Reserve System. The principal
address for Global Fund Services is 615 East Michigan Street,
Milwaukee, WI, 53202.
Distributor
The Fund employs Foreside Fund Services, LLC as
the Distributor for the Fund. Pursuant to a Consulting Services
Agreement, Foreside Consulting Services, LLC, performs certain
consulting support services for the Trust’s Sponsor, Teucrium
Trading, LLC. Additionally, Foreside Distributors, LLC performs
certain distribution consulting services pursuant to a Distribution
Consulting Agreement with the Trust’s Sponsor, Teucrium
Trading, LLC.
36
The Distribution Services Agreement among the
Distributor, the Sponsor, and the Trust calls for the Distributor
to work with the Custodian in connection with the receipt and
processing of orders for Creation Baskets and Redemption Baskets
and the review and approval of all Fund sales literature and
advertising materials. The Distributor and the Sponsor have also
entered into a Securities Activities and Service Agreement (the
“SASA”) under which certain employees and officers of
the Sponsor are licensed as registered representatives or
registered principals of the Distributor, under “FINRA”
rules (“Registered Representatives”). As Registered
Representatives of the Distributor, these persons are permitted to
engage in certain marketing activities for the Fund that they would
otherwise not be permitted to engage in. Under the SASA, the
Sponsor is obligated to ensure that such marketing activities
comply with applicable law and are permitted by the SASA and the
Distributor’s internal procedures.
The Distributor’s principal business
address is Three Canal Plaza, Suite 100, Portland, Maine 04101. The
Distributor is a broker-dealer registered with the U.S. Securities
and Exchange Commission (“SEC”) and a member of
FINRA.
Clearing
Broker
E D & F Man Capital Markets, Inc. (“E
D & F Man”) serves as the Fund’s clearing broker to
execute and clear the Fund’s futures and provide other
brokerage related services. E D & F Man is registered as an FCM
with the CFTC, is a member of the National Futures Association
(“NFA”) and is a clearing member of all major U.S.
futures exchanges. E D & F Man’s Designated
Self-Regulatory Organization is the Chicago Mercantile Exchange
Inc. (www.cmegroup.com).
E D & F Man is also registered as a broker-dealer
(“BD”) with the U.S. Securities and Exchange Commission
(“SEC”) and is a member of the Financial Industry
Regulatory Authority, Inc.
(“FINRA”).
Except as indicated below, there have been no
material civil, administrative, or criminal proceedings pending, on
appeal, or concluded against E D & F Man Capital Markets Inc.
or its principals in the past five (5) years.
United States District Court for the Southern District of New York,
Civil Action No. 19-CV-8217
In a private litigation, plaintiffs allege,
among other things, that E D & F Man made certain fraudulent
misrepresentations to them that they relied upon in connection with
a futures account carried by the firm in its capacity as a futures
commission merchant. The plaintiffs allege claims of common law
fraud, negligence, breach of fiduciary duty, breach of contract,
breach of the duty of good faith and fair dealing and
misrepresentation/omission and seek compensatory damages of
approximately $2,029,659 plus interest, costs, attorneys’
fees and punitive damages. E D & F ManFirm filed an Amended
Answer and a Counterclaim in which the firm denies the substantive
allegations against it and asserted a counterclaim for breach of
contract, indemnification and legal fees. On June 30, 2021, E D
& F Man received the Opinion and Order in which the judge ruled
against the plaintiffs and in favor of the firm. Judgment was
entered in favor of the firm in the amount of $1,762,266.57, plus
prejudgment interest and attorney’s fees and costs. On
September 29, 2021, E D & F Man received an Opinion and Order
in which the judge awarded the firm $1,402,234.32 in
attorneys’ fees and costs.
For a list of concluded actions, please go to
http://www.nfa.futures.org/basicnet/welcome.aspx.
This link will take you to the Welcome Page of the NFA’s
Background Affiliation Status Information
Center(“BASIC”). At this page, there is a box where you
can enter the NFA ID of E D & F Man Capital Markets Inc.
(0002613) and then click “Go”. You will be transferred
to the NFA’s information specific to E D & F Man Capital
Markets Inc. Under the heading “Regulatory Actions,”
click “details” and you will be directed to the full
list of regulatory actions brought by the CFTC and
exchanges.
37
E D & F Man, in its capacity as a registered
FCM, will serve as the Fund's clearing broker and, as such, will
arrange for the execution and clearing of the Fund's futures and
options on futures transactions. E D & F Man acts as clearing
broker for many other funds and individuals.
The investor should be advised that E D & F
Man is not affiliated with and does not act as a supervisor of the
Fund or the Fund's Sponsor, investment managers, members, officers,
administrators, transfer agents, registrars or organizers.
Additionally, E D & F Man is not acting as an underwriter or
sponsor of the offering of any shares or interests in the Fund and
has not passed upon the adequacy of this prospectus, the merits of
participating in this offering or on the accuracy of the
information contained herein.
Additionally, E D & F Man does not provide
any commodity trading advice regarding the Fund's trading
activities. Investors should not rely upon E D & F Man in
deciding whether to invest in the Fund or retain their interests in
the Fund. Investors should also note that the Fund may select
additional clearing brokers or replace E D & F Man as the
Fund's clearing broker.
Payments
to Certain Third Parties
The Sponsor employs Thales Capital Partners LLC
(“Thales”) for distribution and solicitation-related
services. Thales is registered as a broker-dealer with the SEC and
is a member of the Financial Industry Regulatory Authority (FINRA)
and SIPC. Thales receives a quarterly fee of $18,750 or 0.10% of
new assets raised in referred accounts for distribution and
solicitation-related services. This fee based on new assets raised
is determined by an agreed upon level of assets at the time of
signing the contract.
Commodity
Trading Advisor
Currently, the Sponsor does not employ commodity
trading advisors. If, in the future, the Sponsor does employ
commodity trading advisors, it will choose each advisor based on
arm’s length negotiations and will consider the
advisor’s experience, fees, and
reputation.
Contractual
Fees and Compensation Arrangements with the Sponsor and Third
Party Service Providers
|
Service
Provider
|
Compensation Paid by the
Fund
|
|
Teucrium Trading, LLC,
Sponsor
|
1.00% of average net assets
annually
|
|
U.S. Bank N.A., Custodian
U.S. Bancorp Fund Services,
LLC,
doing business as U.S. Bank Global Fund
Services, Transfer Agent, Fund Accountant and Fund
Administrator
|
For custody services: 0.0075% of average gross
assets up to $1 billion, and .0050% of average gross assets over $1
billion, annually, plus certain per-transaction
charges
For Transfer Agency, Fund Accounting and Fund
Administration services, based on the total assets for all the
Teucrium Funds in the Trust: 0.05% of average gross assets on the
first $500 million, 0.04% on the next $500 million, 0.03% on the
next $2 billion and 0.02% on the balance over $3 billion
annually
A combined minimum annual fee of $47,000 for
custody, transfer agency, accounting and administrative services is
assessed per Fund.
|
|
Foreside Fund Services, LLC,
Distributor
|
Subject to a maximum of $625,812 for the Trust
for the two-year period of May 1, 2021 to May 1, 2023 (the
“two year offering period”), the Distributor receives:
0.01% of the Fund’s average daily net assets, and an
aggregate annual fee of $100,000 for all Teucrium Funds. For the
two year offering period, the Distributor also receives expense
reimbursements for sales and advertising review fees subject to a
maximum of $6,000 per fund.
Under the Securities Activities and Service
Agreement (the “SASA”), the Distributor receives
compensation from the fund for its activities on behalf of all the
Teucrium Funds. For the two year offering period, the Distributor
will not exceed $78,000 for all Teucrium Funds and will receive
reimbursements relating to the registration, continuing education
and other administrative expenses of the Registered Representatives
for each offering, not to exceed $54,000 for all Teucrium
Funds.
|
|
|
|
|
E D & F Man Capital Markets, Inc., Futures
Commission Merchant and Clearing Broker
|
$4.50 per Wheat Futures Contract
half-turn
|
|
Wilmington Trust Company,
Trustee
|
$3,300 annually for the
Trust
|
|
Employees of the Sponsor Registered with the
Distributor (the “Registered
Representatives”)
|
For non-marketing services to all Teucrium
Funds, approximately $132,350 and, for marketing and wholesaling
purposes, approximately $397,050. These amounts include expenses
that will be reimbursed to the Registered Representatives for
continuing education, travel, and other expenses related to their
activities for the Fund.
|
38
Other
Non-Contractual Payments by the Fund
The Fund pays for all brokerage fees, taxes and
other expenses, including licensing fees for the use of
intellectual property, registration or other fees paid to the SEC,
FINRA, or any other regulatory agency in connection with the offer
and sale of subsequent Shares after its initial registration and
all legal, accounting, printing and other expenses associated
therewith. The Fund also pays its portion of the fees and expenses
for services directly attributable to the Fund such as accounting,
financial reporting, regulatory compliance and trading activities,
which the Sponsor elected not to outsource. Certain aggregate
expenses common to all Teucrium Funds within the Trust are
allocated by the Sponsor to the respective funds based on activity
drivers deemed most appropriate by the Sponsor for such expenses,
including but not limited to relative assets under management and
creation order activity. These aggregate common expenses include,
but are not limited to, legal, auditing, accounting and financial
reporting, tax-preparation, regulatory compliance, trading
activities, and insurance costs, as well as fees paid to the
Distributor. A portion of these aggregate common expenses are
related to the Sponsor or related parties of principals of the
Sponsor; these are necessary services to the Teucrium Funds, which
are primarily the cost of performing certain accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund and are included,
primarily, in distribution and marketing fees.
|
|
Year
Ended
December 31,
2021
|
Year
Ended
December 31,
2020
|
Year
Ended
December 31,
2019
|
|
Recognized Related Party
Transactions
|
$478,989
|
$503,823
|
$557,131
|
|
Waived Related Party
Transactions
|
$134,898
|
$27,789
|
$2,500
|
The Sponsor can elect to pay (or waive
reimbursement for) certain fees or expenses that would generally be
paid for by the Fund, although it has no contractual obligation to
do so. Any election to pay or waive reimbursement for fees that
would generally be paid by the Fund, can be changed at the
discretion of the Sponsor. All asset-based fees and expenses are
calculated on the prior day's net assets
The contractual and noncontractual fees
and expenses paid by the Fund as described above (exclusive of the
Sponsor’s management fee and estimated brokerage fees) are as
follows, net of any expenses waived by the Sponsor. These are also
the “Other Fund Fees and Expenses” included in the
section entitled “Breakeven Analysis” in this
prospectus on page 3.
|
|
Per Share
|
|
Professional
Fees1
|
$0.02
|
|
Distribution and
Marketing Fees2
|
0.04
|
|
Custodian Fees and
Expenses3
|
0.01
|
|
General and
Administrative Fees4
|
-
|
|
Business Permits and
Licenses
|
-
|
|
Other
Expenses
|
-
|
|
Total
Other Fund Fees and Expenses
|
$0.07
|
(1) Professional fees consist of
primarily, but not entirely, legal, auditing and tax preparation
related costs.
(2) Distribution and marketing fees
consist of primarily, but not entirely, fees paid to the
Distributor (Foreside Fund Services, LLC), costs related to
regulatory compliance activities, costs related to marketing and
solicitation services, and other costs related to the trading
activities of the Fund.
(3) Custodian and Administrator fees consist of
fees to the Administrator and the Custodian for accounting,
transfer agent and custodian activities.
(4) General and Administrative fees consist of
primarily, but not entirely, insurance and printing
costs.
39
Asset-based fees are calculated on a daily basis
(accrued at 1/365 of the applicable percentage of NAV on that day)
and paid on a monthly basis. NAV is calculated by taking the
current market value of the Fund’s total assets and
subtracting any liabilities.
Form of
Shares
Registered
Form
Shares are issued in registered form in
accordance with the Trust Agreement. Global Fund Services has been
appointed registrar and transfer agent for the purpose of
transferring Shares in certificated form. Global Fund Services
keeps a record of all Shareholders and holders of the Shares in
certificated form in the registry (“Register”). The
Sponsor recognizes transfers of Shares in certificated form only if
done in accordance with the Trust Agreement. The beneficial
interests in such Shares are held in book-entry form through
participants and/or accountholders in DTC.
Book
Entry
Individual certificates are not issued for the
Shares. Instead, Shares are represented by one or more global
certificates, which are deposited by the Administrator with DTC and
registered in the name of Cede & Co., as nominee for DTC. The
global certificates evidence all of the Shares outstanding at any
time. Shareholders are limited to (1) participants in DTC such as
banks, brokers, dealers and trust companies (“DTC
Participants”), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant
(“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect
Participants, in each case who satisfy the requirements for
transfers of Shares. DTC Participants acting on behalf of investors
holding Shares through such participants’ accounts in DTC
will follow the delivery practice applicable to securities eligible
for DTC’s Same-Day Funds Settlement System. Shares are
credited to DTC Participants’ securities accounts following
confirmation of receipt of payment.
DTC
DTC is a limited purpose trust company organized
under the laws of the State of New York and is a member of the
Federal Reserve System, a “clearing corporation” within
the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934 the
("Exchange Act”). DTC holds securities for DTC Participants
and facilitates the clearance and settlement of transactions
between DTC Participants through electronic book-entry changes in
accounts of DTC Participants.
Transfer of
Shares
The Shares are only transferable through the
book-entry system of DTC. Shareholders who are not DTC Participants
may transfer their Shares through DTC by instructing the DTC
Participant holding their Shares (or by instructing the Indirect
Participant or other entity through which their Shares are held) to
transfer the Shares. Transfers are made in accordance with standard
securities industry practice.
Transfers of interests in Shares with DTC are
made in accordance with the usual rules and operating procedures of
DTC and the nature of the transfer. DTC has established procedures
to facilitate transfers among the participants and/or
accountholders of DTC. Because DTC can only act on behalf of DTC
Participants, who in turn act on behalf of Indirect Participants,
the ability of a person or entity having an interest in a global
certificate to pledge such interest to persons or entities that do
not participate in DTC, or otherwise take actions in respect of
such interest, may be affected by the lack of a certificate or
other definitive document representing such
interest.
DTC has advised us that it will take any action
permitted to be taken by a Shareholder (including, without
limitation, the presentation of a global certificate for exchange)
only at the direction of one or more DTC Participants in whose
account with DTC interests in global certificates are credited and
only in respect of such portion of the aggregate principal amount
of the global certificate as to which such DTC Participant or
Participants has or have given such direction.
40
InterSeries Limitation
on Liability
Because the Trust was established as a Delaware
statutory trust, each Teucrium Fund and each other series that may
be established under the Trust in the future will be operated so
that it will be liable only for obligations attributable to such
series and will not be liable for obligations of any other series
or affected by losses of any other series. If any creditor or
shareholder of any particular series (such as the Fund) asserts
against the series a valid claim with respect to its indebtedness
or shares, the creditor or shareholder will only be able to obtain
recovery from the assets of that series and not from the assets of
any other series or the Trust generally.
The assets of the Fund and any other series will
include only those funds and other assets that are paid to, held by
or distributed to the series on account of and for the benefit of
that series, including, without limitation, amounts delivered to
the Trust for the purchase of shares in a series. This limitation
on liability is referred to as the InterSeries Limitation on
Liability. The InterSeries Limitation on Liability is
expressly provided for under the Delaware Statutory Trust Act,
which provides that if certain conditions (as set forth in Section
3804(a)) are met, then the debts of any particular series will be
enforceable only against the assets of such series and not against
the assets of any other series or the Trust generally. In
furtherance of the InterSeries Limitation on Liability, every
party providing services to the Trust, the Fund or the Sponsor on
behalf of the Trust or the Fund, will acknowledge and consent in
writing to the InterSeries Limitation on Liability with
respect to such party’s claims.
The existence of a Trustee should not be taken
as an indication of any additional level of management or
supervision over the Fund. Consistent with Delaware law, the
Trustee acts in an entirely passive role, delegating all authority
for the management and operation of the Fund and the Trust to the
Sponsor. The Trustee does not provide custodial services with
respect to the assets of the Fund.
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 “WEAT.” Shares
are bought and sold throughout the trading day like other publicly
traded securities. When buying or selling Shares through a broker,
most investors incur customary brokerage commissions and charges.
Investors are encouraged to review the terms of their brokerage
account for details on applicable charges and, as discussed below
under “U.S. Federal Income Tax Considerations,” any
provisions authorizing the broker to borrow Shares held on your
behalf.
Distributor
and Authorized Purchasers
The offering of the Fund’s Shares is a
best efforts offering. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their NAV through the
Distributor to Authorized Purchasers. Deutsche Bank Securities,
Inc. was the initial Authorized Purchaser. The initial Authorized
Purchaser purchased two Creation Baskets of 50,000 Shares each at a
per Share price of $25.00 on September 18, 2011. All Authorized
Purchasers pay a $250 fee for each Creation Basket
order.
The following entities have entered into
Authorized Purchaser Agreements with respect to the Fund: J.P.
Morgan Securities LLC; Merrill Lynch Professional Clearing Corp.;
Goldman Sachs & Co.; Citadel Securities, LLC; and Virtu
Americas LLC. Effective October 16, 2020, Deutsche Bank Securities
Inc. terminated their agreement as an Authorized Purchaser for the
Fund.
Because new Shares can be created and issued on
an ongoing basis, at any point during the life of the Fund, a
“distribution,” as such term is used in the 1933 Act,
will be occurring. Authorized Purchasers, other broker-dealers and
other persons are cautioned that some of their activities may
result in their being deemed participants in a distribution in a
manner that would render them statutory underwriters and subject
them to the prospectus delivery and liability provisions of the
1933 Act. For example, an Authorized Purchaser, other broker-dealer
firm or its client will be deemed a statutory underwriter if it
purchases a basket from the Fund, breaks the basket down into the
constituent Shares and sells the Shares to its customers. or if it
chooses to couple the creation of a supply of new Shares with an
active selling effort involving solicitation of secondary market
demand for the Shares. In contrast, Authorized Purchasers may
engage in secondary market or other transactions in Shares that
would not be deemed “underwriting.” For example, an
Authorized Purchaser may act in the capacity of a broker or dealer
with respect to Shares that were previously distributed by other
Authorized Purchasers. A determination of whether a particular
market participant is an underwriter must take into account all the
facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete
description of all the activities that would lead to designation as
an underwriter and subject them to the prospectus delivery and
liability provisions of the 1933 Act.
Dealers who are neither Authorized Purchasers
nor “underwriters” but are nonetheless participating in
a distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an
“unsold allotment” within the meaning of Section
4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of
the 1933 Act.
The Sponsor expects that any broker-dealers
selling Shares will be members of FINRA. Investors intending to
create or redeem baskets through Authorized Purchasers in
transactions not involving a broker dealer registered in such
investor’s state of domicile or residence should consult
their legal advisor regarding applicable broker-dealer regulatory
requirements under the state securities laws prior to such creation
or redemption.
41
While the Sponsor may indemnify the Authorized
Purchasers, they will not be entitled to receive a discount or
commission from the Trust or the Sponsor for their purchases of
Creation Baskets.
Calculating
NAV
The Fund’s NAV per Share is calculated
by:
●
taking the
current market value of its total assets, and
●
subtracting
any liabilities and dividing the balance by the number of
Shares.
Global Fund Services, in its capacity as the
“Administrator,” calculates the NAV of the Fund once
each trading day. It calculates NAV as of the earlier of the close
of the New York Stock Exchange or 4:00 p.m. (EST). The NAV for a
particular trading day is released after 4:15 p.m.
(EST).
For purposes of determining the value of Wheat
Futures Contracts, the Administrator uses the CBOT closing price,
except that the “fair value” of Wheat Futures Contracts
(as described in more detail below) may be used when Wheat Futures
Contracts close at their price fluctuation limit for the day. The
Administrator determines the value of all other Fund investments as
of the earlier of the close of the New York Stock Exchange or 4:00
p.m. (EST), in accordance with the current Services Agreement
between the Administrator and the Trust. The value of over the
counter wheat interests is determined based on the value of the
commodity or Futures Contract underlying such wheat interest,
except that a fair value may be determined if the Sponsor believes
that the Fund is subject to significant credit risk relating to the
counterparty to such wheat interest. NAV includes any unrealized
profit or loss on open wheat interests and any other credit or
debit accruing to the Fund but unpaid or not received by the
Fund.
The fair value of a wheat interest is determined
by the Sponsor in good faith and in a manner that assesses the
wheat interest’s value based on a consideration of all
available facts and all available information on the valuation
date. When a Wheat Futures Contract has closed at its price
fluctuation limit, the fair value determination attempts to
estimate the price at which such Wheat Futures Contract would be
trading in the absence of the price fluctuation limit (either above
such limit when an upward limit has been reached or below such
limit when a downward limit has been reached). Typically, this
estimate will be made primarily by reference to the price of
comparable wheat interests trading in the over the counter market.
The fair value of a wheat interest may not reflect such
security’s market value or the amount that the Fund might
reasonably expect to receive for the wheat interest upon its
current sale.
In addition, in order to provide updated
information relating to the Fund for use by investors and market
professionals, 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 wheat interests during the trading
day. Changes in the value of cash and cash equivalents are not
included in the calculation of indicative value. For this and other
reasons, the indicative fund value disseminated during NYSE Arca
trading hours should not be viewed as an actual real time update of
the NAV. NAV is calculated only once at the end of each trading
day.
The indicative fund value is disseminated on a
per Share basis every 15 seconds during regular NYSE Arca trading
hours of 9:30 a.m. (EST)
to 4:00 p.m. (EST). The normal trading hours for Wheat Futures
Contracts on the CBOT are generally shorter than those of the NYSE
Arca. This means that there is a gap in time at the beginning and
the end of each day during which the Fund’s Shares are traded
on the NYSE Arca, but real-time CBOT trading prices for Wheat
Futures Contracts traded on such exchange are not available. As a
result, during those gaps there is no update to the indicative fund
value. The trading hours for the CBOT can be found at http://www.cmegroup.com/trading_hours/commoditieshours.html.
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
online information services such as Bloomberg and
Reuters.
Dissemination of the indicative fund value
provides additional information that is not otherwise available to
the public and is useful to investors and market professionals in
connection with the trading of Fund Shares on the NYSE Arca.
Investors and market professionals are able throughout the trading
day to compare the market price of the Fund and the indicative fund
value. If the market price of Fund Shares diverges significantly
from the indicative fund value, market professionals may have an
incentive to execute arbitrage trades. For example, if the Fund
appears to be trading at a discount compared to the indicative fund
value, a market professional could buy Fund Shares on the NYSE
Arca, aggregate them into Redemption Baskets, and receive the NAV
of such Shares by redeeming them to the Trust, provided that there
is not a minimum number of shares outstanding for the Fund. Such
arbitrage trades can tighten the tracking between the market price
of the Fund and the indicative fund value.
42
Creation and Redemption of
Shares
The Fund creates and redeems Shares from time to
time, but only in one or more Creation Baskets or Redemption
Baskets. The creation and redemption of baskets are only made in
exchange for delivery to the Fund or the distribution by the Fund
of the amount of cash, cash equivalents and/or commodity futures
equal to the combined NAV of the number of Shares included in the
baskets being created or redeemed determined as of 4:00 p.m. (EST)
on the day the order to create or redeem baskets is properly
received.
Authorized Purchasers are the only persons that
may place orders to create and redeem baskets. Authorized
Purchasers must be (1) either registered broker dealers or other
securities market participants, such as banks and other financial
institutions, which are not required to register as broker-dealers
to engage in securities transactions as described below, and (2)
DTC Participants. To become an Authorized Purchaser, a person must
enter into an Authorized Purchaser Agreement with the Sponsor. The
Authorized Purchaser Agreement provides the procedures for the
creation and redemption of baskets and for the delivery of the
cash, cash equivalents and/or commodity futures required for such
creations and redemptions. The Authorized Purchaser Agreement and
the related procedures attached thereto may be amended by the
Sponsor without the consent of any Shareholder, and the related
procedures may generally be amended by the Sponsor without the
consent of the Authorized Purchaser. Authorized Purchasers pay a
transaction fee of $250 to the Custodian for each creation order
they place and a fee of $250 per order for redemptions. Authorized
Purchasers who make deposits with the Fund in exchange for baskets
receive no fees, commissions or other form of compensation or
inducement of any kind from either the Trust or the Sponsor, and no
such person will have any obligation or responsibility to the Trust
or the Sponsor to effect any sale or resale of
Shares.
Certain Authorized Purchasers are expected to be
capable of participating directly in the physical wheat and the
wheat interest markets. Some Authorized Purchasers or their
affiliates may from time to time buy or sell wheat or wheat
interests and may profit in these instances.
Each Authorized Purchaser will be required to be
registered as a broker-dealer under the Exchange Act and a member
in good standing with FINRA or be exempt from being or otherwise
not required to be registered as a broker-dealer or a member of
FINRA and will be qualified to act as a broker or dealer in the
states or other jurisdictions where the nature of its business so
requires. Certain Authorized Purchasers may also be regulated under
federal and state banking laws and regulations. Each Authorized
Purchaser has its own set of rules and procedures, internal
controls and information barriers it deems appropriate in light of
its own regulatory regime.
Under the Authorized Purchaser Agreement, the
Sponsor has agreed to indemnify the Authorized Purchasers against
certain liabilities, including liabilities under the 1933 Act, and
to contribute to the payments the Authorized Purchasers may be
required to make in respect of those
liabilities.
The following description of the procedures for
the creation and redemption of baskets is only a summary and an
investor should refer to the relevant provisions of the Trust
Agreement and the form of Authorized Purchaser Agreement for more
detail, each of which has been incorporated by reference as an
exhibit to the registration statement of which this prospectus is a
part. See “Where You Can Find More Information” for
information about where you can obtain the registration
statement.
Creation
Procedures
On any business day, an Authorized Purchaser may
place an order with Global Fund Services in their capacity as the
transfer agent to create one or more baskets. For purposes of
processing purchase and redemption orders, a “business
day” means any day other than a day when any of the NYSE
Arca, CBOT or the New York Stock Exchange is closed for regular
trading. Purchase orders must be placed by 1:15 p.m. (EST) or the
close of regular trading on the New York Stock Exchange, whichever
is earlier. The day on which the Distributor receives a valid
purchase order is referred to as the purchase order
date.
By placing a purchase order, an Authorized
Purchaser agrees to deposit cash, cash equivalents, commodity
futures and/or a combination thereof with the Fund, as described
below. Prior to the delivery of baskets for a purchase order, the
Authorized Purchaser must also have wired to the Sponsor the
nonrefundable transaction fee due for the purchase order.
Authorized Purchasers may not withdraw a purchase order without the
prior consent of the Sponsor in its discretion.
43
Determination
of Required Deposits
The total deposit required to create each basket
(“Creation Basket Deposit”) is the amount of cash, cash
equivalents and/or commodity futures that is in the same proportion
to the total assets of the Fund (net of estimated accrued but
unpaid fees, expenses and other liabilities) on the purchase order
date as the number of Shares to be created under the purchase order
is in proportion to the total number of Shares outstanding on the
purchase order date. The Sponsor determines, directly in its sole
discretion or in consultation with the Custodian and the
Administrator, the requirements for cash, cash equivalents and/or
commodity futures including the remaining maturities of the cash
equivalents, 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, cash equivalents
and/or commodity futures by the end of the next business day
following the purchase order date or by the end of such later
business day, not to exceed three business days after the purchase
order date, as agreed to between the Authorized Purchaser and the
Custodian when the purchase order is placed (the “Purchase
Settlement Date”). Upon receipt of the deposit amount, the
Custodian directs DTC to credit the number of baskets ordered to
the Authorized Purchaser’s DTC account on the Purchase
Settlement Date.
Because orders to purchase baskets must be
placed by 1:15 p.m., (EST), but the total payment required to
create a basket during the continuous offering period will not be
determined until 4:00 p.m., (EST), on the date the purchase order
is received, Authorized Purchasers will not know the total amount
of the payment required to create a basket at the time they submit
an irrevocable purchase order for the basket. The Fund’s NAV
and the total amount of the payment required to create a basket
could rise or fall substantially between the time an irrevocable
purchase order is submitted and the time the amount of the purchase
price in respect thereof is determined.
Rejection
of Purchase Orders
The Sponsor acting by itself or through the
Distributor or transfer agent may reject a purchase order or a
Creation Basket Deposit if:
●
it
determines that, due to position limits or otherwise, investment
alternatives that will enable the Fund to meet its investment
objective are not available or practicable at that
time;
●
it
determines that the purchase order or the Creation Basket Deposit
is not in proper form;
●
it believes
that acceptance of the purchase order or the Creation Basket
Deposit would have adverse tax consequences to the Fund or its
Shareholders;
●
the
acceptance or receipt of the Creation Basket Deposit would, in the
opinion of counsel to the Sponsor, be unlawful;
●
circumstances outside the control of the
Sponsor, Distributor or transfer agent make it, for all practical
purposes, not feasible to process creations of
baskets;
●
there is a
possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CBOT from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction;
or
●
if, in the
sole discretion of the Sponsor, the execution of such an order
would not be in the best interest of the Fund or its
Shareholders.
None of the Sponsor, Distributor or transfer
agent will be liable for the rejection of any purchase order or
Creation Basket Deposit.
44
Redemption
Procedures
The procedures by which an Authorized Purchaser
can redeem one or more baskets mirror the procedures for the
creation of baskets. On any business day, an Authorized Purchaser
may place an order with the transfer agent to redeem one or more
baskets. Redemption orders must be placed by 1:15 p.m. (EST) or the
close of regular trading on the New York Stock Exchange, whichever
is earlier. A redemption order so received will be effective on the
date it is received in satisfactory form by the Distributor. The
redemption procedures allow Authorized Purchasers to redeem baskets
and do not entitle an individual Shareholder to redeem any Shares
in an amount less than a Redemption Basket, or to redeem baskets
other than through an Authorized Purchaser. By placing a redemption
order, an Authorized Purchaser agrees to deliver the baskets to be
redeemed through DTC’s book-entry system to the Fund by the
end of the next business day following the effective date of the
redemption order or by the end of such later business day. Prior to
the delivery of the redemption distribution for a redemption order,
the Authorized Purchaser must also have wired to the
Sponsor’s account at the Custodian the nonrefundable
transaction fee due for the redemption order. An Authorized
Purchaser may not withdraw a redemption order without the prior
consent of the Sponsor in its discretion.
Determination
of Redemption Distribution
The redemption distribution from the Fund
consists of a transfer to the redeeming Authorized Purchaser of an
amount of cash, cash equivalents and/or commodity futures that is
in the same proportion to the total assets of the Fund (net of
estimated accrued but unpaid fees, expenses and other liabilities)
on the date the order to redeem is properly received as the number
of Shares to be redeemed under the redemption order is in
proportion to the total number of Shares outstanding on the date
the order is received. The Sponsor, directly or in consultation
with the Custodian and the Administrator, determines the
requirements for cash, cash equivalents and/or commodity futures,
including the remaining maturities of the cash equivalents and
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 1:15 p.m. (EST) on
the Redemption Settlement Date if the Authorized Purchaser has
collateralized its obligation to deliver the baskets through
DTC’s book-entry system on such terms as the Sponsor may from
time to time determine.
Suspension
or Rejection of Redemption Orders
The Sponsor may, in its discretion, suspend the
right of redemption, or postpone the redemption settlement date,
(1) for any period during which the NYSE Arca or CBOT is closed
other than customary weekend or holiday closings, or trading on the
NYSE Arca or CBOT is suspended or restricted, (2) for any period
during which an emergency exists as a result of which delivery,
disposal or evaluation of cash equivalents is not reasonably
practicable, (3) for such other period as the Sponsor determines to
be necessary for the protection of the Shareholders, (4) if there
is a possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the CBOT from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction, or
(5) if, in the sole discretion of the Sponsor, the execution of
such an order would not be in the best interest of the Fund or its
Shareholders. For example, the Sponsor may determine that it is
necessary to suspend redemptions to allow for the orderly
liquidation of the Fund’s assets at an appropriate value to
fund a redemption. If the Sponsor has difficulty liquidating the
Fund’s positions, e.g., because of a market disruption event
in the futures markets or an unanticipated delay in the liquidation
of a position in an over the counter contract, it may be
appropriate to suspend redemptions until such time as such
circumstances are rectified. None of the Sponsor, the Distributor,
or the transfer agent will be liable to any person or in any way
for any loss or damages that may result from any such suspension or
postponement.
45
Redemption orders must be made in whole baskets.
The Sponsor will reject a redemption order if the order is not in
proper form as described in the Authorized Purchaser Agreement or
if the fulfillment of the order, in the opinion of its counsel,
might be unlawful.
The Sponsor may also reject a redemption order
if the number of Shares being redeemed would reduce the remaining
outstanding Shares to 50,000 Shares (i.e., two baskets of 25,000
Shares each) or less, unless the Sponsor has reason to believe that
the placer of the redemption order does in fact possess all the
outstanding Shares of the Fund and can deliver
them.
Creation
and Redemption Transaction Fees
To compensate for expenses in connection with
the creation and redemption of baskets, an Authorized Purchaser is
required to pay a transaction fee of $250 per order to the
Custodian. The transaction fees may be reduced, increased or
otherwise changed by the Sponsor.
Tax
Responsibility
Authorized Purchasers are responsible for any
transfer tax, sales or use tax, stamp tax, recording tax, value
added tax or similar tax or governmental charge applicable to the
creation or redemption of baskets, regardless of whether or not
such tax or charge is imposed directly on the Authorized Purchaser,
and agree to indemnify the Sponsor and the Fund if they are
required by law to pay any such tax, together with any applicable
penalties, additions to tax and interest
thereon.
Secondary Market
Transactions
As noted, the Fund will create and redeem Shares
from time to time, but only in one or more Creation Baskets or
Redemption Baskets. The creation and redemption of baskets are only
made in exchange for delivery to the Fund or the distribution by
the Fund of the amount of cash, cash equivalents and/or commodity
futures equal to the aggregate NAV of the number of Shares included
in the baskets being created or redeemed determined on the day the
order to create or redeem baskets is properly
received.
As discussed above, Authorized Purchasers are
the only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be registered broker-dealers or
other securities market participants, such as banks and other
financial institutions that are not required to register as
broker-dealers to engage in securities transactions. An Authorized
Purchaser is under no obligation to create or redeem baskets, and
an Authorized Purchaser is under no obligation to offer to the
public Shares of any baskets it does create. Authorized Purchasers
that do offer to the public Shares from the baskets they create
will do so at per Share offering prices that are expected to
reflect, among other factors, the trading price of the Shares on
the NYSE Arca, the NAV of the Shares at the time the Authorized
Purchaser purchased the Creation Baskets, the NAV of the Shares at
the time of the offer of the Shares to the public, the supply of
and demand for Shares at the time of sale, and the liquidity of the
wheat interest markets. The prices of Shares offered by Authorized
Purchasers are expected to fall between the Fund’s NAV and
the trading price of the Shares on the NYSE Arca at the time of
sale. Shares initially comprising the same basket but offered by
Authorized Purchasers to the public at different times may have
different offering prices. An order for one or more baskets may be
placed by an Authorized Purchaser on behalf of multiple clients.
Shares are expected to trade in the secondary market on the NYSE
Arca. Shares may trade in the secondary market at prices that are
lower or higher relative to their NAV per Share. The amount of the
discount or premium in the trading price relative to the NAV per
Share may be influenced by various factors, including the number of
investors who seek to purchase or sell Shares in the secondary
market and the liquidity of the wheat interest markets. While the
Shares trade on the NYSE Arca until 4:00 p.m. (EST), liquidity in
the markets for Wheat Interests may be reduced after the close of
the CBOT. As a result, during this time, trading spreads, and the
resulting premium or discount, on the Shares may
widen.
46
Use of
Proceeds
The Sponsor causes the Fund to transfer the
proceeds of the sale of Creation Baskets to the Custodian or
another financial institution for use in trading activities and/or
investment in Benchmark Component Futures Contracts and cash and
cash equivalents. Under normal market conditions, the Sponsor
invests the Fund’s assets in Benchmark Component Futures
Contracts and cash and cash equivalents. When the Fund purchases
Benchmark Component Futures Contracts, the Fund is required to
deposit with the FCM on behalf of the exchange a portion of the
value of the contract or other interest as security to ensure
payment for the obligation under the Benchmark Component Futures
Contracts at maturity. This deposit is known as initial margin.
Counterparties in transactions in over the counter wheat interests
will generally impose similar collateral requirements on the Fund.
The Sponsor invests the Fund’s assets that remain after
margin and collateral is posted in cash and cash equivalents.
Subject to these margin and collateral requirements, the Sponsor
has sole authority to determine the percentage of assets that will
be:
|
●
|
held as margin or collateral with the FCM or
other custodian.
|
|
●
|
used for other investments;
and
|
|
●
|
held in bank accounts to pay current obligations
and as reserves.
|
In general, the Fund expects that it will be
required to post approximately 4-6% of the notional amount of a
Benchmark Component Futures Contracts as initial margin when
entering into such Benchmark Component Futures Contracts. Ongoing
margin and collateral payments will generally be required for both
exchange-traded and over the counter wheat interests based on
changes in the value of the wheat interests. Furthermore, ongoing
collateral requirements with respect to over the counter wheat
interests are negotiated by the parties, and may be affected by
overall market volatility, volatility of the underlying commodity
or index, the ability of the counterparty to hedge its exposure
under the wheat interest, and each party’s creditworthiness.
In light of the differing requirements for initial payments under
exchange-traded and over the counter wheat interests and the
fluctuating nature of ongoing margin and collateral payments, it is
not possible to estimate what portion of the Fund’s assets
will be posted as margin or collateral at any given time. Cash and
cash equivalents held by the Fund constitute reserves that are
available to meet ongoing margin and collateral requirements. All
interest or other income is used for the Fund’s
benefit.
An FCM, counterparty, government agency or
commodity exchange could increase margin or collateral requirements
applicable to the Fund to hold trading positions at any time.
Moreover, margin is merely a security deposit and has no bearing on
the profit or loss potential for any positions held. Further, under
recently adopted CFTC rules, the Fund may be obligated to post both
initial and variation margin with respect to swaps (and options
that qualify as swaps) and traded over the counter, and, where
applicable, on SEFs.
The approximate 4-6% of the Fund’s assets
held by the FCM are held in segregation pursuant to the CEA and
CFTC regulations.
The Trust
Agreement
The following paragraphs are a summary of
certain provisions of the Trust Agreement. The following discussion
is qualified in its entirety by reference to the Trust
Agreement.
Authority
of the Sponsor
The Sponsor is generally authorized to perform
all acts deemed necessary to carry out the purposes of the Trust
and to conduct the business of the Trust. The Trust and the Fund
will continue to exist until terminated in accordance with the
Trust Agreement.
The
Sponsor’s Obligations
In addition to the duties imposed by the
Delaware Trust Statute, under the Trust Agreement the Sponsor has
obligations as a Sponsor of the Trust, which include, among others,
responsibility for certain organizational and operational
requirements of the Trust, as well as fiduciary responsibility for
the safekeeping and use of the Trust’s assets, whether or not
in the Sponsor’s immediate possession or
control.
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.
47
Liability
and Indemnification
Under the Trust Agreement, the Sponsor, the
Trustee and their respective Affiliates (collectively,
“Covered Persons”) shall have no liability to the
Trust, the Fund, or to any Shareholder for any loss suffered by the
Trust or the Fund which arises out of any action or inaction of
such Covered Person if such Covered Person, in good faith,
determined that such course of conduct was in the best interest of
the Trust or the Fund and such course of conduct did not constitute
gross negligence or willful misconduct of such Covered Person.
Subject to the foregoing, neither the Sponsor nor any other Covered
Person shall be personally liable for the return or repayment of
all or any portion of the capital or profits of any Shareholder or
assignee thereof, it being expressly agreed that any such return of
capital or profits made pursuant to the Trust Agreement shall be
made solely from the assets of the applicable Teucrium Fund without
any rights of contribution from the Sponsor or any other Covered
Person. A Covered Person shall not be liable for the conduct or
willful misconduct of any administrator or other delegate selected
by the Sponsor with reasonable care, provided, however, that the
Trustee and its Affiliates shall not, under any circumstances be
liable for the conduct or willful misconduct of any administrator
or other delegate or any other person selected by the Sponsor to
provide services to the Trust.
The Trust Agreement also provides that the
Sponsor shall be indemnified by the Trust (or by a series
separately to the extent the matter in question relates to a single
series or disproportionately affects a specific series in relation
to other series) against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by
it in connection with its activities for the Trust, provided that
(i) the Sponsor was acting on behalf of or performing services for
the Trust and has determined, in good faith, that such course of
conduct was in the best interests of the Trust and such liability
or loss was not the result of gross negligence, willful misconduct, or
a breach of the Trust Agreement on the part of the Sponsor and (ii)
any such indemnification will only be recoverable from the assets
of the applicable series. The Sponsor’s rights to
indemnification permitted under the Trust Agreement shall not be
affected by the dissolution or other cessation to exist of the
Sponsor, or the withdrawal, adjudication of bankruptcy or
insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy
Code by or against the Sponsor.
Notwithstanding the above, the Sponsor shall not
be indemnified for any losses, liabilities or expenses arising from
or out of an alleged violation of U.S. federal or state securities
laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as
to the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation,
litigation costs), (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to
the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation,
litigation costs), or (iii) a court of competent jurisdiction
approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs
should be made.
The payment of any indemnification shall be
allocated, as appropriate, among the Trust’s series. The
Trust and its series shall not incur the cost of that portion of
any insurance which insures any party against any liability, the
indemnification of which is prohibited under the Trust
Agreement.
Expenses incurred in defending a threatened or
pending action, suit or proceeding against the Sponsor shall be
paid by the Trust in advance of the final disposition of such
action, suit or proceeding, if (i) the legal action relates to the
performance of duties or services by the Sponsor on behalf of the
Trust; (ii) the legal action is initiated by a party other than the
Trust; and (iii) the Sponsor undertakes to repay the advanced funds
with interest to the Trust in cases in which it is not entitled to
indemnification.
The Trust Agreement provides that the Sponsor
and the Trust shall indemnify the Trustee and its successors,
assigns, legal representatives, officers, directors, shareholders,
employees, agents and servants (the “Trustee Indemnified
Parties”) against any liabilities, obligations, losses,
damages, penalties, taxes (excluding any taxes on the compensation
received for services as Trustee or on indemnity payments
received), claims, actions, suits, costs, expenses or disbursements
which may be imposed on a Trustee Indemnified Party relating to or
arising out of the formation, operation or termination of the
Trust, the execution, delivery and performance of any other
agreements to which the Trust is a party, or the action or inaction
of the Trustee under the Trust Agreement or any other agreement,
except for expenses resulting from the gross negligence or willful
misconduct of a Trustee Indemnified Party. Further, certain
officers of the Sponsor are insured against liability for certain
errors or omissions which an officer may incur or that may arise
out of his or her capacity as such.
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.
48
In the event of withdrawal, the Sponsor is
entitled to a redemption of the shares it acquired through its
initial capital contribution to any of the series of the Trust at
their NAV per Share. If the Sponsor withdraws and a successor
Sponsor is named, the withdrawing Sponsor shall pay all expenses as
a result of its withdrawal.
Meetings
Meetings of the Trust’s shareholders may
be called by the Sponsor and will be called by it upon the written
request of Shareholders holding at least 25% of the outstanding
Shares of the Trust or the Fund, as applicable (not including
Shares acquired by the Sponsor through its initial capital
contribution). The Sponsor shall deposit in the United States mail
or electronically transmit written notice to all Shareholders of
the Fund of the meeting and the purpose of the meeting, which shall
be held on a date not less than 30 nor more than 60 days after the
date of mailing of such notice, at a reasonable time and place.
Where the meeting is called upon the written request of the
shareholders of the Fund, or any other Teucrium Fund, as
applicable, such written notice shall be mailed or transmitted not
more than 45 days after such written request for a meeting was
received by the Sponsor.
Voting
Rights
Shareholders have no voting rights with respect
to the Trust or the Fund except as expressly provided in the Trust
Agreement. The Trust Agreement provides that shareholders
representing at least a majority (over 50%) of the outstanding
shares of the Teucrium Funds voting together as a single class
(excluding shares acquired by the Sponsor in connection with its
initial capital contribution to any Trust series) may vote to (i)
continue the Trust by electing a successor Sponsor as described
above, and (ii) approve amendments to the Trust Agreement that
impair the right to surrender Redemption Baskets for redemption.
(Trustee consent to any amendment to the Trust Agreement is
required if the Trustee reasonably believes that such amendment
adversely affects any of its rights, duties or liabilities.) In
addition, shareholders holding shares representing seventy-five
percent (75%) of the outstanding shares of the Teucrium Funds,
voting together as a single class (excluding shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to dissolve the Trust upon not less than
ninety (90) days’ notice to the Sponsor.
Limited
Liability of Shareholders
Shareholders shall be entitled to the same
limitation of personal liability extended to stockholders of
private corporations for profit organized under the general
corporation law of Delaware, and no Shareholder shall be liable for
claims against, or debts of the Trust or the Fund in excess of his
share of the Fund’s assets. The Trust or the Fund shall not
make a claim against a Shareholder with respect to amounts
distributed to such Shareholder or amounts received by such
Shareholder upon redemption unless, under Delaware law, such
Shareholder is liable to repay such amount.
The Trust or the Fund shall indemnify to the
full extent permitted by law and the Trust Agreement each
Shareholder (excluding the Sponsor to the extent of its ownership
of any Shares acquired through its initial capital contribution)
against any claims of liability asserted against such Shareholder
solely because of its ownership of Shares (other than for taxes on
income from Shares for which such Shareholder is
liable).
The Trust Agreement provides that every written
note, bond, contract, instrument, certificate or undertaking made
or issued by or on behalf of the Fund shall give notice to the
effect that the obligations of such instrument are not binding upon
the Shareholders individually but are binding only upon the assets
and property of the Fund.
49
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.
Resolution
of Conflicts Procedures
The Trust Agreement provides that whenever a
conflict of interest exists between the Sponsor or any of its
Affiliates, on the one hand, and the Trust, any shareholder of a
Trust series, or any other person, on the other hand, the Sponsor
shall resolve such conflict of interest, take such action or
provide such terms, considering in each case the relative interest
of each party (including its own interest) to such conflict,
agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the
Sponsor, the resolution, action or terms so made, taken or provided
by the Sponsor shall not constitute a breach of the Trust Agreement
or any other agreement contemplated therein or of any duty or
obligation of the Sponsor at law or in equity or
otherwise.
50
Interests of Named Experts
and Counsel
No expert hired by the Fund to give advice on
the preparation of this offering document has been hired on a
contingent fee basis, nor do any of them have any present or future
expectation of interest in the Sponsor, Distributor, Authorized
Purchasers, Custodian/Administrator or other service providers to
the Fund.
Provisions of Federal and
State Securities Laws
This offering is made pursuant to federal and
state securities laws. The SEC and state securities agencies take
the position that indemnification of the Sponsor that arises out of
an alleged violation of such laws is prohibited unless certain
conditions are met. Those conditions require that no
indemnification of the Sponsor or any underwriter for the Fund may
be made in respect of any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities
laws unless: (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as
to the party seeking indemnification and the court approves the
indemnification. (ii) such claim has been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the party
seeking indemnification. or (iii) a court of competent jurisdiction
approves a settlement of the claims against the party seeking
indemnification and finds that indemnification of the settlement
and related costs should be made, provided that, before seeking
such approval, the Sponsor or other indemnitee must apprise the
court of the position held by regulatory agencies against such
indemnification.
Books and
Records
The Trust keeps its books of record and account
at its office located at Three Main Street, Suite 215, Burlington,
VT 05401 or at the offices of the Administrator, U.S. Bancorp, Fund
Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 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 Participants for
distribution to Shareholders annual reports (as of the end of each
fiscal year) for the Fund as are required to be provided to
Shareholders by the CFTC and the NFA. These annual reports will
contain financial statements prepared by the Sponsor and audited by
an independent registered public accounting firm designated by the
Sponsor. The Trust will also post monthly reports to the
Fund’s website (www.teucrium.com).
These monthly reports will contain certain unaudited financial
information regarding the Fund, including the Fund’s NAV. The
Sponsor will furnish to the Shareholders other reports or
information which the Sponsor, in its discretion, determines to be
necessary or appropriate. In addition, under SEC rules the Trust
will be required to file quarterly and annual reports for the Fund
with the SEC, which need not be sent to Shareholders but will be
publicly available through the SEC. The Trust will post the same
information that would otherwise be provided in the Trust’s
CFTC, NFA and SEC reports on the Fund’s website www.teucrium.com.
The accountants’ report on its audit of
the Fund’s financial statements will be furnished by the
Trust to Shareholders upon request. The Trust will file such tax
returns, and prepare, disseminate and file such tax reports for the
Fund as it is advised by its counsel or accountants are from time
to time required by any applicable statute, rule or regulation and
will make such tax elections for the Fund as it deems
advisable.
PricewaterhouseCoopers (“PwC”), 2001
Ross Avenue, Suite 1800, Dallas, Texas 75201-2997, will provide tax
information in accordance with the Code and applicable U.S.
Treasury Regulations. Persons treated as intermediaries for
purposes of these regulations may obtain tax information regarding
the Fund from PwC or from the Fund’s website, www.teucrium.com.
51
Fiscal
Year
The fiscal year of the Fund is the calendar
year.
Governing
Law
The rights of the Sponsor, the Trust, the Fund,
DTC (as registered owner of the Fund’s global certificate for
Shares) and the Shareholders are governed by the laws of the State
of Delaware, except with respect to causes of action for violations
of U.S. federal or state securities laws. The Trust Agreement and
the effect of every provision thereof shall control over any
contrary or limiting statutory or common law of the State of
Delaware, other than the Delaware Trust
Statute.
Security Ownership of
Principal Shareholders and Management
As of December 31, 2021, the he Fund is not
aware of any 5% holder of its Shares.
On February 28, 2022, Sal Gilbertie disposed of
200 shares of WEAT. On March 1, 2022 no Class A members and
officers of the Fund owned any Shares
beneficially.
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.
On June 29, 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”).
On September 7, 2021, Dale Riker and Barbara Riker filed their
answers to the Gilbertie
complaint. As a result of the Court having ordered the
consolidation of the Gilbertie
case and Riker case,
the claims in the Riker
case were re-filed as counterclaims in the Gilbertie case, 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.
52
Through their counterclaims, the Rikers assert
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
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
[_________________] has been retained to advise
the Trust and the Sponsor with respect to the Shares being offered
hereby and has passed upon the validity of the Shares being issued
hereunder. [______________] has also provided the Sponsor with its
opinion with respect to federal income tax matters addressed below
in “U.S. Federal Income Tax
Considerations.”
Experts
The financial statements of the Trust and the
Fund incorporated by reference in this prospectus and elsewhere in
the registration statement have been so incorporated by reference
in reliance upon the report of [_____________], independent
registered public accountants, upon the authority of said firm as
experts in accounting and auditing.
Privacy
Policy
The following discussion is qualified in its
entirety by reference to the privacy policy. A copy of the privacy
policy is available at www.teucrium.com.
The Sponsor, the Trust, and the Teucrium Funds
have adopted a privacy policy relating to the collection,
maintenance, and use of nonpublic personal information about the
Teucrium Funds’ current and former investors, as required
under federal law. Federal law
gives investors the right to limit some but not all sharing of
their nonpublic personal information. Federal law also requires the
Sponsor to tell investors how it collects, shares, and protects
such nonpublic personal information.
Collection
of Nonpublic Personal Information
The Sponsor may collect or have access to
nonpublic personal information about current and former Fund
investors for certain purposes relating to the operation of the
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.
53
Use and
Disclosure of Nonpublic Personal Information
The Sponsor does not sell nonpublic personal
information to any third parties. The Sponsor primarily uses
investors’ nonpublic personal information to complete
financial transactions that may be requested. The Sponsor may
disclose investors’ nonpublic personal information to third
parties under specific circumstances described in the privacy
policy. These circumstances include, among others, information
needed to complete financial transactions, information released at
the direction of an investor, and certain information requested by
courts, regulators, law enforcement, or tax authorities. Investors
may not opt out of these disclosures.
Investors’ nonpublic personal information,
particularly information about investors’ holdings and
transactions in shares of the Teucrium Funds, may be shared between
and amongst the Sponsor and the Teucrium Funds. An investor cannot opt-out of the sharing of
nonpublic personal information between and amongst the Sponsor and
the Teucrium Funds. However, the Sponsor and the Teucrium
Funds will not use this information for any cross-marketing
purposes. In other words, all
investors will be treated as having “opted out” of
receiving marketing solicitations from Teucrium Funds other than
the Teucrium Fund(s) in which it
invests.
Protection
of Nonpublic Personal Information
As described in the privacy policy, the Sponsor
takes safeguards to protect investors’ nonpublic personal
information, which include, among others, restricting access to
such information, requiring third parties to follow appropriate
standards of security and confidentiality, and maintaining
physical, technical, administrative, and procedural
safeguards.
Teucrium’s Website is hosted in the United
States and any data provided to Teucrium is stored in the United
States. If you choose to provide Personal Data from regions outside
of the United States, then by your submission of such data, you
acknowledge and agree that: (a) you are transferring your personal
information outside of those regions to the United States
voluntarily and with consent; (b) the laws and regulations of the
United States shall govern your use of the provision of your
information, which laws and regulations may differ from those of
your country of residence; and (c) you permit your personal
information to be used for the purposes herein and in the Privacy
Policy above.
U.S. Federal Income Tax
Considerations
The following discussion summarizes the material
U.S. federal income tax consequences of the purchase, ownership and
disposition of Shares of the Fund and the U.S. federal income tax
treatment of the Fund. Except where noted otherwise, it deals only
with the tax consequences relating to Shares held as capital assets
by U.S. Shareholders (as defined below) who are not subject to
special tax treatment. For example, in general it does not address
the tax consequences, such as, but not limited to dealers in
securities or currencies or commodities, traders in securities or
dealers or traders in commodities that elect to use a mark to
market method of accounting, financial institutions, tax-exempt
entities (except as discussed below), insurance companies, persons
holding Shares as a part of a position in a “straddle”
or as part of a “hedging,” “conversion” or
other integrated transaction for federal income tax purposes,
persons with “applicable financial statements” within
the meaning of Section 451(b) of Code or holders of Shares whose
“functional currency” is not the U.S. dollar.
Furthermore, the discussion below is based on the provisions of the
Code, and regulations (“Treasury Regulations”), rulings
and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified (possibly with
retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed
below.
The Sponsor has received the opinion of Vedder
Price, counsel to the Trust, that the material U.S. federal income
tax consequences to the Fund and to U.S. Shareholders and Non-U.S.
Shareholders (as defined below) will be as described in the
following paragraphs. In rendering its opinion, Vedder Price has
relied on the facts and assumptions described in this prospectus as
well as certain factual representations made by the Trust, the
Fund, and the Sponsor. This opinion is not binding on the Internal
Revenue Service (the "IRS") and is not a guarantee of the results.
No ruling has been requested from the IRS with respect to any
matter affecting the Fund or prospective investors. The IRS may
disagree with the tax positions taken by the Trust and if the IRS
were to challenge the Trust’s tax positions in litigation,
they might not be sustained by the courts.
54
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 U.S., (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 U.S. and the control of one or
more United States persons as described in section 7701(a)(30) of
the Code, or (b) has a valid election in effect under applicable
Treasury Regulations to be treated as a United States person. A
“Non-U.S. Shareholder” is a holder that is not a U.S.
Shareholder. If a partnership or other entity or arrangement
treated as a partnership holds our Shares, the tax treatment of a
partner will generally depend upon the status of the partner and
the activities of the partnership. If you are a partner of a
partnership holding our Shares, the discussion below may not be
applicable to you and you should consult your own tax advisor
regarding the tax consequences of acquiring, owning and disposing
of Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT
ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN SHARES, AS WELL AS ANY APPLICABLE
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF ITS
PARTICULAR CIRCUMSTANCES.
Tax
Classification of the Trust and the Fund
The Trust is organized and will be operated as a
statutory trust in accordance with the provisions of the Trust
Agreement and applicable Delaware law. Notwithstanding the
Trust’s status as a statutory trust and the Fund’s
status as a series of the Trust, due to the nature of its
activities the Fund will be treated as a partnership rather than a
trust for U.S. federal income tax purposes. In addition, the
trading of Shares on the NYSE Arca will cause the Fund to be
classified as a “publicly traded partnership” for
federal income tax purposes. Under the Code, a publicly traded
partnership is generally taxable as a corporation. In the case of
an entity (such as the Fund) not registered under the Investment
Company Act of 1940 as amended, and not meeting certain other
conditions, however, an exception to this general rule applies if
at least 90% of the entity’s gross income is
“qualifying income” for each taxable year of its
existence (the “qualifying income exception”). For this
purpose, qualifying income is defined as including, in pertinent
part, interest (other than from a financial business), dividends,
and gains from the sale or disposition of capital assets held for
the production of interest or dividends. In the case of a
partnership of which a principal activity is the buying and selling
of commodities other than as inventory or of futures, forwards and
options with respect to commodities, “qualifying
income” also includes income and gains from commodities and
from such futures, forwards, options, and provided the partnership
is a trader or investor with respect to such assets, swaps and
other notional principal contracts with respect to commodities. The
Trust and the Sponsor have represented the following to Vedder
Price:
●
at least 90%
of the Fund’s gross income for each taxable year will
constitute “qualifying income” within the meaning of
Code section 7704 (as described above);
●
the Fund is
organized and will be operated in accordance with its governing
documents and applicable law; and
●
the Fund has
not elected, and will not elect, to be classified as a corporation
for U.S. federal income tax purposes.
Based in part on these representations, Vedder
Price is of the opinion that the Fund will be treated as a
partnership that it is not taxable as a corporation for U.S.
federal income tax purposes. The Fund’s taxation as a
partnership rather than a corporation will require the Sponsor to
conduct the Fund’s business activities in such a manner that
it satisfies the requirements of the qualifying income exception on
a continuing basis. No assurances can be given that the
Fund’s operations for any given year will produce income that
satisfies these requirements. Vedder Price will not review the
Fund’s ongoing compliance with these requirements and will
have no obligation to advise the Trust, the Fund or the
Fund’s Shareholders in the event of any subsequent change in
the facts, representations or applicable law relied upon in
reaching its opinion.
If the Fund failed to satisfy the qualifying
income exception in any year, other than a failure that is
determined by the IRS to be inadvertent and that is cured within a
reasonable time after discovery (in which case, as a condition of
relief, the Fund could be required to pay the government amounts
determined by the IRS), the Fund would be taxable as a corporation
for federal income tax purposes and would pay federal income tax on
its income at regular corporate rates. In that event, Shareholders
would not report their share of the Fund’s income or loss on
their tax returns. Distributions by the Fund (if any) would be
treated as dividend income to the Shareholders to the extent of the
Fund’s current and accumulated earnings and profits, then
treated as a tax-free return of capital to the extent of the
Shareholder’s basis in the Shares (and will reduce the
basis), and, to the extent it exceeds a Shareholder’s basis
in such Shares, as capital gain for Shareholders who hold their
Shares as capital assets. Accordingly, if the Fund were to be
taxable as a corporation, it would likely have a material adverse
effect on the economic return from an investment in the Fund and on
the value of the Shares.
55
The remainder of this summary assumes that the
Fund is classified for federal income tax purposes as a partnership
that it is not taxable as a corporation.
U.S.
Shareholders
Tax
Consequences of Ownership of Shares
Taxation of the
Fund’s Income. No U.S. federal income tax is paid by
the Fund on its income. Instead, the Fund files annual partnership
returns, and each U.S. Shareholder is required to report on its
U.S. federal income tax return its allocable share of the income,
gain, loss, deductions and credits reflected on such 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% surtax on interest income and capital gains allocated to them
by the Fund.
Monthly
Conventions for Allocations of the Fund’s Profit and Loss and
Capital Account Restatements. Under Code section 704, the
determination of a partner’s distributive share of any item
of income, gain, loss, deduction or credit is governed by the
applicable organizational document unless the allocation provided
by such document lacks “substantial economic effect.”
An allocation that lacks substantial economic effect nonetheless
will be respected if it is in accordance with the partners’
interests in the partnership, determined by considering all facts
and circumstances relating to the economic arrangements among the
partners. Subject to the possible exception for certain conventions
to be used by the Fund as discussed below, allocations pursuant to
the Trust Agreement should be considered as having substantial
economic effect or being in accordance with Shareholders’
interests in the Fund.
In situations where a partner’s interest
in a partnership is redeemed or sold during a taxable year, the
Code generally requires that partnership tax items for the year be
allocated to the partner using either an interim closing of the
books or a daily proration method. The Fund intends to allocate tax
items using an interim closing of the book’s method under
which income, gains, losses and deductions will be determined on a
monthly basis, taking into account the Fund’s accrued income
and deductions and gains and losses (both realized and unrealized)
for the month. The tax items for each month during a taxable year
will then be allocated among the holders of Shares in proportion to
the number of Shares owned by them as of the close of trading on
the last trading day of the preceding month (the “monthly
allocation convention”).
Under the monthly allocation convention, an
investor who disposes of a Share during the current month will be
treated as disposing of the Share as of the end of the last day of
the calendar month. For example, an investor who buys a Share on
April 10 of a year and sells it on May 20 of the same year will be
allocated all of the tax items attributable to May (because it is
deemed to hold the Share through the last day of May) but none of
those attributable to April. The tax items attributable to that
Share for April will be allocated to the person who held the Share
as of the close of trading on the last trading day of March. Under
the monthly allocation convention, an investor who purchases and
sells a Share during the same month, and therefore does not hold
(and is not deemed to hold) the Share at the close of the last
trading day of either that month or the previous month, will
receive no allocations with respect to that Share for any period.
Accordingly, investors may receive no allocations with respect to
Shares that they actually held or may receive allocations with
respect to Shares attributable to periods that they did not
actually hold the Shares.
By investing in Shares, a U.S. Shareholder
agrees that, in the absence of new legislation, regulatory or
administrative guidance, or judicial rulings to the contrary, it
will file its U.S. income tax returns in a manner that is
consistent with the monthly allocation convention as described
above and with the IRS Schedule K-1 or any successor form provided
to Shareholders by the Fund or the Trust.
For any month in which a Creation Basket is
issued or a Redemption Basket is redeemed, the Fund will credit or
debit the “book” capital accounts of existing
Shareholders with the amount of any unrealized gain or loss,
respectively, on Fund assets. For this purpose, the Fund will use a
convention whereby unrealized gain or loss will be computed based
on the lowest NAV of the Fund’s assets during the month in
which Shares are issued or redeemed, which may be different than
the value of the assets on the date of an issuance or redemption.
The capital accounts as adjusted in this manner will be used in
making tax allocations intended to account for differences between
the tax basis and fair market value of property owned by the Fund
at the time new Shares are issued or outstanding Shares are
redeemed (so-called “reverse Code section 704(c)
allocations”). The intended effect of these adjustments is to
equitably allocate among Shareholders any unrealized appreciation
or depreciation in the Fund’s assets existing at the time of
a contribution or redemption for book and tax
purposes.
56
The conventions used by the Fund, as noted
above, in making tax allocations may cause a Shareholder to be
allocated more or less income or loss for U.S. federal income tax
purposes than its proportionate share of the economic income or
loss realized by the Fund during the period it held its Shares.
This mismatch between taxable and economic income or loss in some
cases may be temporary, reversing itself in a later year when the
Shares are sold, but could be permanent. As one example, a
Shareholder could be allocated income accruing after it sold its
Shares, resulting in an increase in the basis of the Shares (see
“Tax Basis of
Shares,” below). In connection with the disposition of
the Shares, the additional basis might produce a capital loss the
deduction of which may be limited (see “Limitations on Deductibility of Losses and
Certain Expenses,” below).
Section 754
election. The Fund has made the election permitted by Code
section 754 (a “section 754 election”) 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 made a
direct acquisition of 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 the partner’s
share of the appreciation or depreciation in the value of the asset
since the partner 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 be successful in asserting
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.”
Section 1256 requires that such instruments held at the end of a
taxable year be treated as if they were sold for their fair market
value on the last business day of the taxable year (i.e., “marked to
market”). Moreover, any gain or loss realized from a
disposition, termination or marking-to-market of section 1256
contracts 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 term
“section 1256 contract” generally includes, in relevant
part: (1) a ”regulated futures contract,”
defined as a contract (a) that is traded on or subject to the rules
of a national securities exchange that 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 (b) 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.
Many of the Fund’s Wheat Futures Contracts
will qualify as “section 1256 contracts” under the
Code, as will some other wheat interests that are cleared through a
qualified board or exchange. Any gain or loss recognized with
respect to section 1256 contracts will be subject to the 60-40
treatment and will be allocated to Shareholders in accordance with
the monthly allocation convention. Commodity swaps will most likely
not qualify as section 1256 contracts. If a commodity swap is not
taxable as a section 1256 contract, any gain or loss on the swap
will be recognized at the time of disposition or termination as
long-term or short-term capital gain or loss depending on the
holding period of the swap in the Fund’s
hands.
Foreign exchange gains and losses realized by
the Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain futures contracts,
forward contracts, options and similar investments denominated in a
foreign currency, and payables or receivables denominated in a
foreign currency are subject to section 988 of the Code, which
generally causes such gain and loss to be treated as ordinary
income or loss. To the extent the Fund hold foreign investments, it
may be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Because the amount of
the Fund’s investments in various countries will change from
time to time, it is not possible to determine the effective rate of
such taxes in advance.
57
Limitations on
Deductibility of Losses and Certain Expenses. A number of
different provisions of the Code may defer or disallow the
deduction of losses or expenses allocated to Shareholders by the
Fund, including but not limited to those described
below.
A Shareholder’s deduction of its allocable
share of any loss of the Fund is limited to the lesser of (1) the
tax basis in its Shares or (2) in the case of a Shareholder that is
an individual or a closely held corporation, the amount which the
Shareholder is considered to have “at risk” with
respect to the Fund’s activities. In general, the amount at
risk initially will be a Shareholder’s invested capital.
Losses in excess of the amount at risk must be deferred until years
in which the Fund generates additional taxable income against which
to offset such carryover losses or until additional capital is
placed at risk.
Individuals and other non-corporate taxpayers
are permitted to deduct capital losses only to the extent of their
capital gains for the taxable year plus $3,000 of other income.
Unused capital losses can be carried forward and used in future
years, subject to these same limitations. In addition, an
individual taxpayer may elect to carry back net losses on section
1256 contracts to each of the three preceding years and use them to
offset section 1256 contract gains in those years, subject to
certain limitations. Corporate taxpayers generally may deduct
capital losses only to the extent of capital gains, subject to
special carryback and carryforward rules.
The deduction for expenses incurred by
non-corporate taxpayers constituting “miscellaneous itemized
deductions,” generally including investment-related expenses
(other than interest and certain other specified expenses), is
suspended for taxable years beginning after December 31, 2017 and
before January 1, 2026. During these taxable years, non-corporate
taxpayers will not be able to deduct miscellaneous itemized
deductions. Provided the suspension is not extended, for taxable
years ending on or after January 1, 2026, miscellaneous itemized
deductions are deductible only to the extent they exceed 2% of the
taxpayer’s adjusted gross income for the year. Although the
matter is not free from doubt, we believe management fees the Fund
pays to the Sponsor and other expenses of the Fund constitute
investment-related expenses subject to this miscellaneous itemized
deduction limitation, rather than expenses incurred in connection
with a trade or business and will report these expenses consistent
with that interpretation. For taxable years beginning on or after
January 1, 2026, the Code imposes additional limitations on the
amount of certain itemized deductions allowable to individuals with
adjusted gross income in excess of certain amounts by reducing the
otherwise allowable portion of such deductions by an amount equal
to the lesser of:
● 3% of the individual’s adjusted
gross income in excess of certain threshold amounts;
or
● 80% of the amount of certain itemized
deductions otherwise allowable for the taxable
year.
Non-corporate Shareholders generally may deduct
“investment interest expense” only to the extent of
their “net investment income.” Investment interest
expense of a Shareholder will generally include any interest
expense accrued by the Fund and any interest paid or accrued on
direct borrowings by a Shareholder to purchase or carry its Shares,
such as interest with respect to a margin account. Net investment
income generally includes gross income from property held for
investment (including “portfolio income” under the
passive loss rules but not, absent an election, long-term capital
gains or certain qualifying dividend income) less, deductible
expenses other than interest directly connected with the production
of investment income.
If the Fund incurs
indebtedness that is treated as allocable to a trade or business,
the Fund’s ability to deduct interest on such indebtedness 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.
58
To the extent that the Fund allocates losses or
expenses to a Shareholder that must be deferred or are disallowed
as a result of these or other limitations in the Code, the
Shareholder may be taxed on income in excess of your economic
income or distributions (if any) on its Shares. As one example, a
Shareholder could be allocated and required to pay tax on its 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 the Shareholder cannot deduct currently because it has
insufficient capital gains against which to offset the loss. As
another example, a Shareholder could be allocated and required to
pay tax on its share of interest income and capital gains for a
year but be unable to deduct some or all of its share of Fund
expenses and/or margin account interest incurred by the Shareholder
with respect to its Shares. Each Shareholder is urged to consult
its own tax advisor regarding the effect of limitations under the
Code on the 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 federal income tax return. A
Shareholder’s initial tax basis of its Shares will equal its
cost for the Shares plus its share of the Fund’s liabilities
(if any) at the time of purchase. In general, a Shareholder’s
“share” of those liabilities will equal the sum of (i)
the entire amount of any otherwise nonrecourse liability of the
Fund as to which the Shareholder or certain affiliates of the
Shareholder is the creditor (a “partner nonrecourse
liability”) and (ii) a pro rata share of any nonrecourse
liabilities of the Fund that are not partner nonrecourse
liabilities as to any Shareholder.
A Shareholder’s tax basis in its Shares
generally will be (1) increased by (a) its allocable share of the
Fund’s taxable income and gain and (b) any additional
contributions by the Shareholder to the Fund and (2) decreased (but
not below zero) by (a) its allocable share of the Fund’s tax
deductions and losses and (b) any distributions by the Fund to the
Shareholder. For this purpose, an increase in a Shareholder’s
share of the Fund’s liabilities will be treated as a
contribution of cash by the Shareholder to the Fund and a decrease
in that share will be treated as a distribution of cash by the Fund
to the Shareholder. Pursuant to certain IRS rulings, a Shareholder
will be required to maintain a single, “unified” basis
in all Shares that it owns. As a result, when a Shareholder that
acquired its Shares at different prices sells less than all of its
Shares, such Shareholder will not be entitled to specify particular
Shares (e.g., those with a
higher basis) as having been sold. Rather, it must determine its
gain or loss on the sale by using an “equitable
apportionment” method to allocate a portion of its unified
basis in its Shares to the Shares sold.
Treatment of
Fund Distributions. If the Fund makes non-liquidating
distributions to Shareholders, such distributions generally will
not be taxable to the Shareholders for federal income tax purposes
except to the extent that the amount of money distributed exceeds
the Shareholder’s adjusted basis of its interest in the Fund
immediately before the distribution. Any money distributed that is
in excess of a Shareholder’s tax basis generally will be
treated as gain from the sale or exchange of Shares. For purposes
of determining the gain recognized on a distribution from a
partnership, a marketable security distributed to a partner is
generally treated as money. This treatment, however, does not apply
to distributions to “eligible partners” of an
“investment partnership,” as those terms are defined in
the Code.
Tax Consequences of
Disposition of Shares
If a Shareholder sells its Shares, it will
recognize gain or loss equal to the difference between the amount
realized and its adjusted tax basis for the Shares sold. A
Shareholder’s amount realized will be the sum of the cash or
the fair market value of other property received plus its share of
the Fund's liabilities.
Gain or loss recognized by a Shareholder on the
sale or exchange of Shares held for more than one year will
generally be taxable as long-term capital gain or loss; otherwise,
such gain or loss will generally be taxable as short-term capital
gain or loss. A special election is available under the Treasury
Regulations that allows Shareholders to identify and use the actual
holding periods for the Shares sold for purposes of determining
whether the gain or loss recognized on a sale of Shares will give
rise to long-term or short-term capital gain or loss. It is
expected that most Shareholders will be eligible to elect, and
generally will elect, to identify and use the actual holding
periods 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.
59
Under Code section 751, a portion of a
Shareholder’s gain or loss from the sale of Shares
(regardless of the holding period for such Shares), will be
computed separately 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
that such items would give rise to ordinary income if sold by the
Fund. However, the short-term capital gain on section 1256
contracts resulting from 60-40 Treatment, described above, should
not be subject to this rule.
If some or all of a Shareholder’s Shares
are lent by its broker or other agent to a third party — for
example, for use by the third party in covering a short sale
— the Shareholder may be considered as having made a taxable
disposition of the loaned Shares, in which case
—
|
|
●
|
the Shareholder may recognize taxable gain or
loss to the same extent as if it had sold the Shares for
cash;
|
|
|
●
|
any of the income, gain, loss or deduction
allocable to those Shares during the period of the loan is not
reportable by the Shareholder for tax purposes;
and
|
|
|
●
|
any distributions the Shareholder receives with
respect to the Shares under the loan agreement will be fully
taxable to the Shareholder, most likely as ordinary
income.
|
Shareholders desiring to avoid these and other
possible consequences of a deemed disposition of their Shares
should consider modifying any applicable brokerage account
agreements to prohibit the lending of their
Shares.
Other
U.S. Federal Income Tax Matters
Information
Reporting. The Fund provides tax information to the
Shareholders and to the IRS, as required. Shareholders 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 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 federal income tax information furnished by
the Fund.
60
Partnership
Audit Procedures. The IRS may audit the U.S. federal income
tax returns filed by the Fund. Adjustments resulting from any such
audit may require a Shareholder to adjust a prior year’s tax
liability and could result in an audit of the Shareholder’s
own return. Any audit of a Shareholder’s return could result
in adjustments of non-partnership items as well as Fund items.
Partnerships are generally treated as separate entities for
purposes of U.S. federal income tax audits, judicial review of
administrative adjustments by the IRS, and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined at the partnership level in
a unified partnership proceeding rather than in separate
proceedings with the partners. The Code provides for one partner to
be designated as the “tax matters partner” and to
represent the partnership for purposes of these proceedings. The
Trust Agreement appoints the Sponsor as the tax matters partner of
the Fund.
The Bipartisan Budget Act of 2015 adopted a new
partnership-level audit and assessment procedure for all entities
treated as partnerships for U.S. federal income tax purposes. These
new rules generally apply to partnership taxable years beginning
after December 31, 2017. Under these rules, tax deficiencies
(including interest and penalties) that arise from an adjustment to
partnership items generally would be assessed and collected from
the partnership (rather than from the partners), and generally
would be calculated using maximum applicable tax rates (although
such partnership level tax may be reduced or eliminated under
limited circumstances). A narrow category of partnerships
(generally, partnerships having no more than 100 partners that
consist exclusively of individuals, C corporations, S corporations
and estates) are permitted to elect out of the new
partnership-level audit rules. As an alternative to
partnership-level tax liability, a partnership may elect to furnish
adjusted Schedule K-1s to the IRS and to each person who was a
partner in the audit year, stating such partner’s share of
any partnership adjustments, and each such partner would then take
the adjustments into account on its tax returns in the year in
which it receives its adjusted Schedule K-1 (rather than by
amending their tax returns for the audited year). If the Fund were
subject to a partnership level tax as a result of these new rules,
the economic return of all Shareholders (including Shareholders
that did not own Shares in the Fund during the taxable year to
which the audit relates) may be affected.
To address these new rules, the Sponsor amended
the Trust Agreement so that if the Fund becomes subject to any tax
as a result of any adjustment to taxable income, gain, loss,
deduction or credit for any taxable year of the Fund (pursuant to a
tax audit or otherwise), such Shareholder (and each former
Shareholder) is obligated to indemnify the Fund and the Sponsor
against any such taxes (including any interest and penalties) to
the extent such tax (or portion thereof) is properly attributable
to such Shareholder (or former Shareholder). In addition, the
Sponsor, on behalf of the Fund, will be authorized to take any
action permitted under applicable law to avoid the assessment of
any such taxes against the Fund (including an election to issue
adjusted Schedule K-1s to the Shareholders (and/or former
Shareholders) which takes such adjustments to taxable income, gain,
loss, deduction or credit into account.
Reportable
Transaction Rules. In certain circumstances the Code and
Treasury Regulations require that the IRS be notified of
transactions through a disclosure statement attached to a
taxpayer’s U.S. federal income tax return. These disclosure
rules may apply to transactions irrespective of whether they are
structured to achieve particular tax benefits, and 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 for such
interests. In addition, significant monetary penalties may be
imposed in connection with a failure to comply with these reporting
requirements. Investors should consult their own tax advisor
concerning the application of these reporting requirements to their
specific situation.
Tax-Exempt
Organizations. Subject to numerous exceptions, qualified
retirement plans and individual retirement accounts, charitable
organizations and certain other organizations that otherwise are
exempt from U.S. federal income tax (collectively, “exempt
organizations”) nonetheless are subject to the tax on
unrelated business taxable income (“UBTI”). Generally,
UBTI means the gross income derived by an exempt organization from
a trade or business that it regularly carries on, the conduct of
which is not substantially related to the exercise or performance
of its exempt purpose or function, less allowable deductions
directly connected with that trade or business. If the Fund were to
regularly carry on (directly or indirectly) a trade or business
that is unrelated with respect to an exempt organization
Shareholder, then in computing its UBTI, the Shareholder must
include its share of (1) the Fund’s gross income from the
unrelated trade or business, whether or not distributed, and (2)
the Fund’s allowable deductions directly connected with that
gross income. An exempt organization that has more than one
unrelated trade or business must compute its UBTI separately for
each such trade or business.
61
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 under
the Code for regulated investment company (“RIC”)
status. A RIC may invest up to 25% of its assets in interests in
qualified publicly traded partnerships. The determination of
whether a publicly traded partnership such as the Fund is a
qualified publicly traded partnership is made on an annual basis.
The Fund expects to be a qualified publicly traded partnership in
each of its taxable years. However, such qualification is not
assured.
Non-U.S.
Shareholders
Generally, non-U.S. persons who derive U.S.
source income or gain from investing or engaging in a U.S. business
are taxable on two categories of income. The first category
consists of amounts that are fixed or determinable, annual or
periodic income, such as interest, dividends and rent that are not
connected with the operation of a U.S. trade or business
(“FDAP”). The second category is income that is
effectively connected with the conduct of a U.S. trade or business
(“ECI”). FDAP income (other than interest that is
considered “portfolio interest;” as discussed below) is
generally subject to a 30% withholding tax, which may be reduced
for certain categories of income by a treaty between the U.S. and
the recipient’s country of residence. In contrast, ECI is
generally subject to U.S. tax on a net basis at graduated rates
upon the filing of a U.S. tax return. Where a non-U.S. person has
ECI as a result of an investment in a partnership, the ECI is
currently subject to a withholding tax at a rate of 37% for
individual Shareholders and a rate of 21% for corporate
Shareholders. The tax withholding on ECI, which is the highest tax
rate under Code section 1 for non-corporate Non-U.S. Shareholders
and Code section 11(b) for corporate Non-U.S. Shareholders, may
increase in future tax years if tax rates increase from their
current levels.
Withholding on
Allocations and Distributions. The Code provides that a
non-U.S. person who is a partner in a partnership that is engaged
in a U.S. trade or business during a taxable year will also be
considered to be engaged in a U.S. trade or business during that
year. Classifying an activity by a partnership as an investment or
an operating business is a factual determination. Under certain
safe harbors in the Code, an investment fund whose activities
consist of trading in stocks, securities, or commodities for its
own account generally will not be considered to be engaged in a
U.S. trade or business unless it is a dealer is such stocks,
securities, or commodities. This safe harbor applies to investments
in commodities only if the commodities are of a kind customarily
dealt in on an organized commodity exchange and if the transaction
is of a kind customarily consummated at such place. Although the
matter is not free from doubt, the Fund believes that the
activities directly conducted by the Fund do not result in the Fund
being engaged in a trade or business within the United States.
However, there can be no assurance that the IRS would not
successfully assert that the Fund’s activities constitute a
U.S. trade or business.
62
In the event that the Fund is considered to be
engaged in 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 its ECI to non-corporate Non-U.S.
Shareholders and the highest rate specified in Code section 11(b)
(currently 21%) on allocations of its ECI to corporate Non-U.S.
Shareholders, when such income is distributed. Non-U.S.
Shareholders would also be subject to a 10% withholding tax on the
consideration payable upon a sale or exchange of such Non-U.S.
Shareholder’s Shares, although the IRS has temporarily
suspended this withholding for interests in publicly traded
partnerships until regulations implementing such withholding are
issued. If recently promulgated regulations are finalized as
proposed, such regulations would provide, with respect to transfers
of publicly traded interests in publicly traded partnerships
effected through a broker, that the obligation to withhold is
imposed on the transferor’s broker. However, it is not clear
when such regulations will be finalized and if they will be
finalized in their current form. A Non-U.S. Shareholder with ECI
generally will 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.
Even if the Fund did not realize ECI, a Non-U.S.
Shareholder nevertheless may be treated as having FDAP income,
which would be subject to a 30% U.S. 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 by the Fund on behalf of a
Non-U.S. Shareholder will be treated as being distributed to such
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 that cost being borne by the Fund, generally, and
accordingly, by all Shareholders
proportionately.
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.
63
Prospective Non-U.S. Shareholders should consult
their own tax advisor regarding these and other tax issues unique
to Non-U.S. Shareholders.
Backup
Withholding
The Fund may be required to withhold U.S.
federal income tax (“backup withholding”) from payments
to: (1) any Shareholder who fails to furnish the Fund with his, her
or its correct taxpayer identification number or a certificate that
the Shareholder is exempt from backup withholding, and (2) any
Shareholder with respect to whom the IRS notifies the Fund that the
Shareholder is subject to backup withholding. Backup withholding is
not an additional tax and may be returned or credited against a
taxpayer’s regular federal income tax liability if
appropriate information is provided to the IRS. The backup
withholding rate is the fourth lowest rate applicable to
individuals under Code section 1(c) (currently 24%) and may
increase in future tax years.
Other Tax
Considerations
In addition to U.S. federal income taxes,
Shareholders may be subject to other taxes, such as state and local
income taxes, unincorporated business taxes, business franchise
taxes, and estate, gift, inheritance or intangible taxes that may
be imposed by the various jurisdictions in which the Fund does
business or owns property or where the 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 or U.S.
federal tax other than those U.S. federal income tax issues
discussed under the heading “U.S. Federal Income Tax
Considerations.”
Investment by ERISA
Accounts
General
Most employee benefit plans, and individual
retirement accounts (“IRAs”) are subject to the
Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), or the Code, or both. This section discusses
certain considerations that arise under ERISA and the Code that a
fiduciary of: (i) an employee benefit plan as defined in ERISA.
(ii) a plan as defined in Section 4975 of the Code. or
(iii) any collective
investment vehicle, business trust, investment partnership, pooled
separate account or other entity the assets of which are treated as
comprised (at least in part) of “plan assets” under the
ERISA “plan assets” rules (“plan asset
entity”) who has investment discretion should take into
account before deciding to invest the plan’s assets in the
Fund. Employee benefit plans under ERISA, plans under the Code and
plan asset entities are collectively referred to below as
“plans,” and fiduciaries with investment discretion are
referred to below as “plan
fiduciaries.”
This summary is based on the provisions of ERISA
and the Code as of the date hereof. This summary is not intended to
be complete, but only to address certain questions under ERISA and
the Code likely to be raised by your advisors. The summary does not
include state or local law.
Potential plan investors are
urged to consult with their own advisors concerning the
appropriateness of an investment in the Fund and the manner in
which Shares should be purchased.
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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.
65
The Sponsor believes that the conditions
described above are satisfied with respect to the Shares. The
Sponsor believes that the Shares therefore constitute publicly
offered securities, and the underlying assets of the Fund should
not be considered to constitute plan assets of any plan that
purchases Shares.
Prohibited
Transactions
ERISA and the Code generally prohibit certain
transactions involving a plan and persons who have certain
specified relationships to the plan. In general, Shares may not be
purchased with the assets of a plan if the Sponsor, the clearing
brokers, the trading advisors (if any), or any of their affiliates,
agents or employees either:
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●
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exercise any discretionary authority or
discretionary control with respect to management of the
plan.
|
|
●
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exercise any authority or control with respect
to management or disposition of the assets of the
plan.
|
|
●
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render investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or
other property of the plan.
|
|
●
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have any authority or responsibility to render
investment advice with respect to any monies or other property of
the plan. or
|
|
●
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have any discretionary authority or
discretionary responsibility in the administration of the
plan.
|
Also, a prohibited transaction may occur under
ERISA or the Code when circumstances indicate that (1) the
investment in Shares is made or retained for the purpose of
avoiding application of the fiduciary standards of ERISA, (2) the
investment in Shares constitutes an arrangement under which the
Fund is expected to engage in transactions that would otherwise be
prohibited if entered into directly by the plan purchasing the
Shares, (3) the investing plan, by itself, has the authority or
influence to cause the Fund to engage in such transactions, or (4)
a person who is prohibited from transacting with the investing plan
may, but only with the aid of certain of its affiliates and the
investing plan, cause the Fund to engage in such transactions with
such person.
Special
IRA Rules
IRAs are not subject to ERISA’s fiduciary
standards, but are subject to their own rules, including the
prohibited transaction rules of Section 4975 of the Code, which
generally mirror ERISA’s prohibited transaction rules. For
example, IRAs are subject to special custody rules and must
maintain a qualifying IRA custodial arrangement separate and
distinct from the Fund and its custodial arrangement. If a separate
qualifying custodial arrangement is not maintained, an investment
in the Shares will be treated as a distribution from the IRA.
Second, IRAs are prohibited from investing in certain commingled
investments, and the Sponsor makes no representation regarding
whether an investment in Shares is an inappropriate commingled
investment for an IRA. Third, in applying the prohibited
transaction provisions of Section 4975 of the Code, in addition to
the rules summarized above, the individual for whose benefit the
IRA is maintained is also treated as the creator of the IRA. For
example, if the owner or beneficiary of an IRA enters into any
transaction, arrangement, or agreement involving the assets of his
or her IRA to benefit the IRA owner or beneficiary (or his or her
relatives or business affiliates) personally, or with the
understanding that such benefit will occur, directly or indirectly,
such transaction could give rise to a prohibited transaction that
is not exempted by any available exemption. Moreover, in the case
of an IRA, the consequences of a non-exempt prohibited transaction
are that the IRA’s assets will be treated as if they were
distributed, causing immediate taxation of the assets (including
any early distribution penalty tax applicable under Section 72 of
the Code), in addition to any other fines or penalties that may
apply.
66
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.
67
INCORPORATION BY REFERENCE OF
CERTAIN INFORMATION
We are a reporting company and file annual,
quarterly and current reports and other information with the SEC.
The rules of the SEC allow us to “incorporate by
reference” information that we file with them, which means
that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is an
important part of this prospectus. This prospectus incorporates by
reference the documents set forth below that have been previously
filed with the SEC and any future filings that 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]
Any statement contained in a document
incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any
other subsequently filed document that also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes
such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this prospectus.
We will provide to each person to whom a
prospectus is delivered, including any beneficial owner, a copy of
any document incorporated by reference in the prospectus (excluding
any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in that document) at no
cost, upon written or oral request at the following address or
telephone number:
Teucrium Wheat Fund
Attention: Cory Mullen-Rusin
Three Main Street Suite 215
Burlington, VT 05401
(802) 540-0019
Our Internet website is www.teucrium.com.
We make our electronic filings with the SEC, including our annual
reports on Form 10K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to these reports available on
our website free of charge as soon as practicable after we file or
furnish them with the SEC. The information contained on our website
is not incorporated by reference in this prospectus and should not
be considered a part of this prospectus.
68
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.
69
WHERE YOU CAN FIND MORE
INFORMATION
The Trust has filed on behalf of the Fund a
registration statement on Form S-1 with the SEC under the 1933 Act.
This prospectus does not contain all of the information set forth
in the registration statement (including the exhibits to the
registration statement), parts of which have been omitted in
accordance with the rules and regulations of the SEC. For further
information about the Trust, the Fund or the Shares, please refer
to the registration statement, which you may inspect online at
www.sec.gov.
Information about the Trust, the Fund and the Shares can also be
obtained from the Fund’s website, which is www.teucrium.com.
The Fund’s website address is only provided here as a
convenience to you and the information contained on or connected to
the website is not part of this prospectus or the registration
statement of which this prospectus is part. The Trust is subject to
the informational requirements of the Exchange Act and will file
certain reports and other information with the SEC under the
Exchange Act. The Sponsor will file an updated prospectus annually
for the Fund pursuant to the 1933 Act. The reports and other
information can be inspected online at www.sec.gov
which is the Internet site maintained by the SEC that contains
reports, proxy and information statements and other information
regarding issuers that file electronically with the
SEC.
70
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.
71
APPENDIX
A
Glossary of Defined
Terms
In this prospectus, each of the following terms
have the meanings set forth after such term:
Administrator: U.S. Bancorp Fund
Services, LLC, doing business as U.S. Bank Global Fund
Services.
Authorized
Purchaser: One that purchases or redeems Creation Baskets or
Redemption Baskets, respectively, from or to the
Fund.
Benchmark: A weighted average of daily
changes in the closing settlement prices of (1) the second to
expire Wheat Futures Contract traded on the CBOT, weighted 35%, (2)
the third to expire CBOT Wheat Futures Contract, weighted 30%, and
(3) the CBOT Wheat Futures Contract expiring in the December
following the expiration month of third to expire contract,
weighted 35%
Benchmark
Component Futures Contracts: The three Wheat Futures
Contracts that at any given time make up the
Benchmark.
Business
Day: Any day other than a day when any of the NYSE Arca, the
CBOT or the New York Stock Exchange is closed for regular
trading.
CFTC:
Commodity Futures Trading Commission, an independent federal agency
with the mandate to regulate commodity futures and options in the
United States.
Chicago Board of
Trade (CBOT): The primary exchange on which Wheat Futures
Contracts are traded in the U.S. The Fund expressly disclaims any
association with the CBOT or endorsement of the Fund by the CBOT
and acknowledges that “CBOT” and “Chicago Board
of Trade” are registered trademarks of such exchange. The
CBOT is part of the CME Group.
Code:
Internal Revenue Code of 1986, as amended.
Commodity
interests: Futures Contracts,
Cleared Swaps and Other Commodity
interests.
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.
72
Creation
Basket: A block of 25,000 Shares used by the Fund to issue
Shares.
Custodian: U.S. Bank,
N.A.
Distributor: Foreside Fund Services,
LLC.
DTC: The
Depository Trust Company. DTC will act as the securities depository
for the Shares.
DTC
Participant: An entity that has an account with
DTC.
Exchange
Act: The Securities Exchange Act of
1934.
Exchange for
Related Position: A privately negotiated and simultaneous
exchange of a futures contract position for a swap or other over
the counter instrument on the corresponding
commodity.
FINRA:
Financial Industry Regulatory Authority.
Forward
Contract: an over the counter bilateral contract for the
purchase or sale of a specified quantity of a commodity at a
specified price, on a specified date and at a specified location.
Forwards are almost always settled by delivery of the underlying
commodity. Although possible, it is unusual to settle a Forward
financially; therefore, Forwards are generally
illiquid.
Futures
Contract: an exchange-traded contract traded with standard
terms that calls for the delivery of a specified quantity of a
commodity at a specified price, on a specified date and at a
specified location. Typically, a futures contract is traded out or
rolled on an exchange before delivery or receipt of the underlying
commodity is required.
Indirect
Participants: Banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly.
Limited
Liability Company (LLC): A type of business ownership
combining several features of corporation and partnership
structures.
73
Margin:
The amount of equity required for an investment in futures
contracts.
NAV: Net
Asset Value of the Fund.
New
York Mercantile Exchange (NYMEX): An exchange on which
Futures Contracts are traded in the U.S. The Fund expressly
disclaims any association with the NYMEX or endorsement of the Fund
by the NYMEX and acknowledges that “NYMEX” and
“New York Mercantile Exchange” are registered
trademarks of such exchange.
NFA:
National Futures Association.
NSCC:
National Securities Clearing Corporation.
1933 Act:
The Securities Act of 1933.
Option:
The right, but not the obligation, to buy or sell a futures
contract, swap agreement, forward contract or commodity, as
applicable, at a specified price on or before a specified
date.
Over the counter
Derivative: A financial contract, whose value is designed to
track the return on stocks, bonds, currencies, commodities, or some
other benchmark, that is traded over the counter or off
organized exchanges.
Redemption
Basket: A block of 25,000 Shares used by the Fund to redeem
Shares.
SEC:
Securities and Exchange Commission.
Secondary
Market: The stock exchanges and the over the counter market.
Securities are first issued as a primary offering to the public.
When the securities are traded from that first holder to another,
the issues trade in these secondary markets.
Shareholders: Holders of
Shares.
74
Shares:
Common units representing fractional undivided beneficial interests
in the Fund.
Sponsor:
Teucrium Trading, LLC, a Delaware limited liability company, which
is registered as a Commodity Pool Operator, who controls the
investments and other decisions of the Fund.
Spot
Contract: A cash market transaction in which the buyer and
seller agree to the immediate purchase and sale of a commodity,
usually with a two-day settlement.
Swap
Agreement: An over the counter derivative that generally
involves an exchange of a stream of payments between the
contracting parties based on a notional amount and a specified
index.
Tracking
Error: Possibility that the daily NAV of the Fund will not
track the Benchmark.
Trust
Agreement: The Fifth Amended and Restated Declaration of
Trust and Trust Agreement of the Trust effective as of April 26,
2019.
Valuation
Day: Any day as of which the Fund calculates its
NAV.
Wheat Futures
Contracts: Futures contracts for wheat that are traded on
the CBOT, the Kansas City Board of Trade, the Minneapolis Grain
Exchange, or foreign exchanges.
You: The
owner of Shares.
75
STATEMENT OF ADDITIONAL
INFORMATION
TEUCRIUM WHEAT
FUND
This statement of additional information is the
second part of a two-part document. The first part is the
Fund’s disclosure document. The disclosure document and this
statement of additional information are bound together, and both
parts contain important information. This statement of additional
information should be read in conjunction with the disclosure
document. To obtain a copy of the disclosure document without
charge, call the Fund at (802)-540-0019. Before you decide whether
to invest, you should read the entire prospectus carefully and
consider the risk factors beginning on page 5.
This statement of additional information and
accompanying disclosure document are both dated [_______],
2022.
76
TEUCRIUM WHEAT FUND
TABLE OF
CONTENTS
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Page
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The Wheat Market
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78
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Over the counter Derivatives
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81
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Commodity Market
Participants
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82
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Regulation
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83
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Potential Advantages of
Investment
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87
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Fund Performance
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87
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77
The Wheat
Market
Wheat is used to produce flour, the key
ingredient for breads, pasta, crackers and many other food
products, as well as several industrial products such as starches
and adhesives. Wheat by-products are used in livestock feeds. Wheat
is the principal food grain produced in the United States, and the
United States’ output of wheat is typically exceeded only by
that of China, the European Union, Russia, and India. The United
States Department of Agriculture (“USDA”) estimates
that for 2021-22, the principal global producers of wheat will be
the EU, Russia, Ukraine, China, India, the United States, Australia
and Canada. The U.S. generates approximately 6% of global
production, with approximately 50% of that being exported. For
2021-22, based on the January 12, 2022 USDA report, global
consumption of 787 MMT is estimated to be slightly higher than
production of 779 MMT. If the global demand of wheat is not equal
to global supply, this may have an impact on the price of wheat.
Global wheat consumption may fluctuate year over year due to any
number of reasons which may include, but is not limited to,
economic conditions, global health concerns, international trade
policy. Wheat is a staple commodity used pervasively across the
globe so that any contractions in consumption may only be temporary
as has historically been the case. The USDA publishes weekly,
monthly, quarterly and annual updates for U.S. domestic and
worldwide wheat production and consumption. These reports are
available on the USDA’s website, www.usda.gov, at no charge.
The outlook provided herein is from the January 12, 2022 USDA
report. This report was issued
before the occurrence of the recent developments in eastern Europe.
It cannot be predicted what impact those developments will have on
the outlook provided in the January 12, 2022 USDA report.
For more information on these developments, see “Prospectus
Summary – Principal Investment Risks of an Investment in the
Fund" and "What Are the Principal Risks of Investing in the Fund -
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."
There are several types of wheat grown in the
U.S., which are classified in terms of color, hardness, and growing
season. CBOT Wheat Futures Contracts call for delivery of #2 soft
red winter wheat, which is generally grown in the eastern third of
the United States, but other types and grades of wheat may also be
delivered (Grade #1 soft red winter wheat, Hard Red Winter, Dark
Northern Spring and Northern Spring wheat may be delivered at 3
cents premium per bushel over the contract price and #2 soft red
winter wheat, Hard Red Winter, Dark Northern Spring and Northern
Spring wheat may be delivered at the contract price.) Winter wheat
is planted in the fall and is harvested in the late spring or early
summer of the following year, while spring wheat is planted in the
spring and harvested in late summer or fall of the same year.
Standard Wheat Futures Contracts trade on the CBOT in units of
5,000 bushels, although 1,000 bushel “mini-wheat” Wheat
Futures Contracts also trade. There are five months each year in
which CBOT Wheat Futures Contracts expire: March, May, July,
September and December.
If the futures market is in a state of
backwardation (i.e., when the price of wheat in the future is
expected to be less than the current price), the Fund will buy
later to expire contracts for a lower price than the sooner to
expire contracts that it sells. Hypothetically, and assuming no
changes to either prevailing wheat prices or the price relationship
between immediate delivery, soon to expire contracts and later to
expire contracts, the value of a contract will rise as it
approaches expiration. If the futures market is in contango, the
Fund will buy later to expire contracts for a higher price than the
sooner to expire contracts that it sells. Hypothetically, and
assuming no other changes to either prevailing wheat prices or the
price relationship between the spot price, soon to expire contracts
and later to expire contracts, the value of a contract will fall as
it approaches expiration. Historically, the wheat futures markets
have experienced periods of both contango and backwardation.
Frequently, whether contango or backwardation exists is a function,
among other factors, of the seasonality of the wheat market and the
wheat harvest cycle. All other things being equal, a situation
involving prolonged periods of contango may adversely impact the
returns of the Fund; conversely a situation involving prolonged
periods of backwardation may positively impact the returns of the
Fund.
Futures contracts may be either bought or sold
long or short. The U.S Commodity Futures Trading Commission weekly
releases the “Commitment of Traders” (COT) report,
which depicts the open interest as well as long and short positions
in the market. Market participants may use this report to gauge
market sentiment.
The price per bushel of wheat in the United
States is primarily a function of both U.S. and global production,
as well as U.S. and global demand. The graph below shows the USDA
published price per bushel by month for the period January 2007 to
January 2022.
78
79
On February 9, 2022, the USDA released its
monthly World Agricultural Supply and Demand Estimates (WASDE) for
the Crop Year 2020-21. The exhibit below provides a summary of
historical and current information for United States wheat
production.
80
Standard Wheat Futures Contracts trade on the
CBOT in units of 5,000 bushels, although 1,000 bushel
“mini-wheat” Wheat Futures Contracts also trade. There
are several types of wheat grown in the U.S., which are classified
in terms of color, hardness, and growing season. CBOT Wheat Futures
Contracts call for delivery of #2 soft red winter wheat, which is
generally grown in the eastern third of the United States, but
other types and grades of wheat may also be delivered (Grade #1
soft red winter wheat, Hard Red Winter, Dark Northern Spring and
Northern Spring wheat may be delivered at 3 cents premium per
bushel over the contract price and #2 soft red winter wheat, Hard
Red Winter, Dark Northern Spring and Northern Spring wheat may be
delivered at the contract price.) Winter wheat is planted in the
fall and is harvested in the late spring or early summer of the
following year, while spring wheat is planted in the spring and
harvested in late summer or fall of the same year. There are five
months each year in which CBOT Wheat Futures Contracts expire:
March, May, July, September and December.
Over the counter
Derivatives
In addition to futures contracts, options on
futures contracts, derivative contracts that are tied to various
commodities, including wheat, are entered into outside of public
exchanges. These “over the counter” contracts are
entered into between two parties in private contracts, or on a
recently formed swap execution facility (“SEF”) for
standardized swaps. Unlike Wheat Futures Contracts, which are
guaranteed by a clearing organization, each party to an over the
counter derivative contract bears the credit risk of the other
party (unless such over the counter swap is cleared through a DCO),
i.e., the risk that the
other party will not be able to perform its obligations under its
contract.
Some over the counter derivatives contracts
contain relatively standardized terms and conditions and are
available from a wide range of participants. Others have highly
customized terms and conditions and are not as widely available.
While the Fund may enter into these more customized contracts, the
Fund will only enter into over the counter contracts containing
certain terms and conditions, as discussed further below, that are
designed to minimize the credit risk to which the Fund will be
subject and only if the terms and conditions of the contract are
consistent with achieving the Fund’s investment objective of
tracking the Benchmark. The over the counter contracts
that the Fund may enter into will take the form of either forward
contracts, swaps or options.
A forward contract is a contractual obligation
to purchase or sell a specified quantity of a commodity at or
before a specified date in the future at a specified price and,
therefore, is economically similar to a futures contract except
that, unlike a futures contract it cannot be financially settled
(i.e., one must intend to make or take delivery of a commodity
under a forward contract). Unlike futures contracts, however,
forward contracts are typically privately negotiated or are traded
in the over the counter markets. Forward contracts for a given
commodity are generally available for various amounts and
maturities and are subject to individual negotiation between the
parties involved. Moreover, generally there is no direct means of
offsetting or closing out a forward contract by taking an
offsetting position as one would a futures contract on a U.S.
exchange. If a trader desires to close out a forward contract
position, he generally will establish an opposite position in the
contract but will settle and recognize the profit or loss on both
positions simultaneously on the delivery date. Thus, unlike in the
futures contract market where a trader who has offset positions
will recognize profit or loss immediately, in the forward market a
trader with a position that has been offset at a profit will
generally not receive such profit until the delivery date, and
likewise a trader with a position that has been offset at a loss
will generally not have to pay money until the delivery date.
However, in some very limited instances such contracts may provide
a right of look out that will allow for the receipt of profit and
payment for losses prior to the delivery date.
An over the counter swap agreement is a
bilateral contract to exchange a periodic stream of payments
determined by reference to a notional amount, with payment
typically made between the parties on a net basis. For instance, in
the case of a wheat swap, the Fund may be obligated to pay a fixed
price per bushel of wheat multiplied by a notional number of
bushels and be entitled to receive an amount per bushel equal to
the current value of an index of wheat prices, the price of a
specified Wheat Futures Contract, or the average price of a group
of Wheat Futures Contracts such as the Benchmark (times the same
notional number of bushels). Each party to the swap is subject to
the credit risk of the other party.
81
The Fund only enters into over the counter swaps
on a net basis, where the two payment streams are netted out on a
daily basis, with the parties receiving or paying, as the case may
be, only the net amount of the two payments. Swaps do not generally
involve the delivery of underlying assets or principal and are
therefore financially settled. Accordingly, the Fund’s risk
of loss with respect to an over the counter swap generally is
limited to the net amount of payments that the counterparty is
contractually obligated to make less any collateral deposits the
Fund is holding.
To reduce the credit risk that arises in
connection with over the counter contracts, the Fund generally
enters into an agreement with each counterparty based on the Master
Agreement published by the International Swaps and Derivatives
Association, Inc. that provides for the netting of the Fund’s
overall exposure to its counterparty and for daily payments based
on the marked to market value of the contract.
The Sponsor will assess the creditworthiness of
each potential counterparty. The Sponsor assesses or reviews, as
appropriate, the creditworthiness of each potential or existing
counterparty to an over the counter contract pursuant to guidelines
approved by the Sponsor. The Sponsor will periodically review the
creditworthiness of existing counterparties. The Sponsor’s
President, Chief Investment Officer, and Chief Executive Officer
has over 25 years of experience in over the counter derivatives
trading, including the counterparty creditworthiness analysis
inherent therein. There is no guarantee that the Sponsor’s
creditworthiness analysis will be successful and that
counterparties selected for Fund transactions will not default on
their contractual obligations.
The Fund also may require that a counterparty be
highly rated and/or provide collateral or other credit support. The
Sponsor on behalf of the Fund may enter into over the counter
contracts with various types of counterparties, including: (a)
entities registered as swap dealers (“SD”) or major
swap participants (“MSP”), or (b) any other entities
that qualify as eligible contract participants
(“ECP”).
After the enactment of the DoddFrank Act,
swaps (and options that are regulated as swaps) are subject to the
CFTC’s exclusive jurisdiction and are regulated as rigorously
as futures. Generally, however, if a swap is entered into with an
SD or MSP, such counterparty will conduct all necessary compliance
with respect to swaps and options under the DoddFrank
Act.
Commodity Market
Participants
The two broad classes of persons who trade
commodities are hedgers and speculators. Hedgers include financial
institutions that manage or deal in interest rate-sensitive
instruments, foreign currencies or stock portfolios, and commercial
market participants, such as farmers and manufacturers, that market
or process commodities. Hedging is a protective procedure designed
to effectively lock in prices that would otherwise change due to an
adverse movement in the price of the underlying commodity, such as
the adverse price movement between the time a merchandiser or
processor enters into a contract to buy or sell a raw or processed
commodity at a certain price and the time he must perform the
contract. For example, if a hedger contracts to physically sell the
commodity at a future date, he may simultaneously buy a futures or
forward contract for the necessary equivalent quantity of the
commodity. At the time for performance of the physical contract,
the hedger may accept delivery under his futures contract and sell
the commodity quantity as required by the physical contract or he
may buy the actual commodity, sell it under the physical contract
and close out his futures contract position by making an offsetting
sale.
The Commodity Interest markets enable the hedger
to shift the risk of price fluctuations. The usual objective of the
hedger is to protect the profit that he expects to earn from
farming, merchandising, or processing operations rather than to
profit from his trading. However, at times the impetus for a hedge
transaction may result in part from speculative objectives and
hedgers can end up paying higher prices than they would have if
they did not enter into a Commodity Interest transaction if current
market prices are lower than the locked-in
price.
82
Unlike the hedger, the speculator generally
expects neither to make nor take delivery of the underlying
commodity. Instead, the speculator risks his capital with the hope
of making profits from price fluctuations in the commodities. The
speculator is, in effect, the risk bearer who assumes the risks
that the hedger seeks to avoid. Speculators rarely make or take
delivery of the underlying commodity; rather they attempt to close
out their positions prior to the delivery date. A speculator who
takes a long position generally will make a profit if the price of
the underlying commodity goes up and incur a loss if the price of
the underlying commodity goes down, while a speculator who takes a
short position generally will make a profit if the price of the
underlying commodity goes down and incur a loss if the price of the
underlying commodity goes up.
Regulation
The regulation of futures markets, futures
contracts, and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
Pursuant to authority in the CEA, the NFA has
been formed and registered with the CFTC as a registered futures
association. At the present time, the NFA is the only SRO for
commodity interest professionals, other than futures exchanges. The
CFTC has delegated to the NFA responsibility for the registration
of CPOs and FCMs and their respective associated persons. The
Sponsor and the Fund’s clearing broker are members of the
NFA. As such, they will be subject to NFA standards relating to
fair trade practices, financial condition and consumer protection.
The NFA also arbitrates disputes between members and their
customers and conducts registration and fitness screening of
applicants for membership and audits of its existing members.
Neither the Trust nor the Teucrium Funds are required to become a
member of the NFA. The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Considerable regulatory attention has been focused on
non-traditional investment pools that are publicly distributed in
the United States. There is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability of
a Fund to continue to implement its investment strategy. In
addition, various national governments outside of the United States
have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Teucrium Funds is impossible to
predict but could be substantial and adverse.
The CFTC possesses exclusive jurisdiction to
regulate the activities of commodity pool operators and commodity
trading advisors with respect to "commodity interests," such as
futures, 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.
83
Trading venues in the United States are subject
to varying degrees of regulation under the CEA depending on whether
such exchange is a designated contract market (i.e., a futures
exchange) or a swap execution facility. Clearing organizations are
also subject to the CEA and the rules and regulations adopted
thereunder as administered by the CFTC. The CFTC’s function
is to implement the CEA’s objectives of preventing price
manipulation and excessive speculation and promoting orderly and
efficient commodity interest markets. In addition, the various
exchanges and clearing organizations themselves as SROs exercise
regulatory and supervisory authority over their member
firms.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) was enacted in
response to the economic crisis of 2008 and 2009 and it
significantly altered the regulatory regime to which the securities
and commodities markets are subject. To date, the CFTC has issued
proposed or final versions of almost all of the rules it is
required to promulgate under the Dodd-Frank Act, and it continues
to issue proposed versions of additional rules that it has
authority to promulgate. Provisions of the new law include the
requirement that position limits be established on a wide range of
commodity interests, including agricultural, energy, and
metal-based commodity futures contracts, options on such futures
contracts and uncleared swaps that are economically equivalent to
such futures contracts and options (“Reference
Contracts”); new registration and recordkeeping requirements
for swap market participants; capital and margin requirements for
“swap dealers” and “major swap
participants,” as determined by the new law and applicable
regulations; reporting of all swap transactions to swap data
repositories; and the mandatory use of clearinghouse mechanisms for
sufficiently standardized swap transactions that were historically
entered into in the over the counter market, but are now designated
as subject to the clearing requirement; and margin requirements for
over the counter swaps that are not subject to the clearing
requirements.
In addition, considerable regulatory attention
has recently been focused on non-traditional publicly distributed
investment pools such as the Fund. Furthermore, various national
governments have expressed concern regarding the disruptive effects
of speculative trading in certain commodity markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Teucrium Funds is impossible to
predict but could be substantial and adverse.
The Dodd-Frank Act was intended to reduce
systemic risks that may have contributed to the 2008/2009 financial
crisis. Since the first draft of what became the Dodd-Frank Act,
supporters and opponents have debated the scope of the legislation.
As the Administrations of the U.S. change, the interpretation and
implementation will change along with them. Nevertheless,
regulatory reform of any kind may have a significant impact on U.S.
regulated entities.
Position Limits, Aggregation
Limits, Price Fluctuation Limits
The CFTC and U.S. futures exchanges impose
limits on the maximum net long or net short speculative positions
that any person may hold or control in any particular futures or
options contracts traded on US futures exchanges. For example, the
CFTC currently imposes speculative position limits on a number of
agricultural commodities (e.g., corn, oats, wheat, soybeans and
cotton) and US futures exchanges currently impose speculative
position limits on many other commodities. A Fund could be required
to liquidate positions it holds in order to comply with position
limits or may not be able to fully implement trading instructions
generated by its trading models, in order to comply with position
limits. Any such liquidation or limited implementation could result
in substantial costs to a Fund.
The Dodd-Frank Act significantly expanded the
CFTC’s authority to impose position limits with respect to
futures contracts and options on futures contracts, swaps that are
economically equivalent to futures or options on futures, and swaps
that are traded on a regulated exchange and certain swaps that
perform a significant price discovery function. On December 16,
2016, the CFTC issued a final rule to amend part 150 of the
CFTC’s regulations with respect to the policy for aggregation
under the CFTC’s position limits regime for futures and
option contracts on nine agricultural commodities (“the
Aggregation Requirements”). This final rule addressed the
circumstances under which market participants would be required to
aggregate all their positions, for purposes of the position limits,
of all positions in Reference Contracts of the 9 agricultural
commodities held by a single entity and its affiliates, regardless
of whether such positions exist on US futures exchanges, non-US
futures exchanges, or in over the counter swaps. An affiliate of a
market participant is defined as two or more persons acting
pursuant to an express or implied agreement or understanding. The
Aggregation Requirements became effective on February 14, 2017. On
August 10, 2017, the CFTC issued a No-Action Relief Letter No.
17-37 to clarify several provisions under Regulation 150.4,
regarding position aggregation filing requirements of market
participants. The Sponsor does not anticipate that this order will
have an impact on the ability of a Fund to meet its respective
investment objectives.
As published in the January 14, 2021 Federal
Register, the Commodity Futures Trading Commission (CFTC) voted to
approve a final rule (Final Rule) regarding position limits for
certain futures contracts and economically equivalent
swaps. The Final Rule ends a decade of rulemaking activity in
which the CFTC proposed, amended, and re-proposed its position
limit rules and aggregation standards for speculative positions due
to certain amendments to the Commodity Exchange Act (CEA) by the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank Act). In the Final Rule, the CFTC confirmed that
federal speculative position limits are necessary for 25 core
referenced futures contracts and for any futures contracts and
options on futures contracts that are linked to those
contracts. The 25 core referenced futures contracts include
the nine “legacy” agricultural contracts that are
currently subject to federal position limits and 16 additional
non-legacy contracts.
84
The aggregate position limits currently in place
under the current position limits and the Aggregation Requirements
are as follows for each of the commodities traded by the
Fund:
|
Commodity Future
|
Spot Month Position Limit
|
All Month Aggregate Position
Limit
|
|
wheat
|
1,200 contracts
|
19,300 contracts
|
The nine legacy contracts are subject to two
types of position limits: (1) a position limit that applies in the
spot month only and (2) a position limit that applies in any single
non-spot month as well as all months combined. Both types of
position limits have been updated by the Final Rule. Significantly,
the new spot month position limit is higher than or equal to
current federal and exchange-set spot month position limits. The
new single non-spot month and all-months-combined position limits
are also higher than or equal to the respective current federal and
exchange-set 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
daily price fluctuation limits.
The CFTC also adopted federal position limits on
cash-settled futures and options on futures that are directly or
indirectly linked to physically settled contracts in order to
further the statutory objective in Section 4a(a)(3)(B)(iv) of the
CEA—the deterrence and prevention of market
manipulation. In taking this step, the CFTC stated that, in
the absence of position limits, an entity with positions in both
the physically delivered and cash-settled contracts may have an
increased ability and an increased incentive to manipulate one of
these contracts to benefit positions in the other
contract.
To prevent evasion through the creation of
economically equivalent futures contracts that do not directly
reference the price of the core referenced futures contracts, the
CFTC determined that futures contracts and options on futures
contracts that are indirectly linked to the core referenced futures
contracts will be subject to the position limits in the same manner
as the referenced futures contracts. Futures that settle to the
price of a referenced contract but not to the price of a core
referenced futures contract would be indirectly linked to the core
referenced futures contract as “economically equivalent
swaps.”
The Final Rule clarifies the applicable standard
for market participants seeking a bona fide hedging exemption from
position limits. A bona fide hedging transaction may exceed
the federal position limits only if the transaction satisfies each
of the following elements:
1.
the position
represents a substitute for transactions or positions made or to be
made at a later time in a physical marketing channel (temporary
substitute test);
2.
the position
is economically appropriate to the reduction of price risks in the
conduct and management of a commercial enterprise (economically
appropriate test); and
3.
the position
arises from the potential change in value of actual or anticipated
assets, liabilities, or services (change in value
requirement).
Notably, this definition tightens the
“temporary substitute test” such that a bona fide hedge
must be connected to the production, sale, or use of a physical
cash-market commodity in all cases, rather than
“normally” connected to such activities. As noted
above, this adjustment is intended to restrict market participants
from treating “risk management” positions as bona fide
hedges, except for pass-through or offset positions related to
another transaction that is itself a bona fide hedge. The Final
Rule also expands the list of enumerated bona fide hedges, which
means that any market participant utilizing such a hedge need not
notify the CFTC because the enumerated bona fide hedges are
self-effectuating. However, a market participant would still
need to notify the relevant exchange if executing a bona fide hedge
would exceed an exchange set position limit.
In addition, the Final Rule elaborates on how
and when a market participant may measure risk on a gross basis
rather than on a net basis. Currently, market participants
generally may only hedge positions on a net basis. However, the
Final Rule permits hedge positions on a gross basis so long as the
risk calculations are done consistently over time and not with the
intent of evading federal position
limits.
The Final Rule became effective on March 15,
2021, but a number of the requirements in the Final Rule have a
general compliance date of January 1, 2022, and later compliance
date of January 1, 2023 with respect to swaps-related requirements
and the elimination of previously granted risk management
exemptions. In particular, January 1, 2022 is the implementation
date of federal speculative position limits for 16 non-legacy core
referenced futures contracts and any referenced futures contracts
(other than economically equivalent swaps) relating to those 16
core referenced futures contracts and for exchanges to establish
limits and exemptions, including collecting cash market information
from market participants in connection with bona fide hedge
exemptions. January 1, 2023 is the implementation date of federal
speculative position limits for economically equivalent swaps and
for the elimination of previously granted risk management
exemptions. The CFTC also will reevaluate the ability of the
exchanges to establish and implement appropriate surveillance
mechanisms with respect to economically equivalent
swaps.
85
It is unknown at this time the effect that such
passage, adoption or modification will have, positively or
negatively, on our industry or on a Fund. The size or duration of
positions available to a Fund may be severely limited. Pursuant to
the CFTC’s and the exchanges’ aggregation requirements,
all accounts owned or managed by the Sponsor are likely to be
combined for speculative position limits purposes. The Funds could
be required to liquidate positions it holds in order to comply with
such limits or may not be able to fully implement trading
instructions generated by its trading models, in order to comply
with such limits. Any such liquidation or limited implementation
could result in substantial costs to a Fund.
These new regulations and the resulting
increased costs and regulatory oversight requirements may result in
market participants being required or deciding to limit their
trading activities, which could lead to decreased market liquidity
and increased market volatility. In addition, transaction costs
incurred by market participants are likely to be higher due to the
increased costs of compliance with the new regulations. These
consequences could adversely affect a Fund’s
returns.
Accountability levels differ from position
limits in that they do not represent a fixed ceiling, but rather a
threshold above which a futures exchange may exercise greater
scrutiny and control over an investor’s positions. If a Fund
were to exceed an applicable accountability level for investments
in futures contracts, the exchange will monitor the Fund’s
exposure and may ask for further information on its activities,
including the total size of all positions, investment and trading
strategy, and the extent of liquidity resources of the Fund. If
deemed necessary by the exchange, the Fund could be ordered to
reduce its aggregate net position back to the accountability
level.
In addition to position limits and
accountability levels, the exchanges set daily price fluctuation
limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of futures contracts
may vary either up or down from the previous day’s settlement
price. Once the daily price fluctuation limit has been reached in a
particular futures contract, no trades may be made at a price
beyond that limit.
Margin for OTC Uncleared
Swaps
During 2015 and 2016, the CFTC and the US bank
prudential regulators completed their rulemakings under the
Dodd-Frank Act on margin for uncleared over the counter swaps (and
option agreements that qualify as swaps). Margin requirements went
into effect for the largest swap entities in September 2016 and
went into effect for financial end users in March 2017. Under these
regulations, swap dealers (such as sell-side counterparties to
swaps), major swap participants, and financial end users (such as
buy-side counterparties to swaps who are not physical traders) are
required in most instances, to post and collect initial and
variation margin, depending on the regulatory classification of
their counterparty. European and Asian regulators are also
implementing similar regulations, which were scheduled to become
effective on the same dates as the US-promulgated rules. As a
result of these requirements, additional capital will be required
to be committed to the margin accounts to support transactions
involving uncleared over the counter swaps and, consequently, these
transactions may become more expensive. While the Fund currently
does not generally engage in uncleared over the counter swaps, to
the extent they do so in the future, the additional margin required
to be posted could adversely impact the profitability (if any) to
the Fund from entering into these transactions.
FCMs
The CEA requires all FCMs, such as the Teucrium
Funds’ clearing brokers, to meet and maintain specified
fitness and financial requirements, to segregate customer funds
from proprietary funds and account separately for all
customers’ funds and positions, and to maintain specified
books and records open to inspection by the staff of the CFTC. The
CFTC has similar authority over introducing brokers, or persons who
solicit or accept orders for commodity interest trades but who do
not accept margin deposits for the execution of trades. The CEA
authorizes the CFTC to regulate trading by FCMs and by their
officers and directors, permits the CFTC to require action by
exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute
complaints for damages arising from alleged violations of the CEA.
The CEA also gives the states powers to enforce its provisions and
the regulations of the CFTC.
86
On November 14, 2013, the CFTC published final
regulations that require enhanced customer protections, risk
management programs, internal monitoring and controls, capital and
liquidity standards, customer disclosures and auditing and
examination programs for FCMs. The rules are intended to afford
greater assurances to market participants that customer segregated
funds and secured amounts are protected, customers are provided
with appropriate notice of the risks of futures trading and of the
FCMs with which they may choose to do business, FCMs are monitoring
and managing risks in a robust manner, the capital and liquidity of
FCMs are strengthened to safeguard the continued operations and the
auditing and examination programs of the CFTC and the SROs are
monitoring the activities of FCMs in a thorough
manner.
Potential Advantages of
Investment
Interest
Income and Expense
Unlike some alternative investment funds, the
Fund does not borrow money in order to obtain leverage, so the Fund
does not incur any interest expense. Rather, the Fund’s
margin deposits, and cash reserves are maintained in cash and cash
equivalents and interest is generally earned on available assets,
which include unrealized profits credited to the Fund’s
accounts
Fund
Performance
The following graph sets forth the historical
performance of the Fund from commencement of operations on
September 19, 2011 until February 28, 2022.
PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS
87
PART II
Information
Not Required in the Prospectus
Item 13.
Other
Expenses of Issuance and Distribution.
Set
forth below is an estimate (except as indicated) of the amount of
fees and expenses (other than underwriting commissions and
discounts) payable by the registrant in connection with the
issuance and distribution of the units pursuant to the prospectus
contained in this registration statement.
|
|
Amount
|
|
SEC
registration fee (actual)
|
$(1)
|
|
NYSE Arca Listing Fee
(actual)
|
n/a
|
|
FINRA filing fees (actual)
|
n/a
|
|
Blue Sky expenses
|
n/a
|
|
Auditor’s fees and
expenses
|
$3,000
|
|
Legal fees and expenses
|
$6,000
|
|
Printing expenses
|
$2,000
|
|
Miscellaneous expenses
|
n/a
|
|
Total
|
$(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.
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Item 16.
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Exhibits
and Financial Statement Schedules
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(a) Exhibits
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5.1
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Opinion of Vedder Price P.C. relating to the
legality of the Shares.*
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8.1
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Opinion of Vedder Price P.C. with respect to
federal income tax consequences.*
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23.1
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Consents of Vedder Price P.C. (included in
Exhibits 5.1 and 8.1)
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23.2
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Consent of [____], Independent Registered Public
Accounting Firm. *
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Filing Fee
Table.**
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* To
be filed by amendment.
**Filed
herein.
(1)
Previously filed as like-numbered exhibit to Pre-Effective
Amendment No. 2 to Registrant’s Registration Statement on
Form S-1 (333-230623), filed on April 26, 2019 and incorporated by
reference herein.
(2)
Previously filed as Exhibit 3.2 to Registrant’s Registration
Statement on Form S-1 (333-162033), filed on September 21, 2009 and
incorporated by reference herein.
(3)
Previously filed as Exhibit 3.3 to Pre-Effective Amendment No. 1 to
Registrant’s Registration Statement on Form S-1 (333-167591),
filed on March 9, 2011 and incorporated by reference
herein.
(4)
Previously filed as Exhibit 10.2(1) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(5)
Previously filed as Exhibit 10.2(2) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(6)
Previously filed as Exhibit 10.2(3) to the Registrant’s
Current Report on Form 8-K for the Teucrium Corn Fund, filed on
November 1, 2011 and incorporated by reference
herein.
(7)
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.
(8)
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.
(9)
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.
(10)
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.
(11)
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.
(12)
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.
(13) 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.
(14) 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.
(b) Financial Statement
Schedules
The financial statement
schedules are either not applicable or the required information is
included in the financial statements and footnotes related
thereto.
Item 17. Undertakings
(a) The undersigned
registrant hereby undertakes:
(1) To file, during
any period in which offers, or sales are being made, a
post-effective amendment to this registration
statement:
(i) To include any
prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) To include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i),
(ii), and (iii) of this section do not apply if the registration
statement is on Form S-1, Form S-3, Form SF-3 or Form F-3 and the
information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished
to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or, as to
a registration statement on Form S-3, is contained in a form of
prospectus filed pursuant to § 230.424(b) that is part of the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4) That, for the
purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i) If the registrant
is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
(5) That, for the
purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution
of the securities: The undersigned registrant undertakes
that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of
the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such
purchaser:
(i) Any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to
Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of
any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned
registrant; and
(iv) Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(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.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the Registrant has duly
caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city
of Burlington, State of Vermont, on March 4,
2022.
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Teucrium Commodity
Trust
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By: Teucrium
Trading, LLC, Sponsor
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Date: March 4,
2022
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By:
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/s/ Sal
Gilbertie
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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 onForm 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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March 4,
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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March 4,
2022
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||||
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/s/ Steve
Kahler
Steve
Kahler
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Chief Operating
Officer
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March 4,
2022
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* The registrant is a
trust and the persons are signing in their capacities as officers
of Teucrium Trading, LLC, the Sponsor of the
registrant.