Hashdex Commodities Trust S-4, filed Oct 31, 2023
Hashdex Commodities Trust (DEFI)
Subject to completion, as filed with the Securities and Exchange Commission on October 31, 2023
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TIDAL COMMODITIES TRUST I
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State
or Other Jurisdiction of
|
6799 (Primary
Standard Industrial
|
92-6468665 (I.R.S.
Employer |
Toroso Investments, LLC
234 West Florida Street
Suite 203
Milwaukee,
WI 53204
Phone: (844) 986-7700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Guillermo
Trias
Chief Executive Officer
Toroso Investments, LLC
234 West Florida Street
Suite
203
Milwaukee, WI 53204
Phone: (844) 986-7700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
COPIES TO:
Peter Shea K&L Gates LLP 599 Lexington Avenue New York, New York 10022-4611 (212) 536-3988 |
Michael Pellegrino Toroso
Investments, LLC |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective and the date on which all other conditions to the reorganization of the Hashdex Bitcoin Futures ETF (“Acquired Fund”), a series of the Teucrium Commodity Trust (the “Teucrium Trust”), into the Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), a series of the Tidal Commodities Trust I (the “registrant”), pursuant to the Agreement and Plan of Partnership Merger and Liquidation between the Teucrium Trust and the registrant described in the enclosed information statement/prospectus, have been satisfied or waived.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| | Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| Hashdex Bitcoin Futures ETF, a series of the Registrant | Amount to be Registered(1) | Proposed Maximum Offering Price Per Share(2) | Proposed Maximum Aggregate Offering Price(2) | Amount of Registration Fee(3) |
| Shares of fractional undivided beneficial interest, no par value | 50,004 | $41.94 | $2,097,168 | $309.54 |
| (1) | This registration statement relates to shares, no par value, of the Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), a series of Tidal Commoditites Trust I (the “registrant”), issuable to holders of shares, no par value, of the Hashdex Bitcoin Futures ETF (the “Acquired Fund”), a series of the Teucrium Commodity Trust, in connection with the reorganization of the Acquired Fund into the Acquiring Fund. The amount of Acquiring Fund shares to be registered represents the maximum number of shares the Acquiring Fund will issue to holders of shares of the Acquired Fund upon consummation of the planned reorganization based on a formula set forth in the Agreement and Plan of Partnership Merger and Liquidation (the “Plan of Merger”) between the registrant and the Teucrium Trust, which requires that the Acquiring Fund issue that quantity of shares with a net asset value equal to the net asset value of all shares of the Acquired Fund issued and outstanding immediately prior to the effective time of the reorganization. This calculation is based on 50,004 shares of Acquired Fund deemed outstanding for these purposes as of October 27, 2023. |
| (2) | Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f)(2) of the Securities Act of 1933, based on the net asset value per share of the Acquired Fund (computed as of October 27, 2023, which is the last practicable date prior to the filing of this registration statement). The actual value of shares issued in the planned reorganization will be the net asset value per share of the Acquiring Fund (computed as of the consummation of the planned reorganization under the Plan of Merger based on the then determined net asset value per share of the Acquired Fund). |
| (3) | Computed in accordance with Rule 457(f) and Section 6(b) under the Securities Act of 1933 by multiplying (A) the proposed maximum aggregate offering price for all securities to be registered by (B) 0.0001476. The full registration fee of $309.54 was paid in connection with the initial filing on October 27, 2023. |
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 of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Teucrium Commodity Trust
Hashdex Bitcoin Futures ETF
c/o Teucrium Trading, LLC
Three Main Street, Suite 215
Burlington, Vermont 05401
(802) 540-0019
October 30, 2023
Dear Valued Shareholders,
The scheduled reorganization of the Hashdex Bitcoin Futures ETF (the “Acquired Fund”), a series of the Teucrium Commodity Trust (“Teucrium Trust”) into the Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), a series of Tidal Commoditites Trust I (the “Tidal Trust”), is effective and will close as of January 3, 2024 (the “Merger”).
Each Acquired Fund shareholder will receive one share of the Acquiring Fund for every one share of the Acquired Fund held on the Merger effective date based on the net asset value per share of the Acquiring Fund being equal to the net asset value per share of the Acquired Fund determined immediately prior to the Merger closing on the effective date. All of the assets and liabilities of the Acquired Fund will be, respectively, transferred to and assumed by the Acquiring Fund in the Merger with the Acquiring Fund being the surviving entity of the Merger. Upon the Merger closing, all of the Acquired Fund’s shares will be cancelled and the Acquired Fund will be liquidated. Following the Merger, you will be a shareholder of the Acquiring Fund, which will trade on NYSE Arca under the ticker symbol “DEFI” (CUSIP No.: 88634V100).
NO action is needed on your part to participate in the distribution of Acquiring Fund shares pursuant to the Merger. In addition, NO vote of Acquired Fund’s shareholders is required in connection with this transaction and no proxy is being solicitied. Following the Merger, your brokerage account will reflect your shares of the Acquiring Fund.
Teucrium Trading, LLC (“Teucrium”) has served as the sponsor and commodity pool operator of the Acquired Fund since its inception on September 15, 2022. Teucrium has sponsored the Teucrium Trust since 2010, which presently has five exchange-traded commodity pool series in addition to the Acquired Fund. Pursuant to the Amended and Restated ’33 Act Fund Platform Support Agreement, as amended (the “Support Agreement”) among Toroso Investments LLC (“Toroso”), Tidal ETF Services, LLC, Hashdex Asset Management Ltd., and Teucrium, Teucrium agreed to the Merger. The Merger will fulfill the terms of the Support Agreement.
The sponsor and commodity pool operator of the Acquiring Fund is Toroso, which advises two investment company complexes comprising a total of 82 exchange-traded funds, including four exchange-traded commodity pools in addition to the Acquiring Fund. Toroso has sponsored the Tidal Trust since its formation in February 2023. Presently, the Acquiring Fund is the sole series of the Tidal Trust and will not commence operations until the Merger closes. The Acquiring Fund has the same investment objective, investment strategies and investment restrictions, and substantially identical investment risks as the Acquired Fund. Any material differences in investment risks between the Acquired Fund and the Acquiring Fund are solely attributable to the differences in sponsorship by Teucrium and by Toroso, respectively. Following the Merger, the Acquiring Fund will be managed by portfolio managers employed by Toroso.
The Teucrium Trust and the Tidal Trust entered into an Agreement and Plan of Partnership Merger and Liquidation dated as of October 30, 2023 (the “Plan of Merger”). Pursuant to the Plan of Merger, the Acquired Fund will transfer all of its assets to the Acquiring Fund and the Acquiring Fund will assume all of the liabilities of the Acquired Fund on or about January 3, 2024 (the “Closing Date”). On the Closing Date, Acquiring Fund shares to be issued in the Merger (the “Merger Shares”) will be issued to the registered holder of the shares of the Acquired Fund, which is the Depository Trust Company (“DTC”) that holds through Cede & Co., as nominee for DTC. DTC will further distribute the Merger Shares by book entry to its direct and indirect participants, who in turn will further distribute, as necessary, the Merger Shares by book entry until the beneficial owners of the Acquired Fund’s shares receive a distribution of Merger Shares to which they are entitled.
The accompanying information statement will provide you with information regarding the Merger. This document also serves as a prospectus of the Acquiring Fund relating to the issuance of shares in connection with the Merger. We encourage you to read it carefully. We look forward to the completion of this transaction and the new opportunities it presents for our shareholders.
Sincerely,
Sal Gilbertie
President
Teucrium Trading, LLC,
as Sponsor of the Hashdex Bitcoin Futures ETF,
a series of the Teucrium Commodity Trust
i
Teucrium Commodity Trust
Hashdex Bitcoin Futures ETF
c/o Teucrium Trading, LLC
Three Main Street, Suite 215
Burlington, Vermont 05401
(802) 540-0019
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
QUESTIONS AND ANSWERS ABOUT THE MERGER
| Q: | What is this document and why did you send it to me? |
| A: | The attached document is a combined information statement and prospectus provided to shareholders of the Hashdex Bitcoin Futures ETF (the “Acquired Fund”), a series of the Teucrium Commodity Trust (“Teucrium Trust”), regarding the scheduled reorganization of the Acquired Fund into the Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), a series of Tidal Commoditites Trust I (the “Tidal Trust”). This combined information statement/prospectus is referred to below as the “Information Statement.” |
The Information Statement describes the scheduled reorganization of the Acquired Fund into the Acquiring Fund (the “Merger”), which will be effective as of and close on or about January 3, 2024 (the “Closing Date”). The Information Statement will provide you with information regarding the Merger. This document also serves as a prospectus of the Acquiring Fund relating to the issuance of Acquiring Fund shares in connection with the Merger.
| Q: | Who manages the Acquired Fund and the Acquiring Fund? |
| A: | Teucrium Trading, LLC (“Teucrium”) has served as the sponsor and commodity pool operator of the Acquired Fund since its inception on September 15, 2023. Teucrium has sponsored the Teucrium Trust since 2010, of which the Acquired Fund is one of six exchange-traded commodities pool series of the Teucrium Trust. |
The sponsor and commodity pool operator of the Acquiring Fund is Toroso Investments, LLC (“Toroso”), which advises two investment company complexes comprising a total of 82 exchange-traded funds, including four exchange-traded commodity pools in addition to the Acquiring Fund. Toroso has sponsored the Tidal Trust since its formation in February 2023. Presently, the Acquiring Fund is the sole series of the Tidal Trust and will not commence operations until the Merger closes.
| Q: | What are the differences in investment objectives, strategies and risks and fund management between the Acquired Fund and the Acquiring Fund? |
| A: | The Acquiring Fund has the same investment objective, investment strategies and investment restrictions, and substantially identical investment risks as the Acquired Fund. Any material differences in investment risks between the Acquired Fund and the Acquiring Fund are solely attributable to the differences in sponsorship by Teucrium and by Toroso, respectively. Following the Merger, the Acquiring Fund will be managed by portfolio managers employed by Toroso. |
| Q: | Will fund service providers and share identification information change because of the Merger? |
| A: | The Acquired Fund and Acquiring Fund have many of the same service providers. Differences in those entities providing sponsorship, administration and accounting, audit, transfer agency, distribution, custody, clearing broker (“FCM”), and Delaware Trustee services (“Third Party Service Arrangements”) to the Acquired Fund and Acquiring Fund are as noted in the following table. The following table also notes other differences related to the shares, respectively, of the Acquired and Acquiring Funds. |
| Acquired Fund | Acquiring Fund | |
| Sponsor | Teucrium Trading, LLC
|
Toroso Investments LLC
|
| Administrator | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services
|
Tidal ETF Services, LLC
|
| Sub-Administrator | None | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services |
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|
|
Acquired Fund | Acquiring Fund |
| Distributor | Foreside Fund Services, LLC
|
Same |
| Transfer Agent | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services |
Same |
| Auditor | Grant Thornton LLP
|
Tait, Weller, & Baker, LLP |
| Custodian | U.S. Bank, N.A.
|
Same |
Clearing Brokers (FCMs)
|
StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. - FCM Division)
Phillip Capital Inc.
|
Same |
| Delaware Trustee | Wilmington Trust, National Association f/k/a Wilmington Trust Company
|
Same |
| Ticker Symbol | DEFI
|
DEFI |
| CUSIP Number | 88166A805
|
88634V100 |
| Primary Listing Exchange | NYSE Arca
|
NYSE Arca |
| Q: | How will the Merger affect my investment? |
| A: | Following the Merger, you will be a shareholder of the Acquiring Fund. |
There are differences between the Acquired Fund and Acquiring Fund, but these relate primarily to (1) the Acquiring Fund being managed by Toroso whereas the Acquired Fund is managed by Teucrium, (2) the Acquiring Fund will be a series of the Tidal Trust and governed by the Tidal Trust’s Declaration of Trust and Trust Agreement, and (3) some service providers (as noted above) that provide Third Party Service Arrangements to the Acquiring Fund will be different from those of the Acquired Fund. Each of these differences is discussed in greater detail in the Information Statement. Nevertheless, Teucrium and Toroso believe that these differences resulting from the Merger should should not affect the value of your investment.
You will receive shares of the Acquiring Fund equal in aggregate value at the Closing Date equal to the aggregate value of your shares of the Acquired Fund immediately prior to the Merger. The Merger will not affect the value of your investment at the time of Merger and your interest in the Acquired Fund will not be diluted.
The Merger generally is not expected to result in recognition of gain or loss by the Acquired Fund or its shareholders for federal income tax purposes.
| Q: | How will the Merger affect the fees and expenses I pay as a shareholder of the Acquired Fund? |
| A: | The Acquiring Fund will pay the same management fee rate to Toroso, under the same terms, as currently paid by the Acquired Fund to the Teucrium. The management fee for the Acquiring Fund is the same as the management fee for the Acquired Fund (0.94% per annum of the fund’s average daily net assets). |
| Q: | Will there be any portfolio repositioning or other costs in connection with the Merger? |
| A: | No. The Acquired Fund and the Acquiring Fund do not expect any portfolio repositioning (i.e., sale of securities or futures) or other associated costs, such as brokerage commissions incurred from the sale of securities or futures, in connection with the Merger. |
| Q: | What is the tax impact on my investment? |
| A: | The Merger will not result in the recognition of gain or loss under the Internal Revenue Code of 1986, as amended (the “Code”) for federal income tax purposes for the Acquired Fund or its shareholders. Further, the Acquiring Fund will be classified as a partnership under the Code for federal income tax purposes following the Merger just as the Acquired Fund is presently classified as a partnership under the Code for federal income tax purposes. As a condition to the closing of the Merger, the Acquiring Fund and the Acquired Fund will obtain an opinion of counsel regarding the federal income tax consequences of the Merger. |
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| Q: | Who is paying for expenses related to the Merger? |
| A: | Toroso will pay the costs relating to the Merger, including the costs relating to the Information Statement. Toroso will pay these costs regardless of whether the Merger is consummated. |
| Q: | What is the Merger? |
| A: | The Merger is the reorganization of the Acquired Fund into the Acquiring Fund that will occur on the Closing Date. |
The Teucrium Trust and the Tidal Trust entered into an Agreement and Plan of Partnership Merger and Liquidation dated as of October 30, 2023 (the “Plan of Merger”). Pursuant to the Plan of Merger, each Acquired Fund shareholder will receive one share of the Acquiring Fund for every one share of the Acquired Fund held on the Closing Date based on the net asset value per share of the Acquiring Fund being equal to the net asset value per share of the Acquired Fund determined immediately prior to the Merger closing. Further, the Acquiring Fund will acquire all the assets of the Acquired Fund and assume all the liabilities of the Acquired Fund. The Acquiring Fund will be the surviving entity of the Merger. Upon the Merger closing, the Plan of Merger will cause all of the Acquired Fund’s shares to be cancelled and the Acquired Fund to be liquidated.
Before the Merger, the Acquiring Fund has no operations, has received $100 in cash from Toroso for four Shares to complete the pre-operational formation of the Acquiring Fund and has no liabilities. The completion of the Merger will mark the commencement of (1) operations by the Acquiring Fund and (2) Acquiring Fund share trading on NYSE Arca. Once the Merger is completed the Acquiring Fund will succeed to the performance history of the Acquired Fund, which began operations on September 15, 2022.
The Acquired Fund and the Acquiring Fund will file current reports on Form 8-K including a press release announcing that the Merger has been consummated.
| Q: | Why is the Merger occurring? |
| A: | Pursuant to the Amended and Restated ’33 Act Fund Platform Support Agreement, as amended (the “Support Agreement”) among Toroso, Tidal ETF Services, LLC (“Tidal”), Hashdex Asset Management Ltd. (“Hashdex”), and Teucrium agreed to the Merger. The Merger will fulfill the terms of the Support Agreement. |
| Q: | What is Toroso’s role with the Acquiring Fund before and after the Merger? |
| A: | Toroso, as the sole current shareholder of the Acquiring Fund, will not receive any consideration in the Merger. Further, Toroso anticpates that the four shares of the Acquiring Fund it received in exchange for a $100 capital contribution will be redeemed for $100 contemporaneously with the Merger closing. |
Toroso, as sponsor and commodity pool operator of the Acquiring Fund, will be responsible for management of the Acquiring Fund and will oversee the purchase and sale of Acquiring Fund shares by Authorized Purchasers, manage the Acquiring Fund’s investments, and evalute the credit risks of the futures commission merchants (“FCMs” or “Clearing Brokers”) and swap counterpartes and review daily portfolio investments, position limits and margin/collateral requirements. Toroso is also expected to be responsible for selecting and overseeing the service providers to the Acquiring Fund and preparing and filing periodic reports on behalf of the Acquiring Fund with the SEC and provide any required certifications for such reports.
| Q: | What will Teucrium receive in the Merger? |
| A: | Teucrium is not receiving any compensation dependent on the consummation of the Merger. Pursuant to the Support Agreement, Toroso has agreed to provide Teucrium after the Merger with a monthly amount equal to seven percent (7%) of the Management Fee paid to Toroso from the Acquiring Fund; provided, however, that such fee will never be less than 0.04% of monthly average net assets of the Acquiring Fund (“Teucrium Compensation”). Any payment of the Teucrium Compensation will be made from the resources of Toroso and not from the assets of the Acquiring Fund. |
| Q: | What will be the United States federal income tax status of the Acquiring Fund after the Merger? |
| A: | The Acquiring Fund’s federal income tax status will be the same as the Acquired Fund’s present federal income tax status. The Acquiring Fund will receive an opinion of counsel that, under current U.S. federal income tax laws, the Acquiring Fund more likely than not will be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that, among other things, (i) at least 90 percent of the Acquiring Fund’s annual gross income consists of “qualifying income” as defined in the Internal Revenue Code of 1986, as amended (the “Code”), (ii) the Acquiring Fund is organized and operated in accordance with its governing agreements and applicable law, and (iii) the Acquiring Fund does not elect to be taxed as a corporation for U.S. federal income tax purposes. Opinions of counsel are not binding on the Internal Revenue Service (the “IRS”) and no assurance can be given that the IRS or a court will agree with counsel’s opinion. Although Toroso anticipates that the Acquiring Fund will satisfy the “qualifying income” requirement for all of its taxable years, that result cannot be assured. There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives. The Acquiring 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 Acquiring 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 Acquiring Fund would be subject to tax on its net income for the year at corporate tax rates. In addition, although Toroso does not currently intend to make distributions with respect to Shares, any such distributions would be taxable to shareholders as dividend income to the extent of the Acquiring 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 they exceeds a shareholder’s basis in such shares, as capital gain for shareholders who hold their shares as capital assets. Taxation of the Acquiring 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. |
iv
The tax consequences described above may not apply to all shareholders. For further information regarding the material United States federal income tax consequences of the transactions to shareholders of the Acquiring Fund and Acquired Fund and limitations relating to the IRS rulings and counsels’ opinions, see the Information Statement.
Tax matters are very complicated and the consequences of the transactions to any particular shareholder will depend on that shareholder’s particular facts and circumstances. Acquiring Fund and Acquired Fund shareholders are urged to consult their own tax advisors to determine their own tax consequences from the transactions.
| Q: | Do Acquired Fund shareholders have to take any action to approve the Merger? |
| A: | No. Acquired Fund shareholders have no right to vote on the Merger. |
Under the Teucrium Trust’s governing Declaration of Trust and Trust Agreement (“Teucrium Trust Agreement”), Acquired Fund shareholders have no voting rights with respect to the Acquired Fund except as expressly provided in the Teucrium Trust Agreement. The Teucrium Trust Agreement provides that shareholders representing at least a majority (over 50%) of the outstanding shares of the Teucrium Trust, voting together as a single class (excluding shares acquired by Teucrium in connection with its initial capital contribution to any Teucrium Trust series), may vote to (i) continue the Teucrium Trust by electing a successor sponsor, and (ii) approve amendments to the Teucrium Trust Agreement that impair the right to surrender redemption baskets for redemption. In addition, Acquired Fund shareholders holding shares representing seventy-five percent (75%) of the outstanding shares of the Teucrium Trust, voting together as a single class (excluding shares acquired by Teucrium in connection with its initial capital contribution to any Trust series) may vote to dissolve the Teucrium Trust upon not less than ninety (90) days’ notice to Teucrium.
| Q: | Can Acquired Fund shareholders dissent and require appraisal of their shares? |
| A: | No. The Acquired Fund’s shareholders have no dissenters’ rights or rights of appraisal under Delaware law in connection with the Merger. |
Acquired Fund shareholders who object to the Merger or who otherwise do not wish to receive Acquiring Fund shares from the Merger should, before the Closing Date, sell their shares in the secondary market or seek to have them redeemed by the Acquired Fund if the conditions for redemption stated in the Acquired Fund’s current prospectus can be met.
| Q: | Are there any conditions to consummation of the Merger? |
| A: | Yes. Consummation of the Merger is subject to the satisfaction or waiver of closing conditions that are contained in the Plan of Merger. These include the Acquiring Fund’s and Acquired Fund’s receipt of a legal opinion regarding the tax-free nature of the Merger and other customary conditions. Each of Toroso and Teucrium may waive any of the conditions to its obligations to complete the Merger. |
| Q: | When will the Merger be completed? |
| A: | We expect to complete the Merger on the Closing Date. |
| Q: | Are there risks associated with the Merger? |
| A: | Yes. The Acquiring Fund may not realize the expected benefits of the Merger because of the risks and uncertainties discussed in the section entitled “Risk Factors” beginning on page 21 and the section entitled “Special Note Regarding Forward-Looking Statements” beginning on page 32. |
v
| Q: | Will the instruments that govern the rights of the Acquiring Fund shareholders with respect to their shares be materially different from those that govern the rights of the Acquired Fund’s shareholders? |
| A: | No. Both the Teucrium Trust and the Tidal Trust are Delaware statutory trusts. The Teucrium Trust’s Fifth Amended and Restated Declaration of Trust and Trust Agreement (“Teucrium Trust Agreement”) is the Teucrium Trust’s governing instrument applicable to the Acquired Fund and its shareholders.The Tidal Trust’s First Amended and Restated Declaration of Trust and Trust Agreement (“Tidal Trust Agreement”) is the Tidal Trust’s governing instrument applicable to the Acquiring Fund and its shareholders. The terms of the Tidal Trust Agreement are substantially identical to the terms of Teucrium Trust Agreement. Consequently, the instruments that govern the rights of the Acquiring Fund shareholders with respect to their shares will not be materially different from those that govern the rights of the Acquired Fund’s shareholders with respect to their shares. |
| Q: | Is there anything that the Acquired Fund’s shareholders need to do now? |
| A: | No. Since Teucrium adopted the Plan of Merger on behalf of the Teucrium Trust, there is no action for the Acquired Fund’s shareholders to take. However, the Acquired Fund’s shareholders should carefully read the Information Statement, which contains important information about the Merger, the Acquiring Fund and Toroso. |
| Q: | Who can answer my questions? |
| A: | Acquired Fund shareholders please contact Teucrium at https://teucrium.com/contact-us. To request additional documents, including copies of the Information Statement, please contact us at https://teucrium.com/contact-us or Three Main Street Suite 215, Burlington, VT, 05401 USA. |
vi
REFERENCES TO ADDITIONAL INFORMATION
This Information Statement incorporates important business and financial information about the Teucrium Trust from other documents that are not included in or delivered with this document. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this document by accessing the Securities and Exchange Commission’s website maintained at “www.sec.gov” or by requesting copies in writing or by telephone from the Teucrium Trust at the following address: Three Main Street, Suite 215, Burlington, Vermont 05401 or by calling (802) 540-0019.
ALL INFORMATION CONTAINED IN THIS INFORMATION STATEMENT/PROSPECTUS WITH RESPECT TO THE ACQUIRING FUND HAS BEEN PROVIDED BY TOROSO. ALL INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS INFORMATION STATEMENT/PROSPECTUS WITH RESPECT TO ACQUIRED FUND (UP TO THE CLOSING DATE OF THE MERGER) HAS BEEN PROVIDED BY TEUCRIUM. NEITHER TEUCRIUM, ON THE ONE HAND, NOR TOROSO, ON THE OTHER HAND, HAS VERIFIED THE ACCURACY OR MADE ANY OTHER INVESTIGATION OF THE INFORMATION PROVIDED BY THE OTHER.
vii
THE INFORMATION IN THIS INFORMATION STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. HASHDEX BITCOIN FUTURES ETF, A SERIES OF THE TIDAL COMMODITIES TRUST I, MAY NOT DISTRIBUTE OR ISSUE THE SHARES BEING REGISTERED PURSUANT TO THE REGISTRATION STATEMENT, OF WHICH THIS INFORMATION STATEMENT/PROSPECTUS IS A PART, UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS INFORMATION STATEMENT/PROSPECTUS IS NOT AN OFFER TO DISTRIBUTE THESE SHARES AND HASHDEX BITCOIN FUTURES ETF, A SERIES OF THE TIDAL COMMODITIES TRUST I IS NOT SOLICITING OFFERS TO RECEIVE THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR DISTRIBUTION IS NOT PERMITTED.
COMBINED INFORMATION STATEMENT AND PROSPECTUS
October 30, 2023
FOR THE REORGANIZATION OF
Hashdex Bitcoin Futures ETF
a series of the Teucrium Commodity Trust
c/o Teucrium Trading, LLC
Three Main Street, Suite 215
Burlington, Vermont 05401
(802) 540-0019
INTO
Hashdex Bitcoin Futures ETF
a series of Tidal Commodities Trust I
c/o Toroso Investments LLC
234 West Florida Street, Suite 203,
Milwaukee, Wisconsin 53204
(844)-986-7700
This Information Statement and Prospectus (the “Information Statement”) is being sent to you in connection with the scheduled reorganization of the Hashdex Bitcoin Futures ETF (the “Acquired Fund”), a series of the Teucrium Commodity Trust (“Teucrium Trust”) into the Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), a series of Tidal Commoditites Trust I (the “Tidal Trust”), effective on or about January 3, 2024 (the “Merger”). The Information Statement will provide you with information regarding the Merger. This document also serves as a prospectus of the Acquiring Fund relating to the issuance of shares in connection with the Merger.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This information statement/prospectus is dated October 30, 2023 and is first being mailed to Acquired Fund shareholders on or about December 4, 2023.
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 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 9.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING THE “RISK FACTORS” SECTION BEGINNING ON PAGE 15.
Table of Contents
| LEGAL MATTERS | 72 |
| EXPERTS | 72 |
| DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS | 72 |
| Index to Financial Statements | F-1 |
| AGREEMENT AND PLAN OF PARTNERSHIP MERGER AND LIQUIDATION | A-1 |
| HELPFUL INFORMATION | B-1 |
SUMMARY
This Summary provides a summary of the material terms of the Merger. These sections highlight selected information contained in this Information Statement and may not include all the information that is important to you. To better understand the Merger, and the risks associated with the Merger, and for a more complete description of the legal terms of the Merger, you should read this entire Information Statement, as well as those additional documents to which we refer you. We have included page references at various points in this Summary to direct you to a more detailed description of the topics presented.
Principal Offices of the Acquiring Fund and Toroso
The Acquiring Fund is a series of the Tidal Trust. The sponsor and commodity pool operator (“CPO”) of the Acquiring Fund is Toroso Investments LLC (“Toroso”), which advises two investment company complexes comprising a total of 82 exchange-traded funds, including four exchange-traded commodity pools in addition to the Acquiring Fund. Toroso has sponsored the Tidal Trust since its formation in February 2023. Presently, the Acquiring Fund is the sole series of the Tidal Trust and will not commence operations until the Merger closes. The principal offices of Toroso, the Tidal Trust and the Acquiring Fund are located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204. The telephone number for Toroso is (844)-986-7700.
Toroso is a Delaware limited liability company and is registered as a CPO with the Commodities Futures Trading Commission (“CFTC”) and became a member of the National Futures Association (“NFA”) on March 8, 2022. Sponsoring the Acquiring Fund will be Toroso’s first experience in the crypto asset markets.
Toroso is solely responsible for management and conducts or directs the conduct of the business of the Tidal Trust, the Acquiring Fund, and any series of the Tidal Trust that may from time to time be established and designated by Toroso. Toroso is required to oversee the purchase and sale of shares by authorized purchasers and to manage the Acquiring Fund’s investments, including to evaluate the credit risk of futures commission merchants (“FCMs”) and swap counterparties and to review daily portfolio investments, position limits and margin/collateral requirements. Toroso has the power to enter into agreements as may be necessary or appropriate for the offer and sale of the Acquiring Fund’s shares and the conduct of the Tidal Trust’s activities.
The Fund’s Current Net Assets and Year to Date Performance
As of August 23, 2023, the Fund's total net assets were $1,608,534. As of August 22, 2023, the Fund's year-to-date net asset value per share of the Fund's performance from January 1, 2023 through August 22, 2023 was 52.66%.
Principal Offices of the Acquired Fund and Teucrium
The Acquired Fund is a series of the Teucrium Trust. Teucrium Trading, LLC (“Teucrium”) has served as the sponsor and CPO of the Acquired Fund since its inception on September 15, 2022. Teucrium has sponsored the Teucrium Trust since 2010, which presently has five exchange-traded commodity pool series in addition to the Acquired Fund. The principal offices of Teucrium, the Teucrium Trust, and the Acquired Fund are located at Three Main Street, Suite 215, Burlington, Vermont 05401. The telephone number for Teucrium is (802) 540-0019.
Teucrium registered as a CPO with the CFTC and became a member of the NFA on November 10, 2009. Teucrium registered as a Commodity Trading Advisor (“CTA”) with the CFTC effective September 8, 2017.
Teucrium is solely responsible for management and conducts or directs the conduct of the business of the Teucrium Trust, the Acquired Fund, and any series of the Teucrium Trust that may from time to time be established and designated by Teucrium. Teucrium is required to oversee the purchase and sale of shares by authorized purchasers and to manage the Acquired Fund’s investments, including to evaluate the credit risk of FCMs and swap counterparties and to review daily positions and margin/collateral requirements. Teucrium has the power to enter into agreements as may be necessary or appropriate for the offer and sale of the Acquired Fund’s shares and the conduct of the Trust’s activities.
Support Agreement
The Amended and Restated ’33 Act Fund Platform Support Agreement, as amended (the “Support Agreement”) among Toroso, Tidal ETF Services, LLC (“Tidal”), Hashdex Asset Management Ltd. (“Hashdex”), and Teucrium sets forth the terms and conditions applicable to the launch, marketing, promotion, development, and ongoing operation of the Acquired Fund and the Acquiring Fund, as well the respective rights in profits and obligations for expenses. Specifically, Toroso, Hashdex and Teucrium have experience in the digital asset and exchange-traded fund industries, and sought to offer a bitcoin futures based fund as part of their long-term business goals. Further, Teucrium agreed in the Support Agreement to the Merger. Thus, the Merger will fulfill the terms of the Support Agreement, and the Acquiring Fund will be the successor and surviving entity from the Merger in accord with the long-term business goals as expressly stated in the Support Agreement.
Teucrium is not receiving any compensation dependent on the consummation of the Merger. Pursuant to the Support Agreement, Toroso has agreed to provide Teucrium after the Merger with a monthly amount equal to seven percent (7%) of the Management Fee paid to Toroso from the Acquiring Fund; provided, however, that such fee will never be less than 0.04% of monthly average net assets of the Acquiring Fund (“Teucrium Compensation”). Any payment of the Teucrium Compensation will be made from the resources of Toroso and not from the assets of the Acquiring Fund.
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The Merger
The Teucrium Trust and the Tidal Trust entered into an Agreement and Plan of Partnership Merger and Liquidation dated as of October 30, 2023 (the “Plan of Merger”). Pursuant to the Plan of Merger, each Acquired Fund shareholder will receive one share of the Acquiring Fund for every one share of the Acquired Fund held on the Closing Date based on the net asset value per share of the Acquiring Fund being equal to the net asset value per share of the Acquired Fund determined immediately prior to the Merger closing. Further, the Acquiring Fund will acquire all the assets of the Acquired Fund and assume all the liabilities of the Acquired Fund. Upon the Merger closing, the Plan of Merger will cause all of the Acquired Fund’s shares to be cancelled and the Acquired Fund to be liquidated.
The Acquiring Fund will be the successor and surviving entity from the Merger. The Merger is schedule to close on or about January 3, 2024 (the “Closing Date”). The net asset value per share of the Acquired Fund determined after the close of trading on NYSE Arca on the Closing Date will be used for determination of the net asset value per share of the Acquiring Fund and value of the Acquiring Fund shares to be delivered in the Merger. This valuation mechanism of the Plan of Merger will result in one share of the the Acquired Fund being distributed to each holder of a share of the Acquired Fund.
On the Closing Date, Acquiring Fund shares to be issued in the Merger (the “Merger Shares”) will be issued to the registered holder of the shares of the Acquired Fund, which is the Depository Trust Company (“DTC”) that holds through Cede & Co., as nominee for DTC. DTC will further distribute the Merger Shares by book entry to its direct and indirect participants, who in turn will further distribute, as necessary, the Merger Shares by book entry until the beneficial owners of the Acquired Fund’s shares receive a distribution of Merger Shares to which they are entitled.
Before the Merger, the Acquiring Fund has no operations, has received $100 in cash from Toroso for four Shares to complete the pre-operational formation of the Acquiring Fund and has no liabilities. The completion of the Merger will mark the commencement of (1) operations by the Acquiring Fund and (2) Acquiring Fund share trading on NYSE Arca. The Acquiring Fund will succeed to the performance history of the Acquired Fund, which began operations on September 15, 2022. Following the Merger, all Acquired Fund shareholders will be a shareholder of the Acquiring Fund, which will trade on NYSE Arca under the ticker symbol “DEFI” (CUSIP No.: 88634V100).
The Acquiring Fund has the same investment objective, investment strategies and investment restrictions, and substantially identical investment risks as the Acquired Fund. Any material differences in investment risks between the Acquired Fund and the Acquiring Fund are solely attributable to the differences in sponsorship by Teucrium and by Toroso, respectively. Following the Merger, the Acquiring Fund will be managed by portfolio managers employed by Toroso.
The Acquiring Fund will pay the same management fee rate to Toroso, under the same terms, as currently paid by the Acquired Fund to the Teucrium. The management fee for the Acquiring Fund is the same as the management fee for the Acquired Fund (0.94% per annum of the fund’s average daily net assets).
The Merger will not materially modify the rights of Acquried Fund shareholders with respect to their investment. Both the Teucrium Trust and the Tidal Trust are Delaware statutory trusts. The Teucrium Trust’s Fifth Amended and Restated Declaration of Trust and Trust Agreement (“Teucrium Trust Agreement”) is the Teucrium Trust’s governing instrument applicable to the Acquired Fund and its shareholders.The Tidal Trust’s First Amended and Restated Declaration of Trust and Trust Agreement dated as of March 10, 2023 (“Tidal Trust Agreement”) between Toroso, as sponsor, and Wilmington Trust, National Association, as trustee (the “Delaware Trustee”), is the Tidal Trust’s governing instrument applicable to the Acquiring Fund and its shareholders. The terms of the Tidal Trust Agreement are substantially identical to the terms of Teucrium Trust Agreement. Consequently, the instruments that govern the rights of the Acquiring Fund shareholders with respect to their shares will not be materially different from those that govern the rights of the Acquired Fund’s shareholders with respect to their shares.
No action or vote is needed on the part of Acquired Fund shareholders to approve the Merger or participate in the distribution of the Merger Shares pursuant to the Plan Merger. Following the Merger, each Acquired Fund shareholder’s brokerage account will reflect the Merger Shares distributed to such shareholder.
The Acquired Fund and Acquiring Fund have many of the same service providers. Differences in those entities providing sponsorship, administration and accounting, audit, transfer agency, distribution, custody, clearing broker (FCM), and Delaware Trustee services (“Third Party Service Arrangements”) to the Acquired Fund and Acquiring Fund are as noted in the following table. The following table also notes other differences related to the shares, respectively, of the Acquired and Acquiring Funds.
| Acquired Fund | Acquiring Fund | |
| Sponsor | Teucrium Trading, LLC Three Main Street, Suite 215 Burlington, Vermont 05401
|
Toroso Investments LLC 234 West Florida Street, Suite 203 Milwaukee, Wisconsin 53204
|
| Administrator | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services 615 East Michigan Street Milwaukee, Wisconsin 53202
|
Tidal ETF Services, LLC 234 W. Florida St., Suite 203 Milwaukee, Wisconsin 53204
|
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| Acquired Fund | Acquiring Fund | |
| Sub-Administrator | None | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services 615 East Michigan Street Milwaukee, Wisconsin 53202
|
| Distributor | Foreside Fund Services, LLC Three Canal Plaza, Suite 100 Portland, Maine 04101
|
Same |
| Transfer Agent | U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services 615 East Michigan Street Milwaukee, Wisconsin 53202
|
Same |
| Auditor | Grant Thornton LLP 1100 Peachtree St NE Ste 1400 Atlanta, Georgia 30309
|
Tait, Weller, & Baker, LLP 50 South 16th Street 29th Floor Philadelphia, PA 19102 |
| Custodian | U.S. Bank, N.A.1555 North Rivercenter Drive Suite 302 Milwaukee, Wisconsin 53212
|
Same |
Clearing Brokers
(FCMs)
|
StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. - FCM Division) 329 Park Avenue North Suite 350 Winter Park, Florida 32789
Phillip Capital Inc. 141 W Jackson Blvd, Suite 1531 Chicago, IL 60604 |
Same |
| Delaware Trustee | Wilmington Trust, National Association f/k/a Wilmington Trust Company 1100 North Market Street Wilmington, Delaware 19890
|
Same |
| Ticker Symbol | DEFI
|
DEFI |
| CUSIP Number | 88166A805
|
88634V100 |
| Primary Listing Exchange | NYSE Arca
|
NYSE Arca |
There are differences between the Acquired Fund and Acquiring Fund, but these relate primarily to (1) the Acquiring Fund being managed by Toroso whereas the Acquired Fund is managed by Teucrium, (2) the Acquiring Fund will be a series of the Tidal Trust and governed by the Tidal Trust Agreement, and (3) some service providers (as noted above) that provide Third Party Service Arrangements to the Acquiring Fund will be different from those of the Acquired Fund. Teucrium and Toroso believe that these differences resulting from the Merger should should not affect the value of an Acquired Fund shareholder’s investment.
The terms and conditions of the Merger are set forth in the Plan of Merger, which is attached to this Information Statement as Annex A and described in further detail in “The Merger Agreement” beginning on page 39. We encourage you to read the Plan of Merger carefully.
Terms and Conditions to Consummation of the Merger
With respect to the Plan of Merger, the obligations of the Acquired Fund and the Acquiring Fund are subject to the following terms and conditions, among others:
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| ● | The value of the Acquired Fund’s assets to be acquired, and the amount of the Acquired Fund’s known liabilities to be assumed, by the Acquiring Fund shall be computed as of the scheduled close of trading NYSE Arca (usually 4:00 p.m., Eastern time) on the Closing Date using the valuation procedures set forth in the Teucrium Trust Agreement, and the then-current prospectus or statement of additional information of the Acquired Fund. |
| ● | The Acquired Fund’s custodian and futures commission merchants (“FCMs”) shall each deliver on the Closing Date a certificate of an authorized officer stating that the Acquired Fund’s assets have been delivered in proper form to the Acquiring Fund on the Closing Date. The Acquired Fund’s portfolio securities and instruments deposited with a securities depository or with a permitted counterparty or FCM shall be delivered to the Acquiring Fund’s custodian and FCMs, as of the Closing Date by book entry, in accordance with the customary practices of such custodian and FCM, as applicable. |
| ● | The Acquired Fund and Acquiring Fund have each delivered an officer’s certificate certifying that all agreements and commitments set forth in the Plan of Merger have been satisfied. |
| ● | The Acquired Fund and the Acquiring Fund shall each have received a legal opinion that the consummation of the transactions contemplated by the Plan of Merger will not result in the recognition of gain or loss for federal income tax purposes for the Acquired Fund or its shareholders or the Acquiring Fund. |
| ● | The Plan of Merger may be terminated and the Merger may be abandoned at any time prior to Closing if Toroso determines that the Merger is inadvisable. The Plan of Merger may be amended or modified in a writing signed by the parties to the Plan of Merger. |
The Acquiring Fund and the Acquired Fund will file current reports on Form 8-K including a press release announcing that the Merger has been consummated.
Neither the Acquired Fund nor the Acquiring Fund will pay for the costs of the Merger. Toroso will pay all the costs associated with the Merger, including the expenses associated with preparing and filing this Information Statement and the cost of copying, printing and mailing this Information Statement.
Regulatory Approvals
No regulatory approvals are required for the consummation of the Merger.
Approvals of the Parties to the Merger
As a condition to the closing of the Merger, the Plan of Merger requires that the Merger shall have been approved by Teucrium on behalf of the Teucrium Trust and the Acquired Fund in accordance with the provisions of the Teucrium Trust Agreement, and by the Tidal Trust on behalf of itself and the Acquiring Fund.
No Appraisal or Dissenters’ Rights
The Acquired Fund’s shareholders will not be entitled to exercise appraisal or dissenters’ rights under the Delaware Statutory Trust Act in connection with the Merger.
Acquired Fund shareholders who object to the Merger or who otherwise do not wish to receive Merger Shares should, before the Closing Date, sell their shares in the secondary market or seek to have them redeemed by the Acquired Fund if the conditions for redemption stated in the Acquired Fund’s current prospectus can be met.
Federal Income Tax Consequences
As a condition to the closing of the Merger, the Acquiring Fund Sponsor and Acquired Fund Sponosr will receive, on behalf of the Acquired Fund and the Acquiring Fund, respectively, a tax opinion from K&L Gates LLP with respect to the Merger substantially to the effect that for federal income tax purposes:
● No gain or loss will be recognized by the Acquired Fund or its shareholders upon the transfer of all Acquired Fund assets to the Acquiring Fund solely in exchange for the Acquiring Fund’s shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund, or upon the distribution of the Acquiring Fund’s shares to the shareholders of the Acquired Fund, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code;
● The tax basis in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger will be the same as the tax basis of such asset in the hands of the Acquired Fund immediately prior to the transfer thereof, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Acquired Fund on the transfer;
● The holding period in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger, other than assets with respect to which gain or loss is required to be recognized, will include the Acquired Fund’s holding period for such asset (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset);
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● No gain or loss will be recognized by the Acquiring Fund upon its receipt of all the assets of the Acquired Fund solely in exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund as part of the Merger;
● No gain or loss will be recognized by the Acquired Fund shareholders upon the exchange of their Acquired Fund shares for Acquiring Fund shares as part of the Merger;
● The aggregate tax basis of the shares of the Acquiring Fund that each shareholder of the Acquired Fund receives in the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor;
● Each Acquired Fund shareholder’s holding period for the Acquiring Fund shares received in the Merger will include the Acquired Fund shareholder’s holding period for the Acquired Fund shares exchanged therefor, provided that the Acquired Fund shareholder held such Acquired Fund shares as capital assets on the date of the exchange; and
● The taxable year of the Acquired Fund will not end as a result of the Merger.
In rendering the opinion, counsel will rely upon, among other things, certain facts and assumptions and certain representations of Toroso and Teucrium. The condition that the parties to the Merger receive such an opinion may not be waived.
No tax ruling has been or will be received from the Internal Revenue Service (“IRS”) in connection with the Reorganization. An opinion of counsel is not binding on the IRS or a court, and no assurance can be given that the IRS would not assert, or a court would not sustain, a contrary position.
Breakeven Point
The amount of trading income required for the redemption value of a share at the end of one year to equal the selling price of the share, assuming an initial price of $30.04, is $0.27 or 0.90% of the selling price. For more information, see “Breakeven Analysis” below.
Investment Objective
The Acquired Fund and Acquiring Fund (collectively, the “Fund”) are commodity pools that issues shares that may be purchased and sold on NYSE Arca. The Fund’s investment objective is for changes in the shares’ net asset value (“NAV”) to reflect the daily changes of the price of the Hashdex U.S. Bitcoin Futures Fund Benchmark (the “Benchmark”), less expenses from the Fund’s operations. The Benchmark currently is the average of the closing settlement prices for the first to expire and second to expire bitcoin futures contracts (“Bitcoin Futures Contracts”) listed on the CME. These futures contracts are the “Benchmark Component Futures Contracts.” Under normal market conditions, the Fund invests in Benchmark Component Futures Contracts and cash and cash equivalents. Because the Fund’s investment objective is to track the price of the Benchmark by investing in Benchmark Futures Contracts rather than bitcoin, changes in the price of the shares will vary from changes in the spot price of bitcoin. The NYSE Arca rule under which the Shares will be listed and traded prevents the Fund from utilizing leverage. ICE Data Indices, LLC calculates an approximate net asset value every 15 seconds throughout each day that the Fund’s shares are traded on NYSE Arca for as long as the CME’s main pricing mechanism is open.
Bitcoin is a digital asset or cryptocurrency that is a unit of account on the “Bitcoin Network,” an open source, decentralized peer-to-peer computer network. The ownership and operation of bitcoin is determined by purchasers in the Bitcoin Network. The Bitcoin Network connects computers that run publicly accessible, or open source, software that follows the rules and procedures governing the Bitcoin Network. This is commonly referred to as the Bitcoin Protocol. Bitcoin may be held, may be used to purchase goods and services or may be exchanged for fiat currency. No single entity owns or operates the Bitcoin Network, and the value of bitcoin is not backed by any government, corporation or other entity. Instead the value of bitcoin is determined in part by the supply and demand in markets created to facilitate the trading of bitcoin. Public key cryptography protects the ownership and transaction records for bitcoin. Because the source code for the Bitcoin Network is open source, anyone can contribute to its development. At this time, the ultimate supply of bitcoin is finite and limited to 21 million “coins” with the number of bitcoin available increasing gradually as new bitcoin supplies are mined until the 21 million current protocol cap is reached. The following factors, among others, may affect the price and market for bitcoin: The Fund does not invest directly in bitcoin.
| ● | How widely bitcoin is adopted, including the use of bitcoin as a payment.
|
| ● | The regulatory environment for cryptocurrencies, which continues to evolve in the U.S., and which may delay, impede, or restrict the adoption or use of bitcoin. |
| ● | Speculative activity in the market for bitcoin, including by holders of large amounts of bitcoin, which may increase volatility. |
| ● | Cyberattacks, including the risk that malicious actors will exploit flaws in the code or structure of bitcoin, control the blockchain, steal information or cause disruptions to the internet. |
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| ● | Rewards for mining bitcoin are designed to decline over time, which may lessen the incentive for miners to process and confirm transactions on the Bitcoin Network. |
| ● | The open-source nature of the Bitcoin Network may result in forks, or changes to the underlying code of bitcoin that result in the creation of new, separate digital assets. |
| ● | Fraud, manipulation, security failure or operational problems at bitcoin exchanges that result in a decline in adoption or acceptance of bitcoin. |
| ● | Scalability as the use of bitcoin expands to a greater number of users. |
The CME currently offers two Bitcoin Futures Contracts, one contract representing 5 bitcoin (“BTC Contracts”) and another contract representing 0.10 bitcoin (“MBT Contracts”). The Fund will invest in BTC Contracts and MBT Contracts to the extent necessary to achieve maximum exposure to the bitcoin futures market. Because the Fund’s investment objective is to track the price of the Benchmark by investing in Benchmark Futures Contracts rather than bitcoin, changes in the price of the Shares will vary from changes in the spot price of bitcoin. The Fund will purchase MBT Contracts only if the Fund has proceeds remaining from the sale of a Creation Basket that are less than the price of a BTC contract. BTC and MBT will count toward an aggregate position limit.
BTC Contracts began trading on the CME Globex trading platform on December 15, 2017 under the CME ClearPort ticker symbol “BTC” and are cash settled in U.S. dollars. MBT Contracts began trading on the CME Globex trading platform on May 3, 2021 under the CME ClearPort ticker symbol “MBT” and are also cash settled in U.S. dollars. The daily settlement prices for MBT Contracts are derived directly from the settlements in the BTC Contracts. BTC Contracts and MBT Contracts each trade six consecutive monthly contracts plus two additional December contract months (if the 6 consecutive months include December, only one additional December contract month is listed).
Because BTC Contracts and MBT Contracts are exchange-listed, they allow investors to gain price exposure to bitcoin without having to hold the underlying cryptocurrency. Like a futures contract on a commodity or stock index, BTC Contracts and MBT Contracts provide a means for investors to hedge investment positions or speculate on the future price of the bitcoin market.
CME Bitcoin Futures Contracts are cash-settled and based on the CME CF Bitcoin Reference Rate (BRR) and CME CF Bitcoin Real-Time Index (BRTI). The BRR is a daily reference rate of the U.S. dollar price of one bitcoin calculated daily as of 4:00 p.m. London time. It is calculated based on the bitcoin trading activity on specified constituent bitcoin exchanges during a calculation window between 3:00 p.m. and 4:00 p.m. London time, which currently include Bitstamp, Coinbase, Gemini, itBit Kraken and LMAX Digital. BRTI is a real time index of the U.S. dollar price of one bitcoin, published once per second, 24 hours per day, 7 days per week, and 365 days per year. The CME launched the BRR and BRTI on November 14, 2016.
The CME selects constituent exchanges for the BRR on the basis of the following criteria, which each exchange must demonstrate that it continues to fulfill on an ongoing basis:
| ● | The exchange has policies to ensure fair and transparent market conditions at all times and has processes in place to identify and impede illegal, unfair or manipulative trading practices. |
| ● | The exchange does not impose undue barriers to entry or restrictions on market participants, and utilizing the venue does not expose market participants to undue credit risk, operational risk, legal risk or other risks. |
| ● | The exchange complies with applicable law and regulation, including, but not limited to capital markets regulations, money transmission regulations, client money custody regulations, know-your-client (KYC) regulations and anti-money-laundering (AML) regulations. |
| ● | The exchange cooperates with inquiries and investigations of regulators and the administrator upon request and has to execute data sharing agreements with the CME. |
Should the average daily contribution of a constituent exchange fall below 3%, then the continued inclusion of the venue as a constituent exchange is assessed.
Qualifying transactions from the constituent exchanges that take place during the one-hour calculation window are added to a list, with the trade price and size for each transaction recorded. The one-hour calculation is partitioned into twelve intervals of five minutes each, and for each partition, the volume-weighted median trade price is calculated from the trade prices and sizes of relevant transactions. (A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation.) The BRR is the equally-weighted average of the volume-weighted medians of all twelve partitions.
The Fund’s Investment Strategies
The Fund seeks to achieve its investment objective by investing in Benchmark Component Futures Contracts. Under normal market conditions, the Fund expects that the Fund’s assets will be invested in Benchmark Component Futures Contracts and in cash and cash equivalents, such as short-term Treasury bills, money market funds, and demand deposit accounts. The term “normal market conditions” includes, but is not limited to, the absence of: trading halts in the applicable financial markets generally; operational issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance.
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Toroso will acquire ownership of the Benchmark from Teucrium in conjunction with the Merger. ICE Data Indices, LLC will continue to publish the Benchmark. Toroso, in turn, will license use of the index to the Fund for no fee and on an exclusive use basis. ICE Data Indices, LLC disseminates the intraday indicative value (also referred to in this prospectus as “approximate net asset value”) of the Fund’s shares through the facilities of Consolidated Tape Association's Consolidated Quotation High Speed Lines (also known as the "CTA/QC High Speed Lines"). ICE Data Indices, LLC will make the Benchmark information available through online information services, such as Yahoo Finance, Bloomberg and Reuters. The Benchmark will only include BTC Contracts.
The Fund's futures contract positions will be rolled on a monthly basis by closing out the first to expire contracts prior to their final settlement date and then entering into the third to expire contracts which will become the new second to expire - maintaining an equal weight of 50% first to expire and 50% second to expire. A first to expire contract is the contract with the nearest expiration date. A second to expire contract follows the first - it is the contract that will expire second in line after the first contract has expired. For example, when a first to expire contract expires, the second to expire contract becomes the first to expire contract.
Futures contract rolling will take place on the market business day preceding the last trading day of the first to expire contract. The last trading day of the first to expire contact is currently defined as the last business Friday of each month. By way of example, since the date the Fund commenced operations, the Fund’s futures contract positions will be entered and exited according to the roll schedule below. For example, on April 27, 2023, if the Fund held 100 futures contracts, 50 would be expiring in April 2023 and 50 contracts would be expiring in May 2023.
| Hashdex Bitcoin Futures ETF (DEFI) – Roll Schedule Jan 2023 – Dec 2023 | ||||
| Roll Date | Contract Expiring | New Contract | First to Expire Contract | Second to Expire Contract |
| (Exiting Position) | (Entering Position) | (Resulting Position) | (Resulting Position) | |
| 1/26/2023 | January (BTCF3) | March (BTCF3) | February (BTCG3) | March (BTCH3) |
| 2/23/2023 | February (BTCG3) | April (BTCJ3) | March (BTCH3) | April (BTCJ3) |
| 3/30/2023 | March (BTCH3) | May (BTCK3) | April (BTCJ3) | May (BTCK3) |
| 4/27/2023 | April (BTCJ3) | June (BTCM3) | May (BTCK3) | June (BTCM3) |
| 5/25/2023 | May (BTCK3) | July (BTCN3) | June (BTCM3) | July (BTCN3) |
| 6/29/2023 | June (BTCM3) | August (BTCQ3) | July (BTCN3) | August (BTCQ3) |
| 7/27/2023 | July (BTCN3) | September (BTCU3) | August (BTCQ3) | September (BTCU3) |
| 8/24/2023 | August (BTCQ3) | October (BTCV3) | September (BTCU3) | October (BTCV3) |
| 9/28/2023 | September (BTCU3) | November (BTCX3) | October (BTCV3) | November (BTCX3) |
| 10/26/2023 | October (BTCV3) | December (BTCZ3) | November (BTCX3) | December (BTCZ3) |
| 11/23/2023 | November (BTCX3) | January (BTCF4) | December (BTCZ3) | January (BTCF4) |
| 12/28/2023 | December (BTCZ3) | February (BTCG4) | January (BTCF4) | February (BTCG4) |
One factor determining the total return from investing in futures contracts is the price relationship between soon to expire contracts and later to expire contracts. The design of the Fund’s Benchmark is such that the Benchmark Component Futures Contracts will change on a monthly basis, with the contracts with the shortest maturity being replaced with contracts with a longer maturity. Sometimes the Fund will have to pay more for longer maturity contracts to replace existing shorter maturity contracts about to expire. This situation is known as “contango” in the futures markets. In the event of a prolonged period of contango, and absent the impact of rising or falling bitcoin prices, this could have a negative impact on the Fund’s NAV and total return, which in turn may have a negative impact on your investment in the Fund. By way of example, during the period from 6/30/2020 to 6/30/2023, the market for Bitcoin Component Futures Contracts were in contango approximately 87% of the time, which resulted in an average annual negative roll yield of approximately 4.5%. If the futures market is in a state of backwardation (i.e., when the price of bitcoin in the future is to be less than the current price), the Fund will buy later to expire contracts for a lower price than the soon to expire contracts that it sells.
The Fund has broad authority to make changes to the Fund’s operations. The Fund may change its investment objective, Benchmark, or investment strategies and Shareholders of the Acquiring Fund will not have any rights with respect to these changes. The Acquiring 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 NYSE Arca.
The reasons for and circumstances that may trigger any such changes may vary widely and cannot be predicted. However, by way of example, the Fund may change the term structure or underlying components of the Benchmark in furtherance of the Fund’s investment objective of tracking the price of the Benchmark Component Futures Contracts if, due to market conditions, a potential or actual imposition of position limits by the CFTC or futures exchange rules, or the imposition of risk mitigation measures by a futures commission merchant, restricts the ability of the Fund to invest in the current Benchmark Component Futures Contracts. The Fund would, among other things, file a current report on Form 8-K and a prospectus supplement to describe any such change and the effective date of the change. Shareholders may modify their holdings of the Acquiring Fund’s Shares in response to any change by purchasing or selling Fund shares through their broker-dealer.
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The Fund invests in Benchmark Component Futures Contracts to the fullest extent possible without being leveraged or unable to satisfy its expected current or potential margin or collateral obligations with respect to its investments in Benchmark Component Futures Contracts. After fulfilling such margin and collateral requirements, the Fund invests the remainder of its proceeds from the sale of baskets in short term financial instruments of the type commonly known as “cash and cash equivalents.”
The sponsor employs a “neutral” investment strategy intended to track the changes in the Benchmark regardless of whether the Benchmark goes up or goes down. The Fund’s “neutral” investment strategy is designed to permit investors generally to purchase and sell the Fund’s Shares for the purpose of investing indirectly in the bitcoin market in a cost-effective manner. The sponsor endeavors to place the Fund’s trades in Benchmark Component Futures Contracts and otherwise manage the Fund’s investments so that the Fund’s average daily tracking error against the Benchmark will be less than 10 percent over any period of 30 trading days. However, the Fund incurs certain expenses in connection with its operations, which cause imperfect correlation between changes in the Fund’s NAV and changes in the Benchmark because the Benchmark does not reflect expenses or income. As a result, investors may incur a partial or complete loss of their investment even when the performance of the Benchmark is positive.
Investors may purchase and sell shares through their broker-dealers. However, the Fund creates and redeems shares only in blocks called Creation Baskets and Redemption Baskets, respectively, and only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public shares of any baskets it does create. Baskets are generally created when there is a demand for shares, including, but not limited to, when the market price per share is at (or perceived to be at) a premium to the NAV per share. Similarly, baskets are generally redeemed when the market price per share is at (or perceived to be at) a discount to the NAV per share. Retail investors seeking to purchase or sell shares on any day are expected to affect such transactions in the secondary market, on NYSE Arca, at the market price per share, rather than in connection with the creation or redemption of baskets.
The sponsor believes that by investing in Benchmark Component Futures Contracts, the Fund’s NAV will closely track the Benchmark. Toroso 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 NYSE Arca at which investors purchase and sell shares will closely track the bitcoin market, as measured by the Benchmark.
The CFTC and U.S. designated contract markets, such as the CME, have established position limits and accountability levels on the maximum net long or net short Bitcoin Futures Contracts that the Fund may hold, own or control. The current CME established position limit level for investments in BTC Contracts for the spot month is 4,000 contracts. A position accountability level of 5,000 contracts will be applied to positions in single months outside the spot month and in all months combined. The MBT Contracts have a spot month limit of 200,000 contracts and a position accountability level of 250,000 contracts. Open positions in MBT Contracts will count as 1/50 of a BTC Contract for the purposes of determining the aggregate position limit. Accountability levels are not fixed ceilings but rather thresholds above which the exchange may exercise greater scrutiny and control over an investor, including limiting the Fund to holding no more Bitcoin Futures Contracts than the amount established by the accountability levels. The potential for the Fund to reach position or accountability limits will depend on if and how quickly the Fund’s net assets increase.
In addition to position limits and accountability limits, the CME and other exchanges have set dynamic price fluctuation limits on Bitcoin Futures Contracts. The dynamic price limit functionality under the special price fluctuation limits mechanism assigns a price limit variant which equals a percentage of the prior trading day’s settlement price, or a price deemed appropriate. During the trading day, the dynamic variant is utilized in continuous rolling 60-minute look-back periods to establish dynamic upper and lower price fluctuation limits. Once the dynamic price fluctuation limit has been reached in a particular Bitcoin Futures Contract, no trades may be made at a price beyond that limit. The CME has adopted daily dynamic price fluctuation limit functionality effective March 11, 2019, specifically, Rule 589 which is found in the following link: https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2019/03/SER-8351.pdf. When a Bitcoin Futures Contract has closed at its daily price fluctuation limit, that limit price will be the daily settlement price that the CME publishes. The Fund will use the published settlement price to price its shares on that day. If the CME halted trading in Bitcoin Futures Contracts for other reasons, including if trading were halted for an entire trading day or several trading days, the Fund would value its Bitcoin Futures Contracts by using the settlement price that the CME publishes.
Position limits, accountability limits and dynamic price fluctuation limits may limit the Fund’s ability to invest the proceeds of Creation Baskets in Bitcoin Futures Contracts. As a result, when the Fund offers to sell Creation Baskets it may be limited in its ability to invest in Bitcoin Futures Contracts, including the Benchmark Component Futures Contracts. The Fund may hold larger amounts of cash and cash equivalents, which will impair the Fund’s ability to meet its investment objective of tracking the Benchmark.
There is a minimum number of baskets and associated shares specified for the Fund. If the Fund experiences redemptions that cause the number of Shares outstanding to decrease to the minimum level of Shares required to be outstanding, until the minimum number of shares is again exceeded through the purchase of a new Creation Basket, there can be no more redemptions by an Authorized Purchaser. In such case, market makers may be less willing to purchase shares from investors in the secondary market, which may in turn limit the ability of Shareholders of the Fund to sell their shares in the secondary market. These minimum levels for the Fund are 50,000 shares, representing five baskets. The minimum level of shares specified for the Fund is subject to change.
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Note to Secondary Market Investors: Except when aggregated in Redemption Baskets, shares are not individually redeemable. Shares can be directly purchased from the Fund only in Creation Baskets, and only by Authorized Purchasers. Each Creation Basket consists of 10,000 Shares and therefore requires a significant financial commitment to purchase. The initial Shares will be offered and sold, in creation basket aggregation at an offering price of $ per share, which is the same per share price used in the Merger closing. Thereafter, shares will be sold at the next determined NAV per share. Accordingly, investors who do not have such resources or who are not Authorized Purchasers should be aware that some of the information contained in this prospectus, including information about purchases and redemptions of shares directly with the Fund, is only relevant to Authorized Purchasers. There is no guarantee that shares will trade at prices that are at or near the per-Share NAV. When buying or selling shares on the secondary market through a broker, most investors incur customary brokerage commissions and charges.
As noted, the Fund invests in Bitcoin Futures Contracts traded on the CME. The Fund expressly disclaims any association with the CME or endorsement of the Fund by such exchange and acknowledges that “CME” is a registered trademark of such exchange.
Voting Rights
As interests in separate series of a Delaware statutory trust, the shares do not involve the rights normally associated with the ownership of shares of a corporation (including, for example, the right to bring shareholder oppression and derivative actions). In addition, the shares have limited voting and distribution rights (for example, shareholders do not have the right to elect directors, as the Trust does not have a board of directors, and generally will not receive regular distributions of the net income and capital gains earned by the Fund).
Shareholders have no voting rights with respect to either the Teucrium Trust, the Tidal Trust, or the Acquired Fund except as expressly provided each trust’s declaration of trust and trust agreement (“Trust Agreement”). Each Trust Agreement provides that shareholders representing at least a majority (over 50%) of the outstanding shares of the respective trust, voting together as a single class (excluding shares acquired by the sponsor in connection with its initial capital contribution to any trust series), may vote to (i) continue the trust by electing a successor sponsor as described above, and (ii) approve amendments to the Trust Agreement that impair the right to surrender Redemption Baskets for redemption. In addition, Fund shareholders holding shares representing seventy-five percent (75%) of the outstanding shares of the trust, voting together as a single class (excluding shares acquired by the sponsor in connection with its initial capital contribution to any Trust series) may vote to dissolve the trust upon not less than ninety (90) days’ notice to the sponsor.
Breakeven Analysis
The breakeven analysis set forth below is a hypothetical illustration of the approximate dollar returns and percentage returns for the redemption value of a single share to equal the amount invested twelve months after the investment is made. For purposes of this breakeven analysis, an initial selling price of $25.00 per Share, is assumed. The breakeven analysis is an approximation only and assumes a constant month-end Net Asset Value. In order for a hypothetical investment in Shares to breakeven over the next 12 months, assuming a selling price of $25.00 per share, the investment would have to generate a 0.92% or $0.23 return. The numbers in the chart below have been rounded to the nearest 0.01.
| Per Share | ||||
| Assumed initial selling price per Share (1) | 30.04 | |||
| Management Fee (0.94%) (2) | $ | 0.28 | ||
| Estimated Brokerage Commissions and Fees (3) | $ | 0.37 | ||
| Other Fund Fees and Expenses (4) | $ | 0.00 | ||
| Interest and Other Income (2.50%) (5) | $ | (0.38 | ) | |
| Amount of trading income (loss) required for the redemption value at the end of one year to equal the selling price of the Share | $ | 0.27 | ||
| Percentage of initial selling price per Share (6) | 0.90 | % | ||
| (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 $30.04 per Share, which is based on the Acquired Fund NAV per share as of February 28, 2023. Investors should note that, because the Acquiring Fund’s NAV will change on a daily basis, the breakeven amount on any given day could be higher or lower than the amount reflected here. |
| (2) | From the Management Fee, Toroso will pay all of the routine operational, administrative and other ordinary expenses of the Acquiring Fund, generally as determined by Toroso, including but not limited to, fees and expenses of the Administrator, Sub-Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. These fees and expenses are not included in the breakeven table because they are paid for by Toroso through the proceeds from the Management Fee. |
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| (3) | Reflects estimated brokerage commissions and fees for Bitcoin 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 annualized for the Acquired Fund year ending December 31, 2022. The actual amount of brokerage commissions and trading fees to be incurred will vary based upon the trading frequency of the Acquiring Fund. Toroso may elect to pay or waive a portion of these fees. Toroso may elect to waive fees in order to reduce the Acquiring Fund’s expenses. |
| (4) | The Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by the sponsor. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Fund. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses. |
| (5) | The Fund seeks to earn interest and other income in high credit quality, short-duration instruments or deposits associated with the pool’s cash management strategy that may be used to offset expenses. These investments may include, but are not limited to, short-term Treasury Securities, demand deposits, and money market funds. Considering various uncertain factors in the US and commodity markets, management has estimated a blended interest rate of 2.50%. It's important to note that the actual rate may vary and not all assets within the Fund will necessarily earn interest. The actual rate may vary and not all assets of the Fund will earn interest. |
| (6) | This represents the estimated approximate percentage for the redemption value of a hypothetical initial investment in a single Share to equal the amount invested twelve months after the investment was made. The estimated approximate percentage of selling price is 0.90% or $0.27 per Share. |
Inter-Series Limitation on Liability
While the Acquiring Fund is a separate single series of the Trust, additional series may be created in the future. The Tidal Trust has been formed and will be operated with the goal that the Acquiring 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 Acquiring Fund) were to successfully assert against a series a claim with respect to its indebtedness or shares, the creditor or shareholder could recover only from that particular series and its assets. Accordingly, the debts and other obligations incurred, contracted for or otherwise existing solely with respect to a particular series would be enforceable only against the assets of that series, and not against any other series or the Trust generally or any of their respective assets. The assets of the Acquiring Fund and any other series will include only those funds and other assets that are paid to, held by or distributed to the series on account of and for the benefit of that series, including, without limitation, amounts delivered to the Trust for the purchase of shares in a series.
Registration Clearance and Settlement
Individual certificates are not issued for the shares. Instead, shares will be represented by one or more global certificates, which are deposited by the transfer agent with the Depository Trust Company (“DTC”) and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Beneficial interests in shares are held through DTC’s book-entry system, which means that Shareholders are limited to: (1) purchasers in DTC such as banks, brokers, dealers and trust companies, (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC purchaser, and (3) those who hold interests in the Shares through DTC purchasers or indirect purchasers, in each case who satisfy the requirements for transfers of shares. DTC purchasers acting on behalf of investors holding shares through such DTC purchasers’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement System. shares are credited to DTC purchasers’ securities accounts following confirmation of receipt of payment.
Net Asset Value
The NAV is calculated by taking the current market value of the Acquiring Fund’s total assets and subtracting any liabilities and dividing the balance by the number of Shares. Under the Acquiring Fund’s current operational procedures, U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Global Fund Services”), the Acquiring Fund’s “Sub-Administrator” calculates the NAV of the Acquiring Fund’s Shares as of the earlier of 4:00 p.m. (ET) or the close of trading on NYSE Arca each day. ICE Data Indices, LLC calculates and disseminates an approximate net asset value every 15 seconds throughout each day that the Acquiring Fund’s Shares are traded on NYSE Arca for as long as the CME’s main pricing mechanism is open.
Acquiring Fund Expenses
The Acquiring Fund pays Toroso a Management Fee, monthly in arrears, in an amount equal to 0.94% per annum of the daily NAV of the Acquiring Fund. The Management Fee is paid in consideration of Toroso’s services related to the management of the Acquiring Fund’s business and affairs, including the provision of commodity futures trading advisory services. The Acquiring Fund pays all of its respective brokerage commissions, including applicable exchange fees, NFA fees and give-up fees, and other transaction related fees and expenses charged in connection with trading activities for the Acquiring Fund’s investments in CFTC regulated investments. The Acquiring Fund bears other transaction costs related to the FCM capital requirements on a monthly basis. Toroso pays all of the routine operational, administrative and other ordinary expenses of the Acquiring Fund, generally as determined by Toroso, including but not limited to, fees and expenses of the Administrator, Sub-Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. The Acquiring Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by Toroso. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Acquiring Fund. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses. The estimated amount of fees and expenses that are anticipated to be incurred in a single Share during the first twelve (12) months of ownership is $0.27 or 0.90% of the selling price. The total estimated fees and expenses are expressed as a percentage of an estimated $1,500,000 million in assets.
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Toroso, Tidal, and Digital Asset Adviser will bear the costs and expenses related to the initial offer and sale of Shares, including registration fees paid or to be paid to the SEC, Financial Industry Regulatory Authority (“FINRA”) or any other regulatory body or self-regulatory organization. None of the costs and expenses related to the initial offer and sale of Shares, which are expected to total approximately $270,000, are chargeable to the Acquiring Fund, and Toroso, Tidal, and Digital Asset Adviser may not recover any of these costs and expenses from the Acquiring Fund. Total fees to be paid by the Acquiring Fund are currently estimated to be approximately 0.90% of the daily net assets of the Acquiring Fund for the twelve-month period after issuance, though this amount may change in future years.
General expenses of the Trust will be allocated among the Acquiring Fund and any future series of the Trust as determined by Toroso in its discretion. The Trust may be required to indemnify Toroso, and the Trust and/or Toroso may be required to indemnify the Trustee, Distributor or Administrator, under certain circumstances.
Termination Events
The Trust and the Acquiring Fund shall continue in existence from the date of their formation in perpetuity, unless the Trust or the Acquiring 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 Toroso or revocation of Toroso’s charter or the withdrawal of Toroso, 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 Acquiring Fund unlawful; (3) the suspension, revocation, or termination of Toroso’s registration as a CPO with the CFTC or membership with the NFA; (4) the insolvency or bankruptcy of the Trust or the Acquiring 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 Toroso to dissolve the Trust or the Acquiring 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 Acquiring Fund, the affairs of the Acquiring 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 Acquiring Fund shall then be determined by Toroso. Thereupon, the assets of the Acquiring Fund shall be distributed pro rata to the Shareholders in accordance with their shares.
Conflicts of Interest
There are present and potential future conflicts of interest related to the Trust’s structure and operation that you should consider before you purchase shares. These include, among others, conflicts related to Toroso serving as sponsor to the other funds and to commodity pools other than the Acquiring Fund in the future.
SUMMARY OF SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
We are providing the following summary selected financial data of Acquired Fund to help you in your analysis of the financial aspects of the Merger. You should read this information in conjunction with the financial information included elsewhere in this Information Statement. We have included page references at various points in this summary to direct you to a more detailed description of the topics presented.
Summary of Historical Combined Financial Data of the Acquired Fund
The following table contains summary historical financial data of the Acquired Fund. The operating data for the fiscal year ended December 31, 2022, and the balance sheet data as of December 31, 2022 are derived from the audited financial statements included in this Information Statement. The operating data for the six months ended June 30, 2023 are derived from the unaudited combined financial statements included in this Information Statement.
The summary historical statements of operations data and the summary historical combined balance sheets and cash flows for the six months ended June 30, 2023 are unaudited, but include, in the opinion of management, all adjustments, consisting only of normal, recurring adjustments that are necessary for a fair presentation of such data.
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Summary Financial Data of the Acquired Fund
The following table sets forth certain financial data of the Acquired Fund for the Merger. The data has been derived from and should be read together with the financial statements of the Acquired Fund in this Information Statement beginning on page F-1.
From the commencement of operations (September 15, 2022) Operations through December 31, 2022 | ||||
| Operations: | ||||
| Net Loss | $ | (386,037 | ) | |
| Capital transactions | ||||
| Issuance of Shares | 2,461,340 | |||
| Redemptions of Shares | (1,005,040 | ) | ||
| Total Capital Transactions | 1,456,300 | |||
| Net Change in Net Assets | 1,070,263 | |||
| Net assts, beginning of the period | $ | — | ||
| Net assets, end of the period | $ | 1,070,263 | ||
| Net asset value per share at beginning of period | $ | $25.00 | ||
| Net asset value per share at end of period | $ | $21.40 | ||
| Creation of Shares | 100,004 | |||
| Redemption of Shares | 50,000 | |||
Six months ended June 30, 2023 | ||||
| Operations: | ||||
| Net Income | $ | 824,917 | ||
| Capital transactions | ||||
| Issuance of Shares | 367,689 | |||
| Redemptions of Shares | (323,940 | ) | ||
| Total Capital Transactions | 43,749 | |||
| Net Change in Net Assets | 868,666 | |||
| Net assts, beginning of the period | $ | 1,070,263 | ||
| Net assets, end of the period | $ | 1,938,929 | ||
| Net asset value per share at beginning of period | $ | 21.40 | ||
| Net asset value per share at end of period | $ | 38.78 | ||
| Creation of Shares | 10,000 | |||
| Redemption of Shares | 10,000 | |||
WE ARE PROVIDING THIS SUMMARY COMBINED PRO FORMA FINANCIAL DATA FOR ILLUSTRATIVE PURPOSES ONLY, AND THIS INFORMATION SHOULD NOT BE RELIED UPON FOR PURPOSES OF MAKING ANY INVESTMENT OR OTHER DECISIONS.
Comparative Historical Per Share Data
The following table sets forth certain historical per share data for the Acquired Fund. The data has been derived from and should be read together with the audited financial statements of the Acquired Fund and related notes thereto contained in the Acquired Fund’s Form 10-Q for the six months ended June 30, 2023.
| Six months ended June 30, 2023 | ||||
| Per Share Operation Performance | ||||
| Net asset value at beginning of period | 21.40 | |||
| Income (loss) from investment operations: | ||||
| Investment income | 0.64 | |||
| Net realized and unrealized gain on cryptocurrency futures contracts | 16.89 | |||
| Total expenses, net | (0.15 | ) | ||
| Net increase in net asset value | 17.38 | |||
| Net asset value at end of period | 38.78 | |||
| Total Return | 81.16 | % | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expenses | 15.87 | % | ||
| Total expenses, net | 0.94 | % | ||
| Net investment income | 3.02 | % | ||
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The pro forma amounts in the table below are presented for illustrative purposes only and do not indicate what the financial position or the results of operations of the Acquiring Fund would have been had the Merger occurred as of the date or for the period presented. The pro forma amounts also do not indicate what the financial position or future results of operations of the combined company will be. You should not rely on the pro forma information as being indicative of the historical results that would have occurred or the future results that the Acquiring Fund will experience after the Merger. No adjustment has been included in the pro forma amounts for any anticipated cost savings or other synergies as a result of the Merger or for any potential inefficiencies or loss of synergies that may result from the Merger. The pro forma amounts are preliminary and subject to change.
Because Acquired Fund shareholders will own one share of the Acquiring Fund interest for each share of the Acquired Fund they owned prior to the Merger, the Acquiring Fund unaudited pro forma equivalent data will be the same as the corresponding unaudited pro forma combined data. See “Selected Historical and Pro Forma Financial—Comparative Historical and Pro Forma Per Share Data” beginning on page 71.
From the commencement of operations (September 15, 2022) Operations through December 31, 2022 | ||||
| Acquired Fund Historical | ||||
| Basic and diluted loss per common share from continuing operations | $ | (3.60 | ) | |
| Distributions per share | $ | — | ||
| Book value per share | $ | 21.40 | ||
| Acquiring Fund Pro Forma | ||||
| Basic and diluted loss per common share from continuing operations | $ | (3.60 | ) | |
| Distributions per share | $ | — | ||
| Book value per share | $ | 21.40 | ||
WE ARE PROVIDING THIS SUMMARY COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA FOR ILLUSTRATIVE PURPOSES ONLY. YOU SHOULD NOT RELY ON THE PRO FORMA PER SHARE DATA PRESENTED ABOVE AS BEING INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN ACHIEVED HAD THE MERGER OCCURRED PRIOR TO THE PERIOD PRESENTED OR OF THE FUTURE RESULTS OF THE ACQUIRING FUND.
Acquired Market Price
Acquired Fund interest is currently traded on NYSE Arca under the symbol “DEFI.” The following table sets forth the high and low sales prices of the Acquired Fund for the periods indicated. The quotations are as reported in published financial sources. For current price information, Acquired Fund shareholders are urged to consult publicly available sources. See “Selected Historical and Pro Forma Financial Data— Acquired Fund Market Price” on page 71.
| Tidal | ||||||||
| High | Low | |||||||
| Fiscal Period Ended December 31, 2022 | ||||||||
| Third Quarter | $ | 24.78 | $ | 23.77 | ||||
| Fourth Quarter | $ | 26.66 | $ | 19.77 | ||||
| First Quarter | $ | 36.80 | $ | 21.48 | ||||
| Second Quarter | $ | 39.83 | $ | 32.37 | ||||
Summary of Historical Financial Data of Acquiring Fund
The following table sets forth certain financial data of the Acquiring Fund for the Merger. The data has been derived from and should be read together with the financial statements of the Acquired Fund in this Information Statement beginning on page F-1.
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| October 24, 2023 | ||||
| ASSETS | ||||
| Cash | $ | 100 | ||
| TOTAL ASSETS | 100 | |||
| NET ASSETS | $ | 100 | ||
| NET ASSETS CONSIST OF | ||||
| Fund capital | $ | 100 | ||
| TOTAL NET ASSETS | $ | 100 | ||
| Fund shares issued and outstanding | ||||
| (par value $0.00 per share; unlimited number of shares authorized) | 4 | |||
| Net asset value per share | $ | 25.00 | ||
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RISK FACTORS
WHAT ARE THE RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE ACQUIRING 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 Information Statement, and the Acquiring Fund’s and the Tidal Trust’s financial statements.
Risks Associated with Investing in Bitcoin
Further development and acceptance of Bitcoin and the Bitcoin Network is uncertain.
The further development and acceptance of the Bitcoin Network, which is part of a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development or acceptance of the Bitcoin Network may adversely affect the price of bitcoin and therefore cause the the Acquiring Fund to suffer losses. Regulatory changes or actions may alter the nature of an investment in bitcoin or restrict the use of bitcoin or the operations of the Bitcoin Network or venues on which bitcoin trades in a manner that adversely affects the price of bitcoin and, therefore, the Acquiring Fund’s Bitcoin Futures Contracts. Bitcoin generally operates without central authority (such as a bank) and is not backed by any government. Bitcoin is not legal tender and federal, state and/or foreign governments may restrict the use and exchange of bitcoin, and regulation in the United States is still developing. For example, it may become difficult or illegal to acquire, hold, sell or use bitcoin in one or more countries, which could adversely impact the price of bitcoin, and therefore the value of the Acquiring Fund’s Bitcoin Futures Contracts.
“Forks” in Bitcoin Network could have adverse effects.
From time to time, developers of the bitcoin network suggest changes to the bitcoin software. If a sufficient number of users and miners elect not to adopt the changes, a new digital asset, operating on the earlier version of the bitcoin software, may be created. This is often referred to as a “fork.”
In August 2017, bitcoin “forked” into bitcoin and a new digital asset, bitcoin cash, as a result of a several-year dispute over how to increase the rate of transactions that the Bitcoin network can process. Since then, bitcoin has been forked numerous times to launch new digital assets, such as bitcoin gold, bitcoin silver and bitcoin diamond. Additional hard forks of the Bitcoin blockchain could adversely affect the market for Bitcoin Futures in which the Acquiring Fund invests and, therefore, an investment in the Acquiring Fund. A substantial giveaway of bitcoin (sometimes referred to as an “air drop”) may also result in significant and unexpected declines in the value of bitcoin, Bitcoin Futures Contracts, and the Acquiring Fund.
Rewards for mining Bitcoin are designed to decline over time, which may lessen the incentive for miners to process and confirm transactions on the Bitcoin Network.
Transactions in bitcoin are processed by miners who are primarily compensated by receiving newly issued bitcoin as a reward for successfully solving cryptological puzzles according to a payment schedule that declines over time (in some instances, miners are also compensated through voluntary fees paid by Bitcoin Network participants). If this compensation is not sufficient to incentivize miners to process transactions, the confirmation process for transactions, which acts as security for the Bitcoin Network, may become slower and the Bitcoin Network may become more vulnerable. These and similar events may have a significant adverse effect on the price and liquidity of bitcoin and the value of an investment in the Acquiring Fund.
The Bitcoin Network may face scalability challenges as it expands to a greater number of users.
As with other digital asset networks, the Bitcoin Network faces significant scaling challenges because public blockchains generally face a tradeoff between security and scalability. A decentralized network is less susceptible to manipulation or capture if more participants, or “nodes,” are involved in the processing and maintenance of such network. However, a greater number of nodes decreases the network’s efficiency in processing transactions and may result in increased settlement times. Increased settlement times could discourage certain uses for bitcoin (for example, micropayments), and could reduce demand for and price of bitcoin, which could adversely impact the value of an investment in the Acquiring Fund.
Bitcoin Markets are susceptible to extreme price fluctuations, theft, loss and destruction.
The market price of bitcoin has been subject to extreme fluctuations. If bitcoin markets continue to be subject to sharp fluctuations, the Acquiring Fund’s Shareholders may experience losses. Similar to fiat currencies (i.e., a currency that is backed by a central bank or a national, supra-national or quasi-national organization), bitcoin is susceptible to theft, loss and destruction. Accordingly, the Acquiring Acquiring Fund’s Bitcoin Futures are also susceptible to these risks. Cybersecurity risks of the Bitcoin Protocol and of entities that custody or facilitate the transfers or trading of bitcoin could result in a loss of public confidence in bitcoin, a decline in the value of bitcoin and, as a result, adversely impact the Acquiring Fund’s Bitcoin Futures Contracts.
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Bitcoin ownership is concentrated in a small number of holders referred to as ‘Whales.’
A significant portion of bitcoin is held by a small number of holders who have the ability to affect the price of bitcoin and who are sometimes referred to as “whales.” Because bitcoin is lightly regulated, bitcoin whales have the ability, alone or in coordination, to manipulate the price of bitcoin by restricting or expanding the supply of bitcoin. Activities of bitcoin whales that reduce user confidence in bitcoin, the Bitcoin Network or the fairness of bitcoin trading venues, or that affect the price of bitcoin, could have a negative impact on the value of an investment in the Acquiring Fund.
Bitcoin exchanges are unregulated and may be more exposed to fraud and failure.
Bitcoin exchanges and other trading venues on which bitcoin trades are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies. The Acquiring Fund’s indirect investment in bitcoin remains subject to volatility experienced by the bitcoin exchanges and other bitcoin trading venues. Such volatility can adversely affect an investment in the Acquiring Fund. Bitcoin exchanges have in the past stopped and may in the future stop operating or permanently shut down due to fraud, cybersecurity issues, manipulation, technical glitches, hackers or malware, which may also affect the price of bitcoin and thus the Acquiring Fund’s indirect investment in bitcoin. Fraud and failure related to such bitcoin exchanges could result in a loss of public confidence in bitcoin and a decline in the value of bitcoin, which could adversely impact the adoption of bitcoin or acceptance of bitcoin and cause a decline in value of the Acquiring Fund’s Bitcoin Futures Contracts.
The recent bankruptcy of the crypto exchange FTX has underscored the potential for fraud and manipulation in crypto exchanges generally. The financial distress experienced by crypto asset market participants as a result of the FTX bankruptcy has already led to the spread of a general contagion among some market participants, and may lead to additional regulation of the crypto markets.
Networked systems are vulnerable to attacks.
All networked systems are vulnerable to various kinds of attacks. As with any computer network, the Bitcoin network contains certain flaws. For example, the Bitcoin network is currently vulnerable to a “51% attack” where, if a mining pool were to gain control of more than 50% of the “hash” rate, or the amount of computing and process power being contributed to the network through mining, a malicious actor would be able to gain full control of the network and the ability to manipulate the blockchain. A significant portion of bitcoin is held by a small number of holders sometimes referred to as “whales.” These holders have the ability to manipulate the price of bitcoin.
Cybersecurity risk.
As a digital asset, bitcoin is subject to cybersecurity risks, including the risk that malicious actors will exploit flaws in its code or structure that will allow them to, among other things, steal bitcoin held by others, control the blockchain, steal personally identifying information, or issue significant amounts of bitcoin in contravention of the Bitcoin Protocols. The occurrence of any of these events is likely to have a significant adverse impact on the price and liquidity of bitcoin and Bitcoin Futures Contracts and therefore the value of an investment in the Acquiring Fund. Additionally, the Bitcoin network’s functionality relies on the Internet. A significant disruption of Internet connectivity affecting large numbers of users or geographic areas could impede the functionality of the Bitcoin network. Any technical disruptions or regulatory limitations that affect Internet access may have an adverse effect on the Bitcoin Network, the price of bitcoin and Bitcoin Futures Contracts, and the value of an investment in the Acquiring Fund.
Limited adoption and ability to use bitcoin to purchase goods.
Currently, there is relatively limited use of bitcoin in the retail and commercial marketplace in comparison to relatively extensive use as a store of value, thus contributing to price volatility that could adversely affect the Acquiring Fund’s Bitcoin Futures Contracts. Bitcoin is not currently a form of legal tender in the United States and has only recently become selectively accepted as a means of payment for goods and services by some retail and commercial outlets, and the use of bitcoin by consumers to pay such retail and commercial outlets remains limited. Banks and other established financial institutions may refuse to process funds for bitcoin transactions; process wire transfers to or from bitcoin trading venues, bitcoin-related companies or service providers; or maintain accounts for persons or entities transacting in bitcoin or providing bitcoin-related services. In addition, some taxing jurisdictions, including the U.S., treat the use of bitcoin as a medium of exchange for goods and services to be a taxable sale of bitcoin, which could discourage the use of bitcoin as a medium of exchange, especially for a holder of bitcoin that has appreciated in value.
Risks to Bitcoin from other parts of the digital assets market.
The price of bitcoin and the bitcoin market generally may be adversely impacted by developments in other parts of the digital assets market including, but not limited to, industry wide. The acceptance of bitcoin and digital assets generally depends on a number of factors, including adverse developments in the digital assets market that could impact investor confidence. For example, “stablecoins” have been developed to enhance the value of cryptocurrency to be used like fiat currency in transactions in goods and services. Adverse developments such as the recent “depegging” of the TerraUSD stablecoin and the FTX bankruptcy may undermine confidence in the cryptocurrency markets generally and cause decreases in the price of digital assets such as bitcoin.
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Hacking risk of theft of private keys.
Due to the nature of private keys, bitcoin transactions are irrevocable and incorrectly transferred or stolen bitcoin may be irretrievable, and as a result, any incorrectly executed bitcoin transactions could adversely affect the price and liquidity of bitcoin, which may indirectly affect the price and liquidity of the Bitcoin Futures Contracts.
Environmental risks from Bitcoin mining.
Bitcoin mining currently requires computing hardware that consumes large amounts of electricity. By way of electrical power generation, many bitcoin miners rely on fossil fuels to power their operations. Public perception of the impact of bitcoin mining on climate change may reduce demand for bitcoin and increase the likelihood of regulation that limits bitcoin mining or restricts energy usage by bitcoin miners. Such events could have an impact on the price of bitcoin, bitcoin futures, and the performance of the Acquiring Fund.
Risks Associated with Investing in Bitcoin Futures Contracts
Investing in Bitcoin futures contracts subjects the Acquiring Fund to the risks of the Bitcoin market.
The Acquiring Fund is subject to the risks and hazards of the bitcoin market because it invests in Bitcoin Futures Contracts listed on the CME. The risks and hazards that are inherent in the bitcoin market may cause the price of bitcoin and the Acquiring Fund’s Shares to fluctuate widely and you could incur a partial or total loss of your investment in the Acquiring Fund. The prices of bitcoin and bitcoin futures contracts have historically been highly volatile. The value of the Acquiring Fund’s investments in bitcoin futures – and therefore the value of an investment in the Acquiring Fund – could decline significantly and without warning, including to zero. If you are not prepared to accept significant and unexpected changes in the value of the Acquiring Fund and the possibility that you could lose your entire investment in the Acquiring Fund you should not invest in the Acquiring Fund.
The Bitcoin futures contracts listed on the CME are a relatively new type of futures contract that may be less developed than other, more established futures markets.
The Bitcoin Futures Contracts listed on the CME are a relatively new type of futures contract that may be less developed than more established futures markets (such as the futures markets for corn or wheat). Accordingly, although BTC Contracts have traded on the CME since December 2017 and MBT Contracts have traded on the CME since May 2021 and the market for exchange listed Bitcoin Futures Contracts has grown since inception, the market for Bitcoin Futures Contracts may be riskier, less liquid, more volatile and more vulnerable to economic, market, industry, regulatory and other changes than more established futures contracts. The liquidity of the market for BTC Contracts and MBT Contracts will depend on, among other things, the supply and demand for Bitcoin Futures Contracts, speculative interest in the market for Bitcoin Futures Contracts and the potential ability to hedge against the price of bitcoin with Bitcoin Futures Contracts.
An investment in the Acquiring Fund is subject to the risks of an investment in futures contracts.
An investment in the Acquiring Fund is subject to the risks of an investment in futures contracts, which are complex instruments that are often subject to a high degree of price variability. Because the price of Bitcoin Futures Contracts is linked to the price of bitcoin, an investment in the Acquiring Fund may be riskier than other exchange-traded products that do not hold financial instruments related to bitcoin and may not be suitable for all investors.
Futures contracts are subject to inherent leverage risk because they are typically secured by margin deposits representing a small percentage of a futures contract’s entire market value.
Commodity pools’ trading positions in futures contracts are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s entire market value. This feature creates the potential for commodity pools to “leverage” their assets by purchasing or selling futures contracts with an aggregate notional amount in excess of the commodity pool’s assets. While futures contracts are generally subject to leverage risk, the NYSE Arca rule under which the Acquiring Fund’s Shares will be listed and traded prevents the Acquiring Fund from utilizing leverage.
Pricing anomalies in the bitcoin futures market could cause losses.
Market fraud and/or manipulation and other fraudulent trading practices such as the intentional dissemination of false or misleading information (e.g., false rumors) can, among other things, lead to a disruption of the orderly functioning of markets, significant market volatility, and cause the value of bitcoin futures to fluctuate quickly and without warning. Depending on the timing of an investor’s purchases and sales of the Acquiring Fund’s Shares, these pricing anomalies could cause the investor to incur losses.
Risks of government regulation.
The Financial Industry Regulatory Authority (“FINRA”) issued a notice on March 8, 2022 seeking comment on measures that could prevent or restrict investors from buying a broad range of public securities and products designated as “complex products” – which could include each Exchange Traded Product offered by Toroso. The ultimate impact, if any, of these measures remain unclear. However, if regulations are adopted, they could, among other things, prevent or restrict investors’ ability to buy the Acquiring Fund.
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Correlation Risk
The Benchmark is not designed to correlate with the spot price of bitcoin, and this could cause the changes in the price of the Shares to substantially vary from the changes in the spot price of bitcoin. Therefore, you may not be able to effectively use the Acquiring Fund to hedge against bitcoin related losses or to indirectly invest in bitcoin.
The correlation between changes in such Bitcoin Futures Contracts and the spot price of bitcoin will be only approximate. Weak correlation between the Benchmark and the spot price of bitcoin may result from the factors discussed above. Imperfect correlation may also result from speculation in Benchmark Component Futures Contracts, and/or technical or other factors that may influence the trading of Benchmark Component Futures Contracts. If there is a weak correlation between the Benchmark and the spot price of bitcoin, then the price of Shares may not accurately track the spot price of bitcoin and you may not be able to effectively use the Acquiring Fund as a way to hedge the risk of losses in your bitcoin related transactions or as a way to indirectly invest in bitcoin.
Moreover, while there is a spot bitcoin index calculated by the CME that is based on price feeds from certain designated bitcoin spot market exchanges, the Acquiring Fund will generally not directly price off of this index. This is because the Acquiring Fund will roll its futures holdings prior to settlement of the expiring contract and intends to never carry futures positions all the way to cash settlement (the only date that the BTC Contracts and MBT Contracts settle to the CME spot price index). The Acquiring Fund will only price off of Bitcoin Futures Contracts volume-weighted average price (VWAP) daily settlement price, which might cause the Acquiring Fund’s NAV to differ from spot bitcoin prices.
Changes in the Acquiring 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 Acquiring Fund as a way to hedge against bitcoin related losses or as a way to indirectly invest in bitcoin.
Toroso endeavors to invest the Acquiring 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 Acquiring Fund’s NAV may not correlate with the changes in the Benchmark for various reasons, including those set forth below.
The Acquiring Fund incurs certain expenses in connection with its operations and holds most of its assets in income producing, short-term financial instruments for margin and other liquidity purposes and to meet redemptions that may be necessary on an ongoing basis. To the extent these expenses are not covered by the Management Fee, and income from short-term financial instruments may cause imperfect correlation between changes in the Acquiring Fund’s NAV and changes in the Benchmark. Differences between returns based on the price of bitcoin and an investment in the Acquiring Fund may also be attributable to additional costs related to futures investing and other fund expenses.
Toroso may not be able to invest the Acquiring Fund’s assets in Benchmark Component Futures Contracts having an aggregate notional amount exactly equal to the Acquiring Fund’s NAV. As a standardized contract, a single BTC Contract is for a specified amount of bitcoin, and the Acquiring 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 Acquiring Fund might not invest the entire proceeds from the purchase of the Creation Basket in such futures contracts. (As an example, assume that a Creation Basket is sold by the Acquiring Fund, and that the Acquiring Fund’s closing NAV per Share is $25.00. In that case, the Acquiring Fund would receive $250,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per Share multiplied by 10,000 Shares and ignoring the Creation Basket fee of $300). If one were to assume further that Toroso wants to invest the entire proceeds from the Creation Basket in the Benchmark Component Futures Contracts and that the market value of each such Benchmark Component Futures Contracts is $188,175 (or otherwise not a round number), the Acquiring Fund would be unable to buy an exact number of BTC Contracts with an aggregate market value equal to $250,000. In this case, the Acquiring Fund would be able to purchase 1 BTC Contract with an aggregate market value of approximately $188,175 and 16 MBT Contracts at $3,750 with an aggregate market value of approximately $60,000, bringing the aggregate value of proceeds to $248,175.) Any amounts not invested in Benchmark Component Futures Contracts are held in cash and cash equivalents.
The Benchmark Component Futures Contracts reflect the price of bitcoin for future delivery, not the current spot price of bitcoin, so at best the correlation between changes in such Bitcoin Futures Contracts and the spot price of bitcoin will be only approximate. Weak correlation between the Benchmark and the spot price of bitcoin may result from fluctuations in bitcoin prices discussed above. Imperfect correlation may also result from speculation in Benchmark Component Futures Contracts, technical factors in the trading of Benchmark Component Futures Contracts, and expected inflation in the economy as a whole. If there is a weak correlation between the Benchmark and the spot price of bitcoin, then the price of Shares may not accurately track the spot price of bitcoin and you may not be able to effectively use the Acquiring Fund as a way to hedge the risk of losses in your bitcoin related transactions or as a way to indirectly invest in bitcoin.
As Acquiring Fund assets increase, there may be more or less correlation. On the one hand, as the Acquiring 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 Acquiring Fund’s NAV. For example, if the Acquiring 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 Acquiring Fund’s assets to be exposed to the bitcoin market. On the other hand, if the Acquiring Fund’s NAV is equal to 100.9 times the value of a single Bitcoin Futures Contract, it can purchase 100 such contracts, resulting in 99.1% exposure.
There may be significant volatility in the market for Bitcoin Futures Contracts. This volatility, in turn, may make it more difficult for Authorized Purchasers and other market purchasers to be able to identify a reliable price for Bitcoin Futures Contracts. Without reliable prices, Authorized Purchasers and other market purchasers may reduce their role in the market arbitrage process or “step away” from these activities. This, in turn, might inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying value of the Acquiring Fund’s Bitcoin Futures Contracts and the Acquiring Fund’s market price. This reduced effectiveness could result in Acquiring Fund Shares trading at a price which differs materially from NAV and also in greater than normal intraday bid/ask spreads for Acquiring Fund Shares.
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Position limits, accountability levels and dynamic price fluctuation limits set by the CFTC and the exchanges have the potential to cause tracking error, which could cause the price of Shares to substantially vary from the Benchmark and prevent you from being able to effectively use the Acquiring Fund as a way to hedge against bitcoin related losses or as a way to indirectly invest in bitcoin.
The CFTC and U.S. designated contract markets, such as the CME, have established position limits and accountability levels on the maximum net long or net short BTC Contracts that the Acquiring Fund may hold, own or control. Spot position limits are set at 4,000 contracts. A position accountability level of 5,000 contracts will be applied to positions in single months outside the spot month and in all months combined. The MBT Contracts have a spot month limit of 200,000 contracts and a position accountability level of 250,000 contracts. Accountability levels are not fixed ceilings but rather thresholds above which the exchange may exercise greater scrutiny and control over an investor, including limiting the Acquiring Fund to holding no more Bitcoin Futures Contracts than the amount established by the accountability level. The potential for the Acquiring Fund to reach position or accountability limits will depend on if and how quickly the Acquiring Fund’s net assets increase.
In addition to position limits and accountability limits, the CME places daily price fluctuation limits on Bitcoin Futures Contracts that represent the maximum daily price range permitted for a contract. Once a price fluctuation limit has been reached, no trades may be made at a price beyond that limit. Under the price fluctuation mechanism that was initially put into place when Bitcoin Futures Contracts were launched on the CME in December 2017, price fluctuation limits were triggered 116 times. In March 2019, the CME adopted a dynamic price fluctuation mechanism. This mechanism assigns an initial opening price fluctuation limit equal to a percentage of the prior trading day’s settlement price (or a different price if deemed more appropriate), which then moves with the market throughout the day. Since dynamic price fluctuation limits were introduced, price limits have been triggered 89 times and there has been one "hard limit move." A hard limit move is when the price of Bitcoin Futures Contracts exceeds a price limit that defines the minimum/maximum price to which such Bitcoin Futures Contracts can move for the given trade date. If the hard limit is reached, trade matching will not occur at prices above the maximum price or below the minimum price.
Position limits, accountability limits and dynamic price fluctuation limits may limit the Acquiring Fund’s ability to invest the proceeds of Creation Baskets in Bitcoin Futures Contracts. As result, when the Acquiring Fund sells Creation Baskets it may be limited in its ability to invest in Bitcoin Futures Contracts, including the Benchmark Component Futures Contracts. In such case, the Acquiring Fund may hold larger amounts of cash and cash equivalents, which will impair the Acquiring Fund’s ability to meet its investment objective of tracking the Benchmark.
Price fluctuation limits may contribute to a lack of liquidity and have a negative impact on Acquiring Fund performance. During periods of market illiquidity, including periods of market disruption and volatility, it may be difficult or impossible for the Acquiring Fund to buy or sell futures at desired prices or at all.
An investment in the Acquiring Fund may provide you little or no diversification benefits. Thus, in a declining market, the Acquiring Fund may have no gains to offset your losses from other investments, and you may suffer losses on your investment in the Acquiring 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 Acquiring 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 Acquiring Fund may have no gains to offset your losses from other investments, and you may suffer losses on your investment in the Acquiring Fund at the same time you incur losses with respect to other investments.
Variables such as cost of electricity, regulation, market disruptions, cyber-attacks and political events may have a larger impact on bitcoin and bitcoin interest prices than on traditional securities and broader financial markets. These additional variables may create additional investment risks that subject the Acquiring Fund’s investments to greater volatility than investments in traditional securities.
Lower correlation should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. There is no historic evidence that the spot price of bitcoin and prices of other financial assets, such as stocks and bonds, are negatively correlated. In the absence of negative correlation, the Acquiring Fund cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa.
If changes in the Acquiring Fund’s NAV do not correlate with changes in the Benchmark, then investing in the Acquiring Fund may not be an effective way to hedge against bitcoin related losses or indirectly invest in bitcoin.
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Futures Commission Merchant Risks
The Acquiring Fund has two futures commission merchants.
The Acquiring Fund currently has two FCMs through which it buys and sells futures contracts. Volatility in the bitcoin futures market may lead one or both of the Acquiring Fund’s FCMs to impose risk mitigation procedures that could limit the Acquiring Fund’s investment in Bitcoin Futures Contracts beyond the accountability and position limits imposed by the CME futures contract exchange as discussed herein. An FCM could impose a financial ceiling on initial margin that could change and become more or less restrictive on the Acquiring Fund’s activities depending upon a variety of conditions beyond Toroso’s control. If the Acquiring Fund’s FCMs were to impose position limits, or if any other FCM with which the Acquiring Fund establishes a relationship in the future were to impose position limits, the Acquiring Fund’s ability to meet its investment objective could be negatively impacted. The Acquiring Fund continues to monitor and manage its existing relationships with its FCMs and will continue to seek additional relationships with FCMs as needed.
Risks Associated with the Acquiring Fund’s Investment In Cash and Cash Equivalents
The Acquiring 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 Acquiring Fund is required to sell its cash equivalents at a price lower than the price at which they were acquired, the Acquiring Fund will experience a loss. This loss may adversely impact the price of the Shares and may decrease the correlation between the price of the Shares, the Benchmark, and the spot price of bitcoin. The value of cash equivalents held by the Acquiring 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 Acquiring Fund’s investments in cash equivalents should minimize the interest rate risk to which the Acquiring Fund is subject, it is possible that the cash equivalents held by the Acquiring Fund will decline in value.
Risk Related To Lack of Liquidity
Certain of the Acquiring Fund’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.
If the Acquiring Fund’s ability to obtain exposure to Bitcoin Futures Contracts in accordance with its investment objective is disrupted for any reason including, because of limited liquidity in the bitcoin futures market, a disruption to the bitcoin futures market, or as a result of margin requirements or position limits imposed by the Acquiring Fund’s futures commission merchants, the CME, or the CFTC, the Acquiring Fund may not be able to achieve its investment objective and may experience significant losses. Any disruption in the Acquiring Fund’s ability to obtain exposure to Bitcoin Futures Contracts will cause the Acquiring Fund’s performance to deviate from the performance of Bitcoin Futures Contracts. In addition, the Acquiring Fund might grow to a size where a lack of liquidity in the futures market meant that the Acquiring Fund could not sell enough futures contracts to honor redemption requests. For further information regarding the impact if suspending redemptions.
A market disruption, such as a government taking regulatory or other actions that disrupt the market in bitcoin, can also make it difficult to liquidate a position. Unexpected market illiquidity may cause major losses to investors at any time or from time to time. In addition, the Acquiring 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 Toroso will acquire or enter into for the Acquiring Fund increases the risk of illiquidity. Because Benchmark Component Futures Contracts may be illiquid, the Acquiring Fund’s holdings may be more difficult to liquidate at favorable prices in periods of illiquid markets and losses may be incurred during the period in which positions are being liquidated.
The Acquiring Fund and other funds with similar investment strategies may try to exit positions at the same time.
If the Acquiring Fund and other funds with similar investment strategies try to exit their Bitcoin Futures Contract positions at the same time, such a mass exit could have detrimental effect on price and liquidity, and you could incur losses in your investment in Shares of the Acquiring Fund.
Hedging Risk
If the nature of the purchasers in the futures market shifts such that bitcoin purchasers are the predominant hedgers in the market, the Acquiring Fund might have to reinvest at higher futures prices or choose other bitcoin interests.
The changing nature of the purchasers in the bitcoin market will influence whether bitcoin futures prices are above or below the expected future spot price. Holders of bitcoin will typically seek to hedge against falling bitcoin prices by selling Bitcoin Futures Contracts. Therefore, if holders of bitcoin become the predominant hedgers in the futures market, prices of Bitcoin Futures Contracts will typically be below expected future spot prices. Conversely, if the predominant hedgers in the futures market are the holders of bitcoin who purchase Bitcoin Futures Contracts to hedge against a rise in prices, prices of Bitcoin Futures Contracts will likely be higher than expected future spot prices. This can have significant implications for the Acquiring Fund when it is time to sell a Bitcoin Futures Contract that is no longer a Benchmark Component Futures Contract and purchase a new Bitcoin Futures Contract or to sell a Bitcoin Futures Contract to meet redemption requests.
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The price relationship between the Benchmark Component Futures Contracts at any point in time and the Bitcoin Futures Contracts that will become Benchmark Component Futures Contracts on the next roll date will vary and may impact both the Acquiring Fund’s total return and the degree to which its total return tracks that of bitcoin price indices.
The design of the Acquiring Fund’s Benchmark is such that the Benchmark Component Futures Contracts will change on a monthly basis, and the Acquiring Fund’s investments may be rolled periodically to reflect the changing composition of the Benchmark. In the event of a bitcoin futures market where near to expire contracts trade at a higher price than longer to expire contracts, a situation referred to as “backwardation,” then absent the impact of the overall movement in bitcoin prices the value of the Benchmark Component Futures Contracts would tend to rise as they approach expiration. As a result, the Acquiring Fund may benefit because it may be selling more expensive contracts and buying less expensive ones on an ongoing basis. Conversely, in the event of a bitcoin futures market where near to expire contracts trade at a lower price than longer to expire contracts, a situation referred to as “contango,” then absent the impact of the overall movement in bitcoin prices the value of the Benchmark Component Futures Contracts would tend to decline as they approach expiration. As a result, the Acquiring Fund’s total return may be lower than might otherwise be the case because it may be selling less expensive contracts and buying more expensive ones. The impact of backwardation and contango may lead the total return of the Acquiring Fund to vary significantly from the total return of other price references, such as the spot price of bitcoin. In the event of a prolonged period of contango, and absent the impact of rising or falling bitcoin prices, this could have a significant negative impact on the Acquiring Fund’s NAV and total return, and you could incur a partial or total loss of your investment in the Acquiring Fund.
The design of the Acquiring Fund’s Benchmark is such that the Benchmark Component Futures Contracts will change on a monthly basis, with the contracts with the shortest maturity being replaced with contracts with a longer maturity. Sometimes the Acquiring Fund will have to pay more for longer maturity contracts to replace existing shorter maturity contracts about to expire. This situation is known as “contango” in the futures markets. In the event of a prolonged period of contango, and absent the impact of rising or falling bitcoin prices, this could have a negative impact on the Acquiring Fund’s NAV and total return, which in turn may have a negative impact on your investment in the Acquiring Fund. By way of example, during the period from 6/30/2020 to 6/30/2023, the market for Bitcoin Component Futures Contracts were in contango approximately 87% of the time, which resulted in an average annual negative roll yield of approximately 4.5%.
If the futures market is in contango (i.e., when the price of bitcoin in the future is to be more than the current price), the Acquiring Fund will buy later to expire contracts for a higher price than the soon to expire contracts that it sells. All other things being equal, a situation involving prolonged periods of contango may adversely impact the returns of the Acquiring Fund.
Regulatory Risk
Lack of regulation of the Bitcoin market.
Bitcoin, the Bitcoin Network and the bitcoin trading venues are relatively new and, in most cases, largely unregulated. As a result of this lack of regulation, individuals, or groups may engage in insider trading, fraud or market manipulation with respect to bitcoin. Such manipulation could cause investors in bitcoin to lose money, possibly the entire value of their investments. Over the past several years, a number of bitcoin trading venues have been closed due to fraud, failure or security breaches. The nature of the assets held at bitcoin trading venues make them appealing targets for hackers and a number of bitcoin trading venues have been victims of cybercrimes and other fraudulent activity. These activities have caused significant, in some cases total, losses for bitcoin investors. Investors in bitcoin may have little or no recourse should such theft, fraud or manipulation occur. There is no central registry showing which individuals or entities own bitcoin or the quantity of bitcoin that is owned by any particular person or entity. There are no regulations in place that would prevent a large holder of bitcoin or a group of holders from selling their bitcoins, which could depress the price of bitcoin, or otherwise attempting to manipulate the price of bitcoin or the Bitcoin Network. Events that reduce user confidence in bitcoin, the Bitcoin Network and the fairness of bitcoin trading venues could have a negative impact on the price of bitcoin and the value of an investment in the Acquiring Fund.
Risk of illicit activities.
As bitcoins have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”), SEC, CFTC, the Financial Industry Regulatory Authority, Inc. (“FINRA”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS, and state financial institution regulators) have been examining the Bitcoin Network, bitcoin users and the Bitcoin Exchange Market, with particular focus on the extent to which bitcoins can be used to launder the proceeds of illegal activities or fund criminal or terrorist enterprises and the safety and soundness of exchanges or other service providers that hold bitcoins for users. The imposition of stricter governmental regulation of the bitcoin market may adversely impact the activities of the Acquiring Fund, for example, by reducing the liquidity of the bitcoin markets.
Regulation of futures markets, futures contracts and futures exchanges is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect the Acquiring Fund. This risk is especially heightened for cryptocurrency derivatives and cryptocurrencies.
The regulation of futures markets, futures contracts and futures exchanges has historically been comprehensive. The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency including, for example, the retroactive implementation of speculative position limits, increased margin requirements, the establishment of dynamic price limits and the suspension of trading on an exchange or trading facility.
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The regulation of bitcoin interest and crypto derivatives transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2010. As the Dodd-Frank Act continues to be implemented by the CFTC and the SEC, there is a possibility of future regulatory changes within the United States altering, perhaps to a material extent, the nature of an investment in the Acquiring Fund, or the ability for the Acquiring Fund to continue to implement its investment strategy. In addition, various national governments outside of the United States have expressed concern regarding the disruptive effects of speculative trading in the commodities and crypto derivatives markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Acquiring Fund is impossible to predict but could be substantial and adverse.
The regulation of cryptocurrency derivatives and cryptocurrencies continues to evolve. Inconsistent, changing and sometimes conflicting regulations may make it more difficult for Bitcoin businesses to provide services, which may slow the adoption of the Bitcoin economy and may impede consumer adoption of Bitcoin. Future regulatory changes may materially alter the ability to buy and sell Bitcoin and Bitcoin futures or could impact the ability of the Acquiring Fund to achieve its investment objective. This may alter the nature of an investment in the Acquiring Fund or the ability of the Acquiring Fund to continue to operate as planned.
The Acquiring Fund’s Operating Risks
The Acquiring Fund may change its investment objective, Benchmark or investment strategies at any time without Shareholder approval or advance notice.
Consistent with applicable provisions of the Tidal Trust Agreement and Delaware law, the Acquiring Fund has broad authority to make changes to the Acquiring Fund’s operations. The Acquiring Fund may change its investment objective, Benchmark, or investment strategies and Shareholders of the Acquiring Fund will not have any rights with respect to these changes. Changes are subject to applicable regulatory requirements, including, but not limited to, any requirement to amend applicable listing rules of NYSE Arca. The reasons for and circumstances that may trigger any such changes may vary widely and cannot be predicted. By way of example, the Acquiring Fund may change the term structure or underlying components of the Benchmark in furtherance of the Acquiring Fund’s investment objective if, due to market conditions, a potential or actual imposition of position limits by the CFTC or futures exchange rules, or the imposition of risk mitigation measures by a futures commission merchant restricts the ability of the Acquiring Fund to invest in the current Benchmark Futures Contracts. Shareholders may experience losses on their investments in the Acquiring Fund as a result of such changes.
The Acquiring Fund is not a registered investment company, so you do not have the protections of the Investment Company Act of 1940.
The Acquiring Fund is not an investment company subject to the Investment Company Act of 1940. Accordingly, you do not have the protections expressly provided by that statute, including: provisions preventing Acquiring Fund insiders from managing the Acquiring Fund to their benefit and to the detriment of Acquiring Fund Shareholders; provisions preventing the Acquiring Fund from issuing securities having inequitable or discriminatory provisions; provisions preventing Fund management by irresponsible persons; provisions preventing the use of unsound or misleading methods of computing Acquiring Fund earnings and asset value; provisions prohibiting suspension of redemptions (except under limited circumstances); provisions limiting fund leverage; provisions imposing a fiduciary duty on fund managers with respect to receipt of compensation for services; and provisions preventing changes in the Acquiring Fund’s character without the consent of Acquiring Fund Shareholders.
Toroso relies on key personnel to oversee commodity pool activities.
In overseeing the day to day activities of the Acquiring Fund, Toroso relies on a single Series 3-registered individual, Mr. Gavin Filmore. If Mr. Filmore were to leave or be unable to carry out their present responsibilities, it will have an adverse effect on the management of the Acquiring Fund. To the extent that Toroso establishes additional commodity pools, even greater demands will be placed on this individual. There is no guarantee that Toroso will be able to retain this individual.
Toroso has limited capital and may be unable to continue to manage the Acquiring Fund if it sustains continued losses.
Toroso was formed for the purpose of managing the Tidal Trust, including the Acquiring Fund, and any other series of the Tidal 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 Toroso 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 Toroso were unable to continue to provide services to the Acquiring Fund, the Acquiring Fund would be terminated if a replacement sponsor could not be found. Any expenses related to the operation of the Acquiring Fund would need to be paid by the Acquiring Fund at the time of termination.
There are technical and fundamental risks inherent in the trading system Toroso intends to employ.
You cannot be assured that Toroso will be willing or able to continue to service the Acquiring Fund for any length of time. If Toroso discontinues its activities on behalf of the Acquiring Fund or other investment fund complex, the Acquiring Fund may be adversely affected. If Toroso’s registrations with the CFTC or memberships in the NFA were revoked or suspended, Toroso would no longer be able to provide services to the Acquiring Fund. Toroso’s trading system is quantitative in nature, and it is possible that the sponsor may make errors. Any errors or imperfections in Toroso’s trading system’s quantitative models, or in the data on which they are based, could adversely affect Toroso’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 Toroso will use any specific data or type of data in making trading decisions on behalf of the Acquiring Fund, nor is there any guarantee that the data actually utilized in making trading decisions on behalf of the Acquiring 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
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You cannot be assured of Toroso’s continued services, and discontinuance may be detrimental to the Acquiring Fund.
You cannot be assured that Toroso will be willing or able to continue to service the Acquiring Fund for any length of time. If Toroso discontinues its activities on behalf of the Acquiring Fund or other investment fund complex, the Acquiring Fund may be adversely affected. If Toroso’s registrations with the CFTC or memberships in the NFA were revoked or suspended, Toroso would no longer be able to provide services to the Acquiring Fund.
The Acquiring 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 Acquiring Fund may terminate at any time, regardless of whether the Acquiring Fund has incurred losses, subject to the terms of the Tidal Trust Agreement. For example, the dissolution or resignation of Toroso would cause the Tidal Trust to terminate unless shareholders holding a majority of the outstanding shares of the Tidal Trust, voting together as a single class, elect within 90 days of the event to continue the Tidal Trust and appoint a successor sponsor. In addition, Toroso may terminate the Acquiring Fund if it determines that the Acquiring Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Acquiring Fund unreasonable or imprudent. As of the date of this prospectus, Toroso pays the fees, costs, and expenses of the Fund. If Toroso and the Acquiring Fund are unable to raise sufficient funds so that the expenses are reasonable in relation to the Acquiring Fund’s NAV, the Acquiring Fund may be forced to terminate, and investors may lose all or part of their investment. Any expenses related to the operation of the Acquiring Fund would need to be paid by Toroso at the time of termination.
However, no level of losses will require Toroso to terminate the Acquiring Fund. The Acquiring 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 Acquiring 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.
Toroso may manage a large amount of assets, and this could affect the Acquiring Fund’s ability to trade profitably.
Increases in assets under management may affect trading decisions. While the Acquiring Fund’s assets are currently at manageable levels, Toroso does not intend to limit the amount of Acquiring Fund assets. The more assets Toroso 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 Toroso and the Trustee are limited, and the value of the Shares will be adversely affected if the Acquiring Fund is required to indemnify the Trustee or Toroso.
Under the Tidal Trust Agreement, the Trustee and Toroso 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 Toroso, as the case may be. That means the sponsor may require the assets of the Acquiring Fund to be sold in order to cover losses or liability suffered by Toroso or by the Trustee. Any sale of that kind would reduce the NAV of the Acquiring Fund and the value of its shares.
The Acquiring 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 Acquiring Fund on the other generally are terminable by the clearing brokers or counterparty upon notice to the Acquiring Fund. In addition, the agreements between the Acquiring Fund and its third-party service providers, such as the Distributor and the Custodian, are generally terminable at specified intervals. Upon termination, Toroso may be required to renegotiate or make other arrangements for obtaining similar services if the Acquiring Fund intends to continue to operate. Comparable services from another party may not be available, or even if available, these services may not be available on the terms as favorable as those of the expired or terminated arrangements.
The Acquiring Fund may experience a higher breakeven if interest rates decline.
The Acquiring Fund seeks to earn interest on cash balances available for investment. If actual interest rates earned were lower than the current rate estimated and if Toroso were not able to waive expenses sufficient to cover the deficit, the breakeven estimated by the Acquiring Fund in this prospectus could be higher.
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The Acquiring Fund is not actively managed.
The Acquiring 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 Acquiring Fund may sustain losses that may have been avoidable if the Acquiring Fund was actively managed.
The Net Asset Value calculation of the Acquiring 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 Acquiring Fund’s NAV includes, in part, any unrealized profits or losses on open positions. Under normal circumstances, the NAV reflects the quoted CME settlement price of open futures contracts on the date when the NAV is being calculated. In instances when the quoted settlement price of futures contracts traded on an exchange may not be reflective of fair value based on market condition, generally due to the operation of daily limits or other rules of the exchange or otherwise, the NAV may not reflect the fair value of open futures contracts on such date. For purposes of financial statements and reports, when a bitcoin futures contract has closed at its price fluctuation limit the Acquiring Fund will use the daily CME settlement price for the determination of NAV.
Purchases or redemptions of creation units in cash may cause the Acquiring Fund to incur certain costs or recognize gains or losses.
Purchases and redemptions of creation units will be transacted in cash rather than ‘in-kind’ where creation units are purchased and redeemed in exchange for underlying constituent securities. Purchases of creation baskets with cash may cause the Acquiring Fund to incur certain costs including brokerage commissions and redemptions of creation baskets with cash may result in the recognition of gains or losses that the Acquiring Fund might not have incurred if it had made redemptions in-kind.
An unanticipated number of redemption requests during a short period of time could have an adverse effect on the NAV of the Acquiring Fund.
If a substantial number of requests for redemption of Redemption Baskets are received by the Acquiring Fund during a relatively short period of time, the Acquiring Fund may not be able to satisfy the requests from the Acquiring Fund’s assets not committed to trading. As a consequence, it could be necessary to liquidate the Acquiring Fund’s trading positions before the time that its trading strategies would otherwise call for liquidation, which may result in losses.
Acquiring Fund assets may be depleted if investment performance does not exceed fees.
In addition to certain fees paid to the Acquiring Fund’s service providers, the Acquiring Fund pays Toroso a fee of 0.94% of assets under management per annum, regardless of Acquiring Fund performance. Over time, the Acquiring Fund’s assets could be depleted if investment performance does not exceed such fees.
The liquidity of the Shares may be affected by the withdrawal from participation of Authorized Purchasers, market makers, or other significant secondary-market purchasers which could adversely affect the market price of the Shares.
Only an Authorized Purchaser may engage in creation or redemption transactions directly with the Acquiring Fund. The Acquiring 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 Acquiring Fund and no other Authorized Purchaser is able to step forward to create or redeem creation units, Acquiring Fund shares may trade at a discount to NAV and possibly face halts and/or delisting. In addition, a decision by a market maker, lead market maker, or other large investor to cease activities for the Acquiring Fund or a decision by a secondary market purchaser to sell a significant number of the Acquiring Fund’s shares could adversely affect liquidity, the spread between the bid and ask quotes, and potentially the price of the shares. Toroso 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 Acquiring Fund. If the Acquiring 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 Acquiring Fund to sell their shares in the secondary market. These minimum levels for the Acquiring Fund are 50,000 shares representing five baskets. The minimum level of shares specified for the Acquiring Fund is subject to change. (The current number of shares outstanding will be posted daily on our website, http://hashdex-etfs.com/.)
The postponement, suspension or rejection of purchase or redemption orders could adversely affect a Shareholder redeeming their Shares in the Acquiring Fund.
The postponement, suspension or rejection of creation or redemption orders may adversely affect an investment in the shares of the Acquiring Fund. To the extent orders are suspended or rejected, the arbitrage mechanism resulting from the process through which Authorized Purchasers create and redeem shares directly with the Acquiring Fund may fail to closely link the price of the shares to the value of the underlying Bitcoin Futures Contracts, as measured using the Benchmark. If this is the case, the liquidity of the shares may decline, and the price of the shares may fluctuate independently of the Benchmark and may fall.
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There are no limitations on Toroso’s discretion to postpone, suspend or reject purchase or redemption orders under the Securities Act, or SEC listing orders permitting the listing and trading of the Acquiring Fund’s shares on NYSE Arca. In addition, shareholders of the Acquiring Fund will not have the protections provided in this regard that are applicable to funds regulated under the Investment Company Act of 1940.
Investors may not be able to buy or sell Shares of the Acquiring Fund through their current brokerages.
Because of volatility and other risks associated with bitcoin-related investments, brokerage firms may limit or not permit trading in such investments. Because of current or future brokerage policies regarding bitcoin-linked securities, investors could have difficulty selling shares through their brokerage and potentially face restrictions when or how they could trade their shares.
The failure or bankruptcy of a clearing broker could result in substantial losses for the Acquiring Fund; the clearing broker could be subject to proceedings that impair its ability to execute the Acquiring Fund’s trades.
Under CFTC regulations, a clearing broker with respect to the Acquiring Fund’s exchange-traded bitcoin interests must maintain customers’ assets in a bulk segregated account. If a clearing broker fails to do so or is unable to satisfy a substantial deficit in a customer account, its other customers may be subject to risk of a substantial loss of their funds in the event of that clearing broker’s bankruptcy. In that event, the clearing broker’s customers, such as the Acquiring 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 Acquiring Fund also may be subject to the risk of the failure of, or delay in performance by, any exchanges and markets and their clearing organizations, if any, on which bitcoin interests are traded.
From time to time, the clearing brokers may be subject to legal or regulatory proceedings in the ordinary course of their business. A clearing broker’s involvement in costly or time-consuming legal proceedings may divert financial resources or personnel away from the clearing broker’s trading operations, which could impair the clearing broker’s ability to successfully execute and clear the Acquiring Fund’s trades.
The failure or insolvency of the Acquiring Fund’s Custodian or other financial institution in which the Acquiring Fund has deposits could result in a substantial loss of the Acquiring Fund’s assets.
As noted above, the vast majority of the Acquiring 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 Acquiring Fund holds cash and cash equivalents could result in a complete loss of the Acquiring Fund’s assets.
Third parties may infringe upon or otherwise violate intellectual property rights or assert that Toroso has infringed or otherwise violated their intellectual property rights, which may result in significant costs, litigation, and diverted attention of Toroso’s management.
Third parties may assert that Toroso 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 Toroso and claim that Toroso has violated their intellectual property rights, including their copyrights, trademark rights, trade names, trade secrets and patent rights. As a result, Toroso 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 Toroso is successful and regardless of the merits, may result in significant costs, divert resources from the Acquiring Fund, or require Toroso to change its proprietary software and other technology or enter into royalty or licensing agreements.
The Acquiring Fund may experience substantial losses on transactions if the computer or communications system fails.
The Acquiring 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 Toroso 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 Toroso’s and Acquiring Fund’s reputations, increased operational expenses and diversion of technical resources.
If the computer and communications systems are not upgraded when necessary, the Acquiring 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 Acquiring 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, Toroso will need to make corresponding upgrades to effectively continue its trading activities. Toroso may have limited financial resources for these upgrades or other technological changes. The Acquiring Fund’s future success may depend on Toroso’s ability to respond to changing technologies on a timely and cost-effective basis.
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The Acquiring 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 Acquiring 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 Toroso uses to conduct trading activities. Failure or inadequate performance of any of these systems could adversely affect Toroso’s ability to complete transactions, including its ability to close out positions, and result in lost profit opportunities and significant losses on cryptocurrency derivative transactions. This could have a material adverse effect on revenues and materially reduce the Acquiring 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 Acquiring 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 Toroso to reconcile its records of transactions with those of another party or to accomplish settlement of executed transactions.
An investment in the Acquiring 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 Acquiring Fund’s shares are listed for trading on NYSE Arca, there can be no assurance that an active trading market for such Shares will develop or be maintained. Trading in the Acquiring Fund’s shares may be halted due to market conditions or for reasons that, in the view of NYSE Arca, make trading in shares inadvisable. There can be no assurance that the requirements of NYSE Arca necessary to maintain the listing of the Acquiring 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 Acquiring Fund’s shares will generally fluctuate with changes in the market value of the Acquiring Fund’s portfolio holdings. The market prices of shares will generally fluctuate in accordance with changes in the Acquiring Fund’s NAV and supply and demand of shares on NYSE Arca. It cannot be predicted whether the Acquiring Fund’s shares will trade below at or above their NAV. Investors who buy the Acquiring Fund’s shares at a market price that is a premium to NAV face a risk of loss if the market price of their shares subsequently converges with NAV per share. Investors buying or selling Acquiring 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.
NYSE Arca may halt trading in the Shares which would adversely impact your ability to sell Shares.
Trading in shares of the Acquiring Fund may be halted by NYSE Arca due to market conditions or, in light of NYSE Arca rules and procedures, for reasons that, in view of NYSE Arca, make trading in shares inadvisable. Such market conditions or other reasons may include when there is significant news directly related to the Acquiring Fund that, in NYSE Arca’s view or per existing NYSE Arca rules, requires a trading halt, such as when Toroso announces news relating to changes/disruptions in the Acquiring Fund’s create/redeem process during market trading hours. In addition, market conditions that would result in trading halts may also include extraordinary market volatility that trigger rules requiring trading to be halted for a specified period based on a specified market decline. NYSE Arca might also halt trading if there is insufficient trading in BTC or MBT Contracts. There can be no assurance that the requirements necessary to maintain the listing of the shares will continue to be met or will remain unchanged. The Acquiring Fund will be terminated if its shares are delisted.
A Pause in Bitcoin Futures Contracts May lead To Gaps Between Prices in Spot and Futures Markets.
On May 19, 2021, the CME Group temporarily paused trading of bitcoin futures after the bitcoin futures market opened to a large price gap between the derivatives and the underlying crypto asset that triggered CME circuit breakers. Due to the misaligned trading periods between spot and futures markets, such gaps, which can be positive or negative, have the potential to frequently exist and, when CME circuit breakers limit the trading in bitcoin futures markets, bid/ask spreads in shares of the Acquiring Fund trading on NYSE Arca may be significantly wider than when bitcoin futures markets are trading without restrictions, which may adversely impact your ability to buy or sell shares in the Acquiring Fund at a particular price.
The lack of active trading markets for the Shares of the Acquiring Fund may result in losses on your investment in the Acquiring Fund at the time of disposition of your Shares.
Although the shares of the Acquiring Fund will be listed and traded on NYSE Arca, there can be no guarantee that an active trading market for the shares of the Acquiring Fund will be maintained. If you need to sell your shares at a time when no active market for them exists, the price you receive for your shares, assuming that you are able to sell them, likely will be lower than what you would receive if an active market did exist.
The Acquiring Fund is newly formed by virtue of the Merger with Acquired Fund and may not be successful in implementing its investment objective or attracting sufficient assets.
The Acquiring Fund is the survivor of the Merger with the Acquiring Fund and has a limited operating history and a small asset base. There can be no assurance that the Acquiring Fund will grow to or maintain a viable size. Due to the Acquiring Fund’s small asset base, the Acquiring Fund’s portfolio transaction costs and any costs that are not paid by Acquiring pursuant to the Management Fee, may be relatively higher than those of a fund with a larger asset base. To the extent that the Acquiring Fund does not grow to or maintain a viable size, it may be liquidated, and the expenses, timing and tax consequences of such liquidation may not be favorable to some Shareholders. In this regard, as of the date of this prospectus there are at least seven bitcoin futures contracts, not including the Acquired Fund. In this regard, as of the date of this prospectus there are three bitcoin futures-based ETFs. The first fund launched has obtained significantly more assets than the other two. To the extent that this “first mover” advantage continues to favor the first fund launched, this might constrain the Acquiring Fund’s growth.
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Sponsoring the Acquiring Fund will be Toroso’s first experience in the crypto asset markets.
There are risks related to Toroso’s lack of experience in the crypto asset markets, particularly with respect to marketing the Acquiring Fund. To address this risk, Toroso has entered into the Support Agreement discussed above, under which Hashdex will provide crypto asset related marketing services. To the extent that the Acquiring Fund does not grow to or maintain a viable size, it may be liquidated, and the expenses, timing and tax consequences of such liquidation may not be favorable to some shareholders.
Existing or future bitcoin futures based ETFs may have significantly lower management fees, which may impede the growth of the Acquiring Fund.
Existing and future bitcoin futures based ETFs may have fees that are significantly lower than the Acquiring Fund's. To the extent that the Acquiring Fund has relatively higher fees than other such funds, this could impede growth of the Acquiring Fund, possibly result in a lower NAV per Share, and otherwise pose a material risk to investors.
The Market for Bitcoin Futures-Based ETFs May Reach Saturation
The market for bitcoin futures-based ETFs like the Acquiring Fund may reach a point where there is little or no additional investor demand. If this happens, there can be no assurance that the Acquiring Fund will grow to or maintain a viable size. Due to the Acquiring Fund’s small asset base, certain of the Acquiring Fund’s expenses and its portfolio transaction costs may be higher than those of a fund with a larger asset base. To the extent that the Acquiring Fund does not grow to or maintain a viable size, it may be liquidated, and the expenses, timing and tax consequences of such liquidation may not be favorable to some shareholders.
Potential Conflicts of Interest
The Acquiring Fund and Toroso may have conflicts of interest, which may cause them to favor their own interests to your detriment.
The Acquiring Fund and Toroso may have inherent conflicts to the extent Toroso attempts to maintain the Acquiring Fund’s asset size in order to preserve its fee income and this may not always be consistent with the Acquiring Fund’s objective of having the value of its shares’ NAV track changes in the Benchmark. Toroso’s officers and employees do not devote their time exclusively to the Acquiring Fund. These persons may be directors, trustees, officers or employees of other entities. They could have a conflict between their responsibilities to the Acquiring Fund and to those other entities.
Toroso’s principals, officers or employees may trade securities and futures and related contracts for their own accounts.
In addition, Toroso’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 Acquiring Fund trades using the clearing broker to be used by the Acquiring Fund. A potential conflict also may occur if Toroso’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 Acquiring Fund.
Toroso has sole current authority to manage the investments and operations of the Acquiring 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 Toroso to allocate expenses to and between the Acquiring Fund of the Tidal Trust. Shareholders have very limited voting rights, which will limit the ability to influence matters such as amendment of the Tidal Trust Agreement, changes in the Acquiring Fund’s basic investment policies, dissolution of the Acquiring Fund, or the sale or distribution of the Acquiring Fund’s assets.
Shareholder Voting Rights and Liability
Shareholders have only very limited voting rights and generally will not have the power to replace Toroso. Shareholders will not participate in the management of the Acquiring Fund and do not control Toroso so they will not have influence over basic matters that affect the Acquiring Fund.
Shareholders will have very limited voting rights with respect to the Acquiring Fund’s affairs. Shareholders may elect a replacement sponsor only if Toroso resigns voluntarily or loses its corporate charter. Shareholders will not be permitted to participate in the management or control of the Acquiring Fund or the conduct of its business. Shareholders must therefore rely upon the duties and judgment of Toroso to manage the Acquiring Fund’s affairs.
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Although the Shares of the Acquiring Fund are limited liability investments, certain circumstances such as bankruptcy could increase a Shareholder’s liability.
The shares of the Acquiring 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 Acquiring Fund any distribution they received at a time when the Acquiring Fund was in fact insolvent or that was made in violation of its Tidal Trust Agreement.
As a Shareholder, you will not have the rights enjoyed by investors in certain other types of entities.
As interests in separate series of a Delaware statutory trust, the shares do not involve the rights normally associated with the ownership of shares of a corporation (including, for example, the right to bring Shareholder oppression and derivative actions). In addition, the Shares have limited voting and distribution rights (for example, Shareholders do not have the right to elect directors, as the Tidal 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 Acquiring Fund). The Acquiring Fund is also not subject to certain investor protection provisions of the Sarbanes Oxley Act of 2002 and NYSE Arca governance rules (for example, audit committee requirements).
A court could potentially conclude that the assets and liabilities of the Acquiring Fund are not segregated from those of another series of the Trust, thereby potentially exposing assets in the Acquiring Fund to the liabilities of another series.
The Acquiring Fund is a series of a Delaware statutory trust and not itself a legal entity separate from the other series. 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. Toroso 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. Toroso intends to maintain separate and distinct records for the Acquiring Fund and account for the Acquiring Fund separately from any other Tidal 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 Acquiring Fund to the liabilities of one or more of the funds and/or any other Tidal Trust series created in the future.
The Acquiring Fund does not expect to make cash distributions.
Toroso intends to re-invest any income and realized gains of the Acquiring 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 Acquiring Fund generally will not distribute cash to Shareholders. You should not invest in the Acquiring Fund if you will need cash distributions from the Acquiring Fund to pay taxes on your share of income and gains of the Acquiring Fund, if any, or for any other reason. Although the Acquiring Fund does not intend to make cash distributions, it reserves the right to do so in Toroso’s sole discretion, in certain situations, including for example, if the income earned from its investments held directly or posted as margin may reach levels that merit distribution, e.g., at levels where such income is not necessary to support its underlying investments in Benchmark Component Futures Contracts and investors adversely react to being taxed on such income without receiving distributions that could be used to pay such tax. Cash distributions may be made in these and similar instances.
Event Risk
The occurrence of a severe weather event, natural disaster, terrorist attack, outbreak or public health emergency as declared by the World Health Organization, the continuation or expansion of war or other hostilities, or a prolonged government shutdown may have significant adverse effects on the Acquiring Fund and its investments and alter current assumptions and expectations.
The operations of the Acquiring Fund, the exchanges, brokers and counterparties with which the Acquiring Fund does business, and the markets in which the Fund does business could be severely disrupted in the event of a severe weather event, natural disaster, major terrorist attack, cyber-attack, data breach, outbreak or public health emergency as declared by the World Health Organization (such as the recent pandemic spread of the novel coronavirus known as COVID-19), or the continuation or expansion of war or other hostilities. Global terrorist attacks, anti-terrorism initiatives, war and other geopolitical events and political unrest, as well as the adverse impact the COVID-19 pandemic will have on the global and U.S. markets and economy, continue to fuel this concern. For example, events in Eastern Europe and Asia, including but not limited to the war in Ukraine or actions by China and North Korea, may cause volatility in bitcoin markets or the COVID-19 pandemic may adversely impact the level of services currently provided by the U.S. government, could weaken the U.S. economy, interfere with the commodities markets that rely upon data published by U.S. federal government agencies, and prevent the Acquiring Fund from receiving necessary regulatory review or approvals. The types of events discussed above, including the COVID-19 pandemic, are highly disruptive to economies and markets and have recently led, and may continue to lead, to increased market volatility and significant market losses.
More generally, a climate of uncertainty and panic, including the contagion of the COVID-19 virus and other infectious viruses or diseases, may adversely affect global, regional, and local economies and reduce the availability of potential investment opportunities, and increases the difficulty of performing due diligence and modeling market conditions, potentially reducing the accuracy of financial projections. Under these circumstances, the Acquiring 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, Toroso 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 Acquiring Fund’s investments. These factors could cause substantial market volatility, exchange trading suspensions and closures that could impact the ability of the Acquiring Fund to complete redemptions and otherwise affect Acquiring Fund performance and Acquiring 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 Acquiring Fund’s performance, resulting in losses to your investment. The past, current and future global economic impact may cause the underlying assumptions and expectations of the Acquiring Fund to become outdated quickly or inaccurate, resulting in significant losses.
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Failures or breaches of electronic systems could disrupt the Acquiring Fund’s trading activity and materially affect the Acquiring Fund’s profitability.
Failures or breaches of the electronic systems of the Acquiring Fund, Toroso, the Custodian or other financial institutions in which the Acquiring Fund invests, or the Acquiring Fund’s other service providers, market makers, Authorized Purchasers, NYSE Arca, exchanges on which Bitcoin Futures Contracts or other bitcoin interests are traded or cleared, or counterparties have the ability to cause disruptions and negatively impact the Acquiring Fund’s business operations, potentially resulting in financial losses to the Acquiring 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 Acquiring Fund’s assets or sensitive information. While the Acquiring 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 Acquiring Fund cannot control the cyber security plans and systems of the Custodian or other financial institutions in which the Acquiring Fund invests, or the Acquiring Fund’s other service providers, market makers, Authorized Purchasers, NYSE Arca, exchanges on which bitcoin Futures Contracts or other bitcoin interests are traded or cleared, or counterparties.
Risk of Volatility
The price of bitcoin can be volatile which could cause large fluctuations in the price of Shares.
As discussed in more detail above, price movements for bitcoin are influenced by, among other things, the environment, natural or man-made disasters, governmental oversight and regulation, demographics, economic conditions, infrastructure limitations, existing and future technological developments, and a variety of other factors now known and unknown, any and all of which can have an impact on the supply, demand, and price fluctuations in the bitcoin markets. More generally, cryptocurrency prices may be influenced by economic and monetary events such as changes in interest rates, changes in balances of payments and trade, U.S. and international inflation rates, currency valuations and devaluations, U.S. and international economic events, and changes in the philosophies and emotions of market purchasers. Because the Acquiring Fund invests in futures contracts in a single cryptocurrency, it is not a diversified investment vehicle, and therefore may be subject to greater volatility than a diversified portfolio of stocks or bonds or a more diversified commodity or cryptocurrency pool.
Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility represents how large an asset’s prices swing around the mean price—it is a statistical measure of its dispersion of returns.
According to Bloomberg from 6/30/2022 to 6/30/2023 front month Bitcoin Futures Contracts exhibited an average implied 30-Day volatility of 61.24. The highest volatility during that period was 92.86 on 7/12/22 and the lowest was 27.58 on 10/24/2022.
Bitcoin can be highly volatile, for example, after a 774% price increase from 1/1/2020 prices peaked in May 2021 and front month Bitcoin Futures Contracts began to decline with a peak to trough retracement of 47.06% by 7/20/2021. Prices then rose from that low until 11/9/2021 resulting in a price increase of 127.58%. Front month Bitcoin Futures Contracts prices peaked on 11/9/2021 and have since seen a retracement of 57.05% as of 5/27/2022. Front month bitcoin futures prices have declined 54.51% since May 2021.
The table below includes significant single day price declines since inception of the Bitcoin Futures Contracts in December 2017 for both bitcoin (as measured by the BRR) and for Bitcoin Futures Contracts (as measured by the front month Bitcoin Futures Contract), including the single day price decline that occurred on September 7, 2021, followed by a brief narrative disclosure describing the significant declines:
| Date | BTC1 Daily % Change | BRR Daily % Change | Notes |
| 3/12/2020 | -23.49% | -21.89% | The selloff in Bitcoin futures coincided with broader financial market duress at the onset of the COVID pandemic. |
| 6/27/2019 | -21.82% | -9.31% | Potentially signals near term profit taking as the front month contract gained, after gaining approximately 22% in the prior session. |
| 6/13/2022 | -20.09% | -15.45% | Selling picked up after failing to hold the $30,000 level, filling the gap created on the way up during December 2020. |
| 1/16/2018 | -19.97% | -13.50% | Bitcoin futures were relatively new and there was significant selling interest early on that carried through December 2018. |
| 2/5/2018 | -15.43% | -14.16% | Bitcoin futures were relatively new and there was significant selling interest early on that carried through December 2018. |
| 5/9/2022 | -13.90% | -4.85% | After failing to close back above $40,000 on May 4th, selling accelerated as market participants zeroed in on $30,000 as the next potential area of price support. |
| 11/8/2022 | -13.63% | -6.38% | Bitcoin sold off as Binance was considering pulling out of a deal to purchase FTX. |
| 11/9/2022 | -13.26% | -10.02% | Bitcoin faced continued pressure from sellers as concerns surrounding the FTX news weighted heavy on the market. |
| 1/21/2022 | -10.53% | -10.75% | The downtrend that began in November of 2021 showed signs of accelerating as prices traded at their lowest levels since July of 2021. |
| 11/11/2022 | -9.73% | -4.22% | After rallying over 15% the day prior, the selling resumed as the market continued to digest the news around FTX. |
| 5/5/2022 | -9.10% | -0.65% | After failing to close back above $40,000 on May 4th, selling accelerated as market participants appear to be testing ~$35,000 for potential support. |
| 8/19/2022 | -9.02% | -8.70% | Bitcoin futures had been trending higher for much of the summer as market participants assumed a "risk on" posture that was reflected in stock market during the same period. However, sentiment changed to "Risk off" as market participants began to re-think the Fed's tightening cycle, and potential for prolonged/deeper economic slowdown. |
| 12/6/2021 | -8.56% | 0.56% | The previous session saw front-month Bitcoin futures get rejected after testing the 50-day moving average and reversing lower. Prices gapped lower on 12/06. |
| 9/20/2021 | -7.81% | -7.61% | After advancing nearly 70% since July 20th prices began to retrace on September 7th. Yet it wasn't until 09/20 that prices tested both the 50- and 100-day moving averages at the technical point where the 50-day was about to cross back above the 100-day. Suggests that this selling was technical in nature. |
| 9/7/2021 | -7.75% | -3.35% | The selling may have been the result of profit taking as Bitcoin futures closed over $50,000 for the first time in the prior session. |
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Tax Risk
The Acquiring Fund could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of your Shares.
The Tidal Trust has received an opinion of counsel that, under current U.S. federal income tax laws, the Acquiring Fund more likely than not will be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that, among other things, (i) at least 90 percent of the Acquiring Fund’s annual gross income consists of “qualifying income” as defined in the Internal Revenue Code of 1986, as amended (the “Code”), (ii) the Acquiring Fund is organized and operated in accordance with its governing agreements and applicable law, and (iii) the Acquiring Fund does not elect to be taxed as a corporation for U.S. federal income tax purposes. Opinions of counsel are not binding on the Internal Revenue Service (the “IRS”) and no assurance can be given that the IRS or a court will agree with counsel’s opinion. Although Toroso anticipates that the Acquiring Fund will satisfy the “qualifying income” requirement for all of its taxable years, that result cannot be assured. There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives. The Acquiring 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 Acquiring 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 Acquiring Fund would be subject to tax on its net income for the year at corporate tax rates. In addition, although Toroso does not currently intend to make distributions with respect to Shares, any such distributions would be taxable to Shareholders as dividend income to the extent of the Acquiring 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 they exceeds a Shareholder’s basis in such shares, as capital gain for Shareholders who hold their shares as capital assets. Taxation of the Acquiring Fund as a corporation could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of your Shares.
Your tax liability from holding Shares may exceed the amount of distributions, if any, on your Shares.
Cash or property will be distributed by the Acquiring Fund at the sole discretion of Toroso, and Toroso currently does not intend to make cash or other distributions with respect to Shares. Assuming the Acquiring Fund qualifies to be taxed as a partnership for U.S. federal income tax purposes, you will be required to pay U.S. federal income tax and, in some cases, state, local, or foreign income tax, on your allocable share of the Acquiring 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.
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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 Acquiring Fund in making allocations for U.S. federal income tax purposes and other factors, your allocable share of the Acquiring Fund’s income, gain, deduction or loss may be different than your economic profit or loss from your Shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in your being taxed on amounts in excess of your economic income.
Items of income, gain, deduction, loss and credit with respect to Shares could be reallocated and the Acquiring 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 Acquiring Fund in allocating those items, with potential adverse consequences for you.
The Acquiring Fund intends to be treated as a partnership for U.S. federal income tax purposes. The U.S. tax rules pertaining to entities taxed as partnerships are complex and their application to publicly traded partnerships such as the Acquiring Fund, is in many respects uncertain. The Acquiring Fund will apply certain assumptions and conventions in an attempt to comply with the intent of the applicable rules and to report taxable income, gains, deductions, losses and credits in a manner that properly reflects Shareholders’ economic gains and losses. These assumptions and conventions may not fully comply with all aspects of the Code, and applicable Treasury Regulations, however, and it is possible that the IRS will successfully challenge our allocation methods and require us to reallocate items of income, gain, deduction, loss or credit in a manner that adversely affects you.
The Acquiring 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 Acquiring 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 Acquiring 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 Acquiring 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 Acquiring Fund to make this election is uncertain. If the election is made, the Acquiring 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 Acquiring 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 Acquiring Fund may be required to pay withholding tax with respect to allocations to Non-U.S. Shareholders. Although the Tidal Trust Agreement provides that any such withholding will be treated as being distributed to the Non-U.S. Shareholder, the Acquiring 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 Acquiring Fund does not intend to make any distributions. Under such circumstances, all Shareholders may bear the economic cost of the withholding, not just the Shareholders on whose behalf such amounts were withheld. This could have a material impact on the value of your shares.
Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns.
The partner information tax returns on Schedule K-1, which the Acquiring Fund will distribute to Shareholders, will contain information regarding the income items and expense items of the Fund. If you have not received Schedule K-1s from other investments, you may find that preparing your income tax returns may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your returns.
Shareholders of the Acquiring Fund may recognize significant amounts of ordinary income and short-term capital gain.
Due to the investment strategy of the Acquiring Fund, the Acquiring Fund may realize and pass through to Shareholders significant amounts of ordinary income and short-term capital gains as opposed to long-term capital gains. Ordinary income and short-term capital gains are generally taxed at higher U.S. federal income tax rates than the preferential U.S. federal income rates applicable to long-term capital gains.
Tax legislation that has been or could be enacted may affect you with respect to your investment in the Acquiring 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 Acquiring Fund and its Shareholders. Please consult a tax advisor regarding the implications of an investment in shares of the Acquiring Fund, including without limitation the federal, state, local and foreign tax consequences.
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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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus/information statement 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 Acquiring Fund’s operations, Toroso’s plans and references to the Acquiring 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 Toroso 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 Toroso’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. 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 Toroso 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 Acquiring Fund’s operations or the value of its shares.
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THE MERGER
The Teucrium Trust and the Tidal Trust entered into the Plan of Merger on October 30, 2023. Pursuant to the Plan of Merger, each Acquired Fund shareholder will receive one share of the Acquiring Fund for every one share of the Acquired Fund held on or about January 3, 2024 Closing Date. Further, the Acquiring Fund will acquire all the assets of the Acquired Fund and assume all the liabilities of the Acquired Fund. Upon the Merger closing, the Plan of Merger will cause all of the Acquired Fund’s shares to be cancelled and the Acquired Fund to be liquidated.
The Acquiring Fund will be the successor and surviving entity from the Merger. The net asset value per share of the Acquired Fund determined after the close of trading on NYSE Arca on the Closing Date will be used for determination of the net asset value per share of the Acquiring Fund and value of the Acquiring Fund shares to be delivered in the Merger. This valuation mechanism of the Plan of Merger will result in one share of the the Acquired Fund being distributed to each holder of a share of the Acquired Fund.
On the Closing Date, Acquiring Fund shares to be issued in the Merger (the “Merger Shares”) will be issued to the registered holder of the shares of the Acquired Fund, which is the Depository Trust Company (“DTC”) that holds through Cede & Co., as nominee for DTC. DTC will further distribute the Merger Shares by book entry to its direct and indirect participants, who in turn will further distribute, as necessary, the Merger Shares by book entry until the beneficial owners of the Acquired Fund’s shares receive a distribution of Merger Shares to which they are entitled. On the Closing Date, the Acquired Fund will deliver its assets to the Acquiring Fund’s custodian and FCMs, and the Acquiring Fund will deliver to the Teucrium Trust an instrument or other documents evidencing the Acquiring Fund’s assumption of the liabilities of the Acquired Fund.
Before the Merger, the Acquiring Fund has no operations, has received $100 in cash from Toroso for four Shares to complete the pre-operational formation of the Acquiring Fund and has no liabilities. The completion of the Merger will mark the commencement of (1) operations by the Acquiring Fund and (2) Acquiring Fund share trading on NYSE Arca. The Acquiring Fund will succeed to the performance history of the Acquired Fund, which began operations on September 15, 2022. Following the Merger, all Acquired Fund shareholders will be a shareholder of the Acquiring Fund, which will trade on NYSE Arca under the ticker symbol “DEFI” (CUSIP No.: 88634V100).
The Acquiring Fund has the same investment objective, investment strategies and investment restrictions, and substantially identical investment risks as the Acquired Fund. Any material differences in investment risks between the Acquired Fund and the Acquiring Fund are solely attributable to the differences in sponsorship by Teucrium and by Toroso, respectively. Following the Merger, the Acquiring Fund will be managed by portfolio managers employed by Toroso.
The Acquiring Fund will pay the same management fee rate to Toroso, under the same terms, as currently paid by the Acquired Fund to the Teucrium. The management fee for the Acquiring Fund is the same as the management fee for the Acquired Fund (0.94% per annum of the fund’s average daily net assets).
The Merger will not materially modify the rights of Acquried Fund shareholders with respect to their investment. Both the Teucrium Trust and the Tidal Trust are Delaware statutory trusts. The Teucrium Trust Agreement is the Teucrium Trust’s governing instrument applicable to the Acquired Fund and its shareholders.The Tidal Trust Agreement is the Tidal Trust’s governing instrument applicable to the Acquiring Fund and its shareholders. The terms of the Tidal Trust Agreement are substantially identical to the terms of Teucrium Trust Agreement. Consequently, the instruments that govern the rights of the Acquiring Fund shareholders with respect to their shares will not be materially different from those that govern the rights of the Acquired Fund’s shareholders with respect to their shares.
No action or vote is needed on the part of Acquired Fund shareholders to approve the Merger or participate in the distribution of the Merger Shares pursuant to the Plan Merger. Following the Merger, each Acquired Fund shareholder’s brokerage account will reflect the Merger Shares distributed to such shareholder.
The Acquired Fund and Acquiring Fund have many of the same service providers. The differences between the Acquired Fund and Acquiring Fund relate primarily to (1) the Acquiring Fund being managed by Toroso whereas the Acquired Fund is managed by Teucrium, (2) the Acquiring Fund will be a series of the Tidal Trust and governed by the Tidal Trust Agreement, and (3) some service providers that provide Third Party Service Arrangements to the Acquiring Fund will be different from those of the Acquired Fund. Teucrium and Toroso believe that these differences resulting from the Merger should should not affect the value of an Acquired Fund shareholder’s investment.
Additional Terms and Conditions to Consummation of the Merger
With respect to the Plan of Merger, the obligations of the Acquired Fund and the Acquiring Fund are subject to the following terms and conditions, among others:
| ● | The value of the Acquired Fund’s assets to be acquired, and the amount of the Acquired Fund’s known liabilities to be assumed, by the Acquiring Fund shall be computed as of the scheduled close of trading on NYSE Arca (usually 4:00 p.m., Eastern time) on the Closing Date using the valuation procedures set forth in the Teucrium Trust Agreement, and the then-current prospectus or statement of additional information of the Acquired Fund. |
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| ● | The Acquired Fund’s custodian and FCMs shall each deliver on the Closing Date a certificate of an authorized officer stating that the Acquired Fund’s assets have been delivered in proper form to the Acquiring Fund on the Closing Date. The Acquired Fund’s portfolio securities and instruments deposited with a securities depository or with a permitted counterparty or FCM shall be delivered to the Acquiring Fund’s custodian and FCMs, as of the Closing Date by book entry, in accordance with the customary practices of such custodian and FCM, as applicable. |
| ● | The Acquired Fund and Acquiring Fund have each delivered an officer’s certificate certifying that all agreements and commitments set forth in the Plan of Merger have been satisfied. |
| ● | The Acquired Fund and the Acquiring Fund shall each have received a legal opinion that the consummation of the transactions contemplated by the Plan of Merger will not result in the recognition of gain or loss for federal income tax purposes for the Acquired Fund or its shareholders or the Acquiring Fund. |
| ● | The Plan of Merger may be terminated and the Merger may be abandoned at any time prior to Closing if Toroso determines that the Merger is inadvisable. The Plan of Merger may be amended or modified in a writing signed by the parties to the Plan of Merger. |
The Acquiring Fund and the Acquired Fund will file current reports on Form 8-K including a press release announcing that the Merger has been consummated.
Neither the Acquired Fund nor the Acquiring Fund will pay for the costs of the Merger. Toroso will pay all the costs associated with the Merger, including the expenses associated with preparing and filing this Information Statement and the cost of copying, printing and mailing this Information Statement.
Regulatory Approvals
No regulatory approvals are required for the consummation of the Merger.
Consent of Teucrium
On October 30, 2023, pursuant to the Teucrium Trust Agreement, Teucrium took action to approve the Plan of Merger and the other transactions contemplated by the Plan of Merger, including approving the Merger and the liquidation of the Acquired Fund in connection with the Merger.
No Appraisal or Dissenters’ Rights
The Acquired Fund’s shareholders will not be entitled to exercise appraisal or dissenters’ rights under the Delaware Statutory Trust Act in connection with the Merger.
Acquired Fund shareholders who object to the Merger or who otherwise do not wish to receive Merger Shares should, before the Closing Date, sell their shares in the secondary market or seek to have them redeemed by the Acquired Fund if the conditions for redemption stated in the Acquired Fund’s current prospectus can be met.
Federal Income Tax Consequences of the Merger
As a condition to the closing of the Merger, the Acquring Fund Sponsor and Acquired Fund Sponosr will receive, on behalf of the Acquired Fund and the Acquiring Fund, respectively, a tax opinion of counsel from K&L Gates LLP with respect to the Merger substantially to the effect that for federal income tax purposes:
● No gain or loss will be recognized by the Acquired Fund or its shareholders upon the transfer of all Acquired Fund assets to the Acquiring Fund solely in exchange for the Acquiring Fund’s shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund, or upon the distribution of the Acquiring Fund’s shares to the shareholders of the Acquired Fund, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code;
● The tax basis in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger will be the same as the tax basis of such asset in the hands of the Acquired Fund immediately prior to the transfer thereof, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Acquired Fund on the transfer;
● The holding period in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger, other than assets with respect to which gain or loss is required to be recognized, will include the Acquired Fund’s holding period for such asset (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset);
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● No gain or loss will be recognized by the Acquiring Fund upon its receipt of all the assets of the Acquired Fund solely in exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund as part of the Merger;
● No gain or loss will be recognized by the Acquired Fund shareholders upon the exchange of their Acquired Fund shares for Acquiring Fund shares as part of the Merger;
● The aggregate tax basis of the shares of the Acquiring Fund that each shareholder of the Acquired Fund receives in the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor;
● Each Acquired Fund shareholder’s holding period for the Acquiring Fund shares received in the Merger will include the Acquired Fund shareholder’s holding period for the Acquired Fund shares exchanged therefor, provided that the Acquired Fund shareholder held such Acquired Fund shares as capital assets on the date of the exchange; and
● The taxable year of the Acquired Fund will not end as a result of the Merger.
In rendering the opinion, counsel will rely upon, among other things, certain facts and assumptions and certain representations of Toroso and Teucrium. The condition that the parties to the Merger receive such an opinion may not be waived.
No tax ruling has been or will be received from the Internal Revenue Service (“IRS”) in connection with the Reorganization. An opinion of counsel is not binding on the IRS or a court, and no assurance can be given that the IRS would not assert, or a court would not sustain, a contrary position.
THE SUPPORT AGREEMENT
Toroso, Tidal, Hashdex (also referred to as the “Digital Asset Adviser”), and Teucrium (collectively the “Parties”) have entered into the Support Agreement that sets forth the terms and conditions applicable to the launch, marketing, promotion, development, and ongoing operation of the Acquired Fund and the Acquiring Fund, as well the respective rights in profits and obligations for expenses. Specifically, Toroso, Hashdex and Teucrium have experience in the digital asset and exchange-traded fund industries, and sought to offer a bitcoin futures based fund as part of their long-term business goals. The Parties believed that Teucrium was best positioned for the initial establishment and operation of the Acquired Fund, given Teucrium’s experience in forming and operating similarly structured exchanged-traded commodity pools registered under the Securities Act of 1933 (“1933 Act”). Accordingly, Teucrium was responsible for the initial creation and operation of the Acquired Fund. Then, when Hashdex and Toroso acheived the necessary experience and resources to operate the Acquiring Fund, the eventual transfer of sponsorship to Toroso will effectuate Teucrium’s, Hashdex’s and Toroso’s long-term business goals. Teucrium agreed in the Support Agreement to the Merger. Thus, the Merger will fulfill the sponsorship transfer contemplated by the Support Agreement, and the Acquiring Fund will be the successor and surviving entity from the Merger in accord with the long-term business goals as expressly stated in the Support Agreement.
The primary responsibilities and rights of each Party with respect to the Acquired Fund are described below:
| ● | The Support Agreement provides that Hashdex will provide to the other Parties research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the Acquired Fund. |
| ● | Teucrium, Toroso, and Hashdex are responsible for paying for all listing, legal, and regulatory costs and expenses incurred in connection with the regulatory process related to the launch of the Acquired Fund, including drafting the Acquired Fund’s registration statement, exchange listing fees, and other regulatory or service provider fees, as determined in the Support Agreement (“Start-Up Costs”). The Acquired Fund will not be responsible for the Start-Up Costs. Each Party is responsible for its own internal expenses. |
| ● | Teucrium will receive a sponsor fee, administrative fee and trading fee, which are paid out of the proceeds from the Management Fee of the Acquired Fund (if sufficient) and/or from Toroso and Hashdex (if insufficient). After an additional deduction of operational costs from the Management Fee, the resulting profits or losses will be shared equally among Toroso, on the one hand, and Hashdex on the other. |
Following the transfer of the assets of the Acquired Fund to the Acquiring Fund, the primary responsibilities and rights of each Party with respect to the Acquiring Fund under the Support Agreement are as follows:
| ● | Toroso will serve as sponsor of the Acquiring Fund as a series of the Tidal Trust, as described in this Information Statement. |
| ● | Tidal will provide fund administration and related services for the Acquiring Fund. |
| ● | Hashdex will provide to Toroso research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the Acquiring Fund. |
| ● | Teucrium will be entitled to receive a monthly amount equal to 7% of the Management Fee paid to Toroso by the Acquiring Fund; provided, however, that such fee will never be less than 0.04% of monthly average net assets of the Acquiring Fund. After an additional deduction of operational costs from the Management Fee, the resulting profits and losses will be shared equally among Toroso, on the one hand, and Hashdex on the other. |
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FURTHER INFORMATION ABOUT THE ACQUIRING FUND
The Acquiring Fund in General
The Acquiring Fund seeks to provide investors with a way to gain price exposure to the bitcoin market. In furtherance of this goal, the Acquiring Fund’s investment objective is for changes in the Shares’ NAV to reflect the daily changes of the price of the Benchmark, less expenses from the Acquiring Fund’s operations. Toroso and Hashdex developed the Benchmark as a representation of the bitcoin market. As of August 23, 2023, the Fund's total net assets were $1,608,534. The Acquiring Fund does not invest directly in bitcoin.
Under normal market conditions, the Acquiring Fund will invest in the Benchmark Component Futures Contracts and cash and cash equivalents. Toroso believes that by investing in Benchmark Component Futures Contracts, the Acquiring Fund’s NAV will closely track the Benchmark. Toroso 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 Acquiring Fund’s NAV. Toroso believes that the net effect of these relationships is that the Acquiring Fund’s market price on NYSE Arca at which investors purchase and sell Acquring Fund shares (the “Shares”) will closely track the bitcoin market, as measured by the Benchmark. However, the Acquiring Fund may not be successful in implementing its investment objective because the Acquiring Fund is newly formed and because the BTC Contracts and MBT Contracts listed on the CME are a relatively new type of futures contract that may be less developed than more established futures markets (such as the futures markets for corn or wheat). The Acquiring Fund will purchase MBT contracts only if the Acquiring Fund has proceeds remaining from the sale of a Creation Basket that are less than the price of a BTC contract. BTC and MBT will count toward an aggregate position limit.
Consistent with applicable provisions of the Tidal Trust Agreement and Delaware law, Toroso has broad authority to make changes to the Acquiring Fund’s operations. The Acquiring Fund may change its investment objective, Benchmark, or investment strategies and shareholders of the Acquiring Fund will not have any rights with respect to these changes. Toroso 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 NYSE Arca.
The reasons for and circumstances that may trigger any such changes may vary widely and cannot be predicted. However, by way of example, the Acquiring Fund may change the term structure or underlying components of the Benchmark in furtherance of the Acquiring Fund’s investment objective of tracking the price of the Benchmark Component Futures Contracts if, due to market conditions, a potential or actual imposition of position limits by the CFTC or futures exchange rules, or the imposition of risk mitigation measures by a futures commission merchant restricts the ability of the Acquiring Fund to invest in the current Benchmark Futures Contracts. The Acquiring 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 Acquiring Fund’s Shares in response to any change by purchasing or selling Fund Shares through their broker-dealer.
The Acquiring Fund is organized as a series of the Tidal Trust, a statutory trust organized under the laws of the State of Delaware on February 10, 2023. Currently, the Acquiring Fund is the sole series of the Tidal Trust and will operate after the Merger as a separate exchange-traded commodity pool. Additional series of the Tidal Trust may be created in the future at Toroso’s discretion. The Acquiring Fund maintains its main business office at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204. The Acquiring Fund is a commodity pool. It operates pursuant to the terms of the Tidal Trust Agreement, which grants full management control to Toroso, as sponsor.
FURTHER INFORMATION ABOUT THE ACQUIRED FUND
Market Price of Acquired Fund Shares
The Acquired Fund’s Shares have traded on NYSE Arca under the symbol “DEFI” since September 15, 2022. 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, 2022 | High | Low | ||||||
| Quarter Ended | ||||||||
| September 30, 2022 | $ | 25.70 | $ | 23.55 | ||||
| December 31, 2022 | $ | 26.66 | $ | 19.77 | ||||
| March 31, 2023 | $ | 37.18 | $ | 21.48 | ||||
| June 30, 2023 | $ | 39.83 | $ | 32.37 | ||||
As of June 30, 2023, the Acquired Fund had approximately 60 Shareholders.
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Prior Performance of the Acquired Fund
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The Acquired Fund commenced trading and investment operations on September 15, 2022. The Acquired Fund is listed on NYSE Arca and is neither: (i) a privately offered pool pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2). or (iii) a principal protected pool as defined in CFTC Regulation 4.10(d)(3).
| Units of beneficial interest issued (from inception until June 30, 2023) | 110,000 |
| Aggregate gross sale price for units issued | $2,829,029 |
| Pool NAV as of June 30, 2023 | $1,938,929 |
| NAV per Share as of June 30, 2023 | $38.78 |
| Worst monthly percentage drawdown* | -14.91%/Nov 2022 |
| Worst peak to valley drawdown** | -16.89% / Oct 2022 – Dec 2022 |
* A drawdown is a loss experienced by the Acquired 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.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||||||||||||||||||||||
| Month | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||
| January | — | % | — | % | — | % | — | % | — | % | 40.38 | % | ||||||||||||
| February | — | % | — | % | — | % | — | % | — | % | (0.01 | )% | ||||||||||||
| March | — | % | — | % | — | % | — | % | — | % | 22.34 | % | ||||||||||||
| April | — | % | — | % | — | % | — | % | — | % | 1.90 | % | ||||||||||||
| May | — | % | — | % | — | % | — | % | — | % | -8.15 | % | ||||||||||||
| June | — | % | — | % | — | % | — | % | — | % | 12.80 | % | ||||||||||||
| July | — | % | — | % | — | % | — | % | — | % | -5.17 | % | ||||||||||||
| August | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||
| September | — | % | — | % | — | % | — | % | (1.57 | )% | — | % | ||||||||||||
| October | — | % | — | % | — | % | — | % | 4.64 | % | — | % | ||||||||||||
| November | — | % | — | % | — | % | — | % | (14.91 | )% | — | % | ||||||||||||
| December | — | % | — | % | — | % | — | % | (2.30 | )% | — | % | ||||||||||||
| Annual Rate of Return | — | % | — | % | — | % | — | % | (14.39 | )% | 152.88 | %** | ||||||||||||
* 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.
For performance information of Toroso’s other commodity pools, see “General Pool Disclosure - Performance of Other Commodity Pools Operated by the Commodity Pool Operator” on page 75.
Discussion of Fund Performance
As of August 23, 2023, the Fund's total net assets were $1,608,534. As of August 22, 2023, the Acquired Fund’s year-to-date net asset value per share of the Fund’s performance from January 1, 2023 through August 22, 2023 was 52.66%.Teucrium believes the Acquired Fund performance can be attributed to a combination of technical factors and macro events. First, bitcoin started the year with highly depressed prices, following the November and December 2022 plunge (-19.0%, as per the Nasdaq Bitcoin Reference Price Index) in the wake of the bankruptcy of the crypto exchange FTX, which, together with other major adverse developments such as the “depegging” of Terra stablecoin, the distress involving the crypto hedge fund Three Arrows Capital and the crypto lending platform Celsius filing for bankruptcy, contributed to bitcoin’s 63.8% correction in 2022 and to its 75.3% downward move from the late 2021 all-time-high.
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On the back of these depressed prices, in early 2023 the market sentiment shifted toward a risk-on mode as Consumer Price Index figures indicated that U.S. inflation had been cooling off for six consecutive months, suggesting a reduced pace of U.S. federal reserve rate hikes throughout 2023. We believe these factors led the Acquired Fund to an upswing of 40.4% in the first month of 2023, following bitcoin's best January in ten years.
After a tame February performance of the Acquired Fund’s Shares, March’s performance shifted drastically as U.S. regional banks started crumbling due to the current high interest rate environment. As the fallout of the Silicon Valley Bank unfolded, the Acquired Fund’s Shares responded very positively (+22.4% in March) due to a confluence of (i) the anticipation of more liquidity flowing into the system as the Federal Reserve’s newly created Bank Term Funding Program started rescuing distressed banks, and (ii) the recognition of bitcoin as a possible safe-haven through its emerging digital store of value characteristics, a bearer asset with no counterparty risk that provides investors with an alternative to potential vulnerabilities inherent in our traditional financial system.
April and May were months of predominantly lateral price movements, with no significant news directly impacting bitcoin’s price. In June, the SEC pressed charges against the exchanges Coinbase and Binance, triggering a decline in crypto prices. However, the last month of June 2023 ended on a highly positive trajectory after the news of applications for spot bitcoin ETFs in the United States. This initiated another rally in bitcoin, resulting in the Acquired Fund’s performance concluding the month with a 12.8% upswing (+81.2% in June 2023).
Benchmark Performance
The chart below shows the percent change in the NAV per share for the Acquired Fund, the market price of the Acquired Fund shares, represented by the closing price of the Acquiring Fund on NYSE Arca, and the Benchmark for five specific periods. The Benchmark does not reflect any impact of expenses, which would generally reduce the Acquiring 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.
Hashdex Bitcoin Futures ETF Fund Performance as of 7/31/2023
| Three Month | Year to Date | 3 Year Annualized | 5 Year Annualized | Inception Annualized | ||||||||||||||||
| NAV | (13.76 | )% | 56.23 | % | — | — | 32.23 | % | ||||||||||||
| Price | (13.81 | )% | 56.57 | % | — | — | 32.41 | % | ||||||||||||
| Benchmark (HDEFI) | (13.85 | )% | 52.76 | % | — | — | 28.28 | % | ||||||||||||
The Sponsor
The sponsor of the Tidal Trust is Toroso, a Delaware limited liability company. The principal office of Toroso, the Tidal Trust and the Acquiring Fund is located is located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204. Toroso registered as a CPO with the CFTC and became a member of the NFA on March 8, 2022. Toroso has sponsored the Trust since February 2023. Sponsoring the Acquiring Fund will be Toroso’s first experience in the crypto asset markets. Toroso’s responsibilities are discussed in the following paragraph.
Under the Tidal Trust Agreement, Toroso will be solely responsible for management and conducts or directs the conduct of the business of the Tidal Trust, the Acquiring Fund, and any series of the Tidal Trust that may from time to time be established and designated by Toroso. Toroso will be required to oversee the purchase and sale of shares by Authorized Purchasers and to manage the Acquiring Fund’s investments, including to evaluate the credit risk of FCMs and swap counterparties and to review daily positions and margin/collateral requirements. Toroso has the power to enter into agreements as may be necessary or appropriate for the offer and sale of the Acquiring Fund’s Shares and the conduct of the Trust’s activities. Accordingly, Toroso is responsible for selecting the Tidal Trust’s Delaware Trustee and the Acquiring Fund’s administrator, distributor, independent registered public accounting firm, and legal counsel. Toroso 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. Toroso may determine to engage marketing agents who will assist Toroso in marketing the Shares. Toroso has discretion to appoint one or more of its affiliates as additional sponsors. No person other than Toroso and its principals was involved in the organization of the Tidal Trust or the Acquiring Fund. Toroso will maintain a public website on behalf of the Acquiring Fund, http://hashdex-etfs.com/, which contains information about the Tidal Trust, the Acquiring Fund, and the Shares, and oversees certain services for the benefit of Shareholders. Presently, such website presents similar information about the Acquired Fund.
The Acquiring Fund will pay Toroso a Management Fee, monthly in arrears, in an amount equal to 0.94% per annum of the daily NAV of the Acquiring Fund. The Management Fee is paid in consideration of Toroso’s services related to the management of the Acquiring Fund’s business and affairs. The Acquiring Fund is newly organized and as of the date of this prospectus has not paid any management fees to Toroso. Toroso will pay all of the routine operational, administrative and other ordinary expenses of the Acquiring Fund, generally as determined by Toroso, including but not limited to, fees and expenses of the Acquiring Fund’s administrator, sub-administrator, custodian, distributor, transfer agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. None of the costs and expenses related to the initial registration, offer and sale of Shares, which are estimated to be approximately $350,000, will be or are chargeable to the Acquiring Fund, and Toroso did not and may not recover any of these costs and expenses from the Acquiring Fund.
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Shareholders have no right to elect Toroso on an annual or any other continuing basis or to remove Toroso. If Toroso voluntarily withdraws, the holders of a majority of the Tidal 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 Delaware Trustee.
Toroso is majority owned and controlled by Mr. Guillermo Trias, Mr. Michael Venuto, and a non-officer member who have provided working capital to Toroso. Messrs. Messrs. Trias and Venuto each currently own, directly or indirectly, 15% of Toroso while the non-officer member holds approximately 24.9%. Tidal is a wholly-owned subsidiary of Toroso.
Toroso 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 Tidal Trust and the Acquiring Fund 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 Toroso’s disaster recovery and business continuity planning. Toroso provides regular training to all employees of Toroso 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 Toroso
Since the formation of the Acquiring Fund in February 2023, Toroso has sponsored the Acquiring Fund and advises two investment company complexes comprising a total of 82 exchange-traded funds, as of the date of this prospectus, registered and regulated under the Investment Company Act of 1940, including four exchange-traded commodity pools. Sponsoring the Acquiring Fund will be Toroso’s first experience in the crypto asset markets. In general, under Toroso’s Amended and Restated Limited Liability Company Operating Agreement, as amended from time to time, Toroso is managed by a board of managers, who have delegated day-to-day operational matters to the officers of Toroso. The Chief Executive Officer of Toroso is responsible for the overall strategic direction of Toroso and has general control of its business. The Chief Investment Officer and President of Toroso is primarily responsible for new investment product development with respect to the Acquiring Fund. The Chief Operating Officer has primary responsibility for trade operations, trade execution, and portfolio activities with respect to the Acquiring Fund. The Chief Financial Officer acts as Toroso’s principal financial and accounting officer.
Furthermore, certain fundamental actions regarding Toroso, 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 members. Toroso has a board of managers, however, and the Tidal Trust has no board of directors or officers. The five managers of Toroso are: Guillermo Trias, Michael Venuto, Dan Carlson, Gavin Filmore, and Eric Falkeis.
The Officers of Toroso, two of whom are a member’s of Toroso, are the following:
Guillermo Trias is Co-Founder & CEO of Toroso, a Tidal Financial Group company, an ETF investment platform facilitating the creation, operation and growth of ETFs. Prior to Tidal, Guillermo led the strategy, sales and business development efforts at Global X Funds helping the company reach approx. $4 billion dollars in AUM before its successful sale in 2018 to an international Asset Manager. Previously, he was the founder and managing partner of two venture capital firms (MC Capital Advisors and GT Capital Advisors) dedicated to the incubation and growth of start-ups in the US and LATAM. Prior to that, he was founder and CEO of a pioneer food distributor in the US (sold to a larger distributor in 2008). Guillermo began his career in M&A investment banking with Bankers Trust & Deutsche Bank in Europe. He has a degree in Business Administration from CUNEF (top finance college in Spain) and holds an MBA from the Kellogg School of Management (Northwestern University) in Chicago, where he studied with a scholarship from Bankia (formerly Caja Madrid).
Mr. Michael Venuto is a co-founder and has been the Chief Investment Officer of Toroso since 2012. Mr. Venuto is an ETF industry veteran with over a decade of experience in the design and implementation of ETF-based investment strategies. Previously, he was Head of Investments at Global X Funds where he provided portfolio optimization services to institutional clients. Before that, he was Senior Vice President at Horizon Kinetics where his responsibilities included new business development, investment strategy and client and strategic initiatives.
Mr. Dan Carlson is a co-founder and currently serves as the CFO of Toroso, a Tidal Financial Group company. Prior to 2023, Dan was also Tidal’s CCO. Previously, Dan served as the Chief Marketing Officer at Avatar Associates in New York City, where he led the firm’s business development efforts. Avatar grew assets in managed portfolios of ETFs which represented over 80% of the Firm’s AUM. Prior to that, Dan headed the marketing and product development efforts at Delaware Investments in Philadelphia. He started his career in Chicago, first with BMO Harris and then as a partner at Buck Consultants, serving large pension and retirement programs. Dan has served on a national industry board and currently heads a non-profit educational foundation. Dan is also a member of the Board of Directors of Tidal ETF Services LLC. Dan holds a BS degree in Accounting from the University of Illinois, Champaign-Urbana.
Mr. Eric Falkeis is the Chief Growth Officer and Co-Founder of the Administrator, a Tidal Financial Group company, and is the Chairman and an Interested Trustee of the Tidal ETF Trust I and Tidal Trust II. Before joining Tidal, Eric was the President and Chief Operating Officer of Direxion Investments, a Top 15 ETF Adviser with over 80 ETFs and $14 billion. Eric was instrumental in product development, national accounts, trading, operations and sales and marketing for their ETFs during the 5 years he worked there. Prior to Direxion, Eric was Director of ETF operations for Global Fund Services, where he built out the ETF Services Business and supporting technology. He was also a Trustee and President of ETF Series Solutions Trust and managed the ETF servicing teams that supported that trust. During the 16 years at Global Fund Services, Eric built out the Fund Administration business to over 200 employees and was also the Chief Financial Officer and Chief Technology Officer. With over 25 years of experience in the investment industry and 15 years in the ETF industry, Eric is a well-recognized expert in the industry. He has received various accolades in the industry including Innovator of the Year. Eric holds a BS degree in Accounting from Marquette University and is a Certified Public Accountant.
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Mr. Gavin Filmore, Chief Operating Officer since July 2022, joined Toroso, a Tidal Financial Group company, in September 2021 as the Head of Product Development. He has over 15 years of experience in financial markets, with a wide range of experience including structuring, sales, and operations specifically focused on exotic cross-asset products. Most recently, he served as the head of Exchange Traded Products structuring at Barclays Capital, where he led the iPath ETN business, looking after all facets of the business including product development, regulatory affairs, capital market support, sales, and marketing. Gavin holds the Series 24, 63, 3, 7, 99, and SIE licenses.
Mr. William Woolverton is Chief Compliance Officer of Toroso, a Tidal Financial Group company, and of Tidal ETF Trust and Tidal Trust II. He served as General Counsel of Putnam Investments, Gottex Funds Management, and the US division of DMS Governance. He has also practiced law in the Financial Services Groups of Dechert, LLP and Rogers & Wells (Clifford Chance). Bill formerly served as Chairman of the Independent Trustees of the Thomas White Mutual Funds. He is currently an Operating Partner of Altamont Capital Partners, a private equity fund manager. He is a magna cum laude and Phi Beta Kappa graduate of Amherst College, and he attended King’s College, Cambridge University as a Keasbey Fellow, where he was awarded an M.A. He earned his law degree at Columbia University School of Law. Earlier in his career Mr. Woolverton was a staff member of the Committee on the Judiciary of the United States Senate.
The Delaware Trustee
The sole trustee of the Tidal Trust is Wilmington Trust Company, National Association, a Delaware banking corporation. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with Toroso. The Trustee’s duties and liabilities with respect to the offering of Shares and the management of the Trust and the Acquiring Fund are limited to its express obligations under the Trust Agreement.
The Trustee will accept service of legal process on the Tidal 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 Tidal Trust, Toroso or the Shareholders. The Trustee is permitted to resign upon at least sixty (60) days’ notice to Toroso. If no successor trustee has been appointed by Toroso 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 Toroso or an affiliate of Toroso (including the Trust), and is indemnified by Toroso 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 fraud, or the gross negligence or willful misconduct of the Trustee. Toroso 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 Tidal Trust Agreement, the Trustee has delegated to Toroso the exclusive management and control of all aspects of the business of the Tidal Trust and the Acquiring Fund. The Trustee has no duty or liability to supervise or monitor the performance of Toroso, nor does the Trustee have any liability for the acts or omissions of Toroso.
Because the Trustee has delegated substantially all of its authority over the operation of the Trust to Toroso, the Trustee itself is not registered in any capacity with the CFTC.
Operation of the Acquiring Fund
The investment objective of the Acquiring Fund is for changes in the Shares’ NAV to reflect the daily changes of the price of the Benchmark, less expenses from the Acquiring Fund’s operations. Under normal market conditions, the Acquiring Fund expects that the Acquiring Fund’s assets will be used to invest in Bitcoin Futures Contracts and cash and cash equivalents, such as short-term Treasury bills, money market funds, and demand deposit accounts. The term “normal market conditions” includes, but is not limited to, the absence of: trading halts in the applicable financial markets generally; operational issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. The NYSE Arca rule under which the Shares will be listed and traded prevents the Acquiring Fund from utilizing leverage.
The Acquiring 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 Acquiring Fund invests the remainder of its proceeds from the sale of baskets in cash and cash equivalents, including money-market funds, and/or merely holds such assets in cash in interest-bearing accounts. The Acquiring Fund seeks to earn interest and other income from the cash equivalents that it purchases, and on the cash, it holds at financial institutions.
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The Acquiring Fund seeks to achieve its investment objective primarily by investing in Benchmark Component Futures Contracts such that the changes in its NAV are expected to closely track the changes in the Benchmark, less expenses from the Acquiring Fund’s operations. The Benchmark is the average of the closing settlement prices for the first to expire and second to expire Bitcoin futures contracts listed on the CME. The Benchmark will roll prior the expiration of the spot month CME Bitcoin Futures. The Benchmark is not designed to track the spot price of bitcoin. Toroso endeavors to place the Acquiring Fund’s trades in Benchmark Component Futures Contracts and otherwise manage the Acquiring Fund’s investments so that the Acquiring Fund’s average daily tracking error against the Benchmark is less than 10 percent over any period of 30 trading days.
The Acquiring Fund’s total portfolio composition is disclosed each business day that NYSE Arca is open for trading on the Acquiring Fund’s website at http://hashdex-etfs.com/. The website disclosure of portfolio holdings is made daily and includes, as applicable, the security name, market price, CUSIP, and total weight of each futures contract month reflected as a percentage, and value of each cash and cash equivalents held in the Acquiring Fund. The Acquiring Fund’s website also includes the NAV, the 4:00 p.m. (ET) Bid/Ask Midpoint as reported by NYSE Arca, the last trade price as reported by NYSE Arca, the Median bid-ask spread for the past 30 days, the Shares outstanding, the Shares available for issuance. Historical premium/discount information will be updated quarterly and daily as needed. The prospectus, Monthly Statements of Account, Quarterly Performance of the Midpoint versus the NAV (as required by the CFTC), and the Roll Dates, as well as Forms 10-Q, Forms 10-K, and other SEC filings for the Acquiring Fund, are also posted on the website. The Acquiring Fund’s website is publicly accessible at no charge.
The Acquiring Fund’s investment objective is to provide investors with a way to gain price exposure to the bitcoin market. Toroso developed the Benchmark as a representation of the bitcoin market. Under normal market conditions, the Acquiring Fund will invest in the Benchmark Component Futures Contracts. Toroso believes that by investing in Benchmark Component Futures Contracts, the Acquiring Fund’s NAV will closely track the Benchmark. Toroso 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 Acquiring Fund’s NAV. Toroso believes that the net effect of these relationships is that the Acquiring Fund’s market price on NYSE Arca at which investors purchase and sell Shares will closely track the bitcoin market, as measured by the Benchmark.
An investment in the Shares can potentially provide a means for diversifying an investor’s portfolio or hedging exposure to changes in bitcoin prices. An investment in the Shares allows both retail and institutional investors to easily gain this exposure to the bitcoin market in a transparent, cost-effective manner.
Toroso employs a “neutral” investment strategy intended to track changes in the Benchmark regardless of whether the Benchmark goes up or goes down. The Acquiring Fund’s “neutral” investment strategy is designed to permit investors generally to purchase and sell the Acquiring Fund’s Shares for the purpose of investing indirectly in the bitcoin market. Such investors may include those seeking to hedge the risk of losses in their bitcoin related transactions as well as investors seeking exposure to the bitcoin market. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the bitcoin market and/or the risks involved in hedging may exist. In addition, the Acquiring Fund does not expect there to be any meaningful correlation between the performance of the Acquiring Fund’s investments in cash and cash equivalents and the changes in the price of bitcoin or Benchmark Component Futures Contracts. While the level of interest earned on, or the market price of, these investments may in some respects correlate to changes in the price of bitcoin, this correlation is not anticipated as part of the Acquiring 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 Acquiring Fund’s NAV and changes in the price of bitcoin.
The Shares issued by the Acquiring Fund may only be purchased by Authorized Purchasers and only in blocks of 10,000 Shares called Creation Baskets. The amount of the purchase payment for a Creation Basket is equal to the total NAV of Shares in the Creation Basket. Similarly, only Authorized Purchasers may redeem Shares and only in blocks of 10,000 Shares called Redemption Baskets. The initial Shares will be offered and sold, in creation basket aggregation at an offering price of $ per Share, which is the same per Share price used in the Merger closing. Thereafter, Shares will be sold at the next determined NAV per Share. The amount of the redemption proceeds for a Redemption Basket is equal to the total NAV of Shares in the Redemption Basket. The purchase price for Creation Baskets and the redemption price for Redemption Baskets are the actual NAV calculated at the end of the business day when a request for a purchase or redemption is received by the Acquiring 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 Acquiring Fund issues Shares only in Creation Baskets, Shares may also be purchased and sold in much smaller increments on 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 Acquiring Fund’s Investment Strategy
In managing the Acquiring Fund’s assets, Toroso 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, Toroso 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).
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As an example, assume that a Creation Basket is sold by the Acquiring Fund, and that the Acquiring Fund’s closing NAV per Share is $25.00. In that case, the Acquiring Fund would receive $250,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per Share multiplied by 10,000 Shares and ignoring the Creation Basket fee of $300). If one were to assume further that Toroso wants to invest the entire proceeds from the Creation Basket in the Benchmark Component Futures Contracts and that the market value of each such Benchmark Component Futures Contracts is $188,175 (or otherwise not a round number), the Acquiring Fund would be unable to buy an exact number of Bitcoin Futures Contracts with an aggregate market value equal to $250,000. In this case, the Acquiring Fund would be able to purchase 1 BTC Contract with an aggregate market value of approximately $188,175 and 16 MBT Contracts (each of which represent 0.10 bitcoin) at $3,763 per contract with an aggregate market value of approximately $60,208, bringing the aggregate value of proceeds to $248,383. Assuming a margin requirement equal to 32% of the notional amount based on the previous settlement price of the BTC Contracts and MBT Contracts, the Acquiring Fund would be required to deposit approximately $79,483 in cash with the FCM through which the Bitcoin Futures Contracts were purchased. The remainder of the proceeds from the sale of the Creation Basket, approximately $170,517, composed of the approximately $168,900 not deposited with the FCM and the remaining $1,617 that was unable to be invested in Bitcoin Futures Contracts, would remain invested in cash and/or cash equivalents, as determined by Toroso from time to time based on factors such as potential calls for margin or anticipated redemptions.
The Benchmark Component Futures Contracts are cash-settled, and the Acquiring Fund will not be required to take delivery of bitcoin. Positions may also be closed out to meet orders for Redemption Baskets, in which case the proceeds from closing the positions will not be reinvested.
Futures Contracts
Futures contracts are agreements between two parties that are executed on a designated contract market (“DCM”), i.e., a commodity futures exchange, and that are cleared and margined through a derivatives clearing organization (“DCO”), i.e., a clearing house. Bitcoin Futures Contacts are financially settled, which means that one party agrees to buy a commodity such as bitcoin from the other party at a later date at a price and quantity agreed upon when the contract is made, but instead of taking physical delivery of the commodity at such later date, settlement occurs in a dollar amount that is equivalent to the amount of bitcoin agreed to in the contract. In market terminology, a party who purchases a futures contract is long in the market and a party who sells a futures contract is short in the market. The contractual obligations of a buyer or seller may generally be satisfied by financial settlement or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery. The difference between the price at which the futures contract is purchased or sold and the price paid for the offsetting sale or purchase, after allowance for brokerage commissions, constitutes the profit or loss to the trader.
If the price of the cryptocurrency increases after the original futures contract is entered into, the buyer of the futures contract will generally be able to sell a futures contract to close out its original long position at a price higher than that at which the original contract was purchased, generally resulting in a profit to the buyer. Conversely, the seller of a futures contract will generally profit if the price of the underlying bitcoin cryptocurrency decreases, as it will generally be able to buy a futures contract to close out its original short position at a price lower than that at which the original contract was sold. Because the Acquiring Fund seeks to track the Benchmark directly, the Acquiring Fund intends to hold only long positions in bitcoin futures contracts and intends to roll its CME Bitcoin Futures Contracts prior to expiration via sales of existing long positions and the acquisition of new long positions as replacements for contracts sold. Futures contracts are typically traded on futures exchanges (i.e. DCMs) such as the CME, which provide centralized market facilities in which multiple persons may trade contracts. Members of a particular futures exchange and the trades executed on such exchange are subject to the rules of that exchange. Futures exchanges and their related clearing organizations (i.e. DCOs) are given reasonable latitude in promulgating rules and regulations to control and regulate their members.
Trades on a futures exchange are generally cleared by the DCO, which provides services designed to mutualize or transfer the credit risk arising from the trading of contracts on an exchange. The clearing organization effectively becomes the other party to the trade, and each clearing member party to the trade looks only to the clearing organization for performance.
Bitcoin Futures Contracts
CME began offering trading in BTC Contracts in 2017 (and in MBT Contracts in 2021). The CME needed a transparent and readily available way to determine the price of bitcoin for its futures contract customers. However, there are numerous exchanges on which one can buy and sell bitcoin, and the prices of bitcoin can differ greatly from exchange to exchange. CME wanted to use pricing information from what it considered to be reputable bitcoin exchanges to calculate a once-a-day reference rate of the U.S. dollar price of bitcoin.
The CME developed the CME CF Bitcoin Reference Rate (the "BRR") to serve these purposes. Each of the BTC and MBT contract’s final daily cash settlement is based on the BRR. It serves as a once-a-day reference rate of the U.S. dollar price of bitcoin and is used as the rate on which bitcoin futures contracts are cash-settled in U.S. dollars at the close of CME daily trading. The BRR is calculated by collecting purchase and sale transactions from specified constituent bitcoin exchanges, which currently include Bitstamp, Coinbase, Gemini, itBit, Kraken and LMAX Digital, during a calculation window between 3:00 p.m. and 4:00 p.m. London time. It is published at 4:00 p.m. London time each day.
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The CME selects constituent exchanges for the BRR on the basis of the following criteria, which each exchange must demonstrate that it continues to fulfill on an ongoing basis:
| ● | The exchange has policies to ensure fair and transparent market conditions at all times and has processes in place to identify and impede illegal, unfair or manipulative trading practices. |
| ● | The exchange does not impose undue barriers to entry or restrictions on market participants, and utilizing the venue does not expose market participants to undue credit risk, operational risk, legal risk or other risks. |
| ● | The exchange complies with applicable law and regulation, including, but not limited to capital markets regulations, money transmission regulations, client money custody regulations, know-your-client (KYC) regulations and anti-money-laundering (AML) regulations. |
| ● | The exchange cooperates with inquiries and investigations of regulators and the administrator upon request and has to execute data sharing agreements with the CME. |
Should the average daily contribution of a constituent exchange fall below 3%, then the continued inclusion of the venue as a constituent exchange is assessed.
Qualifying transactions from the constituent exchanges that take place during the one-hour calculation window are added to a list, with the trade price and size for each transaction recorded. The one-hour calculation is partitioned into twelve intervals of five minutes each, and for each partition, the volume-weighted median trade price is calculated from the trade prices and sizes of relevant transactions. (A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation.) The BRR is the equally-weighted average of the volume-weighted medians of all twelve partitions.
Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits.
Position Limits, Accountability Levels, and Dynamic Price Fluctuation Limits may potentially cause a tracking error between the price of the Shares and the Benchmark. This may in turn prevent you from being able to effectively use the Acquiring Fund as a way to hedge against bitcoin related losses or as a way to indirectly invest in bitcoin.
The Acquiring 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 Acquiring Fund encounters position limits, accountability levels, or price fluctuation limits for Bitcoin Futures Contracts, it could force the Acquiring Fund to limit the number of Creation Baskets that it sells.
Price Volatility
Despite dynamic price limits, the price volatility of futures contracts generally has been historically greater than that for traditional securities such as stocks and bonds. Price volatility often is greater day to day as opposed to intra-day. Economic factors that may cause volatility in Bitcoin Futures Contracts include but are not limited to cost of electricity, regulation, market disruptions, cyber-attacks, political events and existing and future technologic developments. There are also various other factors now known and unknown, any and all of which can have an impact on the supply, demand, and price fluctuations in the bitcoin markets. See “Risks Associated with Investing in Bitcoin.” Because the Acquiring Fund invests a significant portion of its assets in futures contracts, the assets of the Acquiring Fund, and therefore the price of the Acquiring Fund’s Shares, may be subject to greater volatility than traditional securities.
Term Structure of Futures Contracts and the Impact on Total Return
Over time, the price of bitcoin fluctuates based on a number of market factors, including demand for bitcoin. The value of Bitcoin Futures Contracts likewise fluctuates in reaction to a number of market factors. Because the Acquiring Fund seeks to maintain its holdings in Bitcoin Futures Contracts, the Acquiring Fund must periodically “roll” futures contract positions, closing out soon to expire contracts that will no longer be part of the Benchmark and entering into subsequent to expire contracts. One factor determining the total return from investing in futures contracts is the price relationship between soon to expire contracts and later to expire contracts.
If the futures market is in a state of backwardation (i.e., when the price of bitcoin in the future is expected to be less than the current price), the Acquiring Fund will buy later to expire contracts for a lower price than the sooner to expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing bitcoin prices or the price relationship between soon to expire contracts and later to expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Acquiring Fund will buy later to expire contracts for a higher price than the sooner to expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing bitcoin prices or the price relationship between the spot price, soon to expire contracts and later to expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. All other things being equal, a situation involving prolonged periods of contango may adversely impact the returns of the Acquiring Fund; conversely a situation involving prolonged periods of backwardation may positively impact the returns of the Acquiring Fund. By way of example, during the period from 6/30/2020 to 6/30/2023, the market for Bitcoin Component Futures Contracts were in contango approximately 87% of the time, which resulted in an average annual negative roll yield of approximately 7%.
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Margin Requirements and Marking to Market Futures Positions
“Initial margin” is an amount of funds that must be deposited by a bitcoin interest trader with the trader’s broker to initiate an open position in futures contracts. A margin deposit is like a cash performance bond. It helps assure the trader’s performance of the futures contracts that he or she purchases or sells. Futures contracts are customarily bought and sold on initial margin that represents a small percentage of the aggregate purchase or sales price of the contract. The amount of margin required in connection with a particular futures contract is set by the exchange on which the contract is traded. Brokerage firms, such as the Acquiring Fund’s clearing broker, carrying accounts for traders in bitcoin interest contracts may require higher amounts of margin as a matter of policy to further protect themselves.
Futures contracts are marked to market at the end of each trading day and the margin required with respect to such contracts is adjusted accordingly. This process of marking to market is designed to prevent losses from accumulating in any futures account. Therefore, if the Acquiring Fund’s futures positions have declined in value, the Acquiring Fund may be required to post “variation margin” to cover this decline. Alternatively, if the Acquiring Fund’s futures positions have increased in value, this increase will be credited to the Acquiring Fund’s account.
The Acquiring Fund’s Investments in Cash and Cash Equivalents
The Acquiring Fund seeks to have the aggregate “notional” amount of the Benchmark Component Futures Contracts it holds approximate at all times the Acquiring Fund’s total NAV. At any given time, however, most of the Acquiring Fund’s investments are in cash and cash equivalents that support the Acquiring Fund’s positions in Benchmark Component Futures Contracts. For example, the purchase of a BTC Contract with a stated or notional amount of $188,175 would not require the Acquiring Fund to pay $188,175 upon entering into the contract; rather, only a margin deposit, approximately 32% of the notional amount based on the previous settlement price, would be required. To secure its BTC Contract obligations, the Acquiring Fund would deposit the required margin with the FCM and would separately hold its remaining assets through its Custodian or other financial institution in cash and cash equivalents, specifically in demand deposits, in short-term Treasury Securities held by the FCM, or in money-market funds. Such remaining assets may be used to meet future margin payments that the Acquiring Fund is required to make on its BTC Contracts and/or MBT Contracts.
The Acquiring 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 Acquiring Fund’s NAV. The Acquiring Fund applies the earned interest and other income to the acquisition of additional investments or uses it to pay its expenses. When the Acquiring 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 Acquiring Fund will have a remaining maturity of less than 90 days at the time of investment or will be subject to a demand feature that enables that Fund to sell the security within that time period at approximately the security’s face value (plus accrued interest). Any cash equivalents invested in by the Acquiring Fund will be or will be deemed by Toroso to be of investment grade credit quality.
Other Trading Policies of the Acquiring Fund
Exchange for Related Position
An “exchange for related position” (“EFRP”) can be used by the Acquiring Fund as a technique to facilitate the exchanging of a futures hedge position against a creation or redemption order, and thus the Acquiring 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 Acquiring 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 Acquiring Fund reports all activity related to EFRP transactions under the procedures and guidelines of the CFTC and the exchanges on which the futures are traded. EFRPs are subject to specific rules of the CME and CFTC guidance.
Liquidity
The Acquiring Fund invests only in Bitcoin Futures Contracts that, in the opinion of Toroso, are traded in sufficient volume to permit the ready taking and liquidation of positions in these financial interests or other bitcoin interests based on the spot price of bitcoin.
Spot Commodities
While most futures contracts can be physically settled, the Bitcoin Futures Contracts are cash settled.
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Borrowings
The Acquiring Fund does not intend to nor foresee the need to borrow money or establish credit lines. The Acquiring Fund maintains cash and cash equivalents, either held by the Acquiring 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 Acquiring 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.
Bitcoin
Bitcoin is a digital asset that serves as the unit of account on an open-source, decentralized, peer-to-peer computer network. It may be used to pay for goods and services, stored for future use, or converted to government-backed currency. As of the date of this prospectus, the adoption of bitcoin for these purposes has been limited. The value of bitcoin is not backed by any government, corporation, or other identified body.
The value of bitcoin depends on its supply (which is limited), and demand for bitcoin in the markets for exchange that have been organized to facilitate the trading of bitcoin. By design, the supply of bitcoin is intentionally limited to 21 million bitcoins. As of the date of this prospectus, there are approximately 19 million bitcoins in circulation.
Bitcoin is maintained on the decentralized, open source, peer-to-peer computer network (the “Bitcoin Network”). No single entity owns or operates the Bitcoin Network. The Bitcoin Network is accessed through software and governs bitcoin’s creation and movement. The source code for the Bitcoin Network, often referred to as the Bitcoin Protocol, is open-source, and anyone can contribute to its development.
The Bitcoin Network
The infrastructure of the Bitcoin Network is collectively maintained by various participants in the Bitcoin Network, which include miners, developers, and users. Miners validate transactions and provide security to the network, and are currently compensated for that service in bitcoin. Developers maintain and contribute updates to the Bitcoin Network’s source code, often referred to as the Bitcoin Protocol. Users access the Bitcoin Network using open-source software. Anyone can be a user, developer, or miner.
Bitcoin is “stored” on a digital transaction ledger commonly known as a “blockchain.” A blockchain is a distributed database that is continuously updated and reconciled among certain users and is protected by cryptography. The Bitcoin Blockchain contains a complete record and history for each bitcoin transaction.
New bitcoins are created through a process called “mining.” Miners use specialized computer software and hardware to solve a highly complex mathematical problem presented by the Bitcoin Protocol. The first miner to successfully solve the problem is permitted to add a block of transactions to the Bitcoin Blockchain. The new block is then confirmed through acceptance by a majority of users who maintain versions of the blockchain on their individual computers. Miners that successfully add a block to the Bitcoin Blockchain are automatically rewarded with a fixed amount of bitcoin for their effort plus any transaction fees paid by transferors whose transactions are recorded in the block. This reward system is the means by which new bitcoin enter circulation and is the mechanism by which versions of the blockchain held by users on a decentralized network are kept in consensus.
The Bitcoin Protocol
The Bitcoin Protocol is an open source project with no official company or group in control, and anyone can review the underlying code. There are, however, a number of individual developers that regularly contribute to a specific distribution of bitcoin software known as the “Bitcoin Core.” Developers of the Bitcoin Core loosely oversee the development of the source code. There are many other compatible versions of the bitcoin software, but Bitcoin Core is the most widely adopted and currently provides the de facto standard for the Bitcoin Protocol. The core developers are able to access, and can alter, the Bitcoin Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Bitcoin Network’s source code.
However, because bitcoin has no central authority, the release of updates to the Bitcoin Network’s source code by the core developers does not guarantee that the updates will be automatically adopted by the other purchasers. Users and miners must accept any changes made to the source code by downloading the proposed modification and that modification is effective only with respect to those bitcoin users and miners who choose to download it. As a practical matter, a modification to the source code becomes part of the Bitcoin Network only if it is accepted by purchasers that collectively have a majority of the processing power on the Bitcoin Network. If a modification is accepted by only a percentage of users and miners, a division will occur such that one network will run the pre-modification source code and the other network will run the modified source code. Such a division is known as a “fork.”
The Acquiring Fund’s Service Providers
Contractual Arrangements with Toroso and Third-Party Service Providers
Sponsor
Toroso is responsible for investing the assets of the Acquiring Fund in accordance with the objectives and policies of the Acquiring Fund. In addition, Toroso arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Acquiring Fund. For these third-party services, the Acquiring Fund pays the fees set forth in the table below entitled “Contractual Fees and Compensation Arrangements with Toroso and Third-Party Service Providers.” For Toroso’s services, the Acquiring Fund is contractually obligated to pay a monthly management fee to Toroso, based on average daily net assets, at a rate equal to 0.94% per annum.
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Administrator
The Acquiring Fund employs Tidal ETF Services LLC as Fund’s admnistrator (“Tidal” or the “Administrator”). In turn, the Administrator has engaged U.S. Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund Services (“Global Fund Services”), to act as sub-administrator. The Administrator is a wholly-owned subsidiary of Toroso. The Administrator is located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204. The Administrator also assists the Acquiring Fund and Toroso with certain functions and duties relating to marketing, which include the following: marketing and sales strategy, and marketing related services.
Custodian, Registrar, Transfer Agent, Fund Sub-Administrator
In its capacity as the Acquiring Fund’s custodian, the Custodian, currently U.S. Bank, N.A., holds the Acquiring Fund’s securities, cash and/or cash equivalents pursuant to a custodial agreement. Global Fund Services, an entity affiliated with U.S. Bank, N.A., is the registrar and transfer agent for the Acquiring Fund’s Shares. In addition, Global Fund Services also serves as sub-administrator for the Acquiring Fund, performing certain sub-administrative, and accounting services, and support in preparing certain SEC and CFTC reports on behalf of the Acquiring 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, Wisconsin, 53202.
Distributor
The Acquiring Fund employs Foreside Fund Services, LLC as the Distributor for the Acquiring Fund. The Distribution Services Agreement among the Distributor, Toroso, and the Trust calls for the Distributor to work with the Custodian in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets and the review and approval of all Fund sales literature and advertising material. The Distributor’s principal business address is Three Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor is a broker-dealer registered with the U.S. Securities and Exchange Commission (“SEC”) and a member of FINRA.
Marketing Agent
Tidal ETF Services LLC (“Tidal”) assists the Acquiring Fund and Toroso with certain functions and duties relating to administration, distribution and marketing, which include the following: marketing and sales strategy, and marketing and distribution related services.
Digital Asset Adviser
Hashdex Asset Management Ltd. (“Hashdex” or the “Digital Asset Adviser”“) is a Cayman Islands investment manager (and an Exempt Reporting Advisor under SEC rules) that specializes in, among other things, the management, research, investment analysis and other investment support services of funds and ETFs with investment strategies involving bitcoin and other crypto assets. As Digital Asset Adviser, Hashdex is responsible for providing Toroso and the Administrator with research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the Acquiring Fund. Hashdex has no role in maintaining, calculating or publishing the Benchmark. Hashdex also has no responsibility for the investment or management of the Acquiring Fund’s portfolio or for the overall performance or operation of the Acquiring Fund.
Clearing Brokers
StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. - FCM Division) (“StoneX”), and Phillip Capital Inc. (“Phillip Capital”) serve as the Fund’s clearing brokers (the “Clearing Brokers”) to execute and clear the Fund’s futures transactions and provide other brokerage-related services. The Clearing Brokers are each registered as an FCM with the CFTC, are members of the National Futures Association (“NFA”) and are clearing members of all major U.S. futures exchanges. The Clearing Brokers are registered as broker-dealers (“BDs”) with the U.S. Securities and Exchange Commission (“SEC”) and are each a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
Except as indicated below, there have been no material civil, administrative, or criminal proceedings pending, on appeal, or concluded against the Clearing Brokers or their principals in the past five (5) years.
Litigation disclosure for StoneX
Listed below are material administrative, civil, enforcement, or criminal complaints or actions filed against StoneX Financial Inc. – FCM Division (f/k/a INTL FCStone Financial Inc. - FCM Division) where such complaints or actions have not concluded and any material enforcement actions or complaints filed against the StoneX Financial Inc. - FCM Division in the past three years.
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| ● | On March 16, 2023, the Clearing House Risk Committee at CME Group found that StoneX Financial, Inc. violated Customer Gross Margining Technical Overview Requirements and CME Rule 980.G. Pursuant to an offer of settlement in which StoneX Financial, Inc. neither admitted nor denied the rule violations upon which the penalty is based, the Clearing House Risk Committee imposed a $100,000.00 fine which was effective on March 16, 2023. |
| ● | On January 20, 2023, the Clearing House Risk Committee at CME Group found that StoneX Financial Inc. violated CME Rules 930.A and 930.F. Pursuant to an offer of settlement in which StoneX Financial, Inc. neither admitted nor denied the rule violations upon which the penalty is based, the Clearing House Risk Committee imposed a $50,000 fine which was effective on January 20, 2023. |
| ● | On December 15, 2022, the Market Regulation Department of CME Group Inc. (“CME”) notified StoneX Financial Inc. (“SFI”) that it was conducting a formal investigation into block trades placed in September 2022 that could potentially be in violation of CME Rule 526 and Market Regulation Advisory Notice RA2004-5R. On July 6, 2023, CME notified SFI that it has referred the case to Market Regulation’s Enforcement Division. Settlement negotiations are ongoing. |
| ● | On July 20, 2022, a subcommittee on the ICE Future US’s Business Conduct Committee determined that in numerous instances between May 2020 and May 2021 StoneX Financial Inc. and StoneX Markets LLC may have violated Exchange Rule 4.04 by engaging in improper pre-hedging and adopting a risk policy that may have motivated employees to engage in improper pre-hedging for certain contracts. In addition, the Committee found that StoneX Financial Inc. and StoneX Markets LLC may have violated Exchange Rules 4.01(a), 4.07(c), and 21.04. In accordance with the settlement offer, in which StoneX Financial Inc. and StoneX Markets LLC neither admitted nor denied the alleged rule violations, StoneX Financial Inc. and StoneX Markets LLC agreed to pay a collective monetary penalty of $425,000 and disgorge $225,606.80 in profits. |
| ● | On March 23, 2021, a subcommittee of the ICE Futures US’s Business Conduct Committee determined that in numerous instances between February 2019 and May 2020, StoneX Financial Inc. (“StoneX”), formerly INTL FCStone Financial Inc., may have violated Exchange Rule 6.15(a) by failing to submit to the Exchange daily large trader reports on reportable customer positions and Exchange Rule 4.01(a) by failing to have proper processes for reporting large trader positions. The ICE Futures US Business Conduct Committee imposed a $75,000 fine on StoneX Financial Inc. which was effective on March 23, 2021. |
| ● | After a historic move in the natural gas market in November of 2018, INTL FCStone Financial Inc. – FCM Division (“IFF”) experienced a number of customer deficits. IFF soon thereafter initiated NFA arbitrations, seeking to collect these debits, and has also been countersued and sued in a number of these arbitrations. These accounts were managed by Optionsellers.com, (“Optionsellers”) who is a Commodity Trading Advisor (“CTA”) authorized by investors to act as attorney-in-fact with exclusive trading authority over these investors’ trading accounts. These accounts cleared through IFF. After this significant and historic natural gas market movement, the accounts declined below required maintenance margin levels. IFF’s role in managing the accounts was limited. As a clearing firm, IFF did not provide any investment advice, trading advice, or recommendations to customers of Optionsellers who chose to clear with IFF. Instead, it simply executed and cleared trades placed by Optionsellers on behalf of Optionsellers’ customers. Optionsellers is a CFTC registered CTA operating under a CFTC Rule 4.7 exemption from registration. Optionsellers engaged in a strategy that primarily involved selling options on futures products. The arbitrations between IFF, Optionsellers, and the Optionsellers customers are currently ongoing. |
Further, StoneX Financial Inc. is subject to litigation and regulatory enforcement in the normal course of business. Except as discussed above, the current or pending civil litigation or administrative proceedings in which StoneX Financial Inc. is involved are not expected to have a material effect upon its condition, financial or otherwise. StoneX Financial Inc. vigorously defends, as a matter of policy, civil litigation, reparation, arbitration proceedings, and enforcement actions brought against it.
Litigation disclosure for Phillip Capital
Phillip Capital Inc. (“Phillip Capital”) is a registered futures commission merchant and is a member of the NFA. Its main office is located at 141 W Jackson Blvd, Suite 1531 Chicago, IL 60604. In the normal course of its business, Phillip Capital is involved in various legal actions incidental to its commodities business. None of these actions are expected either individually or in aggregate to have a material adverse impact on Phillip Capital. Except for the below, neither Phillip Capital nor any of its principals have been the subject of any material administrative, civil or criminal actions within the past five years.
On September 12, 2019, the U.S. Commodity Futures Trading Commission issued an order settling charges against Phillip Capital Inc. (PCI) for allowing cyber criminals to breach PCI email systems, access customer information, and successfully withdrawing $1 million in PCI customer funds. The order found that PCI failed to disclose the cyber breach to its customers in a timely manner and that PCI failed to supervise its employees with respect to cybersecurity policy and procedures, a written information systems security program, and customer disbursements. The order imposed monetary sanctions totaling $1.5 million, which includes a civil monetary penalty of $500,000, and $1 million in restitution. PCI was credited the $1 million restitution based on its prompt reimbursement of the customer funds when the fraud was discovered. The order also required PCI to, among other things, provide reports to the Commission on its remediation efforts.
On June 11, 2021, pursuant to an offer of settlement in which Phillip Capital Inc. neither admitted nor denied the rule violation upon which the penalty is based, the Clearing House Risk Committee found that Phillip Capital Inc. violated CME Rule 980.A – Required Records and Reports. In accordance with the settlement offer, the Committee imposed a $50,000 fine for non-current books and records due to an issue with the firm’s middleware provider. In a related matter, the CME Group had previously fined Phillip Capital Inc. on March 19, 2021, for its violation of Rule 811 and 561. During the month of February 2021, Phillip Capital Inc. inaccurately reported its open interest and large trader positions in several instances of CME, CBT, NYMEX, and COMEX contracts due to the aforementioned middleware issue. A fine in the amount of $5,000 was assessed against Phillip Capital Inc.
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Commodity Trading Advisor
Currently, Toroso does not employ commodity trading advisors. If, in the future, Toroso 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 Toroso and Third-Party Service Providers
| Service Provider | Compensation Paid by the Acquiring Fund |
| Toroso, Sponsor | 0.94% of average net assets annually (“Management Fee”) |
| Phillip Capital Inc., Futures Commission Merchant and Clearing Broker | The Acquiring Fund pays $5.00-$10.00 per Futures Contract half-turn exclusive of pass through fees for the exchange, NFA, execution fees, and platform and exchange data fees. |
| StoneX Financial Inc, Futures Commission Merchant and Clearing Broker | The Acquiring Fund pays $10.00-$25.00 per Futures Contract half-turn exclusive of pass through fees for the exchange and NFA. Additionally, if the monthly commissions paid do not equal or exceed 20% return on the Maintenance Margin Requirement at 9.6% of Exchange Maintenance Margin, the Acquiring Fund will pay a true up to meet that return at the end of each month. |
| Wilmington Trust Company, Trustee | $3,300 annually for the Trust |
Other Non-Contractual Payments by the Acquiring Fund
The Acquiring Fund pays Toroso a Management Fee, monthly in arrears, in an amount equal to 0.94% per annum of the daily NAV of the Acquiring Fund. The Management Fee is paid in consideration of Toroso’s services related to the management of the Acquiring Fund’s business and affairs, including the provision of commodity futures trading advisory services. Purchases of creation units with cash may cause the Acquiring Fund to incur certain costs including brokerage commissions and redemptions of creation units with cash may result in the recognition of gains or losses that the Acquiring Fund might not have incurred if it had made redemptions in-kind. The Acquiring Fund pays all of its respective brokerage commissions, including applicable exchange fees, NFA fees and give-up fees, and other transaction related fees and expenses charged in connection with trading activities for the Acquiring Fund’s investments in CFTC regulated investments. The Acquiring Fund bears other transaction costs related to the FCM capital requirements on a monthly basis. Toroso pays all of the routine operational, administrative and other ordinary expenses of the Acquiring Fund, generally as determined by Toroso, including but not limited to, fees and expenses of the Administrator, Sub-Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. The Acquiring Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by Toroso. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Acquiring Fund. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.
Form of Shares
Registered Form
Shares are issued in registered form in accordance with the Tidal 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”). Toroso recognizes transfers of Shares in certificated form only if done in accordance with the Tidal Trust Agreement. The beneficial interests in such Shares are held in book-entry form through purchasers and/or accountholders in DTC.
Book Entry
Individual certificates are not issued for the Shares. Instead, Shares are represented by one or more global certificates, which are deposited by the Sub-Administrator with DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Shareholders are limited to (1) purchasers in DTC such as banks, brokers, dealers and trust companies, (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC purchaser, and (3) those who hold interests in the Shares through DTC purchasers or Indirect purchasers, in each case who satisfy the requirements for transfers of Shares. DTC purchasers acting on behalf of investors holding Shares through such purchasers’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same Day Funds Settlement System. Shares are credited to DTC purchasers’ securities accounts following confirmation of receipt of payment.
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DTC
DTC is a limited purpose trust company organized under the laws of the State of New York and is a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities for DTC purchasers and facilitates the clearance and settlement of transactions between DTC purchasers through electronic book-entry changes in accounts of DTC purchasers.
Transfer of Shares
The Shares are only transferable through the book-entry system of DTC. Shareholders who are not DTC purchasers may transfer their Shares through DTC by instructing the DTC purchaser holding their Shares (or by instructing the Indirect purchaser or other entity through which their Shares are held) to transfer the Shares. Transfers are made in accordance with standard securities industry practice.
Transfers of interests in Shares with DTC are made in accordance with the usual rules and operating procedures of DTC and the nature of the transfer. DTC has established procedures to facilitate transfers among the Purchasers and/or accountholders of DTC. Because DTC can only act on behalf of DTC Purchasers, who in turn act on behalf of Indirect Purchasers, the ability of a person or entity having an interest in a global certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a certificate or other definitive document representing such interest.
DTC has advised us that it will take any action permitted to be taken by a Shareholder (including, without limitation, the presentation of a global certificate for exchange) only at the direction of one or more DTC purchasers in whose account with DTC interests in global certificates are credited and only in respect of such portion of the aggregate principal amount of the global certificate as to which such DTC purchaser or purchasers has or have given such direction.
Inter-Series Limitation on Liability
Because the Tidal Trust was established as a Delaware statutory trust, the Acquiring Fund and each other series that may be established under the Tidal 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 Acquiring 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 Tidal Trust generally. The assets of the Acquiring 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 Tidal Trust for the purchase of Shares in a series. This limitation on liability is referred to as the Inter-Series Limitation on Liability. The Inter-Series Limitation on Liability is expressly provided for under the Delaware Statutory Trust Act, which provides that if certain conditions (as set forth in Section 3804(a)) are met, then the debts of any particular series will be enforceable only against the assets of such series and not against the assets of any other series or the Tidal Trust generally. In furtherance of the Inter-Series Limitation on Liability, every party providing services to the Trust, the Acquiring Fund or Toroso on behalf of the Tidal Trust or the Acquiring Fund, will acknowledge and consent in writing to the Inter-Series Limitation on Liability with respect to such party’s claims.
The existence of a Trustee should not be taken as an indication of any additional level of management or supervision over the Acquiring Fund. Consistent with Delaware law, the Trustee acts in an entirely passive role, delegating all authority for the management and operation of the Acquiring Fund and the Tidal Trust to Toroso. The Trustee does not provide custodial services with respect to the assets of the Acquiring Fund.
Calculating NAV
The Acquiring 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 Sub-Administrator calculates the NAV of the Acquiring Fund once each trading day. It calculates the NAV as of the earlier of the close of trading on NYSE Arca or 4:00 p.m. (ET). The NAV for a particular trading day is released after 4:15 p.m. (ET).
In determining the value of Bitcoin Futures Contracts, the Acquiring Fund uses the settlement price for the Benchmark Component Futures Contracts, as reported on the CME. CME Group staff determines the daily settlements for the Benchmark Component Futures Contracts based on trading activity on CME Globex exchange between 14:59:00 and 15:00:00 Central Time (CT), the settlement period, except that the “fair value” of Bitcoin Futures Contracts (as described in more detail below) may be used when Bitcoin Futures Contracts close at their price fluctuation limit for the day. In calculating, the Acquiring Fund’s NAV, the Sub-Administrator utilizes the value of all other Fund investments as of the earlier of the close of regular trading on NYSE Arca or 4:00 p.m. (ET), in accordance with the current Services Agreement between the Administrator, Sub-Administrator and the Trust. NAV includes any unrealized profit or loss on open bitcoin interests and any other credit or debit accruing to the Acquiring Fund but unpaid or not received by the Acquiring Fund.
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The fair value of a bitcoin interest is determined by Toroso in good faith and in a manner that assesses the bitcoin interest’s value based on a consideration of all available facts and all available information on the valuation date. When a Bitcoin Futures Contract has closed at its daily price fluctuation limit, that limit price will be the daily settlement price that the CME publishes. The Acquiring Fund will use the published settlement price to price its Shares on that day. If the CME halted trading in Bitcoin Futures Contracts for other reasons, including if trading were halted for an entire trading day or several trading days, the Acquiring Fund would value its Bitcoin Futures Contracts by using the settlement price that the CME publishes.
In addition, in order to provide updated information relating to the Acquiring 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 Acquiring Fund as a base and updating that value throughout the trading day to reflect changes in the value of the Acquiring Fund’s bitcoin interests during the trading day. Changes in the value of cash equivalents are not included in the calculation of indicative value. For this and other reasons, the indicative fund value disseminated during NYSE Arca trading hours should not be viewed as an actual real time update of the NAV. NAV is calculated only once at the end of each trading day.
The indicative fund value is disseminated on a per Share basis every 15 seconds during regular NYSE Arca trading hours of 9:30 a.m. (ET) to 4:00 p.m. (ET). The trading hours for the CME can be found at: https://www.cmegroup.com/education/bitcoin/cme-bitcoin-futures-frequently-asked-questions.html.
ICE Data Indices, LLC disseminates the indicative fund value through the facilities of CTA/CQ High Speed Lines. In addition, the indicative fund value is available through on-line information services such as Bloomberg and Reuters.
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 NYSE Arca. Investors and market professionals are able throughout the trading day to compare the market price of the Acquiring 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 Acquiring Fund appears to be trading at a discount compared to the indicative fund value, a market professional could buy Fund Shares on NYSE Arca, aggregate them into Redemption Baskets, and receive the NAV of such Shares by redeeming them to the Tidal Trust provided that there is not a minimum number of Shares outstanding for the Acquiring Fund. Such arbitrage trades can tighten the tracking between the market price of the Acquiring Fund and the indicative fund value.
Creation and Redemption of Shares
The Acquiring Fund creates and redeems Shares from time to time, but only in one or more Creation Baskets or Redemption Baskets. To the extent creations and redemptions involve the exchange of cash and cash equivalents, the Acquiring Fund may incur certain costs including brokerage costs or recognize gains or losses that it might not have incurred if the transaction were made in-kind. Authorized Purchasers are the only persons that may place orders to create and redeem baskets. Authorized Purchasers must be (1) either registered broker-dealers or other securities market purchasers, such as banks and other financial institutions, which are not required to register as broker-dealers to engage in securities transactions as described below, and (2) DTC purchasers. To become an Authorized Purchaser, a person must enter into an Authorized Purchaser Agreement with Toroso. The Authorized Purchaser Agreement provides the procedures for the creation and redemption of baskets and for the delivery of the cash and cash equivalents required for such creations and redemptions. The Authorized Purchaser Agreement and the related procedures attached thereto may be amended by Toroso, without the consent of any Shareholder, and the related procedures may generally be amended by Toroso without the consent of the Authorized Purchaser. Authorized Purchasers pay a transaction fee of $300 to the Custodian for each creation order they place and a fee of $300 per order for redemptions, which is a nominal fee. Authorized Purchasers who make deposits with the Acquiring Fund in exchange for baskets receive no fees, commissions or other form of compensation or inducement of any kind from either the Tidal Trust or Toroso, and no such person will have any obligation or responsibility to the Tidal Trust or Toroso to effect any sale or resale of Shares.
Certain Authorized Purchasers are expected to be capable of participating directly in the physical bitcoin and the bitcoin interest markets. Some Authorized Purchasers or their affiliates may from time to time buy or sell bitcoin or bitcoin interests and may profit in these instances.
Each Authorized Purchaser will be required to be registered as a broker-dealer under the Exchange Act and a member in good standing with FINRA or be exempt from being or otherwise not required to be registered as a broker-dealer or a member of FINRA, and will be qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Purchasers may also be regulated under federal and state banking laws and regulations. Each Authorized Purchaser has its own set of rules and procedures, internal controls and information barriers it deems appropriate in light of its own regulatory regime.
Under the Authorized Purchaser Agreement, Toroso 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.
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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 Tidal Trust Agreement and the form of Authorized Purchaser Agreement for more detail, each of which has been incorporated by reference as an exhibit to the registration statement of which this prospectus is a part. See “Where You Can Find More Information” for information about where you can obtain the registration statement.
Creation Procedures
On any business day, an Authorized Purchaser may place an order with Global Fund Services in its capacity as the transfer agent to create one or more baskets. For purposes of processing purchase and redemption orders, a “business day” means any day other than a day when NYSE Arca or the CME is closed for regular trading. Purchase orders must be placed by 3:00 p.m. (ET) or the close of regular trading on NYSE Arca, whichever is earlier. The day on which the Distributor receives a valid purchase order is referred to as the purchase order date.
By placing a purchase order, an Authorized Purchaser agrees to deposit cash and/or cash equivalents with the Acquiring Fund, as described below. Prior to the delivery of baskets for a purchase order, the Authorized Purchaser must also have wired to Toroso the non-refundable transaction fee due for the purchase order. Authorized Purchasers may not withdraw a purchase order without the prior consent of Toroso in its discretion.
Determination of Required Deposits
The total deposit required to create each basket (“Creation Basket Deposit”) is the amount of cash and/or cash equivalents that is in the same proportion to the total assets of the Acquiring 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. Toroso determines, directly in its sole discretion or in consultation with the Custodian and the Sub-Administrator, the requirements for cash and/or cash equivalents, including the remaining maturities of the cash equivalents, which may be included in deposits to create baskets. If cash equivalents are to be included in a Creation Basket Deposit for orders placed on a given business day, the Sub-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 Acquiring Fund’s account with the Custodian the required amount of cash and cash equivalents by the end of the next business day following the purchase order date or by the end of such later business day, not to exceed three business days after the purchase order date, as agreed to between the Authorized Purchaser and the Acquired Fund when the purchase order is placed (the “Purchase Settlement Date”). Upon receipt of the deposit amount, the Custodian directs DTC to credit the number of baskets ordered to the Authorized Purchaser’s DTC account on the Purchase Settlement Date.
Because orders to purchase baskets must be placed by 3:00 p.m. (ET), but the total payment required to create a basket during the continuous offering period will not be determined until 4:00 p.m., (ET), on the date the purchase order is received, Authorized Purchasers will not know the total amount of the payment required to create a basket at the time they submit an irrevocable purchase order for the basket. The Acquiring 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
Toroso 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 Acquiring 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 Acquiring Fund or its Shareholders; |
| ● | the acceptance or receipt of the Creation Basket Deposit would, in the opinion of counsel to Toroso, be unlawful; |
| ● | circumstances outside the control of Toroso, 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 Acquiring Fund on the CME from which the NAV of the Acquiring Fund is calculated will be priced at a dynamic price limit restriction; or |
| ● | if, in the sole discretion of Toroso, the execution of such an order would not be in the best interest of the Acquiring Fund or its Shareholders. |
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None of Toroso, Distributor or transfer agent will be liable for the rejection of any purchase order or Creation Basket Deposit.
Redemption Procedures
The procedures by which an Authorized Purchaser can redeem one or more baskets mirror the procedures for the creation of baskets. On any business day, an Authorized Purchaser may place an order with the transfer agent to redeem one or more baskets. Redemption orders must be placed by 3:00 p.m. (ET) or the close of regular trading on NYSE Arca, 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 Acquiring 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 Toroso’s account at the Custodian the non-refundable transaction fee due for the redemption order. An Authorized Purchaser may not withdraw a redemption order without the prior consent of Toroso in its discretion.
Determination of Redemption Distribution
The redemption distribution from the Acquiring Fund consists of a transfer to the redeeming Authorized Purchaser of an amount of cash and/or cash equivalents that is in the same proportion to the total assets of the Acquiring 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. Toroso, directly or in consultation with the Custodian and the Sub-Administrator, determines the requirements for cash and/or cash equivalents, including the remaining maturities of the cash equivalents and cash, which may be included in distributions to redeem baskets. If cash equivalents are to be included in a redemption distribution for orders placed on a given business day, the Custodian and Sub-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 Acquiring Fund’s DTC account has been credited with the baskets to be redeemed. If the Acquiring 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 Toroso, the Custodian will also be authorized to deliver the redemption distribution notwithstanding that the baskets to be redeemed are not credited to the Acquiring Fund’s DTC account by noon (ET) on the Redemption Settlement Date if the Authorized Purchaser has collateralized its obligation to deliver the baskets through DTC’s book-entry system on such terms as Toroso may from time to time determine.
Suspension or Rejection of Redemption Orders
Toroso may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which NYSE Arca or CME is closed other than customary weekend or holiday closings, or trading on NYSE Arca or CME is suspended or restricted, (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of cash equivalents is not reasonably practicable, (3) for such other period as Toroso 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 Acquiring Fund on the CME from which the NAV of the Acquiring Fund is calculated will be priced at a daily price limit restriction, or (5) if, in the sole discretion of Toroso, the execution of such an order would not be in the best interest of the Acquiring Fund or its Shareholders. For example, Toroso may determine that it is necessary to suspend redemptions to allow for the orderly liquidation of the Acquiring Fund’s assets at an appropriate value to fund a redemption. If Toroso has difficulty liquidating the Acquiring Fund’s positions, e.g., because of a market disruption event in the futures markets, it may be appropriate to suspend redemptions until such time as such circumstances are rectified. None of Toroso, the Distributor, or the transfer agent will be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.
Redemption orders must be made in whole baskets. Toroso 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. Toroso may also reject a redemption order if the number of Shares being redeemed would reduce the remaining outstanding Shares below 50,000 Shares (i.e., five baskets of 10,000 Shares each) or less, unless Toroso has reason to believe that the placer of the redemption order does in fact possess all the outstanding Shares of the Acquiring Fund and can deliver them.
Creation and Redemption Transaction Fees
To compensate for expenses in connection with the creation and redemption of baskets, an Authorized Purchaser is required to pay a transaction fee of $300 per order to the Custodian. The transaction fees may be reduced, increased or otherwise changed by Toroso.
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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 Toroso and the Acquiring 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 Acquiring 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 Acquiring Fund or the distribution by the Acquiring Fund of the amount of cash and cash equivalents equal to the total NAV of the number of Shares included in the baskets being created or redeemed determined on the day the order to create or redeem baskets is properly received.
As discussed above, Authorized Purchasers are the only persons that may place orders to create and redeem baskets. Authorized Purchasers must be registered broker-dealers or other securities market purchasers, such as banks and other financial institutions that are not required to register as broker-dealers to engage in securities transactions. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public Shares of any baskets it does create. Authorized Purchasers that do offer to the public Shares from the baskets they create will do so at per Share offering prices that are expected to reflect, among other factors, the trading price of the Shares on NYSE Arca, the NAV of the Shares at the time the Authorized Purchaser purchased the Creation Baskets, the NAV of the Shares at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the bitcoin interest markets. The prices of Shares offered by Authorized Purchasers are expected to fall between the Acquiring Fund’s NAV and the trading price of the Shares on 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 NYSE Arca. Shares may trade in the secondary market at prices that are lower or higher relative to their NAV per Share. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by various factors, including the number of investors who seek to purchase or sell Shares in the secondary market and the liquidity of the bitcoin interest markets. While the Shares trade on NYSE Arca until 4:00 p.m. (ET), liquidity in the markets for bitcoin interests may be reduced after the close of the CME. As a result, during this time, trading spreads, and the resulting premium or discount, on the Shares may widen.
The Tidal Trust Agreement
The following paragraphs are a summary of certain provisions of the Tidal Trust Agreement. The following discussion is qualified in its entirety by reference to the Tidal Trust Agreement.
Authority of Toroso
Toroso is generally authorized to perform all acts deemed necessary to carry out the purposes of the Tidal Trust and to conduct the business of the Trust. The Tidal Trust and the Acquiring Fund will continue to exist until terminated in accordance with the Tidal Trust Agreement.
Toroso’s Obligations
In addition to the duties imposed by the Delaware Trust Statute, under the Tidal Trust Agreement Toroso 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 Toroso’s immediate possession or control.
To the extent that, at law (common or statutory) or in equity, Toroso has duties (including fiduciary duties) and liabilities relating thereto to the Trust, the Acquiring Fund, the Shareholders or to any other person, Toroso will not be liable to the Trust, the Acquiring Fund, the Shareholders or to any other person for its good faith reliance on the provisions of the Tidal Trust Agreement or this prospectus unless such reliance constitutes gross negligence or willful misconduct on the part of Toroso. The provisions of the Tidal Trust Agreement, to the extent they restrict or eliminate the duties and liabilities of Toroso otherwise existing at law or in equity, replace such other duties and liabilities of Toroso.
Liability and Indemnification
Under the Tidal Trust Agreement, Toroso, the Trustee and their respective Affiliates (collectively, “Covered Persons”) shall have no liability to the Trust, the Acquiring Fund, or to any Shareholder for any loss suffered by the Tidal Trust or the Acquiring 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 Tidal Trust or the Acquiring Fund and such course of conduct did not constitute gross negligence or willful misconduct of such Covered Person. Subject to the foregoing, neither Toroso 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 Tidal Trust Agreement shall be made solely from the assets of the Acquiring Fund without any rights of contribution from Toroso 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 Toroso 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 Toroso to provide services to the Trust.
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The Tidal Trust Agreement also provides that Toroso shall be indemnified by the Tidal Trust (or by a series separately to the extent the matter in question relates to a single series or disproportionately affects a specific series in relation to other series) against any losses, judgments, liabilities, expenses (excluding any taxes on the compensation received for services as Sponsor or on indemnity payments received), and amounts paid in settlement of any claims sustained by it in connection with its activities for the Trust, provided that (i) Toroso was acting on behalf of or performing services for the Tidal Trust and has determined, in good faith, that such course of conduct was in the best interests of the Tidal Trust and such liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Tidal Trust Agreement on the part of Toroso and (ii) any such indemnification will only be recoverable from the assets of the applicable series. Toroso’s rights to indemnification permitted under the Tidal Trust Agreement shall not be affected by the dissolution or other cessation to exist of Toroso, or the withdrawal, adjudication of bankruptcy or insolvency of Toroso, or the filing of a voluntary or involuntary petition in bankruptcy under Title 11 of the Bankruptcy Code by or against Toroso.
Notwithstanding the above, Toroso 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 Tidal 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 Tidal Trust Agreement.
Expenses incurred in defending a threatened or pending action, suit or proceeding against Toroso shall be paid by the Tidal 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 Toroso on behalf of the Trust; (ii) the legal action is initiated by a party other than the Trust; and (iii) Toroso undertakes to repay the advanced funds with interest to the Tidal Trust in cases in which it is not entitled to indemnification.
The Tidal Trust Agreement provides that Toroso and the Tidal 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 Tidal Trust is a party, or the action or inaction of the Trustee under the Tidal 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 Toroso 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 Tidal 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 Tidal Trust business, such Shareholder (or assignees cumulatively) is required under the Tidal Trust Agreement to indemnify the Tidal Trust for all such liability and expense incurred, including attorneys’ and accountants’ fees.
Withdrawal of Toroso
Toroso may withdraw voluntarily as sponsor of the Tidal 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 Acquiring Fund, voting together as a single class (not including Shares acquired by Toroso 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 Toroso.
In the event of withdrawal, Toroso is entitled to a redemption of the Shares it acquired through its initial capital contribution to any of the series of the Tidal Trust at their NAV per Share. If Toroso 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 Toroso and will be called by it upon the written request of Shareholders holding at least 25% of the outstanding Shares of the Tidal Trust or the Acquiring Fund, as applicable (not including Shares acquired by Toroso through its initial capital contribution). Toroso shall deposit in the United States mail or electronically transmit written notice to all Shareholders of the Acquiring 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 Acquiring Fund, or any other 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 Toroso.
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Voting Rights
Shareholders have no voting rights with respect to the Tidal Trust or the Acquiring Fund except as expressly provided in the Tidal Trust Agreement. The Tidal Trust Agreement provides that Shareholders representing at least a majority (over 50%) of the outstanding Shares of the Acquiring Fund together as a single class (excluding Shares acquired by Toroso in connection with its initial capital contribution to any Tidal Trust series) may vote to (i) continue the Tidal Trust by electing a successor Sponsor as described above, and (ii) approve amendments to the Tidal Trust Agreement that impair the right to surrender Redemption Baskets for redemption. (Trustee consent to any amendment to the Tidal 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 Acquiring Fund, voting together as a single class (excluding Shares acquired by Toroso in connection with its initial capital contribution to any Tidal Trust series) may vote to dissolve the Tidal Trust upon not less than ninety (90) days’ notice to Toroso.
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 Tidal Trust or the Acquiring Fund in excess of his Share of the Acquiring Fund’s assets. The Tidal Trust or the Acquiring 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 Tidal Trust or the Acquiring Fund shall indemnify to the full extent permitted by law and the Tidal Trust Agreement each Shareholder (excluding Toroso 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 Tidal Trust Agreement provides that every written note, bond, contract, instrument, certificate or undertaking made or issued by or on behalf of the Acquiring 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 Acquiring Fund.
Toroso 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. Toroso may use this notice of conflicts as a defense against any claim or other proceeding made.
Toroso’s principals, managers, officers and employees, do not devote their time exclusively to the Acquiring Fund. Notwithstanding obligations and expectations related to the management of Toroso, Toroso’s principals, officers and employees may be directors, officers or employees of other entities, and may manage assets of other entities, including the other funds of the Trust, through Toroso or otherwise. As a result, the principals could have a conflict between responsibilities to the Acquiring Fund on the one hand and to those other entities on the other.
Toroso 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 Toroso 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 Acquiring Fund. A potential conflict also may occur when Toroso’s principals trade their accounts more aggressively or take positions in their accounts that are opposite, or ahead of, the positions taken by the Acquiring Fund.
Toroso has sole current authority to manage the investments and operations of the Acquiring 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 Toroso to allocate expenses to and between the Acquiring Funds of the Trust. Shareholders have very limited voting rights with respect to the Acquiring Fund, which will limit the ability to influence matters such as amendment of the Tidal Trust Agreement, change in the Acquiring Fund’s basic investment policies, or dissolution of the Acquiring Fund or the Trust.
Toroso serves as Toroso to the Acquiring Fund and serves as Toroso or investment adviser to investment companies and commodity pools other than the Acquiring Fund. Toroso may have a conflict to the extent that its trading decisions for the Acquiring Fund may be influenced by the effect they would have on the other investment companies or pools it manages. In addition, Toroso may be required to indemnify the officers and directors of the other investment companies or pools, if the need for indemnification arises. This potential indemnification will cause Toroso’s assets to decrease. If Toroso’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 Acquiring Fund.
If Toroso acquires knowledge of a potential transaction or arrangement that may be an opportunity for the Acquiring Fund, it shall have no duty to offer such opportunity to the Acquiring Fund. Toroso will not be liable to the Acquiring Fund or the Shareholders for breach of any fiduciary or other duty if Toroso pursues such opportunity or directs it to another person or does not communicate such opportunity to the Acquiring Fund and is not required to share income or profits derived from such business ventures with the Acquiring Fund.
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Toroso might have a potential future conflict of interest if Toroso, a new sponsor, or sub-adviser were to register as a broker-dealer or become affiliated with a broker-dealer. In such case, Toroso, new sponsor, or sub-adviser, as the case may be, would develop and implement appropriate procedures designed to prevent the use and dissemination of material non-public information regarding the Acquiring Fund’s holdings.
Resolution of Conflicts Procedures
The Tidal Trust Agreement provides that whenever a conflict of interest exists between Toroso or any of its Affiliates, on the one hand, and the Trust, any shareholder of a Tidal Trust series, or any other person, on the other hand, Toroso 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 Toroso, the resolution, action or terms so made, taken or provided by Toroso shall not constitute a breach of the Tidal Trust Agreement or any other agreement contemplated therein or of any duty or obligation of Toroso at law or in equity or otherwise.
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 Toroso that arises out of an alleged violation of such laws is prohibited unless certain conditions are met. Those conditions require that no indemnification of Toroso or any underwriter for the Acquiring 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, Toroso or other indemnitee must apprise the court of the position held by regulatory agencies against such indemnification.
Books and Records
The Tidal Trust keeps its books of record and account at its office located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204, or at the offices of the Sub-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 Acquiring 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 Acquiring Fund upon reasonable advance notice to the extent such access is required under CFTC rules and regulations. In addition, the Tidal Trust keeps a copy of the Tidal 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 Tidal Trust will furnish annual reports (as of the end of each fiscal year) for the Acquiring Fund to DTC purchasers for distribution to Shareholders, as required to be provided to Shareholders by the CFTC and the NFA. These annual reports will contain financial statements prepared by Toroso and audited by an independent registered public accounting firm designated by Toroso. The Tidal Trust will also post monthly reports to the Acquiring Fund’s website (http://hashdex-etfs.com/). These monthly reports will contain certain unaudited financial information regarding the Acquiring Fund, including the Acquiring Fund’s NAV. Toroso will furnish to the Shareholders other reports or information which Toroso, in its discretion, determines to be necessary or appropriate. In addition, under SEC rules the Tidal Trust will be required to file quarterly and annual reports for the Acquiring Fund with the SEC, which need not be sent to Shareholders but will be publicly available through the SEC. The Tidal Trust will post the same information that would otherwise be provided in the Trust’s CFTC, NFA and SEC reports on the Acquiring Fund’s website: http://hashdex-etfs.com/.
The accountants’ report on its audit of the Acquiring Fund’s financial statements will be furnished by the Tidal Trust to Shareholders upon request. The Tidal Trust will file such tax returns, and prepare, disseminate and file such tax reports for the Acquiring 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 Acquiring Fund as it deems advisable.
The Acquiring Fund or its appointed agent 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 Acquiring Fund from the Acquiring Fund at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204 or from the Acquiring Fund’s website, http://hashdex-etfs.com/.
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Fiscal Year
The fiscal year of the Acquiring Fund is the calendar year.
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. .com.
Toroso, the Trust, and the Acquiring Fund have adopted a privacy policy relating to the collection, maintenance, and use of nonpublic personal information about the Acquiring Fund’s 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 Toroso to tell investors how it collects, Shares, and protects such nonpublic personal information.
Collection of Nonpublic Personal Information
Toroso may collect or have access to nonpublic personal information about current and former Fund investors for certain purposes relating to the operation of the Acquiring Fund. 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 Acquiring Fund.
Use and Disclosure of Nonpublic Personal Information
Toroso does not sell nonpublic personal information to any third parties. Toroso primarily uses investors’ nonpublic personal information to complete financial transactions that may be requested. Toroso 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 Acquiring Fund, may be shared between and amongst Toroso and the Acquiring Fund. An investor cannot opt-out of the sharing of nonpublic personal information between and amongst Toroso and the Acquiring Fund. However, Toroso and the Acquiring Fund 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 the Acquiring Fund.
Protection of Nonpublic Personal Information
As described in the privacy policy, Toroso 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.
Toroso’s Website is hosted in the United States and any data provided to Toroso 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.
Governing Law
The rights of Toroso, the Trust, the Acquiring Fund, DTC (as registered owner of the Acquiring 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 Tidal Trust Agreement and the effect of every provision thereof shall control over any contrary or limiting statutory or common law of the State of Delaware, other than the Delaware Trust Statute.
Legal Proceedings
Except as described above, within the past 10 years of the date of this prospectus/information statement, there have been no material administrative, civil or criminal actions against Toroso, the Tidal Trust or the Acquiring Fund, or any principal or affiliate of any of them. This includes any actions pending, on appeal, concluded, threatened, or otherwise known to them.
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 Acquiring Fund and the U.S. federal income tax treatment of the Acquiring Fund. Except where noted otherwise, it deals only with the U.S. federal income tax consequences relating to Shares held as capital assets by U.S. Shareholders (as defined below) who are not subject to special tax treatment. For example, in general it does not address the tax consequences, such as, but not limited to consequences to dealers in securities or currencies or commodities, traders in securities or dealers or traders in commodities that elect to use a mark to market method of accounting, financial institutions, regulated investment companies (except as discussed below), tax-exempt entities (except as discussed below), insurance companies, persons holding Shares as a part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated transaction for U.S. federal income tax purposes, persons with “applicable financial statements” within the meaning of section 451(b) of the Internal Revenue Code of 1986, as amended (the “Code”), or holders of Shares whose “functional currency” is not the U.S. dollar. Furthermore, the discussion below is based on the provisions of the Code, and regulations (“Treasury Regulations”), rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified (possibly with retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below.
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Toroso has received the opinion of K&L Gates LLP (“KLG”), counsel to the Trust, that the material U.S. federal income tax consequences to the Acquiring 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, KLG has relied on the facts and assumptions described in this prospectus as well as certain factual representations made by the Trust, the Acquiring Fund, and Toroso. This opinion is not binding on the Internal Revenue Service (the “IRS”) and will not be a guarantee of the results. No ruling has been requested from the IRS with respect to any matter affecting the Acquiring Fund or prospective investors, and the IRS may disagree with the tax positions taken by the Trust. If the IRS were to challenge the Trust’s tax positions in litigation, they might not be sustained by the courts. No statutory, administrative or judicial authority directly addresses the treatment of the Shares or instruments similar to the Shares for U.S. federal income tax purposes. As a result, the Tidal Trust cannot assure investors that the IRS or the courts will agree with the tax consequences described herein. A different treatment from that described below could adversely affect the amount, timing and character of income, gain or loss in respect of an investment in the Shares and could adversely affect the value of the Shares.
As used herein, the term “U.S. Shareholder” means a Shareholder that is, for U.S. federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust that (a) is subject to the supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code, or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. A “Non-U.S. Shareholder” is a holder that is not a U.S. Shareholder. If a partnership or other entity or arrangement treated as a partnership holds our Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Shares, the discussion below may not be applicable to you and you should consult your own tax advisor regarding the tax consequences of acquiring, owning and disposing of Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN SHARES, AS WELL AS ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES.
Tax Classification of the Tidal Trust and the Acquiring Fund
The Tidal Trust is organized and will be operated as a statutory trust in accordance with the provisions of the Tidal Trust Agreement and applicable Delaware law. Notwithstanding the Trust’s status as a statutory trust and the Acquiring Fund’s status as a series of the Trust, due to the nature of its activities the Acquiring Fund will not be classified as a trust for U.S. federal income tax purposes, but rather will be classified as a partnership for such purposes. The trading of Shares on NYSE Arca will cause the Acquiring Fund to be classified as a “publicly traded partnership” for U.S. federal income tax purposes. Under section 7704 of the Code, a publicly traded partnership is generally taxable as a corporation. In the case of an entity not registered under the Investment Company Act of 1940 as amended, (such as the Acquiring Fund) and not meeting certain other conditions, however, an exception to this general rule applies if at least 90% of the entity’s gross income is “qualifying income” for each taxable year of its existence (the “qualifying income exception”). For this purpose, qualifying income is defined as including, in pertinent part, interest (other than from a financial business), dividends, and gains from the sale or disposition of capital assets held for the production of interest or dividends. In the case of a partnership of which a principal activity is the buying and selling of commodities other than as inventory or of futures, forwards and options with respect to commodities, “qualifying income” also includes income and gains from commodities and from such futures, forwards, options, and, provided the partnership is a trader or investor with respect to such assets, swaps and other notional principal contracts with respect to commodities.
There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives, such as Bitcoin Futures Contracts. KLG is of the opinion that Bitcoin Futures Contracts more likely than not will be considered futures with respect to commodities for purposes of the qualifying income exception under section 7704 of the Code. Based on the opinion of KLG and a CFTC determination that treats bitcoin as a commodity under the CEA, the Acquiring Fund intends to take the position that Bitcoin Futures Contracts consist of futures on commodities for purposes of the qualifying income exception under section 7704 of the Code. Shareholders should be aware that the Acquiring Fund’s position is not binding on the IRS, and no assurance can be given that the IRS will not challenge the Acquiring Fund’s position, or that the IRS or a court will not ultimately reach a contrary conclusion, which would result in the material adverse consequences to Shareholders and the Acquiring Fund discussed below.
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The Tidal Trust and Toroso have represented the following to KLG:
| ● | assuming Bitcoin Futures Contracts consist of futures on commodities for purposes of the qualifying income exception under section 7704(d) of the Code, at least 90% of the Acquiring Fund’s gross income for each taxable year will constitute “qualifying income” within the meaning of Code section 7704 (as described above); |
| ● | the Acquiring Fund is organized and will be operated in accordance with its governing documents and applicable law; and |
| ● | the Acquiring 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, KLG is of the opinion that the Acquiring Fund more likely than not will be treated as a partnership that it is not taxable as a corporation for U.S. federal income tax purposes. The Acquiring Fund’s taxation as a partnership rather than a corporation will require Toroso to conduct the Acquiring 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 Acquiring Fund’s operations for any given year will produce income that satisfies these requirements. KLG will not review the Acquiring Fund’s ongoing compliance with these requirements and will have no obligation to advise the Trust, the Acquiring Fund or the Acquiring 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 Acquiring 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 Acquiring Fund could be required to pay the government amounts determined by the IRS), the Acquiring Fund would be taxable as a corporation for U.S. federal income tax purposes and would pay U.S. federal income tax on its income at regular corporate tax rates. In that event, Shareholders would not report their share of the Acquiring Fund’s income or loss on their tax returns. Distributions by the Acquiring Fund (if any) would be treated as dividend income to the Shareholders to the extent of the Acquiring 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 Acquiring 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 Acquiring Fund and on the value of the Shares.
The remainder of this summary assumes that the Acquiring Fund is classified for U.S. federal income tax purposes as a partnership that it is not taxable as a corporation.
U.S. Shareholders
Tax Consequences of Ownership of Shares
Taxation of the Acquiring Fund’s Income. No U.S. federal income tax is paid by the Acquiring Fund on its income. Instead, the Acquiring 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 Acquiring 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 Acquiring 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 Acquiring 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 Toroso currently does not intend to make distributions, it is likely that a U.S. Shareholder that realizes net income or gain with respect to Shares for a taxable year will be required to pay any resulting tax from sources other than Fund distributions. Additionally, individuals with modified adjusted gross income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses). Also included as income subject to the additional 3.8% tax is income from businesses involved in the trading of financial instruments or commodities. Shareholders subject to this provision may be required to pay this 3.8% tax on interest income and capital gains allocated to them by the Acquiring Fund.
Monthly Conventions for Allocations of the Acquiring 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 Acquiring Fund as discussed below, allocations pursuant to the Tidal Trust Agreement should be considered as having substantial economic effect or being in accordance with Shareholders’ interests in the Acquiring 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 Acquiring 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 Acquiring 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”).
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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 Acquiring Fund or the Trust.
For any month in which a Creation Basket is issued or a Redemption Basket is redeemed, the Acquiring 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 Acquiring Fund will use a convention whereby unrealized gain or loss will be computed based on the lowest NAV of the Acquiring 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 Acquiring 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 Acquiring Fund’s assets existing at the time of a contribution or redemption for book and tax purposes.
The conventions used by the Acquiring 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 Acquiring 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 Acquiring Fund intends to make the election permitted by section 754 of the Code, which election is irrevocable without the consent of the IRS. The effect of this election is that when a secondary market sale of Shares occurs, the Acquiring Fund adjusts the purchaser’s proportionate share of the tax basis of the Acquiring Fund’s assets to fair market value, as reflected in the price paid for the Shares, as if the purchaser had directly acquired an interest in the Acquiring Fund’s assets. The section 754 election is intended to eliminate disparities between a partner’s basis in its partnership interest and its share of the tax basis of the partnership’s assets, so that the partner’s allocable share of taxable gain or loss on a disposition of an asset will correspond to its share of the appreciation or depreciation in the value of the asset since it acquired its interest. Depending on the price paid for Shares and the tax basis of the Acquiring 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 Acquiring Fund will use certain simplifying conventions and assumptions. In particular, the Acquiring Fund will obtain information regarding secondary market transactions in its Shares and use this information to adjust the Shareholders’ indirect basis in the Acquiring Fund’s assets. It is possible the IRS could successfully assert that the conventions and assumptions applied are improper and require different basis adjustments to be made, which could adversely affect some Shareholders.
Section 1256 Contracts. Under the Code, special rules apply to instruments constituting “section 1256 contracts.” A section 1256 contract is defined as including, in relevant part: (1) a futures contract that is traded on or subject to the rules of a national securities exchange which is registered with the SEC, a domestic board of trade designated as a contract market by the CFTC, or any other board of trade or exchange designated by the Secretary of the Treasury (a “qualified board or exchange”), and with respect to which the amount required to be deposited and the amount that may be withdrawn depends on a system of “marking to market”; and (2) a non-equity option traded on or subject to the rules of a qualified board or exchange. Section 1256 contracts held at the end of each taxable year are treated as if they were sold for their fair market value on the last business day of the taxable year (i.e., are “marked to market”). In addition, any gain or loss realized from a disposition, termination or marking to market of a section 1256 contract is treated as long-term capital gain or loss to the extent of 60% thereof, and as short-term capital gain or loss to the extent of 40% thereof, without regard to the actual holding period (“60-40 treatment”).
Toroso expects that many of the Acquiring Fund’s Bitcoin Futures Contracts will qualify as “section 1256 contracts” under the Code. Some other bitcoin interests that are cleared through a qualified board or exchange will also constitute section 1256 contracts. Any gain or loss recognized as a result of the disposition, termination or marking to market of the Acquiring Fund’s section 1256 contracts will be subject to 60-40 treatment and allocated to Shareholders in accordance with the monthly allocation convention. Commodity swaps will most likely not qualify as section 1256 contracts. If a commodity swap is not taxable as a section 1256 contract, any gain or loss on the swap will be recognized at the time of disposition or termination as long-term or short-term capital gain or loss depending on the holding period of the swap in the Acquiring Fund’s hands.
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Foreign exchange gains and losses realized by the Acquiring 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 Acquiring 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 Acquiring Fund’s investments in various countries will change from time to time, it is not possible to determine the effective rate of such taxes in advance.
Limitations on Deductibility of Losses and Certain Expenses. A number of different provisions of the Code may defer or disallow the deduction of losses or expenses allocated to Shareholders by the Acquiring Fund, including but not limited to those described below.
A Shareholder’s deduction of its allocable share of any loss of the Acquiring 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 Acquiring 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 Acquiring 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 beginning 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 Acquiring Fund pays to Toroso and other expenses of the Acquiring Fund will constitute investment-related expenses subject to this miscellaneous itemized deduction limitation, rather than expenses incurred in connection with a trade or business and will report these expenses consistent with that interpretation. For taxable years beginning on or after January 1, 2026, the Code imposes additional limitations on the amount of certain itemized deductions allowable to individuals with adjusted gross income in excess of certain amounts by reducing the otherwise allowable portion of such deductions by an amount equal to the lesser of:
| ● | 3% of the individual’s adjusted gross income in excess of certain threshold amounts; or |
| ● | 80% of the amount of certain itemized deductions otherwise allowable for the taxable year. |
Non-corporate Shareholders generally may deduct “investment interest expense” only to the extent of their “net investment income.” Investment interest expense of a Shareholder will generally include any interest expense accrued by the Acquiring 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 Acquiring Fund incurs indebtedness that is treated as allocable to a trade or business, the Acquiring Fund’s ability to deduct interest on such indebtedness allocable is limited to an amount equal to the sum of (1) the Acquiring Fund’s business interest income during the year and (2) 30% of the Acquiring Fund’s adjusted taxable income for such taxable year. If the Acquiring 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 Acquiring Fund to such Shareholder. Any excess business interest expense allocated to a Shareholder will reduce such Shareholder’s basis in its Shares in the year of the allocation even if the expense does not give rise to a deduction to the Shareholder in that year. Immediately prior to a Shareholder’s disposition of its Shares, the Shareholder’s basis will be increased by the amount by which such basis reduction exceeds the excess interest expense that has been deducted by such Shareholder.
To the extent that the Acquiring Fund allocates losses or expenses to you that must be deferred or are disallowed as a result of these or other limitations in the Code, you may be taxed on income in excess of your economic income or distributions (if any) on your Shares. As one example, you could be allocated and required to pay tax on your share of interest income accrued by the Acquiring Fund for a particular taxable year, and in the same year be allocated a share of a capital loss that you cannot deduct currently because you have insufficient capital gains against which to offset the loss. As another example, you could be allocated and required to pay tax on your share of interest income and capital gain for a year but be unable to deduct some or all of your share of management fees and/or margin account interest incurred by you with respect to your Shares. Shareholders are urged to consult their own tax advisor regarding the effect of limitations under the Code on their ability to deduct their allocable share of the Acquiring Fund’s losses and expenses.
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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 Acquiring Fund, and (3) its ability to utilize its distributive share of any losses of the Acquiring Fund on its U.S. federal income tax return. A Shareholder’s initial tax basis of its Shares will equal its cost for the Shares plus its share of the Acquiring 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 Acquiring 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 Acquiring 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 Acquiring Fund’s taxable income and gain and (b) any additional contributions by the Shareholder to the Acquiring Fund and (2) decreased (but not below zero) by (a) its allocable share of the Acquiring Fund’s tax deductions and losses and (b) any distributions by the Acquiring Fund to the Shareholder. For this purpose, an increase in a Shareholder’s share of the Acquiring Fund’s liabilities will be treated as a contribution of cash by the Shareholder to the Acquiring Fund and a decrease in that share will be treated as a distribution of cash by the Acquiring 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 Acquiring Fund makes non-liquidating distributions to Shareholders, such distributions generally will not be taxable to the Shareholders for U.S. federal income tax purposes except to the extent that the amount of money distributed exceeds the Shareholder’s adjusted basis of its interest in the Acquiring 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 Acquiring Fund’s liabilities.
Gain or loss recognized by a Shareholder on the sale or exchange of Shares held for more than one year will generally be taxable as long-term capital gain or loss; otherwise, such gain or loss will generally be taxable as short-term capital gain or loss. A special election is available under the Treasury Regulations that allows Shareholders to identify and use the actual holding periods for the Shares sold for purposes of determining whether the gain or loss recognized on a sale of Shares will give rise to long-term or short-term capital gain or loss. It is expected that most Shareholders will be eligible to elect, and generally will elect, to identify and use the actual holding period for Shares sold. If a Shareholder who has differing holding periods for its Shares fails to make the election or is not able to identify the holding periods of the Shares sold, the Shareholder will have a split holding period in the Shares sold. Under such circumstances, a Shareholder will be required to determine its holding period in the Shares sold by first determining the portion of its entire interest in the Acquiring 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 Acquiring Fund.
Under Section 751 of the Code, a portion of a Shareholder’s gain or loss from the sale of Shares (regardless of the holding period for such Shares), will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized receivables” or “inventory” owned by the Acquiring Fund. The term “unrealized receivables” includes, among other things, market discount bonds and short-term debt instruments to the extent such items would give rise to ordinary income if sold by the Acquiring Fund. However, the short-term capital gain on section 1256 contracts resulting from 60-40 treatment, described above, should not be subject to this rule.
If some or all of a Shareholder’s Shares are lent by its broker or other agent to a third party — for example, for use by the third party in covering a short sale — the Shareholder may be considered as having made a taxable disposition of the loaned Shares, in which case:
| ● | the Shareholder may recognize taxable gain or loss to the same extent as if it had sold the Shares for cash; |
| ● | any of the income, gain, loss or deduction allocable to those Shares during the period of the loan is not reportable by the Shareholder for U.S. federal income tax purposes; and |
| ● | any distributions the Shareholder receives with respect to the Shares under the loan agreement will be fully taxable to the Shareholder, most likely as ordinary income for U.S. federal income tax purposes. |
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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 Acquiring Fund provides tax information to the Shareholders and to the IRS, as required. Shareholders of the Acquiring Fund are treated as partners for U.S. federal income tax purposes. Accordingly, the Acquiring Fund will furnish Shareholders each year, with tax information on IRS Schedule K-1 (Form 1065), which will be used by the Shareholders in completing their U.S. federal income tax returns. The IRS has ruled that assignees of partnership interests who have not been admitted to a partnership as partners but who have the capacity to exercise substantial dominion and control over the assigned partnership interests will be considered partners for U.S. federal income tax purposes. On the basis of this ruling, except as otherwise provided herein, we will treat as a Shareholder any person whose Shares are held on their behalf by a broker or other nominee if that person has the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of the Shares.
Persons who hold an interest in the Acquiring 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 Acquiring Fund. If the failure to furnish such information correctly is determined to be willful, the per failure penalty increases to $500 (as adjusted for inflation) or, if greater, 10% of the aggregate amount of items required to be reported, and the $3,000,000 maximum does not apply. The nominee is required to supply the beneficial owner of the Shares with the U.S. federal income tax information furnished by the Acquiring Fund.
Partnership Audit Procedures. The IRS may audit the U.S. federal income tax returns filed by the Acquiring Fund. Partnerships are generally treated as separate entities for purposes of U.S. federal tax audits, judicial review of administrative adjustments by the IRS, and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners.
Tax deficiencies (including interest and penalties) that arise from an adjustment to partnership items generally are assessed and collected from the partnership (rather than from the partners), and generally are calculated using maximum applicable tax rates (although such partnership level tax may be reduced or eliminated under limited circumstances). A narrow category of partnerships (generally, partnerships having no more than 100 partners that consist exclusively of individuals, C corporations, S corporations and estates) are permitted to elect out of the partnership-level audit rules. As an alternative to partnership-level tax liability, a partnership may elect to furnish adjusted Schedule K-1s to the IRS and to each person who was a partner in the audit year, stating such partner’s share of any partnership adjustments, and each such partner would then take the adjustments into account on its tax returns in the year in which it receives its adjusted Schedule K-1 (rather than by amending their tax returns for the audited year). If the Acquiring Fund were subject to a partnership level tax, the economic return of all Shareholders (including Shareholders that did not own Shares in the Acquiring Fund during the taxable year to which the audit relates) may be affected.
The Tidal Trust Agreement provides that if the Acquiring 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 Acquiring Fund (pursuant to a tax audit or otherwise), such Shareholder (and each former Shareholder) is obligated to indemnify the Acquiring Fund and Toroso 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, Toroso, on behalf of the Acquiring Fund, will be authorized to take any action permitted under applicable law to avoid the assessment of any such taxes against the Acquiring Fund (including an election to issue adjusted Schedule K-1s to the Shareholders (and/or former Shareholders) that take such adjustments to taxable income, gain, loss, deduction or credit into account, resulting in each such Shareholder taking those adjustments into account on its tax returns.
Reportable Transaction Rules. In certain circumstances the Code and Treasury Regulations require that the IRS be notified of transactions through a disclosure statement attached to a taxpayer’s U.S. federal income tax return. These disclosure rules may apply to transactions irrespective of whether they are structured to achieve particular tax benefits. They could require disclosure by the Tidal Trust or Shareholders if a Shareholder incurs a loss in excess of a specified threshold from a sale or redemption of its Shares and possibly in other circumstances. While these rules generally do not require disclosure of a loss recognized on the disposition of an asset in which the taxpayer has a “qualifying basis” (generally a basis equal to the amount of cash paid by the taxpayer for such asset), they apply to a loss recognized with respect to interests in a pass-through entity, such as the Shares, even if the taxpayer’s basis in such interests is equal to the amount of cash it paid. In addition, significant monetary penalties may be imposed in connection with a failure to comply with these reporting requirements. Investors should consult their own tax advisor concerning the application of these reporting requirements to their specific situation.
Tax-Exempt Organizations. Subject to numerous exceptions, qualified retirement plans and individual retirement accounts, charitable organizations and certain other organizations that otherwise are exempt from U.S. federal income tax (collectively, “exempt organizations”) nonetheless are subject to the tax on unrelated business taxable income (“UBTI”). Generally, UBTI means the gross income derived by an exempt organization from a trade or business that it regularly carries on, the conduct of which is not substantially related to the exercise or performance of its exempt purpose or function, less allowable deductions directly connected with that trade or business. If the Acquiring 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 Acquiring Fund’s gross income from the unrelated trade or business, whether or not distributed, and (2) the Acquiring Fund’s allowable deductions directly connected with that gross income. An exempt organization that has more than one unrelated trade or business generally must compute its UBTI separately for each such trade or business.
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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 Acquiring Fund currently does not anticipate that it will borrow money to acquire investments; however, the Acquiring 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 Acquiring 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 Acquiring Fund may report to each such Shareholder information as to the portion, if any, of the Shareholder’s income and gains from the Acquiring 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 Acquiring Fund’s calculation of UBTI will be accepted by the IRS. An exempt organization Shareholder will be required to make payments of estimated U.S. federal income tax with respect to its UBTI.
Regulated Investment Companies. Interests in and income from “qualified publicly traded partnerships” satisfying certain gross income tests are treated as qualifying assets and income, respectively, for purposes of determining eligibility for regulated investment company (“RIC”) status. A RIC may invest up to 25% of its assets in interests in qualified publicly traded partnerships. The determination of whether a publicly traded partnership such as the Acquiring Fund is a qualified publicly traded partnership is made on an annual basis. While the tax treatment of bitcoin derivatives is not entirely clear, it is possible that the Acquiring Fund may be a qualified publicly traded partnership. However, such qualification is not assured, and prospective RIC investors should consult a tax advisor regarding the treatment of an investment in the Acquiring Fund under current tax rules and in light of their particular circumstances.
Non-U.S. Shareholders
Generally, non-U.S. persons who derive U.S. source income or gain from investing or engaging in a U.S. business are taxable on two categories of income. The first category consists of amounts that are fixed or determinable, annual or periodic income, such as interest, dividends and rent that are not connected with the operation of a U.S. trade or business (“FDAP”). The second category is income that is effectively connected with the conduct of a U.S. trade or business (“ECI”). FDAP income (other than interest that is considered “portfolio interest;” as discussed below) is generally subject to a 30% withholding tax, which may be reduced for certain categories of income by a treaty between the U.S. and the recipient’s country of residence. In contrast, ECI is generally subject to U.S. tax on a net basis at graduated rates upon the filing of a U.S. tax return. Where a non-U.S. person has ECI as a result of an investment in a partnership, the ECI is currently subject to a withholding tax at a rate of 37% for individual Shareholders and a rate of 21% for corporate Shareholders. The tax withholding on ECI, which is the highest tax rate under Code section 1 for non-corporate Non-U.S. Shareholders and Code section 11(b) for corporate Non-U.S. Shareholders, may increase in future tax years if tax rates increase from their current levels.
Withholding on Allocations and Distributions. The Code provides that a non-U.S. person who is a partner in a partnership that is engaged in a U.S. trade or business during a taxable year will also be considered to be engaged in a U.S. trade or business during that year. Classifying an activity by a partnership as an investment or an operating business is a factual determination. Under certain safe harbors in the Code, an investment fund whose activities consist of trading in stocks, securities, or commodities for its own account generally will not be considered to be engaged in a U.S. trade or business unless it is a dealer in such stocks, securities, or commodities. This safe harbor applies to investments in commodities only if the commodities are of a kind customarily dealt in on an organized commodity exchange and if the transaction is of a kind customarily consummated at such place. As noted above, there is limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives. However, based on the CFTC treatment of bitcoin as a commodity and on the assumption that the Acquiring Fund will invest in Bitcoin Futures Contracts through the CME, the Acquiring Fund intends to take the position that investing in Bitcoin Futures Contracts falls within the commodities trading safe harbor. Thus, the Acquiring Fund anticipates that the activities directly conducted by the Acquiring Fund should not result in the Acquiring Fund being engaged in a trade or business within the United States for purposes of this rule. However, there can be no assurance that the IRS would not successfully assert, or that a court would not decide, that the Acquiring Fund’s activities constitute a U.S. trade or business.
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In the event that the Acquiring Fund’s activities were considered to constitute a U.S. trade or business, the Acquiring Fund would be required to withhold at the highest rate specified in Code section 1 (currently 37%) on allocations of our income to non-corporate Non-U.S. Shareholders and the highest rate specified in Code section 11(b) (currently 21%) on allocations of our income to corporate Non-U.S. Shareholders, when such income is distributed. Non-U.S. Shareholders would also be subject to a 10% withholding tax on the consideration payable upon a sale or exchange of such Non-U.S. Shareholder’s Shares, although the IRS has announced proposed amendments applicable to this withholding for transfers of interests in publicly traded partnerships occurring on or after January 1, 2023. In the case of a transfer made through a broker, the obligation to withhold will generally be imposed on the transferor’s broker. A Non-U.S. Shareholder with ECI will generally be required to file a U.S. federal income tax return, and the return will provide the Non-U.S. Shareholder with the mechanism to seek a refund of any withholding in excess of such Shareholder’s actual U.S. federal income tax liability. Any amount withheld by the Acquiring Fund will be treated as a distribution to the Non-U.S. Shareholder to the extent possible. In some cases, the Acquiring Fund may not be able to match the economic cost of satisfying its withholding obligations to a particular Non-U.S. Shareholder, which may result in said cost being borne by the Acquiring Fund, generally, and accordingly, by all Shareholders.
If the Acquiring Fund is not treated as engaged in a U.S. trade or business, a Non-U.S. Shareholder may nevertheless be treated as having FDAP income, which would be subject to a 30% withholding tax (possibly subject to reduction by treaty), with respect to some or all of its distributions from the Acquiring Fund or its allocable share of Fund income. Amounts withheld on behalf of a Non-U.S. Shareholder will be treated as being distributed to such Shareholder. If the Acquiring Fund is not able to match the economic cost of satisfying its withholding obligation to a particular Non-U.S. Shareholder, said cost may have to be borne by the Acquiring Fund and accordingly by all Shareholders.
To the extent any interest income allocated to a Non-U.S. Shareholder that otherwise constitutes FDAP is considered “portfolio interest,” neither the allocation of such interest income to the Non-U.S. Shareholder nor a subsequent distribution of such interest income to the Non-U.S. Shareholder will be subject to withholding, provided that the Non-U.S. Shareholder is not otherwise engaged in a trade or business in the U.S. and provides the Acquiring 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 Acquiring Fund and allocable to Non-U.S. Shareholders will be subject to withholding.
In order for the Acquiring 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 Acquiring Fund with a timely and properly completed and executed Form W-8BEN (or other applicable form).
Gain from Sale of Shares. Gain from the sale or exchange of Shares may be taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien individual who is present in the U.S. for 183 days or more during the taxable year. In such case, the nonresident alien individual may be subject to a 30% withholding tax on the amount of such individual’s gain.
Branch Profits Tax on Corporate Non-U.S. Shareholders. In addition to the taxes noted above, any Non-U.S. Shareholders that are corporations may also be subject to an additional tax, the branch profits tax, at a rate of 30%. The branch profits tax is imposed on a non-U.S. corporation’s dividend equivalent amount, which generally consists of the corporation’s after-tax earnings and profits that are effectively connected with the corporation’s U.S. trade or business but are not reinvested in a U.S. business. This tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the Non-U.S. Shareholder is a “qualified resident.”
Foreign Account Tax Compliance Act. Legislation commonly referred to as the Foreign Account Tax Compliance Act or “FATCA,” generally imposes a 30% U.S. withholding tax on payments of certain types of income to foreign financial institutions that fail to enter into an agreement with the United States Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners). The types of income subject to the withholding tax include U.S.-source interest and dividends and the gross proceeds from the sale of any property that could produce U.S.-source interest or dividends. Proposed Treasury Regulations, however, generally eliminate withholding under FATCA on gross proceeds. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% U.S. withholding tax on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a Non-U.S. Shareholder and the status of the intermediaries through which it holds Shares, a Non-U.S. Shareholder could be subject to this 30% U.S. withholding tax with respect to distributions on its Shares. Under certain circumstances, a Non-U.S. Shareholder may be eligible for a refund or credit of such taxes.
Prospective Non-U.S. Shareholders should consult their own tax advisor regarding these and other tax issues unique to Non-U.S. Shareholders.
Backup Withholding
The Acquiring Fund may be required to withhold U.S. federal income tax (“backup withholding”) from payments to: (1) any Shareholder who fails to furnish the Acquiring 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 Acquiring Fund that the Shareholder is subject to backup withholding. Backup withholding is not an additional tax and may be returned or credited against a taxpayer’s regular U.S. federal income tax liability if appropriate information is provided to the IRS. The backup withholding rate is the fourth lowest rate applicable to individuals under Code section 1(c) (currently 24%) and may increase in future tax years.
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Other Tax Considerations
In addition to U.S. federal income taxes, a Shareholder may be subject to other taxes, such as state and local income taxes, unincorporated business taxes, business franchise taxes, and estate, gift, inheritance or intangible taxes that may be imposed by the various jurisdictions in which the Acquiring 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 Acquiring Fund. It is each Shareholder’s responsibility to file the appropriate U.S. federal, state, local, and foreign tax returns. KLG has not provided an opinion concerning any aspects of state, local or foreign tax and its opinion on U.S. federal tax issues is limited to those issues discussed under the heading “U.S. Federal Income Tax Considerations.”
Investment by ERISA Accounts and IRAs
General
Most employee benefit plans and individual retirement accounts (“IRAs”) are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the Code, or both. This section discusses certain considerations that arise under ERISA and the Code that a fiduciary of (i) an employee benefit plan as defined in ERISA; (ii) a plan as defined in Section 4975 of the Code; or (iii) entity whose underlying assets include “plan assets” by reason of an employee benefits plan or other plan’s investment in the entity (“plan asset entity”) who has investment discretion should take into account before deciding to invest the plan’s assets in the Acquiring 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 general in nature and is not intended to be complete, but only to address certain matters under ERISA and the Code. The summary does not include state, local, or non-U.S. law. Accordingly, investors are urged to consult with their own professional advisors to understand the issues affecting the Acquiring Fund and the investor. Toroso is not undertaking to provide investment advice, or to give advice in a fiduciary capacity, in connection with a plan’s investment in the Acquiring Fund.
Investment Considerations
Each plan fiduciary must consider the facts and circumstances that are relevant to an investment in the Acquiring Fund, including the role that an investment in the Acquiring Fund would play in the plan’s overall investment portfolio. Each plan fiduciary, before deciding to invest in the Acquiring Fund, must be satisfied that (i) the investment is prudent for the plan, (ii) the investments of the plan are diversified so as to minimize the risk of large losses, (iii) an investment in the Acquiring Fund complies with the terms of the plan, and (iv) the acquisition and holding of Shares does not result in a non-exempt “prohibited transaction” under Section 406 of ERISA or Section 4975 of the Code (see “Prohibited Transactions” below).
The Acquiring Fund and Plan Assets
If the underlying assets of an entity, such as statutory trust, are considered to be assets of a plan for purposes of ERISA or Section 4975 of the Code, the operations of that entity would be subject to and, in some cases, limited by the provisions of ERISA and Section 4975 of the Code. A regulation issued under ERISA contains rules for determining when an investment by a plan in an equity interest of an entity will result in the underlying assets of the entity being deemed plan assets for purposes of ERISA and Section 4975 of the Code. The regulation includes an exception that provides that assets of an entity will not be plan assets of a plan that purchases an equity interest in the entity, if the equity interest purchased is a “publicly offered security.”
The publicly offered security exception applies if the equity interest is a security that is:
| (1) | freely transferable (see discussion below); |
| (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 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: (i) 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 (ii) a requirement that no transfer or assignment be made without advance written notice given to the entity that issued the security.
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Toroso believes that the conditions described above should be satisfied with respect to the Shares. Toroso believes that the Shares therefore should constitute publicly offered securities, and the underlying assets of the Acquiring 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 Toroso, the clearing brokers, the trading advisors (if any), or any of their affiliates, agents or employees either:
| ● | exercise any discretionary authority or discretionary control with respect to management of the plan; |
| ● | exercise any authority or control with respect to management or disposition of the assets of the plan; |
| ● | render investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan; |
| ● | have any authority or responsibility to render investment advice with respect to any monies or other property of the plan; or |
| ● | have any discretionary authority or discretionary responsibility in the administration of the plan. |
Also, a prohibited transaction may occur under ERISA or the Code when circumstances indicate that (i) the investment in Shares is made or retained for the purpose of avoiding application of the fiduciary standards of ERISA, (ii) the investment in Shares constitutes an arrangement under which the Acquiring Fund is expected to engage in transactions that would otherwise be prohibited if entered into directly by the plan purchasing the Shares, (iii) the investing plan, by itself, has the authority or influence to cause the Acquiring Fund to engage in such transactions, or (iv) 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 Acquiring 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 Acquiring 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 Toroso makes no representation regarding whether an investment in Shares is an inappropriate commingled investment for an IRA. Third, in applying the prohibited transaction provisions of Section 4975 of the Code, in addition to the rules summarized above, the individual for whose benefit the IRA is maintained is also treated as the creator of the IRA. For example, if the owner or beneficiary of an IRA enters into any transaction, arrangement, or agreement involving the assets of his or her IRA to benefit the IRA owner or beneficiary (or his or her relatives or business affiliates) personally, or with the understanding that such benefit will occur, directly or indirectly, such transaction could give rise to a prohibited transaction that is not exempted by any available exemption. Moreover, in the case of an IRA, the consequences of a non-exempt prohibited transaction are that the IRA’s assets will be treated as if they were distributed, causing immediate U.S. federal income taxation of the assets (including any early distribution penalty tax applicable under Section 72 of the Code), in addition to any other fines or penalties that may apply.
Exempt Plans
Employee benefit plans may be governmental plans (as defined in Section 3(32) of ERISA) or church plans (as defined in Section 3(33) of ERISA). Certain governmental plans and church plans are not subject to ERISA or the prohibited transaction provisions described above. 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 Acquiring Fund (and any continued investment in the Acquiring Fund), or the operation and administration of the Acquiring 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 Acquiring Fund is not to be construed as a representation by the Trust, the Acquiring Fund, Toroso, 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 particular plan. The person with investment discretion should consult legal counsel and financial advisors as to the propriety of an investment in the Acquiring Fund in light of the circumstances of the particular plan, and compliance with ERISA, Section 4975 of the Code and similar law, as applicable.
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GENERAL POOL DISCLOSURE
PERFORMANCE OF THE OTHER COMMODITY POOLS OPERATED BY THE COMMODITY POOL OPERATOR
All summary performance information is as of June 30, 2023. Performance information is set forth, in accordance with CFTC regulations, on a monthly basis for each other commodity pool’s past five calendar years and for the year to date. No performance information is presented with respect to the Acquiring Fund, which has not commenced investment operations prior to the date of this Prospectus, and which will not begin trading until after the initial creation units of the Acquiring Fund are purchased by the initial Authorized Participant. The performance of the Acquiring Fund will be materially different from the funds and the past performance summaries of the other funds below are generally not representative of how the Acquiring Fund might perform in the future. Toroso serves as the commodity pool operator for the Amplify Inflation Fighter ETF which commenced operations on February 2, 2022, the CNIC ICE US Carbon Neutral Power Futures Index which commenced operations on May 9, 2023, the Ionic Inflation Protection ETF which commenced operations on June 29, 2022 and the Return Stacked™ Bonds & Managed Futures ETF which commenced operations on February 8, 2023.
The monthly rate of return for each fund presented below is calculated by dividing the ending NAV for a given month by the ending NAV for the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
*A drawdown is a loss experienced by the Acquiring 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.
Amplify Inflation Fighter ETF (TICKER: IWIN)
The Amplify Inflation Fighter ETF commenced trading and investment operations on February 2, 2022. The Fund is listed on NYSE Arca and is neither: (i) a privately offered pool pursuant to Section 4(a)(2) of the 1933 Act; (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2); or (iii) a principal-protected pool as defined in CFTC Regulation 4.10(d)(3).
Units of beneficial interest issued (from inception until June 30, 2023): 925,000
Aggregate gross sale price for units issued: $23,953,132.50
Pool NAV as of June 30, 2023: $8,901,525
NAV per Share as of June 30, 2023: $23.86
Worst monthly percentage drawdown*: -14.83% / June 2022
Worst peak to valley drawdown**: -28.50% / March 2022 – September 2022
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||||||
| Month | 2022 | 2023 | ||||||
| January | % | 11.69 | % | |||||
| February | 4.54 | % | (6.95 | )% | ||||
| March | 2.58 | % | 1.93 | % | ||||
| April | (5.66 | )% | (0.20 | )% | ||||
| May | (3.30 | )% | (1.26 | )% | ||||
| June | (14.83 | )% | 7.31 | % | ||||
| July | 8.41 | % | % | |||||
| August | (3.65 | )% | % | |||||
| September | (9.71 | )% | % | |||||
| October | 5.73 | % | % | |||||
| November | 5.31 | % | % | |||||
| December | (4.05 | )% | % | |||||
| Annual Rate of Return | (16.36 | )% | 16.00 | % | ||||
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CNIC ICE US Carbon Neutral Power Futures Index ETF (TICKER: AMPD)
The CNIC ICE US Carbon Neutral Power Futures Index ETF commenced trading and investment operations on May 9, 2023. The Fund is listed on NYSE Arca and is neither: (i) a privately offered pool pursuant to Section 4(a)(2) of the 1933 Act; (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2); or (iii) a principal-protected pool as defined in CFTC Regulation 4.10(d)(3).
Units of beneficial interest issued (from inception until June 30, 2023): 200,000
Aggregate gross sale price for units issued: $4,792,890.00
Pool NAV as of June 30, 2023: $4,724,778.05
NAV per Share as of June 30, 2023: $23.62
Worst monthly percentage drawdown*: -8.02% / May 2023
Worst peak to valley drawdown**: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||
| Month | 2023 | |||
| January | % | |||
| February | % | |||
| March | % | |||
| April | % | |||
| May | (8.02 | )% | ||
| June | 4.79 | % | ||
| July | % | |||
| August | % | |||
| September | % | |||
| October | % | |||
| November | % | |||
| December | % | |||
| Annual Rate of Return | (5.50 | )% | ||
Ionic Inflation Protection ETF (TICKER: CPII)
The Ionic Inflation Protection ETF commenced trading and investment operations on June 29, 2022. The Fund is listed on NYSE Arca and is neither: (i) a privately offered pool pursuant to Section 4(a)(2) of the 1933 Act; (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2); or (iii) a principal-protected pool as defined in CFTC Regulation 4.10(d)(3).
Units of beneficial interest issued (from inception until June 30, 2023): 475,000
Aggregate gross sale price for units issued: $9,491,175.00
Pool NAV as of June 30, 2023: $9,740,859.49
NAV per Share as of June 30, 2023: $19.48
Worst monthly percentage drawdown*: -2.40% / January 2023
Worst peak to valley drawdown**: -5.0% / July 2022 – January 2023
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||||||
| Month | 2022 | 2023 | ||||||
| January | % | (2.40 | )% | |||||
| February | % | 2.71 | % | |||||
| March | % | (0.07 | )% | |||||
| April | % | (0.41 | )% | |||||
| May | % | (0.34 | )% | |||||
| June | 0.10 | % | 0.78 | % | ||||
| July | 1.01 | % | % | |||||
| August | 1.26 | % | % | |||||
| September | (1.83 | )% | % | |||||
| October | 3.08 | % | % | |||||
| November | (2.33 | )% | % | |||||
| December | 0.06 | % | % | |||||
| Annual Rate of Return | 1.10 | % | 0.09 | % | ||||
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Return Stacked™ Bonds & Managed Futures ETF (TICKER: RSBT)
The Return Stacked™ Bonds & Managed Futures ETF commenced trading and investment operations on February 8, 2023. The Fund is listed on CBOE and is neither: (i) a privately offered pool pursuant to Section 4(a)(2) of the 1933 Act; (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2); or (iii) a principal-protected pool as defined in CFTC Regulation 4.10(d)(3).
Units of beneficial interest issued (from inception until June 30, 2023): 1,075,000
Aggregate gross sale price for units issued: $20,422,317.50
Pool NAV as of June 30, 2023: $18,957,950.11
NAV per Share as of June 30, 2023: $18.50
Worst monthly percentage drawdown*: -1.34% / May 2023
Worst peak to valley drawdown**: -8.9% / February 2023 – May 2023
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||
| Month | 2023 | |||
| January | % | |||
| February | (1.08 | )% | ||
| March | 8.26 | % | ||
| April | 0.39 | % | ||
| May | (1.34 | )% | ||
| June | 2.68 | % | ||
| July | % | |||
| August | % | |||
| September | % | |||
| October | % | |||
| November | % | |||
| December | % | |||
| Annual Rate of Return | % | |||
Comparative Historical and Pro Forma Per Share Data
The following table sets forth certain historical and pro forma per share data for the Acquired Fund. The data has been derived from and should be read together with the audited and unaudited financial statements of the Acquired Fund and related notes thereto contained in the Acquired Fund’s Form 10-K for the fiscal year ended December 31, 2022.
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The unaudited pro forma net income per share is presented as if the Merger had occurred (and assumes that approximately 50,000 million shares of the Acquired Fund have been distributed in the Merger and subsequently converted into approximately 50,000 shares of the Acquiring Fund) as of the date presented. The unaudited pro forma combined per share data presented below for the year ended December 31, 2022 combines certain per share financial data of the Acquired Fund and the Acquiring Fund. The unaudited pro forma and equivalent pro forma book value per share data is presented as if the Merger had occurred (and assumes that approximately 50,000 shares of the Acquired Fund have been distributed in the Merger and subsequently converted into approximately 50,000 shares of the Acquiring Fund) as of the date presented.
The pro forma amounts in the table below are presented for illustrative purposes only and do not indicate what the financial position or the results of operations of the Acquiring Fund would have been had the merger occurred as of the date or for the period presented. The pro forma amounts also do not indicate what the financial position or future results of operations of the combined company will be. You should not rely on the pro forma information as being indicative of the historical results that would have occurred or the future results that the Acquiring Fund will experience after the Merger. No adjustment has been included in the pro forma amounts for any anticipated cost savings or other synergies as a result of the Merger or for any potential inefficiencies or loss of synergies that may result from the Merger. The pro forma amounts are preliminary and subject to change.
Because Acquired Fund shareholders will own one share of the Acquiring Fund for each share of the Acquired Fund they owned prior to the Merger, the Acquired Fund unaudited pro forma equivalent data will be the same as the corresponding pro forma data.
From the commencement of operations (September 15, 2022) Operations through December 31, 2022 | ||||
| Acquired Fund Historical | ||||
| Basic and diluted loss per common share from continuing operations | $ | $(3.60 | ) | |
| Distributions per share | $ | |||
| Book value per share | $ | 21.40 | ||
| Acquired Fund Pro Forma | ||||
| Basic and diluted loss per common share from continuing operations | $ | (3.60 | ) | |
| Distributions per share | $ | |||
| Book value per share | $ | 21.40 | ||
WE ARE PROVIDING THIS SUMMARY OF COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA FOR ILLUSTRATIVE PURPOSES ONLY. YOU SHOULD NOT RELY ON THE PRO FORMA PER SHARE DATA PRESENTED ABOVE AS BEING INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN ACHIEVED HAD THE MERGER OCCURRED PRIOR TO THE PERIOD PRESENTED OR OF THE FUTURE RESULTS OF THE ACQUIRING FUND.
ACQUIRED FUND SHAREHOLDER VOTING RIGHTS
Shareholders have no voting rights with respect to the Acquired Fund except as expressly provided in the Teucrium Trust’s trust agreement. The trust agreement provides that shareholders representing at least a majority (over 50%) of the outstanding shares of the Teucrium Trust, voting together as a single class (excluding shares acquired by Teucrium in connection with its initial capital contribution to any Teucrium Trust series), may vote to (i) continue the Teucrium Trust by electing a successor Teucrium as described above, and (ii) approve amendments to the trust agreement that impair the right to surrender redemption baskets for redemption. In addition, Acquired Fund shareholders holding shares representing seventy-five percent (75%) of the outstanding shares of the Teucrium Trust, voting together as a single class (excluding shares acquired by Teucrium in connection with its initial capital contribution to any Teucrium Trust series) may vote to dissolve the Teucrium Trust upon not less than ninety (90) days’ notice to Teucrium.
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INFORMATION ON FUND SHARES AND OWNERSHIP OF FUND SHARES
The Acquiring Fund
Description of Shares of the Acquiring Fund
The Acquiring Fund was recently formed and has not yet commenced operations. As of October 30, 2023, the Acquiring Fund’s authorized shares consists of an unlimited shares of interest, $0.00 par value per share. As of such date, there were four shares of the Acquiring Fund shares issued and outstanding.
Holders of the Acquiring Fund’s shares are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. Generally, matters to be decided by the shareholders will be decided by the vote of holders of a majority of the outstanding shares of the Acquiring Fund interest entitled to vote.
Holders of the Acquiring Fund shares are entitled to receive dividends ratably, if any, as may be declared by Toroso. Upon the Acquiring Fund’s liquidation, dissolution or winding-up, holders of the Acquiring Fund interest are entitled to receive ratably its net assets available for distribution after the payment of all of the Acquiring Fund’s liabilities. Holders of the Acquiring Fund interest have no preemptive, subscription, redemption or conversion rights. Shares of the Acquiring Fund are not yet publicy traded.
Ownership of the Acquiring Fund
As of the date of this prospectus, Toroso owns four Shares of the Acquiring Fund. As of the date of this Information Statement, none of the principals of Toroso have an ownership interest in the Acquiring Fund. Upon the Merger, the four Shares held by Toroso will be redeemed and cancelled.
The Acquired Fund
Description of Shares of the Acquired Fund
As of October 27, 2023, the authorized shares of the Acquired Fund consists of 50,004 shares of interest, no par value. The Acquired Fund trades on NYSE Arca under the symbol “DEFI.”
Holders of the Acquired Fund interest are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. Accordingly, holders of a majority of the outstanding shares of Acquired Fund interest entitled to vote on any matter, including in any election of directors, may decide such matter, including elect all of the directors standing for election which shall be elected by a plurality of the votes cast.
Holders of Acquired Fund interest are entitled to receive dividends ratably, if any, as may be declared by its sponsor out of available funds therefrom. Holders of the Acquired Fund shares have no preemptive, subscription, redemption or conversion rights.
Ownership of the Acquired Fund
As of the date of this Information Statement, Acquired Fund is principally owned by the persons listed in the chart below. As of the date of this Information Statement, none of the principals of Teucrium have an ownership interest in the Acquired Fund.
| Name and Address1 | Outstanding Shares Held | Percentage of Fund |
GTS Securities 545 Madison Ave New York, NY 10022 |
26,292 | 52.50% |
Toroso Investments LLC 234 West Florida Street |
6,678 | 13.30% |
Jane Street Group LLC 250 Vesey Street |
5,579 | 11.10% |
1 As of October 30, 2023, the name, address and percentage ownership of each owner of record of 5% or more of the outstanding shares of the Acquired Fund is based on the Acquired Fund’s review of the Schedule 13F filings made for the calendar quarter ended September 30, 2023. The Acquired Fund does not have information concerning the beneficial ownership of its shares held through DTC Participants.
LEGAL MATTERS
The validity of the shares of the Acquiring Fund to be issued in connection with the merger will be passed upon by K&L Gates LLP. K&L Gates LLP will provide to the Acquiring Fund and Acquired Fund a legal opinion regarding certain federal income tax matters.
EXPERTS
The financial statements of the Acquired Fund included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.
The financial statements of the Acquiring Fund are included in this prospectus and elsewhere in the registration statement in reliance upon the report of Tait, Weller, & Baker, LLP “Tait Weller”, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing. Tait Weller is not opining on the internal control over financial reporting.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS
Eligible beneficial shareholders who share a single address may have received a notification that only one copy of the Information Statement will be sent to that address unless the broker, bank, institution or other nominee that provided the notification received contrary instructions from any beneficial shareholder at that address. This practice, known as “householding,” is designed to reduce printing and mailing costs. However, if a beneficial shareholder at such an address wishes to receive a separate Information Statement: Acquired Fund shareholders may contact Teucrium at Three Main Street, Suite 215, Burlington, Vermont 05401 and (802) 540-0019 and the Acquired Fund will undertake to deliver the Information Statement promptly to such shareholder. Eligible registered shareholders receiving multiple copies of these documents can request householding by contacting the Acquired Fund in the same manner. Persons holding shares through a bank, broker, institutions or other nominee can request householding by contacting the nominee.
72
INDEX TO FINANCIAL STATEMENTS
| Acquiring Fund Financial Statements | |
| Reports of Independent Registered Public Accounting Firm | F-1 |
| Statements of Assets and Liabilities at October 24, 2023 | F-2 |
| Notes to Financial Statements | F-3 |
| Acquired Fund Financial Statements (audited) as of December 31, 2022 | |
| Reports of Independent Registered Public Accounting Firm | F-5 |
| Statements of Assets and Liabilities at December 31, 2022 | F-6 |
| Schedule of Investments at December 31, 2022 | F-7 |
| Statements of Operations from the commencement of operations (September 15, 2022) through December 31, 2022 | F-8 |
| Statements of Changes in Net Assets from the commencement of operations (September 15, 2022) through December 31, 2022 | F-9 |
| Statements of Cash Flows from the commencement of operations (September 15, 2022) through December 31, 2022 | F-10 |
| Notes to Financial Statements | F-11 |
| Acquired Fund Financial Statements as of June 30, 2023 (unaudited) and December 31, 2022 | |
| Statements of Assets and Liabilities at June 30, 2023 (Unaudited) and December 31, 2022 | F-19 |
| Schedule of Investments at June 30, 2023 (Unaudited) and December 31, 2022 | F-20 |
| Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 | F-22 |
| Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2023 | F-23 |
| Statements of Cash Flows (Unaudited) for the six months ended June 30, 2023 | F-24 |
taitweller.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder and the Board of Trustees
Of Hashdex Bitcoin Futures ETF
Opinion on the Financial Statement
We have audited the accompanying statement of assets and liabilities of Hashdex Bitcoin Futures ETF, a series of Tidal Commodities Trust I, (the “Fund”) as of October 24, 2023, and the related notes (collectively referred to as the “financial statement”). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Fund as of October 24, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
This financial statement is the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of the Fund since 2023.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
October 30, 2023
F-1
THE ACQUIRING FUND
STATEMENT OF ASSETS AND LIABILITIES
| Hashdex Bitcoin Futures ETF | ||||
| STATEMENT OF ASSETS AND LIABILITIES | October 24, 2023 | |||
| ASSETS | ||||
| Cash | $ | 100 | ||
| TOTAL ASSETS | 100 | |||
| NET ASSETS | $ | 100 | ||
| NET ASSETS CONSIST OF | ||||
| Fund capital | $ | 100 | ||
| TOTAL NET ASSETS | $ | 100 | ||
| Fund shares issued and outstanding | ||||
| (par value $0.00 per share; unlimited number of shares authorized) | 4 | |||
| Net asset value per share | $ | 25.00 | ||
See accompanying Notes to Financial Statement.
| ||||
F-2
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
FOR THE ACQUIRING FUND
| NOTES TO FINANCIAL STATEMENT | October 24, 2023 |
Note 1 – Organization and Significant Accounting Policies
Hashdex Bitcoin Futures ETF (the “Fund”) is a series of Tidal Commodities Trust I (“Trust”), a Delaware statutory trust organized on February 10, 2023. The Fund operates pursuant to the First Amended and Restated Declaration of Trust and Trust Agreement ("Trust Agreement"), dated March 10, 2023. The Trust is registered with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (together with the rules and regulations adopted thereunder, as amended, the “1933 Act”), as a exchange-traded fund.
The Fund’s investment objective is for changes in the shares’ net asset value (“NAV”) to reflect the daily changes of the price of the Hashdex U.S. Bitcoin Futures Fund Benchmark (the “Benchmark”), less expenses from the Fund’s operations. The Benchmark currently is the average of the closing settlement prices for the first to expire and second to expire bitcoin futures contracts (“Bitcoin Futures Contracts”) listed on the Chicago Mercantile Exchange (“CME”). The Bitcoin Futures Contracts that at any given time make up the Benchmark are referred to hereinafter as the “Benchmark Component Futures Contracts.” Under normal market conditions, the Fund invests in Benchmark Component Futures Contracts and cash and cash equivalents. Because the Fund’s investment objective is to track the price of the Benchmark by investing in Benchmark Futures Contracts rather than bitcoin, changes in the price of the Shares will vary from changes in the spot price of bitcoin. These futures contracts are the Benchmark Component Futures Contracts. The CME currently offers two Bitcoin Futures Contracts, one contract representing 5 bitcoin (“BTC Contracts”) and another contract representing 0.10 bitcoin (“MBT Contracts”). The Fund will invest in BTC Contracts and MBT Contracts to the extent necessary to achieve maximum exposure to the bitcoin futures market.
As of October 24, 2023, the Trust has had no operations other than the sale and issuance of four shares of the Fund to Toroso Investments, LLC (the “Sponsor” and/or “Toroso”) in the amount of $100. The Fund currently offers one class of shares that has no front-end sales load, no deferred sales charge, and no redemption fee. The Fund may issue an unlimited number of shares (“Shares”) of beneficial interest, with a $0.00 par value. All shares of the Fund have equal rights and privileges.
The Fund continuously offers and redeems shares in blocks of at least 10,000 shares (each such block, a “Creation Unit”) at an initial price per Share of $25. Only Authorized Participants may purchase and redeem shares from the Fund and then only in Creation Units. An Authorized Participant is an entity that has entered into an Authorized Participant Agreement with the Trust and the Sponsor. Shares are offered on a continuous basis to Authorized Participants in Creation Units at NAV. Authorized Participants may then offer to the public, from time to time, shares from any Creation Unit they create at a per-share market price. The form of Authorized Participant Agreement sets forth the terms and conditions under which an Authorized Participant may purchase or redeem a Creation Unit. Authorized Participants will not receive from the Fund, the Sponsor, or any of their affiliates, any fee or other compensation in connection with their sale of shares to the public. An Authorized Participant may receive commissions or fees from investors who purchase shares through their commission or fee-based brokerage accounts.
Significant accounting policies of the Fund are as follows:
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.
Indemnifications
In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements cannot be known; however, the Fund expects any risk of loss to be remote.
Cash
Cash includes non-interest bearing non-restricted cash with one institution.
Income Taxes
For U.S. federal income tax purposes, the Fund will be classified as a publicly traded partnership. A publicly traded partnership is generally taxable as a corporation for U.S. federal income tax purposes unless 90% or more of the publicly traded partnership’s gross income for each taxable year of its existence consists of qualifying income as defined in section 7704(d) of the Internal Revenue Code of 1986, as amended (the “Code”). Qualifying income is defined as generally including, in pertinent part, interest (other than from a financial business), dividends, and gains from the sale or disposition of capital assets held for the production of interest or dividends. In the case of a partnership of which a principal activity is the buying and selling of commodities, other than as inventory, or of futures, forwards, and options with respect to commodities, qualifying income also includes income and gains from commodities and from futures, forwards, options with respect to commodities and, provided the partnership is a trader or investor with respect to such assets, swaps and other notional principal contracts with respect to commodities. There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives, such as Bitcoin Futures Contracts. Based on an opinion received by Toroso from their independent legal counsel and a Commodity Futures Trading Commission determination that treats bitcoin as a commodity under the Commodity Exchange Act, the Fund intends to take the position that Bitcoin Futures Contracts consist of futures on commodities for purposes of the qualifying income exception under section 7704 of the Code. Accordingly, the Fund expects that at least 90% of the Fund’s gross income for each taxable year will consist of qualifying income and that the Fund will be taxed as a partnership for U.S. federal income tax purposes. Therefore, the Fund does not record a provision for income taxes because the shareholders report their share of the Fund’s income or loss on their income tax returns.
F-3
The Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund will file income tax returns in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions.
The Fund may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include among other things questioning the tax classification of the Fund, the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws.
Basis of Presentation
The preparation of these financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of net assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date. Actual results could differ from those estimates.
Organizational and Offering Costs
All organizational and initial offering costs for the Trust and the Fund were borne directly by the Sponsor. The Trust and the Fund do not have an obligation to reimburse the Adviser for organization and offering costs paid on their behalf.
Note 2 – Sponsor Fee Allocation of Expenses and Related Party Transactions
The Fund pays Toroso a Management Fee, monthly in arrears, in an amount equal to 0.94% per annum of the daily NAV of the Fund. The Management Fee is paid in consideration of the Sponsor’s services related to the management of the Fund’s business and affairs, including the provision of commodity futures trading advisory services. Purchases of creation units with cash may cause the Fund to incur certain costs including brokerage commissions and redemptions of creation units with cash may result in the recognition of gains or losses that the Fund might not have incurred if it had made redemptions in-kind. The Fund pays all of its respective brokerage commissions, including applicable exchange fees, National Futures Association fees and give-up fees, and other transaction related fees and expenses charged in connection with trading activities for the Fund’s investments in Commodity Futures Trading Commission regulated investments. The Fund bears other transaction costs related to the futures commission merchants capital requirements on a monthly basis. The Sponsor pays all of the routine operational, administrative and other ordinary expenses of the Fund, generally as determined by the Sponsor, including but not limited to, fees and expenses of the Administrator, Sub-Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. The Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Fund. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.
Tidal ETF Services LLC (“Tidal,” or the “Administrator”) serves as the Fund’s administrator. In addition, as marketing agent, Tidal assists the Fund and Toroso with certain functions and duties relating to marketing, which include the following: marketing and sales strategy, and marketing-related services.
Hashdex Asset Management Ltd. (“Hashdex” or the “Digital Asset Adviser”) is a Cayman Islands investment manager (and an Exempt Reporting Advisor under SEC rules) that specializes in, among other things, the management, research, investment analysis and other investment support services of funds and ETFs with investment strategies involving bitcoin and other crypto assets. As Digital Asset Adviser, Hashdex is responsible for providing Toroso and Tidal with research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the Fund. Hashdex has no role in maintaining, calculating or publishing the Benchmark. Hashdex also has no responsibility for the investment or management of the Fund’s portfolio or for the overall performance or operation of the Fund.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”), an indirect subsidiary of U.S. Bancorp, intends to serve as the Fund’s fund accountant, sub-administrator and transfer agent pursuant to certain fund accounting servicing, fund sub-administration servicing and transfer agent servicing agreements. U.S. Bank National Association, a subsidiary of U.S. Bancorp and parent company of Fund Services, intends to serve as the Fund’s custodian pursuant to a custody agreement. Foreside Fund Service, LLC intends to serve as the Fund’s distributor pursuant to a distribution agreement.
Note 3 – Transactions with Affiliates
Certain officers of the Trust are affiliated with the Sponsor. None of the affiliated Trust’s officers receive compensation from the Fund. The Administrator is a wholly-owned subsidiary of the Sponsor.
Note 4 – Subsequent Events
In preparing these financial statements, Management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure or would be required to be recognized in the financial statement.
F-4
grant thornton llp
757 Third Ave., 9th Floor
New York, NY 10017
D +1 212 599 0100
F +1 212 370 4520
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Sponsor and Shareholders of
Hashdex Bitcoin Futures ETF
Opinion on the financial statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Hashdex Bitcoin Futures ETF (the “Fund”) as of December 31, 2022, the related statements of operations, changes in net assets, and cash flows for the period from commencement of operations (September 15, 2022) through December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022 and 2021, and the results of its operations and its cash flows from commencement of operations (September 15, 2022) through December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Fund’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 2023 expressed an unqualified opinion
Basis for opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current audit period of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosure that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as auditor of one or more of the series of Teucrium Commodity Trust since 2014.
New York, New York
March 1, 2023
GT.COM |
Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership. |
F-5
ACQUIRED FUND
STATEMENTS OF ASSETS AND LIABILITIES
| December 31, 2022 | ||||
| Assets | ||||
| Cash and cash equivalents | $ | 701,969 | ||
| Interest receivable | 2,961 | |||
| Equity in trading accounts: | ||||
| Cryptocurrency futures contracts | 29,152 | |||
| Due from broker | 337,049 | |||
| Total equity in trading accounts | 366,201 | |||
| Total assets | $ | 1,071,131 | ||
| Liabilities | ||||
| Management fee payable to Sponsor | $ | 868 | ||
| Net assets | $ | 1,070,263 | ||
| Shares outstanding | 50,004 | |||
| Shares available | * | |||
| Net asset value per share | $ | 21.40 | ||
| Market value per share | $ | 21.39 | ||
* On September 14, 2022, the Hashdex Bitcoin Futures ETF registered an indeterminate number of shares of the Fund pursuant to Rule 456(d) under the Securities Act of 1933.
The accompanying notes are an integral part of these financial statements.
F-6
ACQUIRED FUND
SCHEDULE OF INVESTMENTS
December 31, 2022
| Percentage of | ||||||||||||||||||||
| Description: Assets | Yield | Cost | Fair Value | Net Assets | Shares | |||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| Money market funds | ||||||||||||||||||||
| First American Government Obligations Fund - Class X | 4.105 | % | $ | 701,969 | $ | 701,969 | 65.59 | % | 701,969 | |||||||||||
| Number
of Contracts |
Fair Value | Percentage
of Net Assets |
Notional
Amount (Long Exposure) |
|||||||||||||||||
| Cryptocurrency futures contracts | ||||||||||||||||||||
| United States CME Bitcoin futures contracts | ||||||||||||||||||||
| CME Bitcoin futures JAN23 | 6 | $ | 24,979 | 2.33 | % | $ | 496,050 | |||||||||||||
| CME Bitcoin futures FEB23 | 7 | 4,173 | 0.39 | 575,575 | ||||||||||||||||
| Total cryptocurrency futures contracts | $ | 29,152 | 2.72 | % | $ | 1,071,625 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-7
ACQUIRED FUND
STATEMENTS OF OPERATIONS
| From the commencement | ||||
| of operations (September 15, 2022) | ||||
| through December 31, 2022 | ||||
| Income | ||||
| Realized and unrealized gain (loss) on trading of cryptocurrency futures contracts: | ||||
| Realized loss on cryptocurrency futures contracts | $ | (423,794 | ) | |
| Net change in unrealized appreciation on cryptocurrency futures contracts | 29,152 | |||
| Interest income | 12,854 | |||
| Total Loss | $ | (381,788 | ) | |
| Expenses | ||||
| Management fees | 4,249 | |||
| Professional fees | 54,416 | |||
| Distribution and marketing fees | 1,076 | |||
| Custodian fees and expenses | 213 | |||
| Business permits and licenses fees | 10,842 | |||
| General and administrative expenses | 8,744 | |||
| Total expenses | $ | 79,540 | ||
| Expenses waived by the Sponsor | (75,291 | ) | ||
| Total expenses, net | $ | 4,249 | ||
| Net Loss | $ | (386,037 | ) | |
| Net loss per share | $ | (3.60 | ) | |
| Net loss per weighted average share | $ | (5.82 | ) | |
| Weighted average shares outstanding | 66,359 | |||
The accompanying notes are an integral part of these financial statements.
F-8
ACQUIRED FUND
STATEMENTS OF CHANGES IN NET ASSETS
| From the commencement | ||||
| of operations (September 15, 2022) | ||||
| Operations | through December 31, 2022 | |||
| Net Loss | $ | (386,037 | ) | |
| Capital transactions | ||||
| Issuance of Shares | 2,461,340 | |||
| Redemption of Shares | (1,005,040 | ) | ||
| Total capital transactions | 1,456,300 | |||
| Net change in net assets | 1,070,263 | |||
| Net assets, beginning of period | $ | — | ||
| Net assets, end of period | $ | 1,070,263 | ||
| Net asset value per share at beginning of period | $ | 25.00 | ||
| Net asset value per share at end of period | $ | 21.40 | ||
| Creation of Shares | 100,004 | |||
| Redemption of Shares | 50,000 | |||
The accompanying notes are an integral part of these financial statements.
F-9
ACQUIRED FUND
STATEMENTS OF CASH FLOWS
| From the commencement | ||||
| of operations (September 15, 2022) | ||||
| through December 31, 2022 | ||||
| Cash flows from operating activities: | ||||
| Net Loss | $ | (386,037 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Net change in unrealized depreciation on cryptocurrency futures contracts | (29,152 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Due from broker | (337,049 | ) | ||
| Interest receivable | (2,961 | ) | ||
| Management fee payable to Sponsor | 868 | |||
| Net cash used in operating activities | (754,331 | ) | ||
| Cash flows from financing activities: | ||||
| Proceeds from sale of Shares | 2,461,340 | |||
| Redemption of Shares | (1,005,040 | ) | ||
| Net cash provided by financing activities | 1,456,300 | |||
| Net change in cash and cash equivalents | 701,969 | |||
| Cash and cash equivalents, beginning of period | — | |||
| Cash and cash equivalents, end of period | $ | 701,969 | ||
The accompanying notes are an integral part of these financial statements.
F-10
ACQUIRED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2022
Note 1 – Organization and Operation
Hashdex Bitcoin Futures ETF (the “Fund”) is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust organized on September 11, 2009. The Fund operates pursuant to the Fifth Amended and Restated Declaration of Trust and Trust Agreement ("Trust Agreement"), dated April 26, 2019. The Trust Agreement may be found on the SEC’s EDGAR filing database at https://www.sec.gov/Archives/edgar/data/1471824/000165495419004865/ex31.htm. The Fund was formed and is managed and controlled by the Sponsor, a limited liability company formed in Delaware on July 28, 2009. The Sponsor is registered as a commodity pool operator (“CPO”) and a commodity trading adviser (“CTA”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). The Fund intends to be treated as a partnership for U.S. federal income tax purposes.
On September 14, 2022, the Fund’s initial registration of an indeterminate number of shares on Form S-1 was declared effective by the SEC. On September 15, 2022, the Fund listed it’s shares on the NYSE Arca under the ticker symbol “DEFI”. On the business day prior to that, the Fund issued 50,000 shares in exchange for $1,250,000 at the Fund’s initial NAV of $25 per share.
The Fund’s investment objective is for changes in the Shares’ NAV to reflect the daily changes of the price of a specified benchmark (the “Benchmark”), less expenses from the Fund’s operations. The Benchmark currently is the average of the closing settlement prices for the first to expire and second to expire bitcoin futures contracts (“Bitcoin Futures Contracts”) listed on the CME. These futures contracts are the Benchmark Component Futures Contracts. The CME currently offers two Bitcoin Futures Contracts, one contract representing 5 bitcoin (“BTC Contracts”) and another contract representing 0.10 bitcoin (“MBT Contracts”). The Fund will invest in BTC Contracts and MBT Contracts to the extent necessary to achieve maximum exposure to the bitcoin futures market.
DEFI Benchmark
| CME Bitcoin Futures Contracts | Weighting | |||
| First to expire | 50 | % | ||
| Second to expire | 50 | % | ||
Subject to the terms of the Trust Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor (“Sponsor”), may terminate a Fund at any time, regardless of whether the Fund has incurred losses, including, for instance, 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. However, no level of losses will require the Sponsor to terminate a Fund.
Note 2 – Principal Contracts and Agreements
The Sponsor employs U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Global Fund Services”), for Transfer Agency, Fund Accounting and Fund Administration services. The principal address for Global Fund Services is 615 E. Michigan Street, Milwaukee, WI 53202.
For custody services, the Funds will pay to U.S. Bank N.A. 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, which are based on the total assets for all the Funds in the Trust, the Funds will pay to Global Fund Services 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 up to $47,000 for custody, transfer agency, accounting and administrative services is assessed per Fund. These services are recorded as custodian fees and expenses on the statements of operations. A summary of these expenses is included below.
The Sponsor employs Foreside Fund Services, LLC (“Foreside” or the “Distributor”) as the Distributor for the Funds. The Distribution Services Agreement among the Distributor and the Sponsor 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. For its services as the Distributor, Foreside receives a fee of 0.01% of each Fund’s average daily net assets and an aggregate annual fee of $100,000 for all Funds, along with certain expense reimbursements. These services are recorded as distribution and marketing fees on the statements of operations. A summary of these expenses is included below. Pursuant to a Consulting Services Agreement, Foreside Consulting Services, LLC, performs certain consulting support services for the Trust’s Sponsor.
StoneX Financial Inc. (“StoneX”) and Phillip Capital Inc. (“Phillip Capital”) serve as the Fund’s clearing brokers to execute futures contracts and provide other brokerage-related services. StoneX and Phillip Capital are each registered as futures commission merchants (“FCM”) with the U.S. CFTC and are members of the NFA. The clearing brokers are registered as broker-dealers with the SEC and are each a member of FINRA. StoneX and Phillip Capital are each clearing members of ICE Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, and all other major United States commodity exchanges. StoneX is paid 10.00 -$25.00 per half-turn exclusive of pass through fees for the exchange, and the NFA. Phillip Capital is paid $35.00 - $45.00 per half-turn exclusive of pass through fees for the exchange, the NFA, execution fees and platform and exchange data fees. Additionally, if the monthly commissions paid do not equal or exceed 20% return on the StoneX Capital Requirement at 9.6% of the Exchange Maintenance Margin, the Fund will pay a true up to meet that return at the end of each month. A summary of these expenses is included below.
F-11
The sole Trustee of the Trust is Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an annual fee of $3,300 from the Trust. These services are recorded in business permits and licenses fees on the statements of operations. A summary of these expenses is included below.
| Period Ended December 31, 2022 | ||||
| Amount Recognized for Custody Services | $ | 213 | ||
| Amount of Custody Services Waived | $ | 213 | ||
| Amount Recognized for Distribution Services | $ | 95 | ||
| Amount of Distribution Services Waived | $ | 95 | ||
| Amount Recognized for Wilmington Trust | $ | 550 | ||
| Amount of Wilmington Trust Waived | $ | 550 | ||
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s Accounting Standards Codification.
Revenue Recognition
Investment transactions are accounted for on a trade-date basis. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on investments are reflected in the statements of operations as the difference between the original amount and the fair market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the statements of operations.
Brokerage Commissions
The Sponsor recognizes the expense for brokerage commissions for futures contract trades on a per-trade basis. The below table shows the amounts included on the statements of operations as total brokerage commissions paid inclusive of unrealized loss from the commencement of operations (September 15, 2022) through December 31, 2022.
| DEFI | ||||
| Period Ended December 31, 2022 | $ | 2,217 | ||
Income Taxes
For federal income tax purposes, the Fund will be treated as a publicly traded partnership. A publicly traded partnership is generally treated as a corporation for federal income tax purposes unless 90% or more of the publicly traded partnership’s gross income for each taxable year of its existence consists of qualifying income as defined in section 7704(d) of the Internal Revenue Code of 1986, as amended. Qualifying income is defined as generally including, in pertinent part, interest (other than from a financial business), dividends, and gains from the sale or disposition of capital assets held for the production of interest or dividends. In the case of a partnership of which a principal activity is the buying and selling of commodities, other than as inventory, or of futures, forwards and options with respect to commodities, qualifying income also includes income and gains from commodities and from futures, forwards, options with respect to commodities and, provided the partnership is a trader or investor with respect to such assets, swaps and other notional principal contracts with respect to commodities. The Fund expects that at least 90% of the Fund’s gross income for each taxable year will consist of qualifying income and that the Fund will be taxed as a partnership for federal income tax purposes. The Fund does not record a provision for income taxes because the shareholders report their share of the Fund’s income or loss on their income tax returns. The financial statements reflect the Fund’s transactions without adjustment, if any, required for income tax purposes.
There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives, such as Bitcoin Futures Contracts. Bitcoin Futures Contracts more likely than not will be considered futures with respect to commodities for purposes of the qualifying income exception under section 7704 of the Code. Based on a CFTC determination that treats bitcoin as a commodity under the CEA, the Fund intends to take the position that Bitcoin Futures Contracts consist of futures on commodities for purposes of the qualifying income exception under section 7704 of the Code. Shareholders should be aware that the Fund’s position is not binding on the IRS, and no assurance can be given that the IRS will not challenge the Fund’s position, or that the IRS or a court will not ultimately reach a contrary conclusion, which would result in the material adverse consequences to Shareholders and the Fund.
F-12
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and from the commencement of operations (September 15, 2022) through December 31, 2022.
The Fund may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws.
Creations and Redemptions
Authorized Purchasers may purchase Creation Baskets consisting of 10,000 shares from the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. (ET) on the day the order to create the basket is received in good order.
Authorized Purchasers may redeem shares from the Fund only in blocks of 10,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. (ET) on the day the order to redeem the basket is received in good order.
The Fund will receive the proceeds from shares sold or will pay for redeemed shares within three business days after the trade date of the purchase or redemption, respectively. The amounts due from Authorized Purchasers will be reflected in the Fund’s statements of assets and liabilities as capital shares receivable. Amounts payable to Authorized Purchasers upon redemption will be reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed.
As outlined in the most recent Form S-1 filing, 50,000 shares represent five Redemption Baskets for the Fund and a minimum level of shares. 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.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.
Cash Equivalents
Cash equivalents are highly liquid investments with maturity dates of 90 days or less when acquired. The Fund reported its cash equivalents in the statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturities. The Fund has these balances of its assets on deposit with banks. Assets deposited with a financial institution may, at times, exceed federally insured limits. DEFI had a balance of $701,969 in money market funds at December 31, 2022; these balances are included in cash equivalents on the statements of assets and liabilities.
Due from/to Broker
The amount recorded by the Fund for the amount due from and to the clearing broker includes, but is not limited to, cash held by the broker, amounts payable to the clearing broker related to open transactions, payables for cryptocurrency futures accounts liquidating to an equity balance on the clearing broker’s records and amounts of brokerage commissions paid and recognized as unrealized losses.
Margin is the minimum amount of funds that must be deposited by a cryptocurrency interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over the counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.
F-13
When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.
Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls. Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.
Calculation of Net Asset Value
The Fund’s NAV is calculated by:
| • | Taking the current market value of its total assets and |
| • | Subtracting any liabilities. |
The administrator, Global Fund Services, will calculate the NAV of the Fund once each trading day. It will calculate the NAV as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. (ET). The NAV for a particular trading day will be released after 4:15 p.m. (ET).
In determining the value of Bitcoin Futures Contracts, the Administrator uses the settlement price for the Benchmark Component Futures Contracts, as reported on the CME. CME Group staff determines the daily settlements for the Benchmark Component Futures Contracts based on trading activity on CME Globex exchange between 14:59:00 and 15:00:00 Central Time (CT), the settlement period, except that the “fair value” of Bitcoin Futures Contracts (as described in more detail below) may be used when Bitcoin Futures Contracts close at their price fluctuation limit for the day. The Administrator determines the value of all investments as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. (ET), in accordance with the current Services Agreement between the Administrator and the Trust. NAV includes any unrealized profit or loss on open bitcoin interests and any other credit or debit accruing to the Fund but unpaid or not received by the Fund.
Sponsor Fee Allocation of Expenses and Related Party Transactions
The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. DEFI is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 0.94% per annum. From the Management Fee, the Sponsor pays all of the routine operational, administrative and other ordinary expenses of the Fund, generally as determined by the Sponsor, including but not limited to, fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. These fees and expenses are not included in the breakeven table and are not part of the audited financial statements because they are paid for by the Sponsor through the proceeds from the Management Fee. The Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Fund. Routine operational, administrative, and other ordinary expenses are not deemed extraordinary expenses.
The Sponsor has the ability to elect to pay certain expenses on behalf of the Funds or waive the management fee. This election is subject to change by the Sponsor, at its discretion. Expenses paid by the Sponsor and Management fees waived by the Sponsor are, if applicable, presented as waived expenses in the statements of operations for each Fund. The Sponsor has determined that there will be no recovery sought for the amounts below in any future period:
| DEFI | ||||
| Period Ended December 31, 2022 | $ | 75,291 | ||
Expenses
Expenses are recorded using the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.
F-14
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, related to fair value measurement (Topic 820) of equity securities subject to contractual sale restrictions. Under the clarified guidance, contractual restrictions on the sale of an equity security are not considered part of the unit of account of the equity security and, therefore, are not considered in measuring fair value, however they do require disclosures. The amendment was early adopted for the quarter ended September 30, 2022; the early adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.
Fair Value - Definition and Hierarchy
In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Fund uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 financial instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these financial instruments does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the financial instruments existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for financial instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.
On December 31, 2022, the reported value at the close of the market for each cryptocurrency contract fairly reflected the value of the futures and no alternative valuations were required.
Net Income (Loss) per Share
Net income (loss) per share is the difference between the NAV per unit at the beginning of each period and at the end of each period. The weighted average number of units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
Note 4 – Fair Value Measurements
The Fund’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Fund’s significant accounting policies in Note 3. The following table presents information about the Fund’s assets and liabilities measured at fair value as of December 31, 2022:
December 31, 2022
| Assets: | Level 1 | Level 2 | Level 3 | Balance as of December 31, 2022 | ||||||||||||
| Cash Equivalents | $ | 701,969 | $ | — | $ | — | $ | 701,969 | ||||||||
| Bitcoin futures contracts | 29,152 | — | — | 29,152 | ||||||||||||
| Total | $ | 731,121 | $ | — | $ | — | $ | 731,121 | ||||||||
F-15
From the commencement of operations (September 15, 2022) through December 31, 2022, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.
See the Fair Value - Definition and Hierarchy section in Note 3 above for an explanation of the transfers into and out of each level of the fair value hierarchy.
Note 5 – Derivative Instruments and Hedging Activities
In the normal course of business, the Fund utilizes derivative contracts in connection with its proprietary trading activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The Fund’s derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: interest rate, credit, commodity price, and equity price risks. In addition to its primary underlying risks, the Fund is also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. For the period from commencement of operations (September 15, 2022) through December 31, 2022, the Fund invested only in cryptocurrency futures contracts.
Futures Contracts
The Fund is subject to cryptocurrency price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
The purchase and sale of futures contracts requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded as unrealized gains or losses by the Fund. Futures contracts may reduce the Fund’s exposure to counterparty risk since futures contracts are exchange-traded; and the exchange’s clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default.
The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to the Fund’s pro rata share of segregated customer funds available. It is possible that the recovery amount could be less than the total of cash and other equity deposited.
The following table discloses information about offsetting assets and liabilities presented in the statements of assets and liabilities to enable users of these financial statements to evaluate the effect or potential effect of netting arrangements for recognized assets and liabilities. These recognized assets and liabilities are presented as defined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2011-11 “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and subsequently clarified in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.”
F-16
The following table also identifies the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk, and held by the FCMs, StoneX as of December 31, 2022.
Offsetting of Financial Assets and Derivative Assets as of December 31, 2022
| (i) | (ii) | (iii) = (i-ii) | (iv) | (v) = (iii)-(iv) | ||||||||||||||||||||
| Gross Amount Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
| Description | Gross Amount of Recognized Assets | Gross Amount Offset in the Statement of Assets and Liabilities | Net Amount Presented in the Statement of Assets and Liabilities | Futures Contracts Available for Offset | Collateral, Due to Broker | Net Amount | ||||||||||||||||||
| Cryptocurrency Price | ||||||||||||||||||||||||
| Bitcoin futures contracts | $ | 29,152 | $ | — | $ | 29,152 | $ | — | $ | — | $ | 29,152 | ||||||||||||
The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of cryptocurrency futures contracts categorized by primary underlying risk:
From the commencement of operations (September 15, 2022) through December 31, 2022
| Realized Loss on Commodity Futures Contracts | Net Change in Unrealized Appreciation on Commodity Futures Contracts | |||||||
| Cryptocurrency Price | ||||||||
| Bitcoin futures contracts | $ | (423,794 | ) | $ | 29,152 | |||
Volume of Derivative Activities
The average notional market value categorized by primary underlying risk for all futures contracts held was $1.4 million from the commencement of operations (September 15, 2022) through December 31, 2022.
Note 6 – Financial Highlights
The following table presents per unit performance data and other supplemental financial data from the commencement of operations (September 15, 2022) through December 31, 2022. This information has been derived from information presented in the financial statements and is presented with total expenses gross of expenses waived by the Sponsor and with total expenses net of expenses waived by the Sponsor, as appropriate.
| From the commencement | ||||
| of operations (September 15, 2022) | ||||
| through December 31, 2022 | ||||
| Per Share Operation Performance | ||||
| Net asset value at beginning of period | $ | 25.00 | ||
| Income (loss) from investment operations: | ||||
| Investment income | 0.19 | |||
| Net realized and unrealized loss on cryptocurrency futures contracts | (3.73 | ) | ||
| Total expenses, net | (0.06 | ) | ||
| Net decrease in net asset value | (3.60 | ) | ||
| Net asset value at end of period | $ | 21.40 | ||
| Total Return | (14.39 | )% | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expenses | 17.60 | % | ||
| Total expenses, net | 0.94 | % | ||
| Net investment income | 1.90 | % | ||
F-17
The financial highlights per share data are calculated consistent with the methodology used to calculate asset-based fees and expenses.
Note 7 – Organizational and Offering Costs
Expenses incurred in organizing of the Trust and the initial offering of the Shares of the Fund, including applicable SEC registration fees, were borne directly by the Sponsor. The Fund will not be obligated to reimburse the Sponsor.
Note 8 – Subsequent Events
Management has evaluated the financial statements for the period ended December 31, 2022 for subsequent events through the date of this filing and noted no material events requiring either recognition through the date of the filing or disclosure herein for the Fund other than those noted below:
The total net assets of the Fund increased by $431,977, or 40%, for the period December 31, 2022 to February 28, 2023. This was driven by a 40% increase in the NAV/share.
F-18
ACQUIRED FUND
STATEMENTS OF ASSETS AND LIABILITIES
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 1,414,157 | $ | 701,969 | ||||
| Interest receivable | 6,822 | 2,961 | ||||||
| Equity in trading accounts: | ||||||||
| Cryptocurrency futures contracts | 126,672 | 29,152 | ||||||
| Due from broker | 392,803 | 337,049 | ||||||
| Total equity in trading accounts | 519,475 | 366,201 | ||||||
| Total assets | 1,940,454 | 1,071,131 | ||||||
| Liabilities | ||||||||
| Management fee payable to Sponsor | 1,525 | 868 | ||||||
| Net assets | $ | 1,938,929 | $ | 1,070,263 | ||||
| Shares outstanding | 50,004 | 50,004 | ||||||
| Shares authorized | * | * | ||||||
| Net asset value per share | $ | 38.78 | $ | 21.40 | ||||
| Market value per share | $ | 38.85 | $ | 21.39 | ||||
* On September 14, 2022, the Hashdex Bitcoin Futures ETF registered an indeterminate number of shares of the Fund pursuant to Rule 456(d) under the Securities Act of 1933.
The accompanying notes are an integral part of these financial statements.
F-19
ACQUIRED FUND
SCHEDULE OF INVESTMENTS
June 30, 2023
(Unaudited)
| Description: Assets | Yield | Cost | Fair Value | Percentage
of Net Assets |
Shares | |||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| Money market funds | ||||||||||||||||||||
| First American Government Obligations Fund - Class X | 5.015 | % | $ | 1,414,157 | $ | 1,414,157 | 72.93 | % | 1,414,157 | |||||||||||
| Number
of Contracts |
Fair Value | Percentage
of Net Assets |
Notional
Amount (Long Exposure) |
|||||||||||||
| Cryptocurrency futures contracts | ||||||||||||||||
| United States CME Bitcoin futures contracts | ||||||||||||||||
| CME Bitcoin futures JUL23 | 6 | $ | 124,509 | 6.42 | % | $ | 920,400 | |||||||||
| CME Bitcoin futures AUG23 | 7 | 2,163 | 0.11 | 1,083,425 | ||||||||||||
| Total cryptocurrency futures contracts | $ | 126,672 | 6.53 | % | $ | 2,003,825 | ||||||||||
The accompanying notes are an integral part of these financial statements.
F-20
ACQUIRED FUND
SCHEDULE OF INVESTMENTS
December 31, 2022
| Description: Assets | Yield | Cost | Fair Value | Percentage
of Net Assets |
Shares | |||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| Money market funds | ||||||||||||||||||||
| First American Government Obligations Fund - Class X | 4.105 | % | $ | 701,969 | $ | 701,969 | 65.59 | % | 701,969 | |||||||||||
| Number
of Contracts |
Fair Value | Percentage
of Net Assets |
Notional
Amount (Long Exposure) |
|||||||||||||
| Cryptocurrency futures contracts | ||||||||||||||||
| United States CME Bitcoin futures contracts | ||||||||||||||||
| CME Bitcoin futures JAN23 | 6 | $ | 24,979 | 2.33 | % | $ | 496,050 | |||||||||
| CME Bitcoin futures FEB23 | 7 | 4,173 | 0.39 | 575,575 | ||||||||||||
| Total cryptocurrency futures contracts | $ | 29,152 | 2.72 | % | $ | 1,071,625 | ||||||||||
F-21
ACQUIRED FUND
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Six months ended | |||||||
| June 30, 2023 | June 30, 2023 | |||||||
| Income | ||||||||
| Realized and unrealized gain (loss) on trading of cryptocurrency futures contracts: | ||||||||
| Realized gain on cryptocurrency futures contracts | $ | 71,236 | $ | 700,787 | ||||
| Net change in unrealized (depreciation) appreciation on cryptocurrency futures contracts | (30,948 | ) | 97,520 | |||||
| Interest income | 21,449 | 34,897 | ||||||
| Total income | 61,737 | 833,204 | ||||||
| Expenses | ||||||||
| Management fees | 4,892 | 8,287 | ||||||
| Professional fees | 50,284 | 109,104 | ||||||
| Distribution and marketing fees | 3,379 | 4,741 | ||||||
| Custodian fees and expenses | 858 | 1,117 | ||||||
| Business permits and licenses fees | 6,032 | 16,161 | ||||||
| General and administrative expenses | 496 | 496 | ||||||
| Total expenses | 65,941 | 139,906 | ||||||
| Expenses waived by the Sponsor | (61,049 | ) | (131,619 | ) | ||||
| Total expenses, net | 4,892 | 8,287 | ||||||
| Net income | $ | 56,845 | $ | 824,917 | ||||
| Net gain per share | $ | 2.02 | $ | 17.38 | ||||
| Net gain per weighted average share | $ | 0.97 | $ | 15.20 | ||||
| Weighted average shares outstanding | 58,466 | 54,258 | ||||||
The accompanying notes are an integral part of these financial statements.
F-22
ACQUIRED FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
| Six months ended | ||||
| June 30, 2023 | ||||
| Operations | ||||
| Net income | $ | 824,917 | ||
| Capital transactions | ||||
| Issuance of Shares | 367,689 | |||
| Redemption of Shares | (323,940 | ) | ||
| Total capital transactions | 43,749 | |||
| Net change in net assets | 868,666 | |||
| Net assets, beginning of period | $ | 1,070,263 | ||
| Net assets, end of period | $ | 1,938,929 | ||
| Net asset value per share at beginning of period | $ | 21.40 | ||
| Net asset value per share at end of period | $ | 38.78 | ||
| Creation of Shares | 10,000 | |||
| Redemption of Shares | 10,000 | |||
The accompanying notes are an integral part of these financial statements.
F-23
ACQUIRED FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | ||||
| June 30, 2023 | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 824,917 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Net change in unrealized appreciation on cryptocurrency futures contracts | (97,520 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Due from broker | (55,754 | ) | ||
| Interest receivable | (3,861 | ) | ||
| Management fee payable to Sponsor | 657 | |||
| Net cash provided by operating activities | 668,439 | |||
| Cash flows from financing activities: | ||||
| Proceeds from sale of Shares | 367,689 | |||
| Redemption of Shares | (323,940 | ) | ||
| Net cash provided by financing activities | 43,749 | |||
| Net change in cash and cash equivalents | 712,188 | |||
| Cash and cash equivalents beginning of period | 701,969 | |||
| Cash and cash equivalents end of period | $ | 1,414,157 | ||
The accompanying notes are an integral part of these financial statements.
F-24
NOTES TO FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 1 – Organization and Operation
Hashdex Bitcoin Futures ETF (the “Fund”) is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust organized on September 11, 2009. The Fund operates pursuant to the Fifth Amended and Restated Declaration of Trust and Trust Agreement ("Trust Agreement"), dated April 26, 2019. The Trust Agreement may be found on the SEC’s EDGAR filing database at https://www.sec.gov/Archives/edgar/data/1471824/000165495419004865/ex31.htm. The Fund was formed and is managed and controlled by the Sponsor, a limited liability company formed in Delaware on July 28, 2009. The Sponsor is registered as a commodity pool operator (“CPO”) and a commodity trading adviser (“CTA”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). The Fund intends to be treated as a partnership for U.S. federal income tax purposes.
On September 14, 2022, the Fund’s initial registration of an indeterminate number of shares on Form S-1 was declared effective by the SEC. On September 16, 2022, the Fund listed it’s shares on the NYSE Arca under the ticker symbol “DEFI”. On the business day prior to that, the Fund issued 50,000 shares in exchange for $1,250,000 at the Fund’s initial NAV of $25 per share.
The Fund’s investment objective is for changes in the Shares’ NAV to reflect the daily changes of the price of a specified benchmark (the “Benchmark”), less expenses from the Fund’s operations. The Benchmark currently is the average of the closing settlement prices for the first to expire and second to expire bitcoin futures contracts (“Bitcoin Futures Contracts”) listed on the CME. These futures contracts are the Benchmark Component Futures Contracts. The CME currently offers two Bitcoin Futures Contracts, one contract representing 5 bitcoin (“BTC Contracts”) and another contract representing 0.10 bitcoin (“MBT Contracts”). The Fund will invest in BTC Contracts and MBT Contracts to the extent necessary to achieve maximum exposure to the bitcoin futures market.
DEFI Benchmark
| CME Bitcoin Futures Contracts | Weighting | |||
| First to expire | 50 | % | ||
| Second to expire | 50 | % | ||
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the SEC and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K, as well as the most recent Form S-1 filing, as applicable. The operating results through June 30, 2023 are not necessarily indicative of the results to be expected from the full year ended December 31, 2023.
Subject to the terms of the Trust Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor (“Sponsor”), may terminate a Fund at any time, regardless of whether the Fund has incurred losses, including, for instance, 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. However, no level of losses will require the Sponsor to terminate a Fund.
Note 2 – Principal Contracts and Agreements
The Sponsor employs U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Global Fund Services”), for Transfer Agency, Fund Accounting and Fund Administration services. The principal address for Global Fund Services is 615 E. Michigan Street, Milwaukee, WI 53202.
For custody services, the Funds will pay to U.S. Bank N.A. 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, which are based on the total assets for all the Funds in the Trust, the Funds will pay to Global Fund Services 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 up to $47,000 for custody, transfer agency, accounting and administrative services is assessed per Fund. These services are recorded as custodian fees and expenses on the statements of operations. A summary of these expenses is included below.
The Sponsor employs Foreside Fund Services, LLC (“Foreside” or the “Distributor”) as the Distributor for the Funds. The Distribution Services Agreement among the Distributor and the Sponsor 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. For its services as the Distributor, Foreside receives a fee of 0.01% of each Fund’s average daily net assets and an aggregate annual fee of $100,000 for all Funds, along with certain expense reimbursements. These services are recorded as distribution and marketing fees on the statements of operations. A summary of these expenses is included below. Pursuant to a Consulting Services Agreement, Foreside Consulting Services, LLC, performs certain consulting support services for the Trust’s Sponsor.
F-25
StoneX Financial Inc. (“StoneX”) and Phillip Capital Inc. (“Phillip Capital”) serve as the Fund’s clearing brokers to execute futures contracts and provide other brokerage-related services. StoneX and Phillip Capital are each registered as futures commission merchants (“FCM”) with the U.S. CFTC and are members of the NFA. The clearing brokers are registered as broker-dealers with the SEC and are each a member of FINRA. StoneX and Phillip Capital are each clearing members of ICE Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile Exchange, New York Mercantile Exchange, and all other major United States commodity exchanges. StoneX is paid 10.00 - $25.00 per half-turn exclusive of pass through fees for the exchange, and the NFA. Phillip Capital is paid $35.00 - $45.00 per half-turn exclusive of pass through fees for the exchange, the NFA, execution fees and platform and exchange data fees. A summary of these expenses is included below.
The sole Trustee of the Trust is Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an annual fee of $3,300 from the Trust. These services are recorded in business permits and licenses fees on the statements of operations. A summary of these expenses is included below.
| Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | |||||||||||||
| Amount Recognized for Custody Services | $ | 858 | $ | — | $ | 1,117 | $ | — | ||||||||
| Amount of Custody Services Waived | $ | 858 | $ | — | $ | 1,117 | $ | — | ||||||||
| Amount Recognized for Distribution Services | $ | 224 | $ | — | $ | 284 | $ | — | ||||||||
| Amount of Distribution Services Waived | $ | 224 | $ | — | $ | 284 | $ | — | ||||||||
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board’s Accounting Standards Codification.
Revenue Recognition
Investment transactions are accounted for on a trade-date basis. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on investments are reflected in the statements of operations as the difference between the original amount and the fair market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the statements of operations.
Brokerage Commissions
The Sponsor recognizes the expense for brokerage commissions for futures contract trades on a per-trade basis. The below table shows the amounts included on the statements of operations as total brokerage commissions paid inclusive of unrealized loss for the quarter ended June 30, 2023.
| DEFI | |||||
| Three months ended June 30, 2023 | $ | 769 | |||
| Three months ended June 30, 2022 | $ | — | |||
| Six months ended June 30, 2023 | $ | 1,377 | |||
| Six months ended June 30, 2022 | $ | — | |||
Income Taxes
For federal income tax purposes, the Fund will be treated as a publicly traded partnership. A publicly traded partnership is generally treated as a corporation for federal income tax purposes unless 90% or more of the publicly traded partnership’s gross income for each taxable year of its existence consists of qualifying income as defined in section 7704(d) of the Internal Revenue Code of 1986, as amended. Qualifying income is defined as generally including, in pertinent part, interest (other than from a financial business), dividends, and gains from the sale or disposition of capital assets held for the production of interest or dividends. In the case of a partnership of which a principal activity is the buying and selling of commodities, other than as inventory, or of futures, forwards and options with respect to commodities, qualifying income also includes income and gains from commodities and from futures, forwards, options with respect to commodities and, provided the partnership is a trader or investor with respect to such assets, swaps and other notional principal contracts with respect to commodities. The Fund expects that at least 90% of the Fund’s gross income for each taxable year will consist of qualifying income and that the Fund will be taxed as a partnership for federal income tax purposes. The Fund does not record a provision for income taxes because the shareholders report their share of the Fund’s income or loss on their income tax returns. The financial statements reflect the Fund’s transactions without adjustment, if any, required for income tax purposes.
F-26
There is very limited authority on the U.S. federal income tax treatment of bitcoin and no direct authority on bitcoin derivatives, such as Bitcoin Futures Contracts. Bitcoin Futures Contracts more likely than not will be considered futures with respect to commodities for purposes of the qualifying income exception under section 7704 of the Code. Based on a CFTC determination that treats bitcoin as a commodity under the CEA, the Fund intends to take the position that Bitcoin Futures Contracts consist of futures on commodities for purposes of the qualifying income exception under section 7704 of the Code. Shareholders should be aware that the Fund’s position is not binding on the IRS, and no assurance can be given that the IRS will not challenge the Fund’s position, or that the IRS or a court will not ultimately reach a contrary conclusion, which would result in the material adverse consequences to Shareholders and the Fund.
The Fund is required to determine whether a tax position is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions. For the tax year December 31, 2022, the Fund remains subject to income tax examinations by major taxing authorities. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized results in the Fund recording a tax liability that reduces net assets. This policy has been applied to all existing tax positions upon the Fund’s initial adoption. Based on its analysis, the Fund has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2023 and for the year ended December 31, 2022. However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of a June 30, 2023.
The Fund may be subject to potential examination by U.S. federal, U.S. state, or foreign jurisdictional authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with U.S. federal, U.S. state and foreign tax laws.
Creations and Redemptions
Authorized Purchasers may purchase Creation Baskets consisting of 10,000 shares from the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. (ET) on the day the order to create the basket is received in good order.
Authorized Purchasers may redeem shares from the Fund only in blocks of 10,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. (ET) on the day the order to redeem the basket is received in good order.
The Fund will receive the proceeds from shares sold or will pay for redeemed shares within three business days after the trade date of the purchase or redemption, respectively. The amounts due from Authorized Purchasers will be reflected in the Fund’s statements of assets and liabilities as capital shares receivable. Amounts payable to Authorized Purchasers upon redemption will be reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed.
As outlined in the most recent Form S-1 filing, 50,000 shares represent five Redemption Baskets for the Fund and a minimum level of shares. 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.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.
F-27
Cash Equivalents
Cash equivalents are highly liquid investments with maturity dates of 90 days or less when acquired. The Fund reported its cash equivalents in the statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturities. The Fund has these balances of its assets on deposit with banks. Assets deposited with a financial institution may, at times, exceed federally insured limits. DEFI had a balance of $1,414,157 and $701,969 in money market funds at June 30, 2023 and December 31, 2022 respectively; these balances are included in cash equivalents on the statements of assets and liabilities.
Due from/to Broker
The amount recorded by the Fund for the amount due from and to the clearing broker includes, but is not limited to, cash held by the broker, amounts payable to the clearing broker related to open transactions, payables for cryptocurrency futures accounts liquidating to an equity balance on the clearing broker’s records and amounts of brokerage commissions paid and recognized as unrealized losses.
Margin is the minimum amount of funds that must be deposited by a cryptocurrency interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over the counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.
When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.
Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls. Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.
Calculation of Net Asset Value
The Fund’s NAV is calculated by:
| • | Taking the current market value of its total assets and | |
| • | Subtracting any liabilities. |
The administrator, Global Fund Services, will calculate the NAV of the Fund once each trading day. It will calculate the NAV as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. (ET). The NAV for a particular trading day will be released after 4:15 p.m. (ET).
In determining the value of Bitcoin Futures Contracts, the Administrator uses the settlement price for the Benchmark Component Futures Contracts, as reported on the CME. CME Group staff determines the daily settlements for the Benchmark Component Futures Contracts based on trading activity on CME Globex exchange between 14:59:00 and 15:00:00 Central Time (CT), the settlement period, except that the “fair value” of Bitcoin Futures Contracts (as described in more detail below) may be used when Bitcoin Futures Contracts close at their price fluctuation limit for the day. The Administrator determines the value of all investments as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. (ET), in accordance with the current Services Agreement between the Administrator and the Trust. NAV includes any unrealized profit or loss on open bitcoin interests and any other credit or debit accruing to the Fund but unpaid or not received by the Fund.
Sponsor Fee Allocation of Expenses and Related Party Transactions
The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. DEFI is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 0.94% per annum. From the Management Fee, the Sponsor pays all of the routine operational, administrative and other ordinary expenses of the Fund, generally as determined by the Sponsor, including but not limited to, fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent, licensors, accounting and audit fees expenses, tax preparation expenses, legal fees, ongoing SEC registration fees, individual Schedule K-1 preparation and mailing fees, and report preparation and mailing expenses. These fees and expenses are not included in the breakeven table because they are paid for by the Sponsor through the proceeds from the Management Fee. The Fund pays all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Fund. Routine operational, administrative, and other ordinary expenses are not deemed extraordinary expenses.
F-28
The Sponsor has the ability to elect to pay certain expenses on behalf of the Funds or waive the management fee. This election is subject to change by the Sponsor, at its discretion. Expenses paid by the Sponsor and Management fees waived by the Sponsor are, if applicable, presented as waived expenses in the statements of operations for each Fund. The Sponsor has determined that there will be no recovery sought for the amounts below in any future period:
| DEFI | |||||
| Three months ended June 30, 2023 | $ | 61,049 | |||
| Three months ended June 30, 2022 | $ | — | |||
| Six months ended June 30, 2023 | $ | 131,619 | |||
| Six months ended June 30, 2022 | $ | — | |||
Expenses
Expenses are recorded using the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) issued ASU 2023-01, related to Leases – (Topic 842). The response to concerns about applying Topic 842 to related party arrangements between entities under common control. The update was adopted early for the quarter ended March 31, 2023; the adoption did not have a material impact on the financial statements and disclosures of the Trust or the Fund.
Fair Value - Definition and Hierarchy
In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Fund uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 financial instruments of the Underlying Funds and securities of the Fund, together the “financial instruments”. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these financial instruments does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the financial instruments existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for financial instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement.
F-29
On June 30, 2023 and December 31, 2022, the reported value at the close of the market for each cryptocurrency contract fairly reflected the value of the futures and no alternative valuations were required.
Net Income (Loss) per Share
Net income (loss) per share is the difference between the NAV per unit at the beginning of each period and at the end of each period. The weighted average number of units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
Note 4 – Fair Value Measurements
The Fund’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Fund’s significant accounting policies in Note 3. The following table presents information about the Fund’s assets and liabilities measured at fair value as of June 30, 2023 and December 31, 2022:
June 30, 2023
| Balance as of | ||||||||||||||||
| Assets: | Level 1 | Level 2 | Level 3 | June 30, 2023 | ||||||||||||
| Cash Equivalents | $ | 1,414,157 | $ | — | $ | — | $ | 1,414,157 | ||||||||
| Cryptocurrency Futures Contracts | ||||||||||||||||
| Bitcoin futures contracts | 126,672 | — | — | 126,672 | ||||||||||||
| Total | $ | 1,540,829 | $ | — | $ | — | $ | 1,540,829 | ||||||||
December 31, 2022 (Audited)
| Balance as of | ||||||||||||||||
| Assets: | Level 1 | Level 2 | Level 3 | December 31, 2022 | ||||||||||||
| Cash Equivalents | $ | 701,969 | $ | — | $ | — | $ | 701,969 | ||||||||
| Bitcoin futures contracts | 29,152 | — | — | 29,152 | ||||||||||||
| Total | $ | 731,121 | $ | — | $ | — | $ | 731,121 | ||||||||
For the three and six months ended June 30, 2023 and year ended December 31, 2022, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.
See the Fair Value - Definition and Hierarchy section in Note 3 above for an explanation of the transfers into and out of each level of the fair value hierarchy.
Note 5 – Derivative Instruments and Hedging Activities
In the normal course of business, the Fund utilizes derivative contracts in connection with its proprietary trading activities. Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment. The Fund’s derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: interest rate, credit, commodity price, and equity price risks. In addition to its primary underlying risks, the Fund is also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. For the quarter ended June 30, 2023, the Fund invested only in cryptocurrency futures contracts.
F-30
Futures Contracts
The Fund is subject to cryptocurrency price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
The purchase and sale of futures contracts requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded as unrealized gains or losses by the Fund. Futures contracts may reduce the Fund’s exposure to counterparty risk since futures contracts are exchange-traded; and the exchange’s clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default.
The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to the Fund’s pro rata share of segregated customer funds available. It is possible that the recovery amount could be less than the total of cash and other equity deposited.
The following table discloses information about offsetting assets and liabilities presented in the statements of assets and liabilities to enable users of these financial statements to evaluate the effect or potential effect of netting arrangements for recognized assets and liabilities. These recognized assets and liabilities are presented as defined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2011-11 “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and subsequently clarified in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.”
The following table also identifies the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk, and held by the FCMs, StoneX as of June 30, 2023.
*The amount of collateral presented in Collateral, Due from Broker, is limited to the liability for the futures contracts and accordingly does not include the excess collateral pledged.
Offsetting of Financial Assets and Derivative Assets as of June 30, 2023
| (i) | (ii) | (iii) = (i)-(ii) | (iv) | (v)=(iii)-(iv) | ||||||||||||||||||||
| Gross Amount Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
| Description | Gross Amount of Recognized Assets | Gross Amount Offset in the Statement of Assets and Liabilities | Net Amount Presented in the Statement of Assets and Liabilities | Futures Contracts Available for Offset | Collateral, Due to Broker | Net Amount | ||||||||||||||||||
| Cryptocurrency Price | ||||||||||||||||||||||||
| Bitcoin futures contracts | $ | 126,672 | $ | — | $ | 126,672 | $ | — | $ | — | $ | 126,672 | ||||||||||||
Offsetting of Financial Assets and Derivative Assets as of December 31, 2022 (Audited)
| (i) | (ii) | (iii) = (i)-(ii) | (iv) | (v)=(iii)-(iv) | ||||||||||||||||||||
| Gross Amount Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
| Description | Gross Amount of Recognized Assets | Gross Amount Offset in the Statement of Assets and Liabilities | Net Amount Presented in the Statement of Assets and Liabilities | Futures Contracts Available for Offset | Collateral, Due from Broker* | Net Amount | ||||||||||||||||||
| Cryptocurrency Price | ||||||||||||||||||||||||
| Bitcoin futures contracts | $ | 29,152 | $ | — | $ | 29,152 | $ | — | $ | — | $ | 29,152 | ||||||||||||
F-31
The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of cryptocurrency futures contracts categorized by primary underlying risk:
Three months ended June 30, 2023
| Realized Gain on Cryptocurrency Futures Contracts | Net Change in Unrealized Depreciation on Cryptocurrency Futures Contracts | |||||||
| Cryptocurrency Price | ||||||||
| Bitcoin futures Contracts | $ | 71,236 | $ | (30,948 | ) | |||
Six months ended June 30, 2023
| Realized Gain on Cryptocurrency Futures Contracts | Net Change in Unrealized Appreciation on Cryptocurrency Futures Contracts | |||||||
| Cryptocurrency Price | ||||||||
| Bitcoin futures Contracts | $ | 700,787 | $ | 97,520 | ||||
Volume of Derivative Activities
The average notional market value categorized by primary underlying risk for all futures contracts held was $2.1 million and $1.9 million, respectively, for the three and six months ended June 30, 2023.
Note 6 – Financial Highlights
The following table presents per unit performance data and other supplemental financial data for the three months ended June 30, 2023. This information has been derived from information presented in the financial statements and is presented with total expenses gross of expenses waived by the Sponsor and with total expenses net of expenses waived by the Sponsor, as appropriate.
| Three months ended | Six months ended | |||||||
| June 30, 2023 | June 30, 2023 | |||||||
| Per Share Operation Performance | ||||||||
| Net asset value at beginning of period | $ | 36.76 | $ | 21.40 | ||||
| Income (loss) from investment operations: | ||||||||
| Investment income | 0.37 | 0.64 | ||||||
| Net realized and unrealized gain on cryptocurrency futures contracts | 1.73 | 16.89 | ||||||
| Total expenses, net | (0.08 | ) | (0.15 | ) | ||||
| Net increase in net asset value | 2.02 | 17.38 | ||||||
| Net asset value at end of period | $ | 38.78 | $ | 38.78 | ||||
| Total Return | 5.46 | % | 81.16 | % | ||||
| Ratios to Average Net Assets (Annualized) | ||||||||
| Total expenses | 12.67 | % | 15.87 | % | ||||
| Total expenses, net | 0.94 | % | 0.94 | % | ||||
| Net investment income | 3.18 | % | 3.02 | % | ||||
The financial highlights per share data are calculated consistent with the methodology used to calculate asset-based fees and expenses.
Note 7 – Organizational and Offering Costs
Expenses incurred in organizing of the Trust and the initial offering of the Shares of the Fund, including applicable SEC registration fees, were borne directly by the Sponsor. The Fund will not be obligated to reimburse the Sponsor.
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Note 8 – Subsequent Events
Management has evaluated the financial statements for the quarter-ended June 30, 2023 for subsequent events through the date of this filing and noted no material events requiring either recognition through the date of the filing or disclosure herein for the Fund other than those noted below:
The Hashdex Bitcoin Futures ETF (“Tidal Fund”), sponsored by Toroso Investments, LLC (“Toroso”), a series of the Tidal Commodities Trust I has not commenced operations and was recently formed. The Tidal Fund will be the successor and surviving entity from the merger (the “Merger”) into the Tidal Fund of Hashdex Bitcoin Futures ETF (the “Teucrium Fund”) that is a series of the Teucrium Commodity Trust (the “Teucrium Trust”) sponsored by Teucrium Trading, LLC (“Teucrium”). The Merger is expected to close in 2023. Teucrium, Toroso, and Tidal ETF Services, LLC (“Tidal”) and Victory Capital Management Inc. (“Victory Capital”) (the “Marketing Agents”) have entered into a support agreement (“Support Agreement”) that, among other things, will cause the Merger in furtherance of their long-term business goals, the Tidal Fund will be the successor and surviving entity from the Merger. The Tidal Fund and the Teucrium Fund will file current reports on Form 8-K including a press release notifying shareholders that the Merger has been consummated.
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ANNEX A
AGREEMENT AND PLAN OF PARTNERSHIP MERGER AND LIQUIDATION
AGREEMENT AND PLAN OF PARTNERSHIP MERGER AND LIQUIDATION dated as of October 30, 2023 (the “Agreement”), between Teucrium Commodity Trust (the “Target Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Target Fund”), and Tidal Commodities Trust I (the “Acquiring Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Acquiring Fund”).
This Agreement is intended to provide for the continuation of the Target Fund, which is classified as a partnership under the United States Internal Revenue Code of 1986, as amended (the “Code”), in the form of the Acquiring Fund, which will also be classified as a partnership under the Code. The Merger will consist of (a) the transfer of all of the Assets (defined below) of the Target Fund to the Acquiring Fund in exchange for (i) shares of beneficial interest, no par value per share, of the Acquiring Fund (“Acquiring Fund Shares”), and (ii) the assumption by the Acquiring Fund of the Liabilities (defined below) of the Target Fund , and (b) the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Target Fund in liquidation of the Target Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement (the “Merger”).
WHEREAS, the Target Trust is formed and organized pursuant to a Fifth Amended and Restated Declaration of Trust and Trust Agreement dated as of April 26, 2019 (as may be further amended, the “Teucrium Trust Agreement”) by and between Teucrium Trading, LLC, as the sponsor the of the Target Trust (“Teucrium Sponsor”), and Wilmington Trust Company, as Delaware trustee (including its successors, the “Delaware Trustee”);
WHEREAS, the Acquiring Trust is formed and organized pursuant to a First Amended and Restated Declaration of Trust and Trust Agreement dated as of March 10, 2023 (as may be further amended, the “Tidal Trust Agreement”) by and between Toroso Investments, LLC, as the sponsor of the Acquiring Trust (“Tidal Sponsor”), and the Delaware Trustee;
WHEREAS, the Target Fund is a series of the Target Trust, and the Acquiring Fund is a series of the Acquiring Trust, and the Target Fund owns futures contracts and other assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Target Fund is authorized to issue one class of shares (the “Target Fund Shares”) that are listed for trading on the NYSE Arca (“Exchange”);
WHEREAS, the Acquiring Fund is authorized to issue one class of Acquiring Fund Shares that will be listed for trading on the Exchange on the business day immediately following the Closing Date (defined below);
WHEREAS, the Teucrium Sponsor, on behalf of the Target Trust and Target Fund, has approved the Merger, and Section 14.1(iv) of the Teucrium Trust Agreement authorizes the Teucrium Sponsor to sell or convey all of the assets of the Target Fund to the Acquiring Fund; and
WHEREAS, the Tidal Sponsor, on behalf of the Acquiring Trust and Acquiring Fund, has approved the Merger, and Sections 4.1 and 4.2 of the Tidal Trust Agreement authorize the Tidal Sponsor to cause the Acquiring Trust, on behalf of the Acquiring Fund, to purchase the Assets and assume the Liabilities (each as defined below) and otherwise perform its obligations under this Agreement and, has determined that, there being no existing shareholders of the Acquiring Fund as of the Closing, the Merger will not result in dilution of the Acquiring Fund’s shareholders’ interests.
NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows:
| 1. | THE MERGER. |
1.1 Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained herein, the Target Fund agrees to assign, transfer and convey to the Acquiring Fund all of the Assets of the Target Fund (as defined below), free and clear of all liens, encumbrances and claims whatsoever. The Acquiring Fund agrees in exchange therefor –
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| (a) | to deliver to the Target Fund the number of Acquiring Fund Shares determined as set forth in paragraph 2.3; and |
| (b) | to assume the Liabilities of the Target Fund, as defined in paragraph 1.3. |
Such transactions shall take place at the closing (the “Closing”) as of the close of business on the closing date (the “Closing Date”), provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Target Fund’s account on the books of the Acquiring Fund and shall deliver a confirmation thereof to the Target Fund.
1.2 The assets of the Target Fund to be acquired by the Acquiring Fund shall consist of all of the Target Fund’s Assets (defined below), including, without limitation, all portfolio securities, cash, cash equivalents, commodities, interests in futures and other financial instruments, claims (whether absolute or contingent, known or unknown), receivables (including dividends or interest and other receivables), and other assets belonging to the Target Fund, and any deferred or prepaid expenses, reflected on an unaudited statement of assets and liabilities of the Target Fund approved by U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services, administrator and fund accountant for the Target Fund and by U.S. Bank Global Fund Services, sub-administrator and fund accountant for the Acquiring Fund, as of the Valuation Date (as defined in paragraph 2.1), in accordance with U.S. generally accepted accounting principles (“GAAP”) consistently applied from the Target Fund’s prior audited period (collectively, the “Assets”).
1.3 The Target Fund will endeavor to identify and, to the extent practicable, discharge all of its known liabilities and obligations before the Closing Date. The Acquiring Fund shall assume all of the Target Fund’s liabilities and obligations in existence on the Closing Date, whether known or unknown, contingent or otherwise, (collectively, the “Liabilities”).
1.4 Delivery of the Target Fund’s Assets shall be made on the Closing Date to (i) U.S. Bank, N.A., the Acquiring Fund’s custodian (the “Custodian”) with respect to securities, cash and/or cash equivalents, and (ii) to StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. - FCM Division), the Acquiring Fund’s futures commission merchant (the “FCM”) with respect to futures contracts and associated margin, for the account of the Acquiring Fund free and clear of all liens, encumbrances, rights, restrictions and claims other than margin requirements of the FCM. All cash delivered shall be in the form of immediately available U.S. funds payable to the order of the Custodian and the FCM, as the case may be, for the account of the Acquiring Fund.
1.5 The Target Fund will transfer to the Acquiring Fund any Assets, distributions, rights or other assets received by the Target Fund after the Closing Date as distributions on or with respect to the Assets transferred. Such Assets received after the Closing Date shall be deemed included in the Assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued.
1.6 As soon after the Closing Date as is conveniently practicable, the Target Fund will distribute to the holders of record of the Target Fund Shares (“Target Fund Shareholders”), determined as of the close of business on the Closing Date, the Acquiring Fund Shares received by the Target Fund pursuant to paragraph 1.1, and will completely liquidate and, promptly thereafter, terminate in accordance with applicable laws of the State of Delaware and federal securities laws and regulations. Each Target Fund Shareholder will receive Acquiring Fund Shares having an aggregate net asset value equal to the aggregate net asset value of such Fund Shareholder’s Target Fund Shares, determined as of the close of business on the Closing Date. Such distribution and liquidation will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Target Fund on the books of the Acquiring Fund to accounts on the share records of the Acquiring Fund in the names of the accounts of Fund Shareholders and representing the respective number of the applicable Acquiring Fund Shares due such Fund Shareholders. All issued and outstanding shares of the Target Fund simultaneously will be canceled on the books of the Target Fund and will be null and void. Acquiring Fund Shares distributed to Fund Shareholders will be reflected on the books of the Acquiring Fund as uncertificated, book-entry shares; the Acquiring Fund will not issue share certificates in the Merger.
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1.7 Acquiring Fund Shares will be issued in the manner described in the Information Statement/Prospectus on Form S-4, as amended or supplemented (the “Registration Statement”), as of the effective date of the Registration Statement.
1.8 Any reporting responsibility of the Target Fund, including the responsibility for filing regulatory reports, tax returns, or other documents with the U.S. Securities and Exchange Commission (the “SEC”), the U.S. Commodity Futures Trading Commission (the “CFTC”), the National Futures Association (“NFA”), any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target Fund up to and including the Closing Date and such later date on which the Target Fund’s existence is terminated.
1.9 As soon as practicable after the Closing Date, the Target Trust shall provide the Acquiring Fund with copies of all books and records that pertain to the Target Fund that the Acquiring Fund is required to maintain under the Securities Act of 1933, as amended (the “1933 Act”), Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Commodities Exchange Act, as amended (the “CEA”), and the applicable rules of the SEC, CFTC and the NFA.
| 2. | VALUATION. |
2.1 The value of the Target Fund’s Assets to be acquired, and the amount of the Target Fund’s known liabilities to be assumed, by the Acquiring Fund hereunder shall be computed as of the scheduled close of trading on the floor of the Exchange (usually 4:00 p.m., Eastern time) on the Closing Date (such time and date being hereinafter called the “Valuation Date”), using the valuation procedures set forth in the Tidal Trust Agreement, and the then-current prospectus or statement of additional information of the Acquiring Fund under the Registration Statement, which are and shall be consistent with the policies currently in effect for the Target Fund, or such other valuation procedures as shall be mutually agreed upon by the parties hereto.
2.2 For purposes of paragraph 1.1(a), the net asset value per share of Acquiring Fund Shares, which are newly created shares, shall be established by the Tidal Sponsor prior to the Closing.
2.3 The number of Acquiring Fund Shares to be issued in exchange for the Target Fund’s net assets shall be determined by dividing the value of the net assets of the Target Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share, determined in accordance with paragraph 2.2. As a result of this valuation, the number of Acquiring Fund Shares to be issued in exchange for the Target Fund’s net assets shall equal the number of Target Fund Shares Fund to be exchanged.
2.4 All computations of value shall be made in accordance with the regular practices of U.S. Bank Global Fund Services as fund accountant for the Acquiring Fund.
| 3. | CLOSING AND CLOSING DATE. |
3.1 Upon the terms and subject to the conditions set forth herein, the Closing Date shall be January 3, 2024, or such other date as the parties, through their duly authorized officers, may mutually agree. All acts taking place at the Closing shall be deemed to take place simultaneously on the Closing Date unless otherwise provided. The Closing shall be held before 9:30 a.m., Eastern time, at the offices of K&L Gates, LLP, 399 Lexington Avenue, New York, New York 10022, or remotely by exchange of documents and signatures (or their electronic counterparts), unless another place is agreed to in writing by the parties.
3.2 The Custodian and the FCM shall each deliver at the Closing a certificate of an authorized officer stating that the Target Fund’s Assets, as may be held by each, have been delivered in proper form to the Acquiring Fund on the Closing Date. The Target Fund’s portfolio securities and instruments deposited with a securities depository (as defined in the Exchange Act) or with a permitted counterparty or futures commission merchant (as defined in the CEA) shall be delivered to the Custodian and the FCM, as the case may be, as of the Closing Date by book entry, in accordance with the customary practices of the Custodian and FCM, as applicable. The cash to be transferred by the Target Fund shall be delivered to the Custodian for the account of the Acquiring Fund by wire transfer of federal funds on the Closing Date. If on the Valuation Date (a) the Chicago Mercantile Exchange, New York Stock Exchange or another primary trading market for portfolio futures, securities and other assets of the Target Fund shall be closed to trading or trading thereon shall be restricted, or (b) trading or the reporting of trading on said exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Target Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored or such other date as the parties hereto may agree.
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3.3 The Target Fund’s transfer agent shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund’s transfer agent shall issue and deliver to the Teucrium Sponsor a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Teucrium Sponsor that such Acquiring Fund Shares have been credited to the Target Fund’s account on the books of the Acquiring Fund.
3.4 At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, receipts or other documents as such other party or its counsel may reasonably request.
3.5 If the Target Fund is unable to make delivery to the Custodian pursuant to paragraph 3.2 of any of the Assets for the reason that any of such Assets have not yet been delivered to the Target Fund by the Target Fund’s broker, dealer or other counterparty, then, in lieu of such delivery, the Target Fund shall deliver with respect to said Assets executed copies of an agreement of assignment and due bills executed on behalf of said broker, dealer or other counterparty, together with such other documents as may be required by the Acquiring Fund, the Custodian or the FCM, including broker confirmation slips.
| 4. | REPRESENTATIONS AND WARRANTIES. |
4.1 The Target Trust, on behalf of the Target Fund, represents and warrants to the Acquiring Trust, on behalf of the Acquiring Fund, as follows:
(a) The Target Fund is a duly established and designated series of the Target Trust, a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power to carry out its obligations under this Agreement.
(b) The Target Fund Shares are registered under the 1933 Act and listed for trading on the Exchange, and such registrations and listing have not been revoked, suspended or rescinded and are in full force and effect. The Target Fund is in compliance in all material respects with the Exchange Act, the CEA and the rules and regulations thereunder and the listing rules of the Exchange applicable to its outstanding Target Fund Shares.
(c) The current prospectus and statement of additional information of the Target Fund, as supplemented, conform in all material respects to the applicable requirements of the 1933 Act, the Exchange Act and the CEA, and the applicable rules and regulations of the SEC, the CFTC and the NFA thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(d) The Target Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Teucrium Trust Agreement or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Trust is a party on behalf of the Target Fund or by which the Target Fund is bound, nor will the execution, delivery and performance of this Agreement by the Target Fund result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Trust is a party on behalf of the Target Fund or by which the Target Fund is bound.
(e) The Target Fund has no material contracts or other commitments that will be terminated with liability to the Target Fund on or prior to the Closing Date.
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(f) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Target Fund of the transactions contemplated herein, except as may be required under the 1933 Act, the Exchange Act, the CEA, the rules and regulations thereunder, state securities laws, and the rules of the Exchange.
(g) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to the Target Trust’s knowledge threatened against the Target Fund or any of the Target Fund’s properties or Assets which, if adversely determined, would materially and adversely affect the Target Fund’s financial condition , the conduct of the Target Fund’s business or the ability of the Target Fund to carry out the transactions contemplated by this Agreement. The Target Trust knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Target Fund’s business or the Target Fund’s ability to consummate the transactions contemplated herein.
(h) The Statements of Assets and Liabilities, Schedules of Investments (indicating their fair value) of the Target Fund, Statements of Operations (from the Target Fund’s commencement of operations on September 15, 2022 to fiscal year end December 31, 2022), Statements of Changes in Net Assets and Statements of Cash Flows for the Target Fund’s most recent fiscal years ended December 31, 2022, have been audited by Grant Thornton LLP, an independent registered public accounting firm, and are in accordance with GAAP, consistently applied, and such statements and the Target Fund’s unaudited Statements for the six months ended June 30, 2023 (copies of which have been furnished to the Acquiring Fund) present fairly the financial condition of the Target Fund as of such dates, and there are no known contingent liabilities of the Target Fund as of such dates required under GAAP to be disclosed therein.
(i) Since June 30, 2023, there has not been any material adverse change in the Target Fund’s financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Target Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed on the statement of assets and liabilities referred to in paragraphs 1.3 and 4.1(h) hereof.
(j) At the Closing Date, all federal and other tax returns and reports of the Target Fund required by law then to be filed shall have been filed, and all federal and other taxes shown as due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the knowledge of the Target Trust no such return is currently under audit and no assessment or deficiency has been asserted with respect to such returns. As used in this Agreement, “Tax” or “Taxes” means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax. “Tax Return” means reports, returns, information returns, elections, agreements, declarations, or other documents of any nature or kind (including any attached schedules, supplements and additional or supporting material) filed or required to be filed with respect to Taxes, including any claim for refund, amended return or declaration of estimated Taxes (and including any amendments with respect thereto).
(k) For each taxable year of its operation, the Target Fund is treated as a separate entity for federal income tax purposes, has met the requirements of Subchapter K of the Code for qualification and treatment as a partnership for such purposes and has not elected to be treated otherwise. The Target Fund currently qualifies, and shall continue to qualify for the period beginning on the first day of its current taxable year and ending on the Closing Date, as a partnership under the Code. The Target Fund has maintained since its formation a December 31 fiscal year-end for U.S. federal income tax purposes, and has never changed such December 31 fiscal year-end for U.S. federal income tax purposes, by for example, filing Internal Revenue Service Form 1128 “Application to Adopt, Change, or retain a Tax Year.”
(l) All issued and outstanding Target Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Target Fund. All of the issued and outstanding Target Fund Shares will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of its transfer agent as provided in paragraph 3.4. The Target Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any Target Fund Shares, nor is there outstanding any security convertible into any of the Target Fund Shares.
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(m) On the Closing Date, the Target Fund will have good and marketable title to the Assets and full right, power and authority to sell, assign, transfer and deliver the Assets to be transferred by it hereunder free of any liens or other encumbrances other than applicable margin requirements of the FCM, and upon delivery and payment for the Assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act, other than as disclosed to and accepted by the Acquiring Fund.
(n) The Target Trust (for both itself and on behalf of the Target Fund) has the requisite power and authority to execute and deliver this Agreement, and to consummate the Merger and the other transactions contemplated thereby. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action required to be taken on the part of the Target Trust , and, assuming due execution and delivery by the Acquiring Trust , this Agreement will constitute the valid and legally binding obligation of the Target Trust, on behalf of the Target Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law).
(o) The information to be furnished by the Target Trust, on behalf of the Target Fund, for use in registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory authority (including the Financial Industry Regulatory Authority and the NFA), which may be necessary in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities, derivatives and other laws and regulations applicable thereto.
(p) The Registration Statement, as of the effective date of the Registration Statement and at all times subsequent thereto up to and including the Closing Date, conforms and will conform, as it relates to those portions relating to the Target Trust and the Target Fund that have been furnished or reviewed and approved by the Target Trust and the Target Fund, in all material respects to the requirements of the federal and state securities laws and the CEA, and the rules and regulations thereunder and does not and will not include, as it relates to information regarding the Target Trust and the Target Fund that was furnished by the Target Trust and the Target Fund for inclusion therein, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. No representations or warranties in this paragraph 4.1(p) shall apply to statements or omissions made in reliance upon and in conformity with written information concerning the Acquiring Fund furned to the Target Fund by the Acquiring Trust.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund, represents and warrants to the Target Trust, on behalf of the Target Fund, as follows:
(a) The Acquiring Fund is a duly established and designated series of the Acquiring Trust, a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power to carry out its obligations under this Agreement.
(b) At the Closing Date, the Acquiring Fund Shares will be registered under the 1933 Act, and such registrations will be in full force and effect, and the Acquiring Fund will have received notice from the Exchange that the Acquiring Fund Shares will be listed for trading on the Exchange on the business day immediately following the Closing Date. The Acquiring Fund will be in compliance in all material respects with the Exchange Act, the CEA and the rules and regulations thereunder at the Closing Date.
(c) At the Closing Date, the current prospectus and statement of additional information of the Acquiring Fund, as supplemented, will conform in all material respects to the applicable requirements of the 1933 Act, the Exchange Act and the CEA, and the rules and regulations of the SEC, the CFTC and the NFA thereunder and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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(d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Tidal Trust Agreement or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Trust is a party on behalf of the Acquiring Fund or by which the Acquiring Fund is bound, nor will the execution, delivery and performance of this Agreement by the Acquiring Fund result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Trust is a party on behalf of the Acquiring Fund or by which the Acquiring Fund is bound.
(e) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except as may be required under the 1933 Act, the Exchange Act, the CEA, the rules and regulations thereunder, and by state securities laws.
(f) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to the Acquiring Trust’s knowledge threatened against the Acquiring Fund or any of the Acquiring Fund’s properties or assets which, if adversely determined, would materially and adversely affect the Acquiring Fund’s financial condition, the conduct of the Acquiring Fund’s business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Trust knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund’s business or the Acquiring Fund’s ability to consummate the transactions contemplated herein.
(g) There shall be no issued and outstanding shares of the Acquiring Fund prior to the Closing Date other than a nominal number of shares (“Initial Shares”) issued to the Tidal Sponsor (or an affiliate) in order to commence operations of the Acquiring Fund. The Initial Shares have been or will be redeemed by the Acquiring Fund prior to the Closing for the price for which they were issued, and any price paid for the Initial Shares shall at all times have been held by the Acquiring Fund in a non-interest bearing account.
(h) All issued and outstanding shares of the Acquiring Fund will be, at the Closing Date, validly issued, fully paid, and non-assessable by the Acquiring Fund. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares.
(i) The Acquiring Trust (for both itself and on behalf of the Acquiring Fund) has the requisite power and authority to execute and deliver this Agreement, and to consummate the Merger and the other transactions contemplated thereby. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquiring Trust. This Agreement has been duly executed and delivered by the Acquiring Trust and, assuming due and valid authorization, execution, and delivery hereof by the Target Trust, is a valid and legally binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law).
(j) The Registration Statement, as of its effective date and at all times subsequent thereto up to and including the Closing Date, conforms and will conform, as it relates to the Acquiring Trust and the Acquiring Fund, in all material respects to the requirements of the federal and state securities laws and the CEA, and the rules and regulations thereunder, and does not and will not include, as it relates to the Acquiring Fund, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. No representations and warranties in this paragraph 4.2(j) shall apply to statements or omissions made in reliance upon and in conformity with written information concerning the Target Fund furnished to the Acquiring Fund by the Target Trust.
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(k) No consideration other than the Acquiring Fund Shares (and the Acquiring Fund’s assumption of the Target Fund’s liabilities) will be issued in exchange for the Target Fund’s Assets in the Merger.
(l) The Acquiring Fund is, and will be at the time of Closing, a newly created series without assets (other than the seed capital provided in exchange for Initial Shares) and without liabilities, created for the purpose of acquiring the assets and assuming the liabilities of the Target Fund, and, prior to the Closing, will not carry on any business activities (other than such activities as are customary to the organization of a new partnership prior to its commencement of investment operations).
(m) The Acquiring Trust has filed a registration statement on Form S-4 for the purpose of registering the Acquiring Fund Shares under the 1933 Act.
(n) The Acquiring Trust has filed a disclosure document with the NFA, as required for each commodity pool operator (“CPO”) registered under the CEA, with respect to each applicable commodity pool, in accordance with the rules and regulations of the CFTC and NFA (the “CPO Disclosure Document”).
| 5. | COVENANTS OF THE Acquiring Trust AND THE TARGET TRUST, ON BEHALF OF THE ACQUIRING FUND AND THE TARGET FUND, RESPECTIVELY. |
5.1 During the period from the date of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with its terms, the Acquiring Fund and the Target Fund will operate their respective businesses in the ordinary course, it being understood that such ordinary course of business will include redemptions of the Initial Shares in the case of the Acquiring Fund.
5.2 The Target Trust will obtain the written consent of Teucrium Sponsor and take all other action necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty (60) days after the Closing Date, the Target Trust shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Target Fund for federal income tax purposes which will be carried over to the Acquiring Fund and which will be certified by the Teucrium Sponsor.
5.5 The Target Trust, on behalf of the Target Fund, will provide the Acquiring Fund with information reasonably requested and necessary for the preparation of the Registration Statement.
5.6 Other than the Initial Shares, the Acquiring Fund shall not issue and additional securities, whether equity or debt, prior to the Closing.
5.7 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the Exchange Act, the CEA, the Exchange and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date.
5.8 The Target Trust, on behalf of the Target Fund, covenants that the Target Fund is not acquiring the Acquiring Fund Shares to be issued hereunder for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
5.9 As soon as is reasonably practicable after the Closing, the Target Fund will make a liquidating distribution to Fund Shareholders consisting of the Acquiring Fund Shares received at the Closing.
5.10 The Teucrium Sponsor will take all necessary steps to transfer as of the Closing Date all ownership, title, rights, interest and entitlements in the Hashdex U.S. Bitcoin Futures Fund Benchmark (“Index”) to the Tidal Sponsor (or its affiliate or other designee) in order to permit the Acquiring Fund to continue its use of the Index after the Closing. Among other things, the Teucrium Sponsor will obtain the consent of the Index calculation agent to the transfer of Index ownership to the Tidal Sponsor, and will transfer such intellectual property, marks, formulae, data, historical information and other know how to Tidal Sponsor to permit Tidal Sponsor to operate the Index.
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5.11 Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective, and to satisfy all conditions to the Merger as contemplated by this Agreement as expeditiously as reasonably practicable after the date of this Agreement.
| 6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. |
The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Target Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Target Trust, on behalf of the Target Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date.
6.2 The Target Trust shall have delivered to the Acquiring Fund a statement of the Target Fund’s assets and known liabilities, together with a list of the Target Fund’s assets showing the tax basis of such assets by lot and the holding periods of such assets, as of the Closing Date, certified by the Teucrium Sponsor’s Chief Financial Officer.
6.3 The Target Trust shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in the Target Trust’s name by the Teucrium Sponsor’s President or Chief Executive Officer and its Chief Financial Officer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Target Trust, on behalf of the Target Fund, made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request.
6.4 The Acquiring Trust shall have provided the Target Trust with an opportunity to review and comment on all drafts (including final drafts) of all regulatory filings to be submitted to the SEC, the CFTC and the NFA. The Target Trust shall endeavor to review and comment on each such document in a commercially reasonable period of time. For the avoidance of doubt, such documents shall include the Registration Statement, the registration statement for the Acquiring Trust on Form S-1 (including all exhibits thereto), press releases and Forms 8-K, the opinion described in Section 8.6 below and the opinion that all issued and outstanding Target Fund Shares at the Closing Date, upon the consummation of the Merger, will be duly and validly issued and outstanding, fully paid and non-assessable by the Target Fund.
| 7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND. |
The obligations of the Target Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquiring Trust, on behalf of the Acquiring Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date.
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7.2 The Acquiring Trust shall have delivered to the Target Fund on the Closing Date a certificate executed in the Acquiring Trust’s name by the Tidal Sponsor’s Chief Executive Officer and its Chief Financial Officer, in form and substance satisfactory to the Target Fund, to the effect that the representations and warranties of the Acquiring Trust, on behalf of the Acquiring Fund, made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Target Fund shall reasonably request.
7.3 The Acquiring Trust shall have delivered to the Target Trust the Acquired Fund Shares payable pursuant to the terms of this Agreement and an appropriate instrument assuming the Target Fund’s Liabilities as of the Closing Date.
| 8. | FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND AND THE ACQUIRING FUND. |
If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Target Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement.
8.1 This Agreement and the transactions contemplated herein shall have been approved by the Teucrium Sponsor on behalf of the Target Trust and Target Fund in accordance with the provisions of the Teucrium Trust Agreement, and this Agreement and the transations contemplated herein shall have been approved by the Acquiring Trust on behalf of itself and the Acquiring Fund Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the condition set forth in this paragraph 8.1.
8.2 On the Closing Date, no court or governmental agency of competent jurisdiction shall have issued any injunction, order, decree, ruling, or other legal restraint or prohibition (an “Injunction”) that has the effect of preventing the consummation of any of the Merger or the other transactions contemplated by this Agreement and no such action, suit or other proceeding shall have commenced or be pending for the purpose of obtaining an Injunction.
8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the SEC, the CFTC, the NFA and of state Blue Sky and securities authorities) deemed necessary by the Target Fund or the Acquiring Fund to permit consummation, in all material respects, of the Merger and the other transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Target Fund or the Acquiring Fund, provided that either party hereto may for itself waive any of such conditions.
8.4 Each of the Registration Statement and the registration statement on Form S-1 for the purpose of registering the continuous offering of the shares of the Acquiring Fundshall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund’s CPO Disclosure Documents and any applicable statements of additional information shall have been duly filed with the NFA, in accordance with the applicable CFTC and NFA rules and regulations.
8.6 The Target Fund and Acquiring Fund shall have received an opinion of K&L Gates LLP (“Opinion”) that the consummation of the transactions contemplated in this Agreement will not result in the recognition of gain or loss under the Code for federal income tax purposes for the Target Fund or the Target Fund Shareholders, and that the Acquiring Fund will be classified as a partnership for federal income tax purposes following the Merger.
Such Opinion shall be based on customary assumptions, limitations and such representations as K&L Gates LLP may reasonably request, and the Target Fund and the Acquiring Fund will cooperate to make and certify the accuracy of such representations. Such Opinion may contain such assumptions and limitations as shall be in the opinion of such counsel appropriate to render the opinions expressed therein.
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No opinion will be expressed as to any other U.S. federal tax issues (except those set forth in the opinion) and all state, local or foreign tax issues of any kind.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Target Fund may waive the conditions set forth in this paragraph 8.6.
| 9. | TERMINATION OF AGREEMENT; EXPENSES. |
9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Acquiring Trust at any time prior to the Closing Date if circumstances, including a change of laws, should develop that, in the opinion of the Acquiring Trust, which make proceeding with the Merger inadvisable.
9.2 If this Agreement is terminated and the transactions contemplated hereby are abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the Teucrium Sponsor, the Tidal Sponsor or either of their members, managers or officers, or shareholders of the Target Fund or of the Acquiring Fund, as the case may be, in respect of this Agreement
| 10. | WAIVER. |
At any time prior to the Closing Date, except as otherwise expressly provided, any of the foregoing conditions may be waived by the Teucrium Sponsor or the Tidal Sponsor if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the Target Fund Shareholders or of the Acquiring Fund, as the case may be.
| 11. | MISCELLANEOUS. |
11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be, on or subsequent to the date hereof, set forth in a writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflict of laws; provided, however, that the due authorization, execution and delivery of this Agreement by the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, shall be governed and construed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflict of laws; provided that, in the case of any conflict between those laws and the federal securities laws, the latter shall govern.
11.4 This Agreement may be amended only by a signed writing by all of the parties.
11.5 This Agreement may be executed in counterparts, each of which, when executed and delivered, shall be deemed to be an original. Counterparts may be delivered via facsimile, electronic mail (including PDF or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
11.6 This Agreement shall bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
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11.7 It is expressly agreed that the obligations of the parties hereunder shall not be binding upon any of the Teucrium Sponsor, the Tidal Sponsor or either of their members, managers or officers, or shareholders, nominees, agents, or employees of the Acquiring Fund or the Target Fund personally, but shall bind only the property of the Acquiring Fund or the Target Fund, as the case may be, as provided in the Tidal Trust Agreement or the Target Trust Agreement. The execution and delivery of this Agreement by such sponsors or officers thereof shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of the Acquiring Fund or the Target Fund, as the case may be.
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IN WITNESS WHEREOF, the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, have each caused this Agreement and Plan of Merger to be executed and attested on its behalf by its duly authorized representatives as of the date first above written.
| TEUCRIUM COMMODITY TRUST, on behalf of its series, Hashdex Bitcoin Futures ETF | |
| By: Teucrium Trading, LLC, as Teucrium Sponsor | |
| By:__________________________________________ | |
| Name: | |
| Title: | |
| TIDAL COMMODITIES TRUST I, on behalf of its series, Hashdex Bitcoin Futures ETF | |
| By: Toroso Investments, LLC, as Tidal Sponsor | |
| By:__________________________________________ | |
| Name: | |
| Title: | |
A-13
ANNEX B
HELPFUL INFORMATION
In this Information Statement the terms described below are used frequently.
| ● | “Acquired Fund” means the Hashdex Bitcoin Futures ETF, a series of Teucrium Commodity Trust. |
| ● | “Teucrium” means Teucrium Trading LLC, sponsor for the Teucrium Commodity Trust. |
| ● | “Acquiring Fund” means the Hashdex Bitcoin Futures ETF, a series of the Tidal Commodities Trust I. |
| ● | “Toroso” means Toroso Investments LLC, Sponsor for the Tidal Commodities Trust I. |
| ● | “Teucrium Trust” means Teucrium Commodity Trust. |
| ● | “Tidal Trust” means Tidal Commodities Trust I. |
| ● | “Administrator” means Tidal ETF Services LLC who will be providing fund administration and related services for the Acquiring Fund including: marketing and sales strategy. |
| ● | “Authorized Purchasers” means certain partes who have entered into an agreement with Toroso to sell 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 Acquiring Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for Bitcoin Futures Contracts in which the Acquiring Fund invests. |
| ● | “Custodian” means U.S. Bank, N.A, currently U.S. Bank, N.A, holds the Acquiring Fund’s securities, cash and/or cash equivalents pursuant to a custodial agreement. |
| ● | “Creation Baskets” means baskets consisting of 10,000 Shares listed at Fund’s NAV which can be purchased or sold by Authorized Purchasers |
| ● | “Digital Asset Adviser” means Hashdex Asset Management Ltd. |
| ● | “Distributor” means Foreside Fund Services, LLC. The Distribution Services Agreement among the Distributor, Toroso, and the Trust calls for the Distributor to work with the Custodian in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets and the review and approval of all Fund sales literature and advertising material. |
| ● | “FCM’s”; “Clearing Brokers” means StoneX Financial Inc.; and Phillip Capital Inc. who will execute and clear the Acquiring Fund’s futures transactions and provide other brokerage-related services. The Clearing Brokers are each registered as an FCM with the CFTC, are members of the National Futures Association and are clearing members of all major U.S. futures exchanges. The Clearing Brokers are registered as broker-dealers with the U.S. Securities and Exchange Commission and are each a member of the Financial Industry Regulatory Authority, Inc. |
| ● | “U.S. Bank Global Fund Services” means Global Fund Service, an entity affiliated with U.S. Bank, N.A., which is the registrar and transfer agent for the Acquiring Fund’s Shares. In addition, Global Fund Services also serves as Sub-Administrator for the Acquiring Fund, performing certain administrative, and accounting services, and preparing certain SEC and CFTC reports on behalf of the Acquiring Fund. |
B-1
PART
II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Tidal Trust is incorporated under the laws of the State of Delaware.
The Tidal Trust Agreement provides that Toroso shall be indemnified by the Tidal Trust (or, by a series of the Tidal 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 Tidal Trust, provided that (i) Toroso was acting on behalf of or performing services for the Tidal Trust and has determined, in good faith, that such course of conduct was in the best interests of the Tidal Trust and such liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Tidal Trust Agreement on the part of Toroso and (ii) any such indemnification will only be recoverable from the applicable trust estate or trust estates. All rights to indemnification permitted by the Tidal Trust Agreement and payment of associated expenses shall not be affected by the dissolution or other cessation to exist of Toroso, or the withdrawal, adjudication of bankruptcy or insolvency of Toroso, or the filing of a voluntary or involuntary petition in bankruptcy under Title 11 of the Bankruptcy Code by or against Toroso.
Notwithstanding the foregoing, Toroso 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.
Item 21. Exhibit Index.
The following exhibits are filed herewith or incorporated herein by reference:
| Exhibit No. | Description | |
| 2.1 | Agreement And Plan Of Partnership Merger and Liquidation**
| |
|
3.1 |
First Amended and Restated Declaration of Trust and Trust Agreement (incorporated by reference to Exhibit 3.1 to Tidal Trust’s Registration Statement on Form S-1 (No. 333-273364)) ***
| |
| 5.1 | Opinion of K&L Gates LLP as to validity of the shares being issued in the merger**
| |
| 8.1 | Opinion of K&L Gates LLP as to certain tax matters**
| |
| 8.2 | Opinion of K&L Gates LLP as to certain partnership tax matters* | |
| 10.1 | Form of Authorized Purchaser Agreement (incorporated by reference to Exhibit 3.1 to Tidal Trust’s Registration Statement on Form S-1 (No. 333-273364))***
| |
| 10.2 | Form of Distribution Services Agreement**
| |
| 10.3 | Form of Custody Agreement**
| |
| 10.4 | Form of Fund Accounting Servicing Agreement**
| |
| 10.5 | Form of Transfer Agent Servicing Agreement**
| |
| 10.6 | Form of Fund Administration Servicing Agreement**
| |
| 10.7 | Amended and Restated ’33 Act Fund Platform Support Agreement**
| |
| 23.1 | Consent
of K&L Gates LLP (included in Exhibit 5.1) **
| |
| 23.3 | Consent of Tait, Weller, & Baker, LLP** | |
| 23.4 | Consent of Grant Thornton LLP ** |
* To be Filed by Further Amendment
** Filed Herewith
*** Incorporation by Reference
II-1
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes 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 section 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.
(b) The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form; and
(2) that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to this registration statement and will not be used until such amendment is effective, and that, for purposes 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.
(c) 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, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, 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 Securities Act of 1933 and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for information that are incorporated by reference into the information statement/prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed after the effective date of the registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Tidal Commodities Trust I certifies that it has reasonable grounds to believe it meets all the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, State of Wisconsin as of October 30, 2023.
Tidal Commodities Trust I
| By: Toroso Investments, LLC, Sponsor |
|
By: Guillermo Trias |
| /s/ Guillermo Trias | Date: October 30, 2023 | |
| Principal Executive Officer of Sponsor |
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 Toroso Investments, LLC the sponsor of Tidal Commodities Trust I, hereby constitute and appoint Guillermo Trias and Daniel Carlson, each of them with full power to act with full power of substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below this Registration Statement on Form S-4 and any and all amendments thereto, including post-effective amendments to this Registration Statement and to sign any and all additional registration statements relating to the same offering of securities as this Registration Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and thereby ratify and confirm that such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue hereof.
| Signature | Title | Date | ||
| /s/ Guillermo Trias | ||||
| Guillermo Trias | Chief Executive Officer/President of the Sponsor | October 30, 2023 | ||
| /s/ Daniel Carlson | ||||
| Daniel Carlson | Chief Financial Officer/Principal Financial Officer | October 30, 2023 |
II-3
Exhibit 2.1
AGREEMENT AND PLAN OF PARTNERSHIP MERGER AND LIQUIDATION
AGREEMENT AND PLAN OF PARTNERSHIP MERGER AND LIQUIDATION dated as of October 30, 2023 (the “Agreement”), between Teucrium Commodity Trust (the “Target Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Target Fund”), and Tidal Commodities Trust I (the “Acquiring Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Acquiring Fund”).
This Agreement is intended to provide for the continuation of the Target Fund, which is classified as a partnership under the United States Internal Revenue Code of 1986, as amended (the “Code”), in the form of the Acquiring Fund, which will also be classified as a partnership under the Code. The Merger will consist of (a) the transfer of all of the Assets (defined below) of the Target Fund to the Acquiring Fund in exchange for (i) shares of beneficial interest, no par value per share, of the Acquiring Fund (“Acquiring Fund Shares”), and (ii) the assumption by the Acquiring Fund of the Liabilities (defined below) of the Target Fund , and (b) the distribution, after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Target Fund in liquidation of the Target Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement (the “Merger”).
WHEREAS, the Target Trust is formed and organized pursuant to a Fifth Amended and Restated Declaration of Trust and Trust Agreement dated as of April 26, 2019 (as may be further amended, the “Teucrium Trust Agreement”) by and between Teucrium Trading, LLC, as the sponsor the of the Target Trust (“Teucrium Sponsor”), and Wilmington Trust Company, as Delaware trustee (including its successors, the “Delaware Trustee”);
WHEREAS, the Acquiring Trust is formed and organized pursuant to a First Amended and Restated Declaration of Trust and Trust Agreement dated as of March 10, 2023 (as may be further amended, the “Tidal Trust Agreement”) by and between Toroso Investments, LLC, as the sponsor of the Acquiring Trust (“Tidal Sponsor”), and the Delaware Trustee;
WHEREAS, the Target Fund is a series of the Target Trust, and the Acquiring Fund is a series of the Acquiring Trust, and the Target Fund owns futures contracts and other assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Target Fund is authorized to issue one class of shares (the “Target Fund Shares”) that are listed for trading on the NYSE Arca (“Exchange”);
WHEREAS, the Acquiring Fund is authorized to issue one class of Acquiring Fund Shares that will be listed for trading on the Exchange on the business day immediately following the Closing Date (defined below);
WHEREAS, the Teucrium Sponsor, on behalf of the Target Trust and Target Fund, has approved the Merger, and Section 14.1(iv) of the Teucrium Trust Agreement authorizes the Teucrium Sponsor to sell or convey all of the assets of the Target Fund to the Acquiring Fund; and
WHEREAS, the Tidal Sponsor, on behalf of the Acquiring Trust and Acquiring Fund, has approved the Merger, and Sections 4.1 and 4.2 of the Tidal Trust Agreement authorize the Tidal Sponsor to cause the Acquiring Trust, on behalf of the Acquiring Fund, to purchase the Assets and assume the Liabilities (each as defined below) and otherwise perform its obligations under this Agreement and, has determined that, there being no existing shareholders of the Acquiring Fund as of the Closing, the Merger will not result in dilution of the Acquiring Fund’s shareholders’ interests.
1
NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows:
| 1. | THE MERGER. |
1.1 Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained herein, the Target Fund agrees to assign, transfer and convey to the Acquiring Fund all of the Assets of the Target Fund (as defined below), free and clear of all liens, encumbrances and claims whatsoever. The Acquiring Fund agrees in exchange therefor –
(a) to deliver to the Target Fund the number of Acquiring Fund Shares determined as set forth in paragraph 2.3; and
(b) to assume the Liabilities of the Target Fund, as defined in paragraph 1.3.
Such transactions shall take place at the closing (the “Closing”) as of the close of business on the closing date (the “Closing Date”), provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the Target Fund’s account on the books of the Acquiring Fund and shall deliver a confirmation thereof to the Target Fund.
1.2 The assets of the Target Fund to be acquired by the Acquiring Fund shall consist of all of the Target Fund’s Assets (defined below), including, without limitation, all portfolio securities, cash, cash equivalents, commodities, interests in futures and other financial instruments, claims (whether absolute or contingent, known or unknown), receivables (including dividends or interest and other receivables), and other assets belonging to the Target Fund, and any deferred or prepaid expenses, reflected on an unaudited statement of assets and liabilities of the Target Fund approved by U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services, administrator and fund accountant for the Target Fund and by U.S. Bank Global Fund Services, sub-administrator and fund accountant for the Acquiring Fund, as of the Valuation Date (as defined in paragraph 2.1), in accordance with U.S. generally accepted accounting principles (“GAAP”) consistently applied from the Target Fund’s prior audited period (collectively, the “Assets”).
1.3 The Target Fund will endeavor to identify and, to the extent practicable, discharge all of its known liabilities and obligations before the Closing Date. The Acquiring Fund shall assume all of the Target Fund’s liabilities and obligations in existence on the Closing Date, whether known or unknown, contingent or otherwise, (collectively, the “Liabilities”).
1.4 Delivery of the Target Fund’s Assets shall be made on the Closing Date to (i) U.S. Bank, N.A., the Acquiring Fund’s custodian (the “Custodian”) with respect to securities, cash and/or cash equivalents, and (ii) to StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. - FCM Division), the Acquiring Fund’s futures commission merchant (the “FCM”) with respect to futures contracts and associated margin, for the account of the Acquiring Fund free and clear of all liens, encumbrances, rights, restrictions and claims other than margin requirements of the FCM. All cash delivered shall be in the form of immediately available U.S. funds payable to the order of the Custodian and the FCM, as the case may be, for the account of the Acquiring Fund.
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1.5 The Target Fund will transfer to the Acquiring Fund any Assets, distributions, rights or other assets received by the Target Fund after the Closing Date as distributions on or with respect to the Assets transferred. Such Assets received after the Closing Date shall be deemed included in the Assets transferred to the Acquiring Fund on the Closing Date and shall not be separately valued.
1.6 As soon after the Closing Date as is conveniently practicable, the Target Fund will distribute to the holders of record of the Target Fund Shares (“Target Fund Shareholders”), determined as of the close of business on the Closing Date, the Acquiring Fund Shares received by the Target Fund pursuant to paragraph 1.1, and will completely liquidate and, promptly thereafter, terminate in accordance with applicable laws of the State of Delaware and federal securities laws and regulations. Each Target Fund Shareholder will receive Acquiring Fund Shares having an aggregate net asset value equal to the aggregate net asset value of such Fund Shareholder’s Target Fund Shares, determined as of the close of business on the Closing Date. Such distribution and liquidation will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Target Fund on the books of the Acquiring Fund to accounts on the share records of the Acquiring Fund in the names of the accounts of Fund Shareholders and representing the respective number of the applicable Acquiring Fund Shares due such Fund Shareholders. All issued and outstanding shares of the Target Fund simultaneously will be canceled on the books of the Target Fund and will be null and void. Acquiring Fund Shares distributed to Fund Shareholders will be reflected on the books of the Acquiring Fund as uncertificated, book-entry shares; the Acquiring Fund will not issue share certificates in the Merger.
1.7 Acquiring Fund Shares will be issued in the manner described in the Information Statement/Prospectus on Form S-4, as amended or supplemented (the “Registration Statement”), as of the effective date of the Registration Statement.
1.8 Any reporting responsibility of the Target Fund, including the responsibility for filing regulatory reports, tax returns, or other documents with the U.S. Securities and Exchange Commission (the “SEC”), the U.S. Commodity Futures Trading Commission (the “CFTC”), the National Futures Association (“NFA”), any state securities commission, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target Fund up to and including the Closing Date and such later date on which the Target Fund’s existence is terminated.
1.9 As soon as practicable after the Closing Date, the Target Trust shall provide the Acquiring Fund with copies of all books and records that pertain to the Target Fund that the Acquiring Fund is required to maintain under the Securities Act of 1933, as amended (the “1933 Act”), Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Commodities Exchange Act, as amended (the “CEA”), and the applicable rules of the SEC, CFTC and the NFA.
| 2. | VALUATION. |
2.1 The value of the Target Fund’s Assets to be acquired, and the amount of the Target Fund’s known liabilities to be assumed, by the Acquiring Fund hereunder shall be computed as of the scheduled close of trading on the floor of the Exchange (usually 4:00 p.m., Eastern time) on the Closing Date (such time and date being hereinafter called the “Valuation Date”), using the valuation procedures set forth in the Tidal Trust Agreement, and the then-current prospectus or statement of additional information of the Acquiring Fund under the Registration Statement, which are and shall be consistent with the policies currently in effect for the Target Fund, or such other valuation procedures as shall be mutually agreed upon by the parties hereto.
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2.2 For purposes of paragraph 1.1(a), the net asset value per share of Acquiring Fund Shares, which are newly created shares, shall be established by the Tidal Sponsor prior to the Closing.
2.3 The number of Acquiring Fund Shares to be issued in exchange for the Target Fund’s net assets shall be determined by dividing the value of the net assets of the Target Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Fund Share, determined in accordance with paragraph 2.2. As a result of this valuation, the number of Acquiring Fund Shares to be issued in exchange for the Target Fund’s net assets shall equal the number of Target Fund Shares Fund to be exchanged.
2.4 All computations of value shall be made in accordance with the regular practices of U.S. Bank Global Fund Services as fund accountant for the Acquiring Fund.
| 3. | CLOSING AND CLOSING DATE. |
3.1 Upon the terms and subject to the conditions set forth herein, the Closing Date shall be January 3, 2024, or such other date as the parties, through their duly authorized officers, may mutually agree. All acts taking place at the Closing shall be deemed to take place simultaneously on the Closing Date unless otherwise provided. The Closing shall be held before 9:30 a.m., Eastern time, at the offices of K&L Gates, LLP, 399 Lexington Avenue, New York, New York 10022, or remotely by exchange of documents and signatures (or their electronic counterparts), unless another place is agreed to in writing by the parties.
3.2 The Custodian and the FCM shall each deliver at the Closing a certificate of an authorized officer stating that the Target Fund’s Assets, as may be held by each, have been delivered in proper form to the Acquiring Fund on the Closing Date. The Target Fund’s portfolio securities and instruments deposited with a securities depository (as defined in the Exchange Act) or with a permitted counterparty or futures commission merchant (as defined in the CEA) shall be delivered to the Custodian and the FCM, as the case may be, as of the Closing Date by book entry, in accordance with the customary practices of the Custodian and FCM, as applicable. The cash to be transferred by the Target Fund shall be delivered to the Custodian for the account of the Acquiring Fund by wire transfer of federal funds on the Closing Date. If on the Valuation Date (a) the Chicago Mercantile Exchange, New York Stock Exchange or another primary trading market for portfolio futures, securities and other assets of the Target Fund shall be closed to trading or trading thereon shall be restricted, or (b) trading or the reporting of trading on said exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Target Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored or such other date as the parties hereto may agree.
3.3 The Target Fund’s transfer agent shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund’s transfer agent shall issue and deliver to the Teucrium Sponsor a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Teucrium Sponsor that such Acquiring Fund Shares have been credited to the Target Fund’s account on the books of the Acquiring Fund.
3.4 At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, receipts or other documents as such other party or its counsel may reasonably request.
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3.5 If the Target Fund is unable to make delivery to the Custodian pursuant to paragraph 3.2 of any of the Assets for the reason that any of such Assets have not yet been delivered to the Target Fund by the Target Fund’s broker, dealer or other counterparty, then, in lieu of such delivery, the Target Fund shall deliver with respect to said Assets executed copies of an agreement of assignment and due bills executed on behalf of said broker, dealer or other counterparty, together with such other documents as may be required by the Acquiring Fund, the Custodian or the FCM, including broker confirmation slips.
| 4. | REPRESENTATIONS AND WARRANTIES. |
4.1 The Target Trust, on behalf of the Target Fund, represents and warrants to the Acquiring Trust, on behalf of the Acquiring Fund, as follows:
(a) The Target Fund is a duly established and designated series of the Target Trust, a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power to carry out its obligations under this Agreement.
(b) The Target Fund Shares are registered under the 1933 Act and listed for trading on the Exchange, and such registrations and listing have not been revoked, suspended or rescinded and are in full force and effect. The Target Fund is in compliance in all material respects with the Exchange Act, the CEA and the rules and regulations thereunder and the listing rules of the Exchange applicable to its outstanding Target Fund Shares.
(c) The current prospectus and statement of additional information of the Target Fund, as supplemented, conform in all material respects to the applicable requirements of the 1933 Act, the Exchange Act and the CEA, and the applicable rules and regulations of the SEC, the CFTC and the NFA thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(d) The Target Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Teucrium Trust Agreement or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Trust is a party on behalf of the Target Fund or by which the Target Fund is bound, nor will the execution, delivery and performance of this Agreement by the Target Fund result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Trust is a party on behalf of the Target Fund or by which the Target Fund is bound.
(e) The Target Fund has no material contracts or other commitments that will be terminated with liability to the Target Fund on or prior to the Closing Date.
(f) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Target Fund of the transactions contemplated herein, except as may be required under the 1933 Act, the Exchange Act, the CEA, the rules and regulations thereunder, state securities laws, and the rules of the Exchange.
(g) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to the Target Trust’s knowledge threatened against the Target Fund or any of the Target Fund’s properties or Assets which, if adversely determined, would materially and adversely affect the Target Fund’s financial condition , the conduct of the Target Fund’s business or the ability of the Target Fund to carry out the transactions contemplated by this Agreement. The Target Trust knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Target Fund’s business or the Target Fund’s ability to consummate the transactions contemplated herein.
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(h) The Statements of Assets and Liabilities, Schedules of Investments (indicating their fair value) of the Target Fund, Statements of Operations (from the Target Fund’s commencement of operations on September 15, 2022 to fiscal year end December 31, 2022), Statements of Changes in Net Assets and Statements of Cash Flows for the Target Fund’s most recent fiscal years ended December 31, 2022, have been audited by Grant Thornton LLP, an independent registered public accounting firm, and are in accordance with GAAP, consistently applied, and such statements and the Target Fund’s unaudited Statements for the six months ended June 30, 2023 (copies of which have been furnished to the Acquiring Fund) present fairly the financial condition of the Target Fund as of such dates, and there are no known contingent liabilities of the Target Fund as of such dates required under GAAP to be disclosed therein.
(i) Since June 30, 2023, there has not been any material adverse change in the Target Fund’s financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Target Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed on the statement of assets and liabilities referred to in paragraphs 1.3 and 4.1(h) hereof.
(j) At the Closing Date, all federal and other tax returns and reports of the Target Fund required by law then to be filed shall have been filed, and all federal and other taxes shown as due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the knowledge of the Target Trust no such return is currently under audit and no assessment or deficiency has been asserted with respect to such returns. As used in this Agreement, “Tax” or “Taxes” means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax. “Tax Return” means reports, returns, information returns, elections, agreements, declarations, or other documents of any nature or kind (including any attached schedules, supplements and additional or supporting material) filed or required to be filed with respect to Taxes, including any claim for refund, amended return or declaration of estimated Taxes (and including any amendments with respect thereto).
(k) For each taxable year of its operation, the Target Fund is treated as a separate entity for federal income tax purposes, has met the requirements of Subchapter K of the Code for qualification and treatment as a partnership for such purposes and has not elected to be treated otherwise. The Target Fund currently qualifies, and shall continue to qualify for the period beginning on the first day of its current taxable year and ending on the Closing Date, as a partnership under the Code. The Target Fund has maintained since its formation a December 31 fiscal year-end for U.S. federal income tax purposes, and has never changed such December 31 fiscal year-end for U.S. federal income tax purposes, by for example, filing Internal Revenue Service Form 1128 “Application to Adopt, Change, or retain a Tax Year.”
(l) All issued and outstanding Target Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Target Fund. All of the issued and outstanding Target Fund Shares will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of its transfer agent as provided in paragraph 3.4. The Target Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any Target Fund Shares, nor is there outstanding any security convertible into any of the Target Fund Shares.
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(m) On the Closing Date, the Target Fund will have good and marketable title to the Assets and full right, power and authority to sell, assign, transfer and deliver the Assets to be transferred by it hereunder free of any liens or other encumbrances other than applicable margin requirements of the FCM, and upon delivery and payment for the Assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act, other than as disclosed to and accepted by the Acquiring Fund.
(n) The Target Trust (for both itself and on behalf of the Target Fund) has the requisite power and authority to execute and deliver this Agreement, and to consummate the Merger and the other transactions contemplated thereby. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action required to be taken on the part of the Target Trust , and, assuming due execution and delivery by the Acquiring Trust , this Agreement will constitute the valid and legally binding obligation of the Target Trust, on behalf of the Target Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law).
(o) The information to be furnished by the Target Trust, on behalf of the Target Fund, for use in registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory authority (including the Financial Industry Regulatory Authority and the NFA), which may be necessary in connection with the transactions contemplated hereby, shall be accurate and complete in all material respects and shall comply in all material respects with federal securities, derivatives and other laws and regulations applicable thereto.
(p) The Registration Statement, as of the effective date of the Registration Statement and at all times subsequent thereto up to and including the Closing Date, conforms and will conform, as it relates to those portions relating to the Target Trust and the Target Fund that have been furnished or reviewed and approved by the Target Trust and the Target Fund, in all material respects to the requirements of the federal and state securities laws and the CEA, and the rules and regulations thereunder and does not and will not include, as it relates to information regarding the Target Trust and the Target Fund that was furnished by the Target Trust and the Target Fund for inclusion therein, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. No representations or warranties in this paragraph 4.1(p) shall apply to statements or omissions made in reliance upon and in conformity with written information concerning the Acquiring Fund furned to the Target Fund by the Acquiring Trust.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund, represents and warrants to the Target Trust, on behalf of the Target Fund, as follows:
(a) The Acquiring Fund is a duly established and designated series of the Acquiring Trust, a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power to carry out its obligations under this Agreement.
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(b) At the Closing Date, the Acquiring Fund Shares will be registered under the 1933 Act, and such registrations will be in full force and effect, and the Acquiring Fund will have received notice from the Exchange that the Acquiring Fund Shares will be listed for trading on the Exchange on the business day immediately following the Closing Date. The Acquiring Fund will be in compliance in all material respects with the Exchange Act, the CEA and the rules and regulations thereunder at the Closing Date.
(c) At the Closing Date, the current prospectus and statement of additional information of the Acquiring Fund, as supplemented, will conform in all material respects to the applicable requirements of the 1933 Act, the Exchange Act and the CEA, and the rules and regulations of the SEC, the CFTC and the NFA thereunder and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Tidal Trust Agreement or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Trust is a party on behalf of the Acquiring Fund or by which the Acquiring Fund is bound, nor will the execution, delivery and performance of this Agreement by the Acquiring Fund result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Trust is a party on behalf of the Acquiring Fund or by which the Acquiring Fund is bound.
(e) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except as may be required under the 1933 Act, the Exchange Act, the CEA, the rules and regulations thereunder, and by state securities laws.
(f) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to the Acquiring Trust’s knowledge threatened against the Acquiring Fund or any of the Acquiring Fund’s properties or assets which, if adversely determined, would materially and adversely affect the Acquiring Fund’s financial condition, the conduct of the Acquiring Fund’s business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Trust knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund’s business or the Acquiring Fund’s ability to consummate the transactions contemplated herein.
(g) There shall be no issued and outstanding shares of the Acquiring Fund prior to the Closing Date other than a nominal number of shares (“Initial Shares”) issued to the Tidal Sponsor (or an affiliate) in order to commence operations of the Acquiring Fund. The Initial Shares have been or will be redeemed by the Acquiring Fund prior to the Closing for the price for which they were issued, and any price paid for the Initial Shares shall at all times have been held by the Acquiring Fund in a non-interest bearing account.
(h) All issued and outstanding shares of the Acquiring Fund will be, at the Closing Date, validly issued, fully paid, and non-assessable by the Acquiring Fund. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares.
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(i) The Acquiring Trust (for both itself and on behalf of the Acquiring Fund) has the requisite power and authority to execute and deliver this Agreement, and to consummate the Merger and the other transactions contemplated thereby. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquiring Trust. This Agreement has been duly executed and delivered by the Acquiring Trust and, assuming due and valid authorization, execution, and delivery hereof by the Target Trust, is a valid and legally binding obligation of the Acquiring Trust, on behalf of the Acquiring Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law).
(j) The Registration Statement, as of its effective date and at all times subsequent thereto up to and including the Closing Date, conforms and will conform, as it relates to the Acquiring Trust and the Acquiring Fund, in all material respects to the requirements of the federal and state securities laws and the CEA, and the rules and regulations thereunder, and does not and will not include, as it relates to the Acquiring Fund, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. No representations and warranties in this paragraph 4.2(j) shall apply to statements or omissions made in reliance upon and in conformity with written information concerning the Target Fund furnished to the Acquiring Fund by the Target Trust.
(k) No consideration other than the Acquiring Fund Shares (and the Acquiring Fund’s assumption of the Target Fund’s liabilities) will be issued in exchange for the Target Fund’s Assets in the Merger.
(l) The Acquiring Fund is, and will be at the time of Closing, a newly created series without assets (other than the seed capital provided in exchange for Initial Shares) and without liabilities, created for the purpose of acquiring the assets and assuming the liabilities of the Target Fund, and, prior to the Closing, will not carry on any business activities (other than such activities as are customary to the organization of a new partnership prior to its commencement of investment operations).
(m) The Acquiring Trust has filed a registration statement on Form S-4 for the purpose of registering the Acquiring Fund Shares under the 1933 Act.
(n) The Acquiring Trust has filed a disclosure document with the NFA, as required for each commodity pool operator (“CPO”) registered under the CEA, with respect to each applicable commodity pool, in accordance with the rules and regulations of the CFTC and NFA (the “CPO Disclosure Document”).
| 5. | COVENANTS OF THE Acquiring Trust AND THE TARGET TRUST, ON BEHALF OF THE ACQUIRING FUND AND THE TARGET FUND, RESPECTIVELY. |
5.1 During the period from the date of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with its terms, the Acquiring Fund and the Target Fund will operate their respective businesses in the ordinary course , it being understood that such ordinary course of business will include redemptions of the Initial Shares in the case of the Acquiring Fund.
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5.2 The Target Trust will obtain the written consent of Teucrium Sponsor and take all other action necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty (60) days after the Closing Date, the Target Trust shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Target Fund for federal income tax purposes which will be carried over to the Acquiring Fund and which will be certified by the Teucrium Sponsor.
5.5 The Target Trust, on behalf of the Target Fund, will provide the Acquiring Fund with information reasonably requested and necessary for the preparation of the Registration Statement.
5.6 Other than the Initial Shares, the Acquiring Fund shall not issue and additional securities, whether equity or debt, prior to the Closing.
5.7 The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the Exchange Act, the CEA, the Exchange and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date.
5.8 The Target Trust, on behalf of the Target Fund, covenants that the Target Fund is not acquiring the Acquiring Fund Shares to be issued hereunder for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
5.9 As soon as is reasonably practicable after the Closing, the Target Fund will make a liquidating distribution to Fund Shareholders consisting of the Acquiring Fund Shares received at the Closing.
5.10 The Teucrium Sponsor will take all necessary steps to transfer as of the Closing Date all ownership, title, rights, interest and entitlements in the Hashdex U.S. Bitcoin Futures Fund Benchmark (“Index”) to the Tidal Sponsor (or its affiliate or other designee) in order to permit the Acquiring Fund to continue its use of the Index after the Closing. Among other things, the Teucrium Sponsor will obtain the consent of the Index calculation agent to the transfer of Index ownership to the Tidal Sponsor, and will transfer such intellectual property, marks, formulae, data, historical information and other know how to Tidal Sponsor to permit Tidal Sponsor to operate the Index.
5.11 Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective, and to satisfy all conditions to the Merger as contemplated by this Agreement as expeditiously as reasonably practicable after the date of this Agreement.
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| 6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. |
The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Target Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Target Trust, on behalf of the Target Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date.
6.2 The Target Trust shall have delivered to the Acquiring Fund a statement of the Target Fund’s assets and known liabilities, together with a list of the Target Fund’s assets showing the tax basis of such assets by lot and the holding periods of such assets, as of the Closing Date, certified by the Teucrium Sponsor’s Chief Financial Officer.
6.3 The Target Trust shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in the Target Trust’s name by the Teucrium Sponsor’s President or Chief Executive Officer and its Chief Financial Officer, in form and substance satisfactory to the Acquiring Fund, to the effect that the representations and warranties of the Target Trust, on behalf of the Target Fund, made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Fund shall reasonably request.
6.4 The Acquiring Trust shall have provided the Target Trust with an opportunity to review and comment on all drafts (including final drafts) of all regulatory filings to be submitted to the SEC, the CFTC and the NFA. The Target Trust shall endeavor to review and comment on each such document in a commercially reasonable period of time. For the avoidance of doubt, such documents shall include the Registration Statement, the registration statement for the Acquiring Trust on Form S-1 (including all exhibits thereto), press releases and Forms 8-K, the opinion described in Section 8.6 below and the opinion that all issued and outstanding Target Fund Shares at the Closing Date, upon the consummation of the Merger, will be duly and validly issued and outstanding, fully paid and non-assessable by the Target Fund.
| 7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND. |
The obligations of the Target Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquiring Trust, on behalf of the Acquiring Fund, contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Trust shall have delivered to the Target Fund on the Closing Date a certificate executed in the Acquiring Trust’s name by the Tidal Sponsor’s Chief Executive Officer and its Chief Financial Officer, in form and substance satisfactory to the Target Fund, to the effect that the representations and warranties of the Acquiring Trust, on behalf of the Acquiring Fund, made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Target Fund shall reasonably request.
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7.3 The Acquiring Trust shall have delivered to the Target Trust the Acquired Fund Shares payable pursuant to the terms of this Agreement and an appropriate instrument assuming the Target Fund’s Liabilities as of the Closing Date.
| 8. | FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND AND THE ACQUIRING FUND. |
If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Target Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement.
8.1 This Agreement and the transactions contemplated herein shall have been approved by the Teucrium Sponsor on behalf of the Target Trust and Target Fund in accordance with the provisions of the Teucrium Trust Agreement, and this Agreement and the transations contemplated herein shall have been approved by the Acquiring Trust on behalf of itself and the Acquiring Fund Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the condition set forth in this paragraph 8.1.
8.2 On the Closing Date, no court or governmental agency of competent jurisdiction shall have issued any injunction, order, decree, ruling, or other legal restraint or prohibition (an “Injunction”) that has the effect of preventing the consummation of any of the Merger or the other transactions contemplated by this Agreement and no such action, suit or other proceeding shall have commenced or be pending for the purpose of obtaining an Injunction.
8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the SEC, the CFTC, the NFA and of state Blue Sky and securities authorities) deemed necessary by the Target Fund or the Acquiring Fund to permit consummation, in all material respects, of the Merger and the other transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Target Fund or the Acquiring Fund, provided that either party hereto may for itself waive any of such conditions.
8.4 Each of the Registration Statement and the registration statement on Form S-1 for the purpose of registering the continuous offering of the shares of the Acquiring Fundshall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund’s CPO Disclosure Documents and any applicable statements of additional information shall have been duly filed with the NFA, in accordance with the applicable CFTC and NFA rules and regulations.
8.6 The Target Fund and Acquiring Fund shall have received an opinion of K&L Gates LLP (“Opinion”) that the consummation of the transactions contemplated in this Agreement will not result in the recognition of gain or loss under the Code for federal income tax purposes for the Target Fund or the Target Fund Shareholders, and that the Acquiring Fund will be classified as a partnership for federal income tax purposes following the Merger.
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Such Opinion shall be based on customary assumptions, limitations and such representations as K&L Gates LLP may reasonably request, and the Target Fund and the Acquiring Fund will cooperate to make and certify the accuracy of such representations. Such Opinion may contain such assumptions and limitations as shall be in the opinion of such counsel appropriate to render the opinions expressed therein.
No opinion will be expressed as to any other U.S. federal tax issues (except those set forth in the opinion) and all state, local or foreign tax issues of any kind.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Target Fund may waive the conditions set forth in this paragraph 8.6.
| 9. | TERMINATION OF AGREEMENT; EXPENSES. |
9.1 This Agreement and the transactions contemplated hereby may be terminated and abandoned by resolution of the Acquiring Trust at any time prior to the Closing Date if circumstances, including a change of laws, should develop that, in the opinion of the Acquiring Trust, which make proceeding with the Merger inadvisable.
9.2 If this Agreement is terminated and the transactions contemplated hereby are abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the Teucrium Sponsor, the Tidal Sponsor or either of their members, managers or officers, or shareholders of the Target Fund or of the Acquiring Fund, as the case may be, in respect of this Agreement.
| 10. | WAIVER. |
At any time prior to the Closing Date, except as otherwise expressly provided, any of the foregoing conditions may be waived by the Teucrium Sponsor or the Tidal Sponsor if, in the judgment of either, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the Target Fund Shareholders or of the Acquiring Fund, as the case may be.
| 11. | MISCELLANEOUS. |
11.1 None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be, on or subsequent to the date hereof, set forth in a writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflict of laws; provided, however, that the due authorization, execution and delivery of this Agreement by the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, shall be governed and construed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflict of laws; provided that, in the case of any conflict between those laws and the federal securities laws, the latter shall govern.
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11.4 This Agreement may be amended only by a signed writing by all of the parties.
11.5 This Agreement may be executed in counterparts, each of which, when executed and delivered, shall be deemed to be an original. Counterparts may be delivered via facsimile, electronic mail (including PDF or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
11.6 This Agreement shall bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
11.7 It is expressly agreed that the obligations of the parties hereunder shall not be binding upon any of the Teucrium Sponsor, the Tidal Sponsor or either of their members, managers or officers, or shareholders, nominees, agents, or employees of the Acquiring Fund or the Target Fund personally, but shall bind only the property of the Acquiring Fund or the Target Fund, as the case may be, as provided in the Tidal Trust Agreement or the Target Trust Agreement. The execution and delivery of this Agreement by such sponsors or officers thereof shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of the Acquiring Fund or the Target Fund, as the case may be.
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IN WITNESS WHEREOF, the Target Trust, on behalf of the Target Fund, and the Acquiring Trust, on behalf of the Acquiring Fund, have each caused this Agreement and Plan of Merger to be executed and attested on its behalf by its duly authorized representatives as of the date first above written.
| TEUCRIUM COMMODITY TRUST, on behalf of its series, Hashdex Bitcoin Futures ETF | ||
| By: Teucrium Trading, LLC, as Teucrium Sponsor | ||
| By: | ||
| Name: Title: |
||
| TIDAL COMMODITIES TRUST I, on behalf of its series, Hashdex Bitcoin Futures ETF | ||
| By: Toroso Investments, LLC, as Tidal Sponsor | ||
| By: | ||
| Name: Title: |
||
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Exhibit 5.1
 |
K&L Gates LLP 599 lexington avenue new york, ny 10022 T +1 212 536 3900 F +1 212 536 3901 klgates.com |
October 30, 2023
Tidal Commodities Trust I
c/o Toroso Investments, LLC
234 West Florida Street, Suite 203
Milwaukee, WI 53204
| Re | : Hashdex Bitcoin Futures ETF (the “Fund”) |
Ladies and Gentlemen:
We have acted as counsel to Tidal Commodities Trust I, a Delaware statutory trust (the “Trust”), in connection with the filing of a Registration Statement on Form S-4 (the “Registration Statement”), to be filed with the U.S. Securities and Exchange Commission (the “Commission”) on or about October 30, 2023, registering a fixed number of shares of beneficial interest in Hashdex Bitcoin Futures ETF (the “Shares”) under the Securities Act of 1933, as amended (the “Securities Act”). Separately, the Trust has paid via wire transfer the registration fee as noted in the Registration Statement.
This opinion letter is being delivered at your request in accordance with the requirements of paragraph 29 of Schedule A of the Securities Act and Item 21 of Form S-4 under the Securities Act.
For purposes of this opinion letter, we have examined originals or copies, certified or otherwise identified to our satisfaction, of:
| (i) | the prospectus and information statement filed as part of the Registration Statement; and |
| (ii) | the Trust’s First Amended and Restated Declaration of Trust and Trust Agreement in effect on the date of this opinion letter. |
We also have examined and relied upon certificates of public officials and, as to certain matters of fact that are material to our opinions, relied upon resolutions and other statements by Toroso Investments, LLC, as sponsor of the Trust. We have not independently established any of the facts on which we have so relied.
For purposes of this opinion letter, we have assumed the accuracy and completeness of each document submitted to us, the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified, conformed, or photostatic copies thereof, and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. We have further assumed the legal capacity of natural persons, that persons identified to us as officers of the Trust are actually serving in such capacity, and that the representations of officers of the Trust are correct as to matters of fact. We have not independently verified any of these assumptions.
October 30, 2023
Page 2
The opinions expressed in this opinion letter are based on the facts in existence and the laws in effect on the date hereof and are limited to the laws of the state of Delaware and the provisions of the Securities Act. We are not opining on, and we assume no responsibility for, the applicability to or effect on any of the matters covered herein of any other laws.
Based upon and subject to the foregoing, it is our opinion that (1) the Shares to be issued pursuant to the Registration Statement, when issued and paid for by the purchasers upon the terms described in the Registration Statement, will be validly issued, and (2) such purchasers will have no obligation to make any further payments for the purchase of the Shares or contributions to the Trust solely by reason of their ownership of the Shares.
This opinion is rendered solely in connection with the filing of the Registration Statement and supersedes any previous opinions of this firm in connection with the issuance of Shares. We hereby consent to the filing of this opinion with the Commission in connection with the Registration Statement and to the reference to this firm’s name under the heading “Legal Matters” in the Registration Statement. In giving this consent, we do not thereby admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “expert” as used in Section 11 of the Securities Act or the rules and regulations promulgated thereunder by the Commission, nor do we admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ K&L Gates LLP
Exhibit 8.1
October 30, 2023
Teucrium Commodity Trust
Three Main Street, Suite 215
Burlington, Vermont 05401
Tidal Commodities Trust I
234 West Florida Street
Milwaukee, WI 53204
| Re: | Partnership Merger to Combine Series of Two Delaware Statutory Trusts |
Ladies and Gentlemen:
Tidal Commodities Trust I (the “Acquiring Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Acquiring Fund”), and Teucrium Commodity Trust (the “Target Trust”), a Delaware statutory trust, on behalf of its series, Hashdex Bitcoin Futures ETF (the “Target Fund”), has requested our opinion as to certain federal income tax consequences of transactions (the “Merger”) in which the Acquiring Fund will acquire substantially all of the assets of the Target Fund in exchange solely for shares of beneficial interest in the Acquiring Fund (“Acquiring Fund Shares”), and the assumption by the Acquiring Fund of liabilities of the Target Fund, pursuant to an Agreement and Plan of Partnership Merger and Liquidation (“Agreement”) entered into by Acquiring Trust, on behalf of the Acquiring Fund, and Target Trust, on behalf of the Target Fund, on October 30, 2023.1 .2
In rendering this opinion, we have examined (1) the Agreement, (2) the Combined Information Statement/Prospectus dated October 30, 2023, regarding the Merger, and (3) other documents we have deemed necessary or appropriate for the purposes hereof (collectively, “Documents”). We have assumed, for purposes hereof, the accuracy and completeness of the information contained in all the Documents. As to various matters of fact material to this opinion, we have relied, exclusively and without independent verification (with your permission), on the representations and warranties set forth in the Agreement and on the statements and representations of officers and other representatives of the Acquiring Fund and the Target Fund (collectively, “Representations”). We have assumed that any Representation made “to the knowledge and belief” (or similar qualification) of any person or party is, and at the Closing Date (as defined in the Agreement) will be, correct without such qualification. We have also assumed that as to all matters for which a person or entity has represented that such person or entity is not a party to, does not have, or is not aware of any plan, intention, understanding, or agreement, there is no such plan, intention, understanding, or agreement. Finally, we have assumed that the Documents and the Representations present all the material and relevant facts relating to the Merger.
1 Each of the Target Fund and Acquiring Fund is sometimes referred to herein as a “Fund,” and each of Acquiring Trust and Target Trust is sometimes referred to herein as a “Trust.”
2 All “section” references are to the Internal Revenue Code of 1986, as amended (“Code”), unless otherwise noted, and all “Treas. Reg. §” references are to the regulations under the Code (“Regulations”).
K&L Gates LLP
One Congress Street Boston MA 02114
T +1 617 261 3100 F +1 617 261 3175 klgates.com
October 30, 2023
Page 2
OPINION
Based solely on the Documents and Representations, and conditioned on (i) those Representations’ being true on the closing date of the Merger and (ii) the Merger’s being consummated in accordance with the Agreement (without the waiver or modification of any terms or conditions thereof), our opinion with respect to the federal income tax consequences of the Merger is as follows.
1. No gain or loss will be recognized by the Acquired Fund or its shareholders upon the transfer of all Acquired Fund assets to the Acquiring Fund solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund, or upon the distribution of the Acquiring Fund Shares to the shareholders of the Acquired Fund, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code.
2. The tax basis in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger will be the same as the tax basis of such asset in the hands of the Acquired Fund immediately prior to the transfer thereof, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Acquired Fund on the transfer.
3. The holding period in the hands of the Acquiring Fund of each asset transferred from the Acquired Fund to the Acquiring Fund in the Merger, other than assets with respect to which gain or loss is required to be recognized, will include the Acquired Fund’s holding period for such asset (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset).
October 30, 2023
Page 3
4. No gain or loss will be recognized by the Acquiring Fund upon its receipt of all the assets of the Acquired Fund solely in exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund as part of the Merger.
5. No gain or loss will be recognized by the Acquired Fund shareholders upon the exchange of their Acquired Fund shares for Acquiring Fund shares as part of the Merger.
6. The aggregate tax basis of the shares of the Acquiring Fund that each shareholder of the Acquired Fund receives in the Merger will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor.
7. Each Acquired Fund shareholder’s holding period for the Acquiring Fund shares received in the Merger will include the Acquired Fund shareholder’s holding period for the Acquired Fund shares exchanged therefor, provided that the Acquired Fund shareholder held such Acquired Fund shares as capital assets on the date of the exchange.
8. The taxable year of the Acquired Fund will not end as a result of the Merger.
Notwithstanding anything herein to the contrary, we express no opinion as to the effect of a Merger on either Fund participating therein or any Shareholder with respect to any asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes on the termination or transfer thereof under a mark-to-market system of accounting.
Our opinion is based on, and is conditioned on the continued applicability of, the provisions of the Code and the Regulations, judicial decisions, and rulings and other pronouncements of the Internal Revenue Service (“Service”) in existence on the date hereof. All the foregoing authorities are subject to change or modification that can be applied retroactively and thus also could affect the conclusions expressed herein; we assume no responsibility to update our opinion after the date hereof with respect to any such change or modification. Our opinion represents our best judgment regarding how a court would decide the issues addressed herein and is not binding on the Service or any court. Moreover, our opinion does not provide any assurance that a position taken in reliance thereon will not be challenged by the Service, and although we believe that our opinion would be sustained by a court if challenged, there can be no assurances to that effect.
October 30, 2023
Page 4
Our opinion addresses only the specific federal income tax consequences of the Merger set forth above and does not address any other federal, or any state, local, or foreign tax consequences of the Merger or any other action (including any taken in connection therewith). Our opinion also applies only if each Fund is solvent, and we express no opinion about the tax treatment of the transactions described herein if any Fund is insolvent. Finally, our opinion is solely for the information and use of the addressees and their shareholders and may not be relied on for any purpose by any other person without our express written consent.
Very truly yours,
Exhibit 10.2
MARKETING AGENT AGREEMENT
This Marketing Agent Agreement (the “Agreement”) is made and entered into as of this ___ day of _____________ 2023, by and between Tidal Commodities Trust I, a Delaware statutory trust (the “Trust”) and Foreside Fund Services, LLC, a Delaware limited liability company (“ACA Foreside”).
WHEREAS, the Trust filed with the U.S. Securities and Exchange Commission (the “SEC”) a Registration Statement for the Trust under the Securities Act of 1933, as amended (the “1933 Act”);
WHEREAS, the Trust intends to create and redeem shares of beneficial interest in one or more series of the Trust (the “Shares”) only in creation unit aggregations (“Creation Unit”) on a continuous basis, and list the Shares of each series on one or more national securities exchanges;
WHEREAS, ACA Foreside is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”);
WHEREAS, the Trust desires to retain ACA Foreside to provide certain services to the Trust; and
WHEREAS, ACA Foreside is willing to provide certain services for the Trust on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
| 1. | Services. |
ACA Foreside agrees to serve as the marketing agent of the Trust on the terms and for the period set forth in this Agreement.
| 2. | Definitions. |
Wherever they are used herein, the following terms have the following respective meanings:
“Prospectus” means the Prospectus and Statement of Additional Information constituting parts of the Registration Statement of one or more series of the Trust under the 1933 Act as each such Prospectus and Statement of Additional Information may be amended or supplemented and filed with the SEC from time to time;
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“Registration Statement” means the registration statement for a particular Trust series most recently filed from time to time by the Trust with the SEC and effective under the 1933 Act, as such registration statement is amended by any amendments thereto at the time in effect;
All other capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Registration Statement and the Prospectus.
| 3. | Duties of ACA Foreside |
| a) | ACA Foreside shall use commercially reasonable efforts to provide the following services to the Trust: |
| (i) | at the request of the Trust, ACA Foreside shall assist the Trust with facilitating Authorized Participant Agreements between and among Authorized Participants, the Trust, and the applicable Transfer Agent, for the creation and redemption of Creation Units of each series of the Trust; |
| (ii) | maintain copies of confirmations of Creation Unit creation and redemption order acceptances on a series-by-series basis and produce such copies upon reasonable request from the Trust; |
| (iii) | make available copies of the Prospectus to Authorized Participants who have purchased that series’ Creation Units in accordance with the Authorized Participant Agreements; |
| (iv) | maintain telephonic, electronic mail and/or access to direct computer communications links with the Trust’s transfer agent (“Transfer Agent”); |
| (v) | review and approve, prior to use, all Trust marketing materials submitted to ACA Foreside for review by the Trust (“Marketing Materials”) for compliance with applicable SEC and FINRA advertising rules, and file all such Marketing Materials required to be filed with FINRA. ACA Foreside agrees to furnish to the Trust any comments provided by FINRA with respect to such Marketing Materials; |
| (vi) | ensure that all direct requests by Authorized Participants for Prospectuses are fulfilled; |
| (vii) | work with the Transfer Agent to review and approve orders placed by Authorized Participants and transmitted to the Transfer Agent. The Trust acknowledges that ACA Foreside shall not be obligated to approve any certain number of orders for Creation Units; and |
| b) | The services furnished by ACA Foreside hereunder are not to be deemed exclusive and ACA Foreside shall be free to furnish similar services to others so long as its services under this Agreement are not impaired thereby. |
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| 4. | Duties of the Trust |
| a) | The Trust agrees to create, issue, and redeem Creation Units of series of the Trust in accordance with the procedures described in the applicable Prospectus. Upon reasonable notice to ACA Foreside, and in accordance with the procedures described in the applicable Prospectus, the Trust reserves the right to reject any order for Creation Units for the relevant series or to stop all receipts of such orders at any time. |
| b) | The Trust shall deliver to ACA Foreside copies of the following documents: |
| (i) | the current Prospectus for each series of the Trust that has commenced operations; |
| (ii) | any relevant policies and procedures adopted by the Trust or its service providers that are applicable to the services provided by ACA Foreside; and |
| (iii) | any other documents, materials or information that ACA Foreside shall reasonably request to enable it to perform its duties pursuant to this Agreement. |
| c) | The Trust shall thereafter deliver to ACA Foreside as soon as is reasonably practical any and all amendments to the documents required to be delivered under this Section. |
| d) | The Trust shall arrange to provide the listing exchanges with copies of Prospectuses, Statements of Additional Information, and product descriptions that are required to be provided by the Trust to purchasers in the secondary market. |
| e) | The Trust will make it known that Prospectuses and Statements of Additional Information and product descriptions are available by making sure such disclosures are in all marketing and advertising materials prepared by the Trust. |
| 5. | Representations, Warranties and Covenants of the Client. |
A. The Trust hereby represents and warrants to ACA Foreside, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (i) | it is duly organized and in good standing under the laws of its jurisdiction of organization; |
| (ii) | this Agreement has been duly authorized, executed and delivered by the Trust and, when executed and delivered, will constitute a valid and legally binding obligation of the Trust, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; |
| (iii) | it is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; |
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| (iv) | the Trust’s Registration Statement and the Trust’s Prospectuses, and marketing and promotional literature have been prepared, in all material respects, in conformity with the applicable requirements of the 1933 Act and SEC rules and regulations; |
| (vii) | the Trust’s Registration Statement (including its statement of additional information) and Prospectuses do not and shall not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that all statements or information furnished to ACA Foreside pursuant to this Agreement shall be true and correct in all material respects; and |
| (viii) | all marketing or promotional literature shall contain all statements required to be stated therein in accordance with the 1933 Act and SEC rules and regulations; and do not and shall not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; |
| (ix) | all necessary approvals, authorizations, consents, or orders of or filings with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency have been or will be obtained by the Trust in connection with the issuance and sale of the Shares, including registration of the Shares under the 1933 Act, and any necessary qualification under the securities or blue-sky laws of the various jurisdictions in which the Shares are being offered. |
B. The Trust shall reasonably cooperate in the efforts of ACA Foreside in the provision of the services. In addition, the Trust shall keep ACA Foreside reasonably informed of its affairs as they relate to the Trust and shall provide to ACA Foreside from time-to-time copies of all information that ACA Foreside may reasonably request for use in connection with the provision of the Services.
| 6. | Representations, Warranties and Covenants of ACA Foreside. |
A. ACA Foreside hereby represents and warrants to the Trust, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (i) | it is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (ii) | this Agreement has been duly authorized, executed and delivered by ACA Foreside and, when executed and delivered, will constitute a valid and legally binding obligation of ACA Foreside, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; |
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| (iii) | it is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; and |
| (iv) | it is registered as a broker-dealer under the 1934 Act and is a member in good standing of FINRA. |
| 7. | Compensation. |
ACA Foreside shall be entitled to no compensation or reimbursement of expenses from the Trust for the services provided by ACA Foreside pursuant to this Agreement. Any such compensation or reimbursement of expenses shall be paid or reimbursed by a sponsor of the Trust pursuant to an Agreement between such sponsor and ACA Foreside.
| 8. | Indemnification. |
| a) | The Trust shall indemnify, defend and hold ACA Foreside, its affiliates and each of their respective members, managers, directors, officers, employees, representatives and any person who controls or previously controlled ACA Foreside within the meaning of Section 15 of the 1933 Act (collectively, the “ACA Foreside Indemnitees”), free and harmless from and against any and all losses, claims, demands, liabilities, damages and expenses (including the costs of investigating or defending any alleged losses, claims, demands, liabilities, damages or expenses and any reasonable counsel fees incurred in connection therewith) (collectively, “Losses”) that any ACA Foreside Indemnitee may incur arising out of or relating to (i) the Trust’s breach of any of its obligations, representations, warranties or covenants contained in this Agreement; (ii) the Trust’s failure to comply in all material respects with any applicable laws, rules or regulations; or (iii) any claim that the Prospectus, marketing literature and advertising materials or other information filed or made public by the Trust (as from time to time amended) includes or included an untrue statement of a material fact or omits or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading provided, however, that the Trust’s obligation to indemnify any of the ACA Foreside Indemnitees shall not be deemed to cover any Losses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in the Prospectus or any such advertising materials or marketing literature or other information filed or made public by the Trust in reliance upon and in conformity with information provided by ACA Foreside to the Trust, in writing, for use in such Prospectus or any such advertising materials or marketing literature. |
| b) | ACA Foreside shall indemnify, defend and hold the Trust, its affiliates, and each of their respective directors, managers, officers, employees, representatives, and any person who controls or previously controlled the Trust within the meaning of Section 15 of the 1933 Act (collectively, the “Trust Indemnitees”), free and harmless from and against any and all Losses that any Trust Indemnitee may incur under the 1933 Act, the 1934 Act, any other statute (including Blue Sky laws) or any rule or regulation thereunder, or under common law or otherwise, arising out of or relating to (i) ACA Foreside’s breach of any of its obligations, representations, warranties or covenants contained in this Agreement; (ii) ACA Foreside’s failure to comply in all material respects with any applicable laws, rules, or regulations; or (iii) any claim that the Prospectus, marketing literature and advertising materials or other information filed or made public by the Trust (as from time to time amended) include or included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, insofar as such statement or omission was made in reliance upon, and in conformity with information furnished to the Trust by ACA Foreside, in writing, for use in such Prospectus, marketing literature and advertising materials or other information filed or made public by the Trust. |
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| c) | In no case (i) is the indemnification provided by an indemnifying party to be deemed to protect against any liability the indemnified party would otherwise be subject to by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the indemnifying party to be liable under this Section with respect to any claim made against any indemnified party unless the indemnified party notifies the indemnifying party in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the indemnified party (or after the indemnified party shall have received notice of service on any designated agent). |
| d) | Failure to notify the indemnifying party of any claim shall not relieve the indemnifying party from any liability that it may have to the indemnified party against whom such action is brought, on account of this Section, unless failure or delay to so notify the indemnifying party prejudices the indemnifying party’s ability to defend against such claim. The indemnifying party shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if the indemnifying party elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to the indemnified party. In the event that indemnifying party elects to assume the defense of any suit and retain counsel, the indemnified party shall bear the fees and expenses of any additional counsel retained by them. If the indemnifying party does not elect to assume the defense of any suit, it will reimburse the indemnified party for the reasonable fees and expenses of any counsel retained by them. The indemnifying party agrees to notify the indemnified party promptly of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the purchase or redemption of any of the Creation Units or the Shares. |
| e) | No indemnified party shall settle any claim against it for which it intends to seek indemnification from the indemnifying party, under the terms of section 8(a) or 8(b) above, without prior written notice to and consent from the indemnifying party, which consent shall not be unreasonably withheld. No indemnified or indemnifying party shall settle any claim unless the settlement contains a full release of liability with respect to the other party in respect of such action. This section 8 shall survive the termination of this Agreement. |
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| 9. | Limitations on Damages. |
With the exception for losses arising out of breaches of this Agreement’s confidentiality provision or arising out of a Party’s gross negligence, willful misconduct, or intentional wrongdoing, neither Party shall be liable for any consequential, special or indirect losses or damages suffered by the other Party, whether or not the likelihood of such losses or damages was known by the Party.
| 10. | Force Majeure. |
Neither party shall be liable for losses, delays, failure, errors, interruption or loss of data occurring directly or indirectly by reason of circumstances beyond its reasonable control, which may include, without limitation, Acts of Nature (including fire, flood, earthquake, storm, hurricane or other natural disaster); action or inaction of civil or military authority; acts of foreign enemies; war; terrorism; riot; insurrection; sabotage; epidemics; labor disputes; civil commotion; or interruption, loss or malfunction of utilities, transportation, computer or communications capabilities, and the other party shall have no right to terminate this Agreement in such circumstances.
| 11. | Duration and Termination. |
| a) | This Agreement shall become effective as of the date first set forth above. Unless sooner terminated as provided herein, this Agreement shall continue in effect for two years from the date hereof. Thereafter, if not terminated, this Agreement shall continue automatically in effect for successive one-year periods. |
| b) | Notwithstanding the foregoing, this Agreement may be terminated, without the payment of any penalty, upon no less than sixty (60) days’ written notice by either party. |
| 12. | Confidentiality. |
| a. | Definition of Confidential Information: "Confidential Information" shall encompass all non-public, proprietary, or secret information and data that one party ("Disclosing Party") provides to the other party ("Receiving Party"), which holds tangible or intangible value, and the unauthorized disclosure of which could inflict adverse effects or competitive disadvantages. Such information may pertain to, but not be limited to: business strategies, trade secrets, systems, operational procedures, manuals, products, contractual documents, personnel details, client data, financial details, intellectual property, technological developments, market and sales intel, customer databases, business plans, potential business ventures, and all information developed collaboratively during the Agreement, whether verbally, visually, electronically, or in written form. |
| b. | Exceptions to Confidential Information: Information shall not be deemed Confidential Information if it: (i) becomes public knowledge without fault on the part of the Receiving Party; (ii) was in the possession of the Receiving Party without restriction in relation to disclosure before its receipt from the Disclosing Party; (iii) is independently developed by the Receiving Party without direct use of, or reference to, the Disclosing Party's Confidential Information; or (iv) is rightfully obtained from a third party not in a confidential relationship with the Disclosing Party and without similar restriction on disclosure. |
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| c. | Obligations of Non-Disclosure and Non-Use: Each party agrees to: (a) protect and preserve the confidential and proprietary nature of the Confidential Information of the other party with the same degree of care as it uses to protect its own confidential information, but in no event with less than a reasonable standard of care; (b) refrain from using Confidential Information of the other party for any purpose other than those expressly outlined within this Agreement; and (c) restrict disclosure of the Confidential Information to employees, agents, or third parties as necessary and only for the disclosed purpose, ensuring such entities are under similar non-disclosure obligations. |
| d. | Regulatory Disclosure: If a Receiving Party becomes legally compelled to disclose any Confidential Information (through court order, governmental requirement, or any legal procedure), the Receiving Party shall, if permitted: (a) promptly notify the Disclosing Party, allowing it to seek a protective order or other appropriate remedy; and (b) disclose only the portion of Confidential Information that it is legally required to, ensuring that confidential status is asserted where applicable. Additionally, a Receiving Party may disclose Confidential Information of the Disclosing Party to a governmental agency or regulatory authority with jurisdiction over it in response to a routine examination by such regulatory (including self-regulatory) authority or governmental agency. |
| e. | Duration of Confidentiality Obligation: Each Receiving Party shall maintain the confidentiality and refrain from use of the Confidential Information for a period of two years following the termination or expiration of this Agreement, unless a longer duration is stipulated by applicable law or agreed upon by both parties. |
| f. | Return or Destruction of Confidential Information: Upon termination of this Agreement, or upon the Disclosing Party's written request, the Receiving Party shall promptly, at the Disclosing Party's discretion, return or destroy all copies of the Confidential Information and certify in writing its compliance with this provision. Notwithstanding the foregoing, a Receiving Party may retain copies of the Confidential Information to the extent required to comply with applicable legal, regulatory, or internal compliance requirements and/or that is stored as part of its routine data backup and archival processes. All such retained Confidential Information shall remain subject to this Confidentiality provision. |
| g. | Information Security: Both parties shall implement and maintain commercially reasonable information security policies and procedures to safeguard the confidentiality, integrity, and accessibility of the Confidential Information, adhering to applicable data protection and privacy laws and regulations. |
| h. | Remedies: Both parties acknowledge that any unauthorized disclosure or use of Confidential Information may cause irreparable harm to the Disclosing Party, for which monetary damages may be inadequate, and thus, the Disclosing Party may seek injunctive relief, in addition to any other rights and remedies it may have. |
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| 13. | Notice |
Any notice required or permitted to be given hereunder by either party to the other shall be deemed sufficiently given if in writing and personally delivered or sent by electronic mail, or registered, certified or overnight mail, postage prepaid, addressed by the party giving such notice to the other party at the address furnished below unless and until modified by ACA Foreside or the Trust, as the case may be. Notice shall be given to each party at the following address, as amended from time to time:
| (i) To ACA Foreside: | (ii) If to the Trust: |
Foreside Fund Services, LLC
With a copy to: |
Tidal Commodities Trust I c/o Toroso Investments, LLC 234 West Florida Street, Suite 203 Milwaukee, WI 53204 Attn: Guillermo Trias Telephone: (844) 986-7700 ext. 701 Email: gtrias@tidalfg.com |
| 14. | Transfer Agent |
ACA Foreside and the Trust agree that in the course of ACA Foreside’s services that ACA Foreside may need information from time to time from the Transfer Agent (identified below). The Trust shall promptly notify ACA Foreside in writing of any changes to the Transfer Agent or its contact information.
[U.S. Bank National Association
1555 N. Rivercenter Dr.
Milwaukee, Wisconsin 53212]
15. Modifications. The terms of this Agreement shall not be waived, altered, modified, amended or supplemented in any manner whatsoever except by a written instrument signed by ACA Foreside and the Trust.
16. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law principles thereof.
17. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties’ representatives, successors, heirs, and permitted assigns, as applicable. A change in control shall not be construed to be an assignment.
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18. Survival. The provisions of Sections 8, 9, 10, 12, 15, 18 and 19 of this Agreement shall survive any termination of this Agreement.
19. Anti-Money Laundering. ACA Foreside and Trust both represent and warrant to the other that it has, and shall maintain, an anti-money laundering program (“AML Program”) that, at a minimum, (i) designates a compliance officer to administer and oversee the AML Program, (ii) provides ongoing employee training, (iii) includes an independent audit function to test the effectiveness of the AML Program, (iv) establishes internal policies, procedures, and controls that are tailored to its particular business, (v) provides for the filing of all necessary anti-money laundering reports including, but not limited to, currency transaction reports and suspicious activity reports, and (vi) allows for appropriate regulators to examine its anti-money laundering books and records.
20. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. This Agreement shall be construed as if drafted jointly by both ACA Foreside and the Trust and no presumptions shall arise favoring any party by virtue of authorship of any provision of this Agreement. This Agreement may be executed by the parties hereto in any number of counterparts, and all of the counterparts taken together shall be deemed to constitute one and the same document. Nothing herein contained shall prevent ACA Foreside from entering into similar distribution arrangements or from providing the services contemplated hereunder to other investment companies or investment vehicles. This Agreement has been negotiated and executed by the parties in English. In the event any translation of this Agreement is prepared for convenience or any other purpose, the provisions of the English version shall prevail.
21. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereto, and supersedes all prior communications, understandings and agreements relating to the subject matter hereof, whether oral or written.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date first above written.
| Foreside Fund Services, LLC | |||
| By: | |||
| Name/Title | |||
| Tidal Commodities Trust I | ||
| By: | ||
| Name/title | ||
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Exhibit 10.3
CUSTODY AGREEMENT
THIS AGREEMENT is made and entered into as of the last date written on the signature page below, by and between TIDAL COMMODITY TRUST I, a Delaware statutory trust (the “Trust”), for itself and on behalf of each of its series listed on Exhibit A to this Agreement (as amended from time to time) (each a “Fund” ), [SPONSOR] the sponsor of the Funds (“Sponsor”) and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America (the “Custodian”).
WHEREAS, each Fund is operated as a commodity pool under the Commodity Exchange Act (“CEA”) and is registered with the U.S. Securities and Exchange Commission (“SEC”) by means of a registration statement on Form S-1 or Form S-3, as applicable (each a “Registration Statement”) under the Securities Act of 1933, as amended (“1933 Act”); and
WHEREAS, the Sponsor has exclusive responsibility for the management and control of the business and affairs of the Trust and each Fund; and
WHEREAS, the Trust and Sponsor desire to retain the Custodian to act as custodian of the assets of each Fund, and to provide related services as provided herein, and the Custodian is willing to accept the obligations and duties related to that role; and
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the meanings set forth below unless the context otherwise requires:
1.01 “Authorized Person” means any Officer or person who has been designated as such by written notice and named and delivered to the Custodian by the Trust or Sponsor, or if the Trust or Sponsor has notified the Custodian in writing that it has an authorized investment manager or other agent, delivered to the Custodian by the Sponsor or other agent of the Trust. Such Officer or person shall continue to be an Authorized Person until such time as the Custodian receives Written Instructions from the Trust, or the Sponsor or other agent of the Trust that any such person is no longer an Authorized Person.
1.02 “Book-Entry System” shall mean a federal book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such book-entry regulations of federal agencies as are substantially in the form of such Subpart O.
1.03 “Business Day” shall mean any day recognized as a settlement day by The New York Stock Exchange, Inc. and any other day for which the Trust computes the net asset value of Shares of the Fund.
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1.04 “CFTC” shall mean the Commodity Futures Trading Commission.
1.05 “Foreign Securities” means any of the Trust’s investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Trust’s transactions in such investments.
1.06 “Fund Custody Account” shall mean any of the accounts in the name of the Trust, which is provided for in Section 3.2 below.
1.07 “IRS” shall mean the Internal Revenue Service.
1.08 “FINRA” shall mean the Financial Industry Regulatory Authority, Inc.
1.09 “NFA” shall mean the National Futures Association.
1.10 “Officer” shall mean the Principal Executive Officer, the President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Principal Financial Officer, the Treasurer, or any Assistant Treasurer of the Trust.
1.11 “Securities” shall include, without limitation, common and preferred stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, bankers' acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that the Custodian or its agents have the facilities to clear and service.
1.12 “Securities Depository” shall mean The Depository Trust Company and any other clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which acts as a system for the central handling of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities.
1.13 “Shares” shall mean, with respect to a Fund, the units of beneficial interest issued by the Trust on account of the Fund.
1.14 “Sub-Custodian” shall mean a bank or other financial institution (other than a Securities Depository) having a contract with the Custodian, which the Custodian has determined will provide reasonable care of assets of the Fund based on the standards specified in Section 3.03 below. Such contract shall be in writing and shall include provisions that provide: (i) for indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract; (ii) that the Foreign Securities will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Sub-Custodian or its creditors except a claim of payment for their safe custody or administration, in the case of cash deposits, liens or rights in favor of creditors of the Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that beneficial ownership for the Foreign Securities will be freely transferable without the payment of money or value other than for safe custody or administration; (iv) that adequate records will be maintained identifying the assets as belonging to the Fund or as being held by a third party for the benefit of the Fund; (v) that the Fund’s independent public accountants will be given access to those records or confirmation of the contents of those records; and (vi) that the Fund will receive periodic reports with respect to the safekeeping of the Fund’s assets, including, but not limited to, notification of any transfer to or from a Fund's account or a third party account containing assets held for the benefit of the Fund. Such contract may contain, in lieu of any or all of the provisions specified in (i)-(vi) above, such other provisions that the Custodian determines will provide, in their entirety, the same or a greater level of care and protection for Fund assets as the specified provisions.
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1.15 “Written Instructions” shall mean (i) written communications actually received by the Custodian and signed by an Authorized Person, (ii) communications by facsimile or Internet electronic e-mail or any other such system from one or more persons reasonably believed by the Custodian to be an Authorized Person.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
2.01 Appointment. The Trust and Sponsor hereby appoint the Custodian as custodian of all Securities and cash owned by or in the possession of the Fund at any time during the period of this Agreement, on the terms and conditions set forth in this Agreement, and the Custodian hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of the Custodian shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against the Custodian hereunder.
2.02 Documents to be Furnished. The following documents, including any amendments thereto, will be provided contemporaneously with the execution of the Agreement to the Custodian by the Trust:
| (a) | A copy of the Trust’s declaration of trust, certified by the Secretary; |
| (b) | A copy of the Trust’s bylaws, certified by the Secretary; |
| (c) | A copy of the current prospectuses of the Funds (the “Prospectus”); |
| (d) | A certification of the President and the Secretary of the Trust setting forth the names and signatures of the current Officers of the Trust and other Authorized Persons; and |
2.03 Notice of Appointment of Transfer Agent. The Trust agrees to notify the Custodian in writing of the appointment, termination or change in appointment of any transfer agent of the Fund.
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ARTICLE III.
CUSTODY OF CASH AND SECURITIES
3.01 Segregation. All Securities and non-cash property held by the Custodian for the account of a Fund (other than Securities maintained in a Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of the Custodian (including the Securities and non-cash property of the other series of the Trust, if applicable) and shall be identified as subject to this Agreement.
3.02 Fund Custody Accounts. As to each Fund, the Custodian shall open and maintain in its trust department a custody account in the name of the Trust coupled with the name of the Fund, subject only to draft or order of the Custodian, in which the Custodian shall enter and carry all Securities, cash and other assets of such Fund which are delivered to it.
3.03 Appointment of Agents.
| (a) | In its discretion, the Custodian may appoint one or more Sub-Custodians to establish and maintain arrangements with (i) any Securities Depository or (ii) Sub-Custodian or member of a Sub-Custodian’s network to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine; provided, however, that the appointment of any such agents and maintenance of any Securities and cash of the Fund shall be at the Custodian's expense and shall not relieve the Custodian of any of its obligations or liabilities under this Agreement. The Custodian shall be liable for the actions of any Sub-Custodians (regardless of whether assets are maintained in the custody of a Sub-Custodian or a member of its network) appointed by it as if such actions had been done by the Custodian. |
| (b) | If, after the initial appointment of Sub-Custodians by the Trust, on behalf of its series, in connection with this Agreement, the Custodian wishes to appoint other Sub-Custodians to hold property of the Fund, it will so notify the Trust and make the necessary determinations as to any such new Sub-Custodian's eligibility as a custodian under applicable rules and regulations. |
| (c) | In performing its delegated responsibilities as foreign custody manager to place or maintain the Fund’s assets with a Sub-Custodian, the Custodian will determine that the Fund’s assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Fund’s assets will be held by that Sub-Custodian, after considering all factors relevant to safekeeping of such assets. |
| (d) | At the end of each calendar quarter, the Custodian shall provide written reports notifying the Sponsor and the Trust of the withdrawal or placement of the Securities and cash of the Fund with a Sub-Custodian and of any material changes in the Fund’s arrangements. Such reports shall include an analysis of the custody risks associated with maintaining assets with any Securities Depository. |
| (e) | With respect to its responsibilities under this Section 3.03, the Custodian hereby warrants to the Trust that it agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of property of the Fund. The Custodian further warrants that the Fund's assets will be subject to reasonable care if maintained with a Sub-Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation: (i) the Sub-Custodian's practices, procedures, and internal controls for certificated securities (if applicable), its method of keeping custodial records, and its security and data protection practices; (ii) whether the Sub-Custodian has the requisite financial strength to provide reasonable care for Fund assets; (iii) the Sub-Custodian's general reputation and standing and, in the case of a Securities Depository, the Securities Depository's operating history and number of participants; and (iv) whether the Fund will have jurisdiction over and be able to enforce judgments against the Sub-Custodian, such as by virtue of the existence of any offices of the Sub-Custodian in the United States or the Sub-Custodian's consent to service of process in the United States. |
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| (f) | The Custodian shall establish a system or ensure that its Sub-Custodian has established a system to monitor on a continuing basis (i) the appropriateness of maintaining the Fund’s assets with a Sub-Custodian who is a member of a Sub-Custodian’s network; (ii) the performance of the contract governing the Fund’s arrangements with such Sub-Custodian or members of a Sub-Custodian’s network; and (iii) the custody risks of maintaining assets with a Securities Depository. The Custodian must promptly notify the Fund or Sponsor of any material change in these risks. |
| (g) | The Custodian shall use commercially reasonable efforts to collect all income and other payments with respect to Foreign Securities to which the Fund shall be entitled and shall credit such income, as collected, to the Trust. In the event that extraordinary measures are required to collect such income, the Trust and Custodian shall consult as to the measures and as to the compensation and expenses of the Custodian relating to such measures. |
3.04 Delivery of Assets to Custodian. The Trust or Sponsor shall deliver, or cause to be delivered, to the Custodian all Fund Securities, cash and other investment assets, including (i) all payments of income, payments of principal and capital distributions received by a Fund with respect to such Securities, cash or other assets owned by a Fund at any time during the period of this Agreement, and (ii) all cash received by a Fund for the issuance of Shares. The Custodian shall not be responsible for such Securities, cash or other assets until actually received by it.
3.05 Securities Depositories and Book-Entry Systems. The Custodian may deposit and/or maintain Securities of a Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions:
| (a) | The Custodian, on an on-going basis, shall deposit in a Securities Depository or Book-Entry System all Securities eligible for deposit therein and shall make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. |
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| (b) | Securities of the Funds kept in a Book-Entry System or Securities Depository shall be kept in an account (“Depository Account”) of the Custodian in such Book-Entry System or Securities Depository which includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. |
| (c) | The records of the Custodian with respect to Securities of the Funds maintained in a Book-Entry System or Securities Depository shall, by book-entry, identify such Securities as belonging to the Funds. |
| (d) | If Securities purchased by a Fund are to be held in a Book-Entry System or Securities Depository, the Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by a Fund are held in a Book-Entry System or Securities Depository, the Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. |
| (e) | The Custodian shall provide the Trust with copies of any report (obtained by the Custodian from a Book-Entry System or Securities Depository in which Securities of the Funds are kept) on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. |
| (f) | Notwithstanding anything to the contrary in this Agreement, the Custodian shall be liable to the Trust for any loss or damage to the Fund resulting from (i) the use of a Book-Entry System or Securities Depository by reason of any negligence or willful misconduct on the part of the Custodian or any Sub-Custodian, or (ii) failure of the Custodian or any Sub-Custodian to enforce effectively such rights as it may have against a Book-Entry System or Securities Depository. At its election, the Trust shall be subrogated to the rights of the Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person from any loss or damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. |
| (g) | With respect to its responsibilities under this Section 3.05, the Custodian hereby warrants to the Trust that it agrees to (i) exercise due care in accordance with reasonable commercial standards in discharging its duty as a securities intermediary to obtain and thereafter maintain such assets, (ii) provide, promptly upon request by the Trust or Sponsor, such reports as are available concerning the Custodian’s internal accounting controls and financial strength, and (iii) require any Sub-Custodian to exercise due care in accordance with reasonable commercial standards in discharging its duty as a securities intermediary to obtain and thereafter maintain assets corresponding to the security entitlements of its entitlement holders. |
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3.06 Disbursement of Moneys from Fund Custody Account. Upon receipt of Written Instructions, the Custodian shall disburse moneys from a Fund Custody Account but only in the following cases:
| (a) | For the purchase of Securities for a Fund but only in accordance with Section 4.01 of this Agreement and only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to the Custodian (or any Sub-Custodian) of such Securities registered as provided in Section 3.09 below or in proper form for transfer, or if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.05 above; (ii) in the case of options on Securities, against delivery to the Custodian (or any Sub-Custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to the Custodian (or any Sub-Custodian) of evidence of title thereto in favor of the Fund or any nominee referred to in Section 3.09 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into between the Trust and a bank which is a member of the Federal Reserve System or between the Trust and a primary dealer in U.S. Government securities, against delivery of the purchased Securities either in certificate form or through an entry crediting the Custodian's account at a Book-Entry System or Securities Depository with such Securities; |
| (b) | In connection with the conversion, exchange or surrender, as set forth in Section 3.07(f) below, of Securities owned by the Fund; |
| (c) | For the payment of any dividends or capital gain distributions declared by the Fund; |
| (d) | In payment of the redemption price of Shares as provided in Section 5.01 below; |
| (e) | For the payment of any expense or liability incurred by the Fund, including, but not limited to, the following payments for the account of the Fund: interest; taxes; administration, investment advisory, accounting, auditing, transfer agent, custodian and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; |
| (f) | For transfer in accordance with the provisions of any agreement among the Trust, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with rules of the Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; |
| (g) | For transfer in accordance with the provisions of any agreement among the Trust, the Custodian and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the CFTC and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; |
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| (h) | For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including the Custodian), which deposit or account has a term of one year or less; and |
| (i) | For any other proper purpose, but only upon receipt of Written Instructions, specifying the amount and purpose of such payment, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made. |
3.07 Delivery of Securities from Fund Custody Account. Upon receipt of Written Instructions, the Custodian shall release and deliver, or cause the Sub-Custodian to release and deliver, Securities from a Fund Custody Account but only in the following cases:
| (a) | Upon the sale of Securities for the account of the Fund but only against receipt of payment therefor in cash, by certified or cashiers check or bank credit; |
| (b) | In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.05 above; |
| (c) | To an offeror’s depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; |
| (d) | To the issuer thereof or its agent (i) for transfer into the name of the Fund, the Custodian or any Sub-Custodian, or any nominee or nominees of any of the foregoing, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to the Custodian; |
| (e) | To the broker selling the Securities, for examination in accordance with the “street delivery” custom; |
| (f) | For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
| (g) | Upon receipt of payment therefor pursuant to any repurchase or reverse repurchase agreement entered into by the Fund; |
| (h) | In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
| (i) | For delivery in connection with any loans of Securities of the Fund, but only against receipt of such collateral as the Trust shall have specified to the Custodian in Written Instructions; |
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| (j) | For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Trust, but only against receipt by the Custodian of the amounts borrowed; |
| (k) | Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Trust; |
| (l) | For delivery in accordance with the provisions of any agreement among the Trust, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; |
| (m) | For delivery in accordance with the provisions of any agreement among the Trust, the Custodian and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the CFTC and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; |
| (n) | For any other proper corporate purpose, but only upon receipt of Written Instructions, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such Securities shall be made; or |
| (o) | To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian’s own negligence or willful misconduct. |
3.08 Actions Not Requiring Written Instructions. Unless otherwise instructed by the Trust or Sponsor, the Custodian shall with respect to all Securities held for the Funds:
| (a) | Subject to Section 9.04 below, collect on a timely basis all income and other payments to which a Fund is entitled either by law or pursuant to custom in the securities business; |
| (b) | Present for payment and, subject to Section 9.04 below, collect on a timely basis the amount payable upon all Securities which may mature or be called, redeemed, or retired, or otherwise become payable; |
| (c) | Endorse for collection, in the name of a Fund, checks, drafts and other negotiable instruments; |
| (d) | Surrender interim receipts or Securities in temporary form for Securities in definitive form; |
| (e) | Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the IRS and the Trust at such time, in such manner and containing such information as is prescribed by the IRS; |
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| (f) | Hold for a Fund, either directly or, with respect to Securities held therein, through a Book-Entry System or Securities Depository, all rights and similar Securities issued with respect to Securities of the Fund; and |
| (g) | In general, and except as otherwise directed in Written Instructions, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and other assets of a Fund. |
| (h) | Important information related to ADR’s and Preferential Tax Treatment: With respect to any ADRs you may purchase and own and which the Custodian custodies on your behalf, you understand that the holding of American Depository Receipts (“ADRs”) may require the disclosure of your beneficial ownership information (Name, Address, TIN/SSN, Share amount) by the Custodian to vendors, sub-custodians, or local tax authorities in foreign jurisdictions to avoid tax penalties and obtain for you the most preferential tax treatment. You acknowledge and consent to any and all disclosures or releases of beneficial information, described above, by the Custodian to any third parties relating to ADRs and release, hold harmless, and indemnify the Custodian from any liability for doing so. |
3.09 Registration and Transfer of Securities. All Securities held for the Funds that are issued or issuable only in bearer form shall be held by the Custodian in that form, provided that any such Securities shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Funds may be registered in the name of a Fund, the Custodian, a Sub-Custodian or any nominee thereof, or in the name of a Book-Entry System, Securities Depository or any nominee of either thereof. The records of the Custodian with respect to foreign securities of a Fund that are maintained with a Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers shall identify those securities as belonging to the Fund. The Trust shall furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of any of the nominees referred to above or in the name of a Book-Entry System or Securities Depository, any Securities registered in the name of the Fund.
3.10 Records.
| (a) | The Custodian shall maintain complete and accurate records with respect to Securities, cash or other property held for the Funds, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest receivable; (iii) canceled checks and bank records related thereto; and (iv) all records relating to its activities and obligations under this Agreement. The Custodian shall keep such other books and records of the Fund as the Trust shall reasonably request and as shall reasonably assist the Trust in satisfying relevant rules and regulations of the CFTC, NFA, the 1934 Act or the 1933 Act. |
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| (b) | All such books and records maintained by the Custodian shall (i) be maintained in a form reasonably acceptable to the Trust for compliance with the rules and regulations of the CFTC, NFA and SEC, and (ii) be the property of the Trust and at all times during the regular business hours of the Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Trust and employees or agents of the CFTC, NFA or the SEC, as required by law or as instructed by the Trust. |
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust and Sponsor with a daily activity statement and a summary of all transfers to or from each Fund Custody Account on the day following such transfers. At least monthly, the Custodian shall furnish the Trust and Sponsor with a detailed statement of the Securities and moneys held by the Custodian and the Sub-Custodians for the Fund under this Agreement.
3.12 Other Reports by Custodian. As the Trust may reasonably request from time to time, the Custodian shall provide the Trust with reports on the internal accounting controls and procedures for safeguarding Securities which are employed by the Custodian or any Sub-Custodian.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies relating to Securities which are not registered in the name of a Fund to be promptly executed by the registered holder of such Securities, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Trust such proxies, all proxy soliciting materials and all notices relating to such Securities. With respect to the foreign Securities, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Trust acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Trust to exercise shareholder rights.
3.14 Information on Corporate Actions. The Custodian shall promptly deliver to the Trust all information received by the Custodian and pertaining to Securities being held by the Fund with respect to optional tender or exchange offers, calls for redemption or purchase, or expiration of rights. If the Trust desires to take action with respect to any tender offer, exchange offer or other similar transaction, the Trust shall notify the Custodian at least three Business Days prior to the date on which the Custodian is to take such action. The Trust will provide or cause to be provided to the Custodian all relevant information for any Security which has unique put/option provisions at least three Business Days prior to the beginning date of the tender period.
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ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.01 Purchase of Securities. Promptly upon each purchase of Securities for a Fund, Written Instructions shall be delivered to the Custodian, specifying (i) the name of the issuer or writer of such Securities, and the title or other description thereof, (ii) the number of shares, principal amount (and accrued interest, if any) or other units purchased, (iii) the date of purchase and settlement, (iv) the purchase price per unit, (v) the total amount payable upon such purchase, and (vi) the name of the person to whom such amount is payable. The Custodian shall upon receipt of such Securities purchased by a Fund pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. The Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities for a Fund, if in the Fund Custody Account there is insufficient cash available to the Fund for which such purchase was made.
4.02 Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for the purchase of Securities for a Fund is made by the Custodian in advance of receipt of the Securities purchased and in the absence of specified Written Instructions to so pay in advance, the Custodian shall be liable to the Fund for such payment.
4.03 Sale of Securities. Promptly upon each sale of Securities by a Fund, Written Instructions shall be delivered to the Custodian, specifying (i) the name of the issuer or writer of such Securities, and the title or other description thereof, (ii) the number of shares, principal amount (and accrued interest, if any), or other units sold, (iii) the date of sale and settlement, (iv) the sale price per unit, (v) the total amount payable upon such sale, and (vi) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to a Fund as specified in such Written Instructions, the Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities.
4.04 Delivery of Securities Sold. Notwithstanding Section 4.03 above or any other provision of this Agreement, the Custodian, when instructed to deliver Securities against payment, shall be entitled, if in accordance with generally accepted market practice, to deliver such Securities prior to actual receipt of final payment therefor. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and the Custodian shall have no liability for any for the foregoing.
4.05 Payment for Securities Sold. In its sole discretion and from time to time, the Custodian may credit the Fund Custody Account, prior to actual receipt of final payment thereof, with (i) proceeds from the sale of Securities which it has been instructed to deliver against payment, (ii) proceeds from the redemption of Securities or other assets of the Fund, and (iii) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. The Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Fund Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by the Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Fund Custody Account.
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4.06 Advances by Custodian for Settlement. The Custodian may, in its sole discretion and from time to time, advance funds to the Trust to facilitate the settlement of a Fund's transactions in the Fund Custody Account. Any such advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V.
SALE AND REDEMPTION OF FUND SHARES
5.01 Transfer of Fund Assets. From such funds or other property as may be available for the purpose in the relevant Fund Custody Account, the Custodian shall, upon receipt of Written Instructions specifying that the funds or securities are required to redeem one or more creation units of the Fund, deliver the funds or securities specified in such Written Instructions for payment to or through such bank or broker-dealer as the Written Instructions may designate. The Fund’s transfer agent, as known to the Custodian in pursuant to Section 2.03, shall be an Authorized Person for purposes of this Section 5.01.
5.02 No Duty Regarding Paying Banks. Once the Custodian has wired amounts to a bank or broker-dealer pursuant to Section 5.01 above, the Custodian shall not be under any obligation to effect any further payment or distribution by such bank or broker-dealer.
ARTICLE VI.
SEGREGATED ACCOUNTS
Upon receipt of Written Instructions, the Custodian shall establish and maintain a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account:
| (a) | in accordance with the provisions of any agreement among the Trust, the Sponsor, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; |
| (b) | for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund; |
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| (c) | which constitute collateral for loans of Securities made by the Fund; |
| (d) | for other proper corporate purposes, but only upon receipt of Written Instructions, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. |
Each segregated account established under this Article VI shall be established and maintained for the Fund only. All Written Instructions relating to a segregated account shall specify the Fund.
ARTICLE VII.
COMPENSATION OF CUSTODIAN
7.01 Compensation. The Custodian shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit B hereto (as amended from time to time). The Custodian shall also be compensated for such out-of-pocket expenses (e.g., telecommunication charges, postage and delivery charges, and reproduction charges) as are reasonably incurred by the Custodian in performing its duties hereunder. The Trust shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Trust shall notify the Custodian in writing within 30 calendar days following receipt of each invoice if the Trust is disputing any amounts in good faith. The Trust shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Trust is disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of 1½% per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Trust to the Custodian shall only be paid out of the assets and property of the particular Fund involved.
7.02 Overdrafts. The Trust is responsible for maintaining an appropriate level of short term cash investments to accommodate cash outflows. The Trust may obtain a formal line of credit for potential overdrafts of its custody account. In the event of an overdraft or in the event the line of credit is insufficient to cover an overdraft, the overdraft amount or the overdraft amount that exceeds the line of credit will be charged in accordance with the fee schedule set forth on Exhibit B hereto (as amended from time to time)
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES
8.01 Representations and Warranties of the Trust and Sponsor. The Trust and Sponsor each hereby represents and warrants to the Custodian, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (a) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
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| (b) | This Agreement has been duly authorized, executed and delivered by the Trust and Sponsor in accordance with all requisite action and constitutes a valid and legally binding obligation of the Trust, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and |
| (c) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
8.02 Representations and Warranties of the Custodian. The Custodian hereby represents and warrants to the Trust, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (a) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (b) | This Agreement has been duly authorized, executed and delivered by the Custodian in accordance with all requisite action and constitutes a valid and legally binding obligation of the Custodian, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and |
| (c) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
ARTICLE IX.
CONCERNING THE CUSTODIAN
9.01 Standard of Care. The Custodian shall exercise commercially reasonable efforts of care in the performance of its duties under this Agreement. The Custodian shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with its duties under this Agreement, except a loss arising out of or relating to the Custodian’s (or a Sub-Custodian’s) refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement) or from its (or a Sub-Custodian’s) bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). The Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall promptly notify the Trust and Sponsor of any action taken or omitted by the Custodian pursuant to advice of counsel.
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9.02 Actual Collection Required. The Custodian shall not be liable for, or considered to be the custodian of, any cash belonging to a Fund or any money represented by a check, draft or other instrument for the payment of money, until the Custodian or its agents actually receive such cash or collect on such instrument.
9.03 No Responsibility for Title, etc. So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it pursuant to this Agreement.
9.04 Limitation on Duty to Collect. Custodian shall not be required to enforce collection, by legal means or otherwise, of any money or property due and payable with respect to Securities held for the Fund if such Securities are in default or payment is not made after due demand or presentation.
9.05 Reliance Upon Documents and Instructions. The Custodian shall be entitled to rely upon any certificate, notice or other instrument in writing received by it and reasonably believed by it to be genuine. The Custodian shall be entitled to rely upon any Written Instructions actually received by it pursuant to this Agreement.
9.06 Cooperation. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Trust or Sponsor to keep the books of account of the Funds and/or compute the value of the assets of the Funds. The Custodian shall take all such reasonable actions as the Trust or Sponsor may from time to time request to enable the Trust to obtain, from year to year, favorable opinions from the Trust's independent accountants with respect to the Custodian's activities hereunder in connection with (i) the preparation of the Trust's annual reports and any other reports required by the CFTC, NFA and SEC, and (ii) the fulfillment by the Trust of any other requirements of the CFTC, NFA and SEC.
ARTICLE X.
INDEMNIFICATION
10.01 Indemnification by Trust. The Trust shall indemnify and hold harmless the Custodian, any Sub-Custodian and any nominee thereof (each, an “Indemnified Party” and collectively, the “Indemnified Parties”) from and against any and all claims, demands, losses, expenses and liabilities of any and every nature (including reasonable attorneys' fees) that an Indemnified Party may sustain or incur or that may be asserted against an Indemnified Party by any person arising directly or indirectly (i) from the fact that Securities are registered in the name of any such nominee, (ii) from any action taken or omitted to be taken by the Custodian or such Sub-Custodian (a) at the request or direction of or in reliance on the advice of the Trust or Sponsor, or (b) upon Written Instructions, or (iii) from the performance of its obligations under this Agreement or any sub-custody agreement, provided that neither the Custodian nor any such Sub-Custodian shall be indemnified and held harmless from and against any such claim, demand, loss, expense or liability arising out of or relating to its refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement), or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). This indemnity shall be a continuing obligation of the Trust, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the terms “Custodian” and “Sub-Custodian” shall include their respective directors, officers and employees.
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10.02 Indemnification by Custodian. The Custodian shall indemnify and hold harmless the Trust and Sponsor from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Trust may sustain or incur or that may be asserted against the Trust by any person arising directly or indirectly out of any action taken or omitted to be taken by an Indemnified Party as a result of the Indemnified Party’s refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement), or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). This indemnity shall be a continuing obligation of the Custodian, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Trust” shall include the Trust’s officers and employees and the term “Sponsor” shall include the Sponsor’s officers and employees.
10.03 Security. If the Custodian advances cash or Securities to a Fund for any purpose, either at the Trust's request or as otherwise contemplated in this Agreement, or in the event that the Custodian or its nominee incurs, in connection with its performance under this Agreement, any claim, demand, loss, expense or liability (including reasonable attorneys' fees) (except such as may arise from its or its nominee's bad faith, negligence or willful misconduct), then, in any such event, any property at any time held for the account of a Fund shall be security therefor, and should a Fund fail promptly to repay or indemnify the Custodian, the Custodian shall be entitled to utilize available cash of such Fund and to dispose of other assets of such Fund to the extent necessary to obtain reimbursement or indemnification.
10.04 Miscellaneous.
| (a) | Neither party to this Agreement shall be liable to another party for consequential, special or punitive damages under any provision of this Agreement. |
| (b) | The indemnity provisions of this Article shall indefinitely survive the termination and/or assignment of this Agreement. |
| (c) | In order that the indemnification provisions contained in this Article X shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this Article X. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent. |
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ARTICLE XI.
FORCE MAJEURE
Neither the Custodian, the Sponsor nor the Trust shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; acts of terrorism; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation; provided, however, that in the event of a failure or delay, the Custodian (i) shall not discriminate against a Fund in favor of any other customer of the Custodian in making computer time and personnel available to input or process the transactions contemplated by this Agreement, and (ii) shall use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE XII.
PROPRIETARY AND CONFIDENTIAL INFORMATION
12.01 The Custodian agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Trust and Sponsor, all records and other information relative to the Trust and prior, present, or potential shareholders of the Funds (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except (i) after prior notification to and approval in writing by the Trust or Sponsor, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities although the Custodian will promptly report such disclosure to the Trust and Sponsor if disclosure is permitted by applicable law and regulation, or (iii) when so requested by the Trust or Sponsor. Records and other information which have become known to the public through no wrongful act of the Custodian or any of its employees, agents or representatives, and information that was already in the possession of the Custodian prior to receipt thereof from the Trust, Sponsor or its agent, shall not be subject to this paragraph.
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12.02 Further, the Custodian will adhere to the privacy policies adopted by the Trust pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, the Custodian shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Trust and its shareholders.
12.03 The Trust agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Custodian, all non-public information relative to the Custodian (including, without limitation, information regarding the Custodian’s pricing, products, services, customers, suppliers, financial statements, processes, know-how, trade secrets, market opportunities, past, present or future research, development or business plans, affairs, operations, systems, computer software in source code and object code form, documentation, techniques, procedures, designs, drawings, specifications, schematics, processes and/or intellectual property), and not to use such information for any purpose other than in connection with the services provided under this Agreement, except (i) after prior notification to and approval in writing by the Custodian, which approval shall not be unreasonably withheld and may not be withheld where the Trust may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Custodian. Information which has become known to the public through no wrongful act of the Trust or any of its employees, agents or representatives, and information that was already in the possession of the Trust prior to receipt thereof from the Custodian, shall not be subject to this paragraph.
12.04 Notwithstanding anything herein to the contrary, (i) the Trust shall be permitted to disclose the identity of the Custodian as a service provider, redacted copies of this Agreement, and such other information as may be required in the Trust’s registration or offering documents, or as may otherwise be required by applicable law, rule, or regulation, and (ii) the Custodian shall be permitted to include the name of the Trust in lists of representative clients in due diligence questionnaires, RFP responses, presentations, and other marketing and promotional purposes.
ARTICLE XIII.
EFFECTIVE PERIOD; TERMINATION
13.01 Effective Period. This Agreement shall become effective as of the date first written above and will continue in effect for a period of three (3) years.
13.02 Termination.
| (a) | Following the initial term, this Agreement shall automatically renew for successive one (1) year terms unless either party provides written notice at least 90 days prior to the end of the then current term that it will not be renewing the Agreement. |
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| (b) | Subject to Section 13.03, this Agreement may be terminated by either party (in whole or with respect to one or more Funds) upon giving 90 days’ prior written notice to the other party or such shorter notice period as is mutually agreed upon by the parties. |
| (c) | The Custodian may terminate this Agreement immediately (in whole or with respect to one or more Funds) if the continued service of such Funds or the Trust would cause the Custodian or any of its affiliates to be in violation of any applicable law, rule, regulation, or order of any governmental, regulatory or judicial authority of competent jurisdiction, provided that in such event the Custodian shall, to the extent it is legally permitted and able to do so, provide reasonable assistance to transition such Funds or the Trust to a successor service provider. |
| (d) | This Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within 15 days of notice of such breach to the breaching party. |
| (e) | The Trust may, at any time, immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by regulatory authorities or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. |
13.01 Early Termination. In the absence of any material breach of this agreement, should the Trust elect to terminate this Agreement (in whole or with respect to one or more Funds) prior to the end of the then current term, the Trust agrees to pay the following fees:
a) All monthly fees through the life of the Agreement, including the repayment of any negotiated discounts (provided that no such fees shall be paid with respect to any Fund following the liquidation of such Fund);
b) All miscellaneous fees associated with converting services to a successor service provider;
c) All fees associated with any record retention and/or tax reporting obligations that may not be eliminated due to the conversion to a successor service provider;
d) All miscellaneous costs associated with a) through c) above.
13.02 Appointment of Successor Custodian. If a successor custodian shall have been appointed by the Sponsor, the Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on such specified date of termination (i) deliver directly to the successor custodian all Securities (other than Securities held in a Book-Entry System or Securities Depository) and cash then owned by the Fund and held by the Custodian as custodian, and (ii) transfer any Securities held in a Book-Entry System or Securities Depository to an account of or for the benefit of the Fund at the successor custodian, provided that the Trust or Sponsor shall have paid to the Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. In addition, the Custodian shall, at the expense of the Trust, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by the Custodian under this Agreement in a form reasonably acceptable to the Trust (if such form differs from the form in which the Custodian has maintained the same, the Trust shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from the Custodian’s personnel in the establishment of books, records, and other data by such successor. Upon such delivery and transfer, the Custodian shall be relieved of all obligations under this Agreement.
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13.03 Failure to Appoint Successor Custodian. If a successor custodian is not designated by the Trust on or before the date of termination of this Agreement, then the Custodian shall have the right to deliver to a bank or trust company of its own selection cash and other property held by Custodian under this Agreement and to transfer to an account of or for the Fund at such bank or trust company all Securities of the Funds held in a Book-Entry System or Securities Depository. Upon such delivery and transfer, such bank or trust company shall be the successor custodian under this Agreement and the Custodian shall be relieved of all obligations under this Agreement. In addition, under these circumstances, all books, records and other data of the Trust shall be returned to the Trust.
ARTICLE XIV.
CLASS ACTIONS
The Custodian shall use its best efforts to identify and file claims for the Fund(s) involving any class action litigation that impacts any security the Fund(s) may have held during the class period. The Trust agrees that the Custodian may file such claims on its behalf and understands that it may be waiving and/or releasing certain rights to make claims or otherwise pursue class action defendants who settle their claims. Further, the Trust acknowledges that there is no guarantee these claims will result in any payment or partial payment of potential class action proceeds and that the timing of such payment, if any, is uncertain.
However, the Trust or Sponsor may instruct the Custodian to distribute class action notices and other relevant documentation to the Fund(s) or its designee and, if it so elects, will relieve the Custodian from any and all liability and responsibility for filing class action claims on behalf of the Fund(s).
In the event the Fund(s) are closed, the Custodian shall only file the class action claims upon written instructions by an authorized representative of the closed Fund(s). Any expenses associated with such filing will be assessed against the proceeds received of any class action settlement.
ARTICLE XV.
MISCELLANEOUS
15.01 Compliance with Laws. The Trust and Sponsor have and retain primary responsibility for all compliance matters relating to the Fund, including but not limited to compliance with the 1933 Act, the CEA, the Internal Revenue Code of 1986, the Sarbanes-Oxley Act of 2002, the USA Patriot Act of 2001 and the policies and limitations of the Fund relating to its portfolio investments as set forth in its Prospectus and statement of additional information. The Custodian’s services hereunder shall not relieve the Trust of its responsibilities for assuring such compliance or the Sponsor’s oversight responsibility with respect thereto.
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15.02 Amendment. This Agreement may not be amended or modified in any manner except by written agreement executed by the Custodian, Trust and Sponsor.
15.03 Assignment. This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Trust without the written consent of the Custodian, or by the Custodian without the written consent of the Trust accompanied by the authorization or approval of the Sponsor.
15.04 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Minnesota, or any of the provisions herein, conflict with the applicable provisions of the CEA or 1933 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the CEA, 1933 Act or any rule or order of the CFTC, NFA or SEC thereunder.
15.05 No Agency Relationship. Nothing herein contained shall be deemed to authorize or empower either party to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement.
15.06 Services Not Exclusive. Nothing in this Agreement shall limit or restrict the Custodian from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
15.07 Invalidity. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
15.08 Notices. Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
Notice to the Custodian shall be sent to:
U.S. Bank
U.S. Bank Tower
425 Walnut Street, Cincinnati,
OH 45202 | CN-OH-W6TC
Attn: Global Fund Custody Support Services
Phone: 513.632.2443
Fax: 844.206.1025
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and notice to the Trust or Sponsor shall be sent to:
[Trust to confirm]
15.09 Multiple Originals. This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed an original, but such counterparts shall together constitute but one and the same instrument.
15.10 No Waiver. No failure by either party hereto to exercise, and no delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity.
15.11 References to Custodian. The Trust or Sponsor shall not circulate any printed matter which contains any reference to Custodian without the prior written approval of Custodian, excepting printed matter contained in the Prospectus or statement of additional information for a Fund and such other printed matter as merely identifies Custodian as custodian for a Fund. The Trust or Sponsor shall submit printed matter requiring approval to Custodian in draft form, allowing sufficient time for review by Custodian and its counsel prior to any deadline for printing.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date last written below.
TIDAL COMMODITY TRUST I
By:________________________________
Name:_____________________________
Title:______________________________
Date:______________________________
[SPONSOR]
By:________________________________
Name: ____________________________
Title: ______________________________
Date:______________________________
U.S. BANK NATIONAL ASSOCIATION
By:________________________________
Name: _____________________________
Title: Senior Vice President
Date:______________________________
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EXHIBIT A
to the Custody Agreement
Separate Series of Trust
| Name of Series | |
| Hashdex Bitcoin Futures ETF |
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EXHIBIT B
to the Custody Agreement
Fee Schedule
Base Fee for Custody Services
The following reflects the greater of the basis point fee or annual minimum where Adviser acts as investment adviser to the fund(s) in the same registered investment company.
| Annual Minimum per Fund¹ | Basis Points on Trust AUM¹ |
| $ 3,000 for Funds 1-5 | 0.75 on the first $ 1.0 billion |
| $ 2,000 for Funds 6+ | 0.50 on the balance |
¹ Subject to annual CPI increase - All Urban Consumers - U.S. City Average index, provided that the CPI adjustment will not decrease the base fees (even if the cumulative CPI rate at any point in time is negative).
See APPENDIX C for Services and Associated Fees in addition to Base Fee
See Global Sub-Custodial Services & Safekeeping Services in addition to the Base Fee
Once a Fund is operational, should this service agreement with U.S. Bank be terminated prior to the end of the initial two year period, Adviser will be responsible for the balance of the minimum fees for the remainder of the service agreement's 12-month period beginning with the Fund's launch or any anniversary of launch. To avoid doubt, if "the Adviser" launched a Fund on March 1, 2020 and terminated the relationship on June 30, 2021, Adviser would owe U.S. Bank up to 50% of $ 48,000 ($ 45,000 admin/acct/ta + $ 3,000 Custody).
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
Fees are calculated pro rata and billed monthly
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APPENDIX C - Custody Services in addition to the Base Fee
Portfolio Transaction Fees²
| ■ | $ 4.00 - Book entry DTC transaction, Federal Reserve transaction, principal paydown |
| ■ | $ 7.00 - Repurchase agreement, reverse repurchase agreement, time deposit/CD or other non-depository transaction |
| ■ | $ 8.00 - Option/SWAPS/future contract written, exercised or expired |
| ■ | $ 15.00 - Mutual fund trade, Margin Variation Wire and outbound Fed wire |
| ■ | $ 50.00 - Physical security transaction |
| ■ | $ 5.00 - Check disbursement (waived if U.S. Bank is Administrator) |
A transaction is a purchase/sale of a security, free receipt/free delivery, maturity, tender or exchange.
Miscellaneous Expenses
All other miscellaneous fees and expenses, including but not limited to the following, will be separately billed as incurred: expenses incurred in the safekeeping, delivery and receipt of securities, shipping, transfer fees, deposit withdrawals at custodian (DWAC) fees, SWIFT charges, negative interest charges and extraordinary expenses based upon complexity
Additional Services
| ■ | Additional fees apply for global servicing. Fund of Fund expenses quoted separately. |
| ■ | $ 600 per custody sub - account per year (e.g., per sub -adviser, segregated account, etc.) |
| ■ | Class Action Services - $ 25 filing fee per class action per account, plus 3% of gross proceeds, up to a maximum per recovery not to exceed $ 3,000. |
| ■ | No charge for the initial conversion free receipt. |
| ■ | Overdrafts - Charged to the account at prime interest rate plus 2%, unless a line of credit is in place. |
| ■ | Additional fees will apply - Third Party lending |
Fees are calculated pro rata and billed monthly
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
² "Sponsor trades" are defined as any trades put through the Portfolio, on behalf of the Fund by any portfolio manager/sub advisor and their affiliates authorized by the BOT to act on behalf of the Fund, outside of the create/redeem process. Cash-in-Lieu proceeds received as part of the create/redeem process, and their related transactions are not considered to be "Sponsor trades".
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Additional Global Sub-Custodial Services Annual Fee Schedule
| Country | Safekeeping
(BPS) |
Transaction Fee | Country | Safekeeping
(BPS) |
Transaction Fee | Country | Safekeeping
(BPS) |
Transaction Fee | ||
| Argentina | 18.00 | $30 | Hungary | 18.00 | $55 | Portugal | 3.00 | $10 | ||
| Australia | 1.50 | $15 | Iceland | 15.00 | $48 | Qatar | 38.00 | $115 | ||
| Austria | 1.70 | $12 | India | 7.00 | $40 | Romania | 30.00 | $85 | ||
| Bahrain | 42.00 | $115 | Indonesia | 6.00 | $52 | Russia | 12.00 | $175 | ||
| Bangladesh | 18.00 | $110 | Ireland | 1.00 | $3 | Saudi Arabia | 30.00 | $75 | ||
| Belgium | 1.00 | $8 | Israel | 10.00 | $26 | Serbia | 60.00 | $165 | ||
| Bermuda | 15.00 | $55 | Italy | 1.00 | $10 | Singapore | 1.35 | $22 | ||
| Botswana | 24.00 | $45 | Japan | 1.00 | $6 | Slovakia | 20.00 | $90 | ||
| Brazil | 7.00 | $15 | Jordan | 40.00 | $125 | Slovenia | 20.00 | $90 | ||
| Bulgaria | 24.00 | $68 | Kenya | 28.00 | $42 | South Africa | 1.75 | $12 | ||
| Canada | 1.20 | $6 | Kuwait | 38.00 | $110 | South Korea | 3.00 | $12 | ||
| Chile | 13.00 | $40 | Latvia | 15.00 | $65 | Spain | 1.00 | $10 | ||
| China Connect | 18.00 | $20 | Lithuania | 15.00 | $45 | Sri Lanka | 11.00 | $70 | ||
| China (B Shares) | 10.00 | $42 | Luxembourg | 1.25 | $20 | Sweden | 1.25 | $10 | ||
| Colombia | 30.00 | $50 | Malaysia | 3.00 | $35 | Switzerland | 1.25 | $12 | ||
| Costa Rica | 15.00 | $55 | Malta | 20.00 | $65 | Tanzania | 45.00 | $150 | ||
| Croatia | 18.00 | $55 | Mauritius | 28.00 | $90 | Taiwan | 8.00 | $43 | ||
| Cyprus | 4.00 | $20 | Mexico | 2.50 | $12 | Thailand | 3.00 | $25 | ||
| Czech Republic | 12.00 | $25 | Morocco | 28.00 | $68 | Tunisia | 38.00 | $42 | ||
| Denmark | 1.25 | $10 | Namibia | 30.00 | $45 | Turkey | 9.00 | $12 | ||
| Egypt | 18.00 | $50 | Netherlands | 1.25 | $8 | UAE | 35.00 | $105 | ||
| Estonia | 6.00 | $25 | New Zealand | 1.50 | $22 | Uganda | 40.00 | $90 | ||
| Euroclear (Eurobonds) | 1.00 | $10 | Nigeria | 28.00 | $38 | Ukraine | 30.00 | $50 | ||
| Euroclear (Non‑Eurobonds) | Rates are available upon request | Rates are available upon request | Norway | 1.25 | $10 | United Kingdom | 1.00 | $3 | ||
| Finland | 1.50 | $10 | Oman | 42.00 | $100 | Uruguay | 45.00 | $55 | ||
| France | 1.00 | $8 | Pakistan | 24.00 | $75 | Vietnam | 20.00 | $80 | ||
| Germany | 1.00 | $8 | Panama | 65.00 | $98 | West African Economic Monetary Union (WAEMU)** | 38.00 | $130 | ||
| Ghana | 25.00 | $40 | Peru | 30.00 | $60 | Zambia | 28.00 | $45 | ||
| Greece | 4.00 | $20 | Philippines | 3.50 | $38 | Zimbabwe | 28.00 | $45 | ||
| Hong Kong | 1.75 | $18 | Poland | 8.00 | $25 |
*Transaction Fee includes: Receive Versus Payment (RVP), Delivery Versus Payment (DVP), FREE REC, and FREE DEL activity related to securities settlement within U.S. Bank sub-custodian network. **Includes Ivory Coast, Mali, Niger, Burkina Faso, Senegal, Guinea Bissau, Togo and Benin.
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Global Custody Base Fee
$ 500 monthly base fee of per fund will apply. If no global assets are held within a given month, the monthly base charge will not apply for that month. "Safekeeping and transaction fees are assessed on security and currency transactions."
Plus: Global Custody Transaction Fees¹
Global Custody transaction fees associate with Sponsor Trades². (See schedule above)
| ■ | A transaction is defined as any purchase/sale, free receipt / free delivery, maturity, tender or exchange of a security. |
Global Safekeeping and Transaction Fees
(See schedule above)
Global Custody Tax Services:
| ■ | $ 500 per annum - Global Filing |
| ■ | $ 250 per annum - U.S. Domestic Filing (Only ADRs) |
| ■ | Any client who does not elect for tax services (and does them themselves, would be charged an out of pocket expense per the normal process). |
Miscellaneous Expenses
| ■ | Charges incurred by U.S. Bank, N.A. directly or through sub-custodians for account opening fees, tax reclaim fees, local taxes, stamp duties or other local duties and assessments, stock exchange fees, central securities depository fees, securities market regulator fees, foreign exchange transactions, postage and insurance for shipping, facsimile reporting, extraordinary telecommunications fees, SWIFT reporting and message fees, proxy services and other shareholder communications, recurring administration fees, negative interest charges, overdraft charges or other expenses which are unique to a country in which the client or its clients is investing will be passed along as incurred. |
| ■ | The client may also may be charged certain expenses listed herein to cover handling, servicing and other administrative costs associated with the activities giving rise to such expenses. Also, certain expenses are charged at a predetermined flat rate. |
Fees are calculated pro rata and billed monthly
¹"Sponsor trades" are defined as any trades put through the Portfolio, on behalf of the Fund by any portfolio manager/sub advisor and their affiliates authorized by the BOT to act on behalf of the Fund, outside of the create/redeem process. Cash-in-Lieu proceeds received as part of the create/redeem process, and their related transactions are not considered to be "Sponsor trades".
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SHAREHOLDER COMMUNICATIONS ACT AUTHORIZATION
TIDAL COMMODITY TRUST I
The Shareholder Communications Act of 1985 requires banks and trust companies to make an effort to permit direct communication between a company which issues securities and the shareholder who votes those securities.
Unless you specifically require us to NOT release your name and address to requesting companies, we are required by law to disclose your name and address.
Your “yes” or “no” to disclosure will apply to all U.S. securities Custodian holds for you now and in the future, unless you change your mind and notify us in writing. A “no” election may prevent Custodian from obtaining, on your behalf, the most favorable tax rate for American Depository Receipts (ADRs) held in your account.
| ______ YES | U.S. Bank is authorized to provide the Trust’s name, address and security position to requesting companies whose stock is owned by the Trust. | |
| ______ NO | U.S. Bank is NOT authorized to provide the Trust’s name, address and security position to requesting companies whose stock is owned by the Trust. |
TIDAL COMMODITY TRUST I
By: __________________________________
Title: ________________________________
Date: ________________________________
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Exhibit 10.4
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the last date written on the signature page below, by and between U.S. BANCORP FUND SERVICES, LLC dba U.S. Bank Global Trust Services, a Wisconsin limited liability company (“USBFS”), TIDAL COMMODITY TRUST I, a Delaware statutory trust (the “Trust”) for itself and on behalf of each of its series listed on Exhibit A to this Agreement (as amended from time to time) (each a “Fund” ) and [SPONSOR] , the sponsor of the Trust (the “Sponsor”).
WHEREAS, the Sponsor has exclusive responsibility for the management and control of the business and affairs of the Trust and each Fund; and
WHEREAS, each Fund is operated as a commodity pool under the Commodity Exchange Act and is registered with the U.S. Securities and Exchange Commission (“SEC”) by means of a registration statement on Form S-1 or Form S-3, as applicable (each a “Registration Statement”) under the Securities Act of 1933, as amended (“1933 Act”); and
WHEREAS, the Trust and Sponsor desire to retain USBFS to provide to the each Fund the fund accounting services described herein, all as more fully set below.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Appointment of USBFS as Trust Accountant
The Trust and Sponsor hereby appoint USBFS as fund accountant of the Trust for the term of this Agreement to perform the services and duties described herein. USBFS hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of USBFS shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against USBFS hereunder.
2. Services and Duties of USBFS
USBFS shall provide the following accounting services to the Trust:
| A. | Portfolio Accounting Services: |
| (1) | Maintain portfolio records on a trade date+1 basis using security trade information communicated from the Fund’s Sponsor. |
| (2) | For each valuation date, obtain prices from a pricing source approved by the Sponsor of the Trust and apply those prices to the portfolio positions. For those securities where market quotations are not readily available, the Sponsor shall approve, in good faith, procedures for determining the fair value for such securities. |
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| (3) | Identify interest and dividend accrual balances as of each valuation date and calculate gross earnings on investments for each accounting period. |
| (4) | Determine gain/loss on security sales and identify them as short-term or long-term; account for periodic distributions of gains or losses to shareholders and maintain undistributed gain or loss balances as of each valuation date. |
| (5) | On a daily basis, reconcile portfolio holdings and cash of the Trust with the Fund’s custodian and/or prime brokerage account(s). |
| (6) | Transmit a copy of the portfolio valuation to the Fund’s Sponsor daily. |
| (7) | Review the impact of current day’s activity on a per share basis, and review changes in market value. |
| B. | Expense Accrual and Payment Services: |
| (1) | For each valuation date, calculate the expense accrual amounts as directed by the Trust as to methodology, rate or dollar amount. |
| (2) | Process and record payments for Trust expenses upon receipt of written authorization from the Trust. |
| (3) | Account for Trust expenditures and maintain expense accrual balances at the level of accounting detail, as agreed upon by USBFS and the Trust. |
| (4) | Provide expense accrual and payment reporting. |
| C. | Trust Valuation and Financial Reporting Services: |
| (1) | Account for Trust creation and redemption activity and other Trust share activity as reported by the Fund’s transfer agent on a timely basis. |
| (2) | Determine net investment income (earnings) for the Trust as of each valuation date. Account for periodic distributions of earnings to shareholders and maintain undistributed net investment income balances as of each valuation date. |
| (3) | Maintain a general ledger and other accounts, books, and financial records for the Trust in the form as agreed upon. |
| (4) | Determine the net asset value of the Trust according to the accounting policies and procedures set forth in the Fund's current prospectus. |
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| (5) | Calculate per share net asset value, per share net earnings, and other per share amounts reflective of Trust operations at such time as required by the nature and characteristics of the Trust. |
| (6) | Communicate to the Trust, at an agreed upon time, the per share net asset value for each valuation date. |
| (7) | Prepare monthly reports that document the adequacy of accounting detail to support month-end ledger balances. |
| (8) | Provide the daily net asset value per share (“NAV”) and holdings data to third-party reporting agencies as determined by the Trust and Sponsor. |
| (9) | Create and transmit NAV. |
| D. | Tax Accounting Services: |
| (1) | Maintain accounting records for the investment portfolio of the Trust to support the tax reporting required under the Internal Revenue Code of 1986, as amended (the “Code”), as applicable. |
| (2) | Maintain tax lot detail for the Funds’ investment portfolio. |
| (3) | Calculate taxable gain/loss on security sales using the tax lot relief method designated by the Trust. |
| (4) | Provide the necessary financial information to calculate the taxable components of income and capital gains distributions to support tax reporting to the shareholders. |
| E. | Compliance Control Services: |
| (1) | Support reporting to regulatory bodies and support financial statement preparation by making the Fund's accounting records available to the Trust, Sponsor, the U.S. Securities and Exchange Commission (the “SEC”), National Futures Association (the “NFA”), the Commodity Futures Trading Commission (the “CFTC”) and other applicable regulatory bodies and the independent accountants. |
| (2) | Perform its duties hereunder in compliance with all applicable laws and regulations and provide any sub-certifications reasonably requested by the Trust and Sponsor in connection with any certification required of the Trust pursuant to the Sarbanes-Oxley Act of 2002 (the “SOX Act”) or any rules or regulations promulgated by the SEC thereunder, provided the same shall not be deemed to change Trust Services’ standard of care as set forth herein. |
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| (3) | Cooperate with the Trust’s independent accountants and take all reasonable action in the performance of its obligations under this Agreement to ensure that the necessary information is made available to such accountants for the expression of their opinion on the Fund’s financial statements without any qualification as to the scope of their examination. |
| 3. | License of Data; Warranty; Termination of Rights |
| A. | The valuation information and evaluations being provided to the Trust and Sponsor by USBFS pursuant hereto (collectively, the “Data”) are being licensed, not sold, to the Trust and Sponsor. The Trust and Sponsor have a limited license to use the Data only for purposes necessary to valuing the Trust’s assets and reporting to regulatory bodies (the “License”). The Trust and Sponsor do not have any license nor right to use the Data for purposes beyond the intentions of this Agreement including, but not limited to, resale to other users or use to create any type of historical database. The License is non-transferable and not sub-licensable. The Trust’s and Sponsor’s right to use the Data cannot be passed to or shared with any other entity. |
The Trust and Sponsor acknowledge the proprietary rights that USBFS and its suppliers have in the Data.
| B. | THE TRUST AND SPONSOR HEREBY ACCEPT THE DATA AS IS, WHERE IS, WITH NO WARRANTIES, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR ANY OTHER MATTER. |
| C. | USBFS may stop supplying some or all Data to the Trust and Sponsor if Trust Services’ suppliers terminate any agreement to provide Data to USBFS. Also, USBFS may stop supplying some or all Data to the Trust and Sponsor if USBFS reasonably believes that the Trust and Sponsor are using the Data in violation of the License, or breaching their duties of confidentiality provided for hereunder, or if any of Trust Services’ suppliers demand that the Data be withheld from the Trust and Sponsor. USBFS will provide notice to the Trust and Sponsor of any termination of provision of Data as soon as reasonably possible. |
| 4. | Pricing of Securities |
| A. | For each valuation date, USBFS shall obtain prices from a pricing source recommended by USBFS and approved by the Sponsor and apply those prices to the portfolio positions of the Trust. For those securities where market quotations are not readily available, the Sponsor shall approve, in good faith, procedures for determining the fair value for such securities. |
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If the Trust and Sponsor desire to provide a price that varies from the price provided by the pricing source, the Trust and Sponsor shall promptly notify and supply USBFS with the price of any such security on each valuation date. All pricing changes made by the Trust or Sponsor will be in writing and must specifically identify the securities to be changed by CUSIP, name of security, new price or rate to be applied, and, if applicable, the time period for which the new price(s) is/are effective.
| B. | In the event that the Trust and Sponsor at any time receive Data containing evaluations, rather than market quotations, for certain
securities or certain other data related to such securities, the following provisions will apply: (i) evaluated securities are typically
complicated financial instruments. There are many methodologies (including computer-based analytical modeling and individual security
evaluations) available to generate approximations of the market value of such securities, and there is significant professional disagreement
about which method is best. No evaluation method, including those used by USBFS and its suppliers, may consistently generate approximations
that correspond to actual “traded” prices of the securities; (ii) methodologies used to provide the pricing portion of certain
Data may rely on evaluations; however, the Trust and Sponsor acknowledge that there may be errors or defects in the software, databases,
or methodologies generating the evaluations that may cause resultant evaluations to be inappropriate for use in certain applications;
and (iii) the Trust and Sponsor assume all responsibility for edit checking, external verification of evaluations, and ultimately the
appropriateness of using Data containing evaluations, regardless of any efforts made by USBFS and its suppliers in this respect. |
| C. | USBFS shall not have any obligation to verify the accuracy or appropriateness of any prices, evaluations, market quotations, or other data or pricing related inputs received from the Trust, the Trust, any of their affiliates, or any third party source. Notwithstanding anything else in this Agreement to the contrary, USBFS and its affiliates shall not be responsible or liable for any mistakes, errors, or mispricing, or any losses related thereto, resulting from any inaccurate, inappropriate, or fraudulent prices, evaluations, market quotations, or other data or pricing related inputs received from the Trust, the Trust, any of their affiliates, or any third party source. |
| 5. | Changes in Accounting Procedures |
Any action by the Sponsor that affects accounting practices and procedures of the Trust under this Agreement shall be effective upon written receipt of notice and acceptance by USBFS.
| 6. | Changes in Equipment, Systems, Etc. |
USBFS reserves the right to make changes from time to time, as it deems advisable, relating to its systems, programs, rules, operating schedules and equipment, so long as such changes do not adversely affect the services provided to the Trust and Sponsor under this Agreement.
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| 7. | Compensation |
USBFS shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit B hereto (as amended from time to time). USBFS shall also be compensated for such miscelaneous expenses (e.g., telecommunication charges, postage and delivery charges, and reproduction charges) as are reasonably incurred by USBFS in performing its duties hereunder. The Trust shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the monthly billing notice, except for any fee or expense subject to a good faith dispute. The Trust shall notify USBFS in writing within 30 calendar days following receipt of each invoice if the Trust is disputing any amounts in good faith. The Trust shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Trust is disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of 1½% per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Trust to USBFS shall only be paid out of the assets and property of the particular Trust involved.
| 8. | Representations and Warranties |
A. The Trust and Sponsor each hereby represents and warrants to USBFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
(1) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;
(2) This Agreement has been duly authorized, executed and delivered by the Trust or Sponsor, as applicable, in accordance with all requisite action and constitutes a valid and legally binding obligation of the Trust or Sponsor, as applicable, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties;
(3) It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.
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(4)
A registration statement under the Securities Act of 1933, as amended, will be made effective prior to the effective date of this
Agreement and will remain effective during the term of this Agreement, and appropriate state securities law filings will be made prior
to the effective date of this Agreement and will continue to be made during the term of this Agreement as necessary to enable the Trust
to make a continuous public offering of its shares; and
(5) All records of the Trust provided to USBGFS by the Trust or by a prior service provider of the Trust are accurate and complete and USBGFS is entitled to rely on all such records in the form provided.
| B. | USBFS hereby represents and warrants to the Trust and Sponsor, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
(1) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;
(2) This Agreement has been duly authorized, executed and delivered by USBFS in accordance with all requisite action and constitutes a valid and legally binding obligation of USBFS, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and
(3) It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.
| 9. | Standard of Care; Indemnification; Limitation of Liability |
| A. | USBFS shall exercise reasonable care in the performance of its duties under this Agreement. Neither USBFS nor any of its affiliates or suppliers shall be liable for any error of judgment; mistake of law; fraud or misconduct by the Trust, any Trust, the adviser or any other service provider to the Trust or a Trust, or any employee of the foregoing; or for any loss suffered by the Trust, a Trust, or any third party in connection with Trust Services’ duties under this Agreement, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond Trust Services’ reasonable control, except a loss arising out of or relating to Trust Services’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if USBFS has exercised reasonable care in the performance of its duties under this Agreement, the Trust shall indemnify and hold harmless USBFS and its affiliates and suppliers from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that USBFS or its affiliates and suppliers may sustain or incur or that may be asserted against USBFS or its affiliates and suppliers by any person arising out of or related to (X) any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to USBFS by any duly authorized officer of the Trust, as approved by the Board of Trustees of the Trust, or (Y) the Data, or any information, service, report, analysis or publication derived therefrom, except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to Trust Services’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Trust, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “USBFS” shall include Trust Services’ directors, officers and employees. |
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The Trust acknowledges that the Data are intended for use as an aid to institutional investors, registered brokers or professionals of similar sophistication in making informed judgments concerning securities. The Trust accepts responsibility for, and acknowledges it exercises its own independent judgment in, its selection of the Data, its selection of the use or intended use of such, and any results obtained. Nothing contained herein shall be deemed to be a waiver of any rights existing under applicable law for the protection of investors.
USBFS shall indemnify and hold the Trust harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys' fees) that the Trust may sustain or incur or that may be asserted against the Trust by any person arising out of any action taken or omitted to be taken by USBFS as a result of Trust Services’ refusal or failure to comply with the terms of this Agreement, or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of USBFS, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Trust” shall include the Trust’s trustees, officers and employees.
In the event of a mechanical breakdown or power supplies beyond its control, USBFS shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. USBFS will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of USBFS. USBFS agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Trust shall be entitled to inspect Trust Services’ premises and operating capabilities at any time during regular business hours of USBFS, upon reasonable notice to USBFS. Moreover, USBFS shall provide the Trust, at such times as the Trust may reasonably require, copies of reports rendered by independent accountants on the internal controls and procedures of USBFS relating to the services provided by USBFS under this Agreement.
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Notwithstanding the above, USBFS reserves the right to reprocess and correct administrative errors at its own expense.
In no case shall any party be liable to another for (i) any special, indirect or consequential damages, loss of profits or goodwill (even if advised of the possibility of such); (ii) any delay by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots, or failure beyond its control of transportation or power supply; or (iii) any claim that arose more than one year prior to the institution of suit therefor.
| B. | In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent. |
| C. | The indemnity and defense provisions set forth in this Section 9 shall indefinitely survive the termination and/or assignment of this Agreement. |
| D. | If USBFS is acting in another capacity for the Trust pursuant to a separate agreement, nothing herein shall be deemed to relieve USBFS of any of its obligations in such other capacity. |
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| 10. | Notification of Error |
The Trust and/or Sponsor will notify USBFS of any discrepancy between USBFS and the Trust, including, but not limited to, failing to account for a security position in the Fund’s portfolio, upon the later to occur of: (i) three business days after receipt of any reports rendered by USBFS to the Trust; (ii) three business days after discovery of any error or omission not covered in the balancing or control procedure; or (iii) three business days after receiving notice from any shareholder regarding any such discrepancy.
| 11. | Data Necessary to Perform Services |
The Trust or its agent shall furnish to USBFS the data necessary to perform the services described herein at such times and in such form as mutually agreed upon.
| 12. | Proprietary and Confidential Information |
| A. | USBFS agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present, or potential shareholders of the Trust (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except (i) after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where USBFS may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Trust. Records and other information which have become known to the public through no wrongful act of USBFS or any of its employees, agents or representatives, and information that was already in the possession of USBFS prior to receipt thereof from the Trust or its agent, shall not be subject to this paragraph. |
Further, USBFS will adhere to the privacy policies adopted
by the Trust pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, USBFS shall have
in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and
integrity of, and to prevent unauthorized access to or use of, records and information relating to the Trust and its shareholders.
| B. | The Trust agrees on behalf of itself and its trustees, officers, and employees to treat confidentially and as proprietary information of USBFS, all non-public information relative to USBFS (including, without limitation, the Data and information regarding Trust Services’ pricing, products, services, customers, suppliers, financial statements, processes, know-how, trade secrets, market opportunities, past, present or future research, development or business plans, affairs, operations, systems, computer software in source code and object code form, documentation, techniques, procedures, designs, drawings, specifications, schematics, processes and/or intellectual property), and not to use such information for any purpose other than in connection with the services provided under this Agreement, except (i) after prior notification to and approval in writing by USBFS, which approval shall not be unreasonably withheld and may not be withheld where the Trust may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the USBFS. Information which has become known to the public through no wrongful act of the Trust or any of its employees, agents or representatives, and information that was already in the possession of the Trust prior to receipt thereof from USBFS, shall not be subject to this paragraph. |
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| C. | Notwithstanding anything herein to the contrary, (i) the Trust shall be permitted to disclose the identity of USBFS as a service provider, redacted copies of this Agreement, and such other information as may be required in the Trust’s registration or offering documents, or as may otherwise be required by applicable law, rule, or regulation, and (ii) USBFS shall be permitted to include the name of the Trust in lists of representative clients in due diligence questionnaires, RFP responses, presentations, and other marketing and promotional purposes. |
| 13. | Records |
USBFS shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Trust, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, as required by the Securities Exchange Act of 1934, as amended, the rules of the stock exchange on which the Funds’ shares are listed, 17 C.F.R. 4.23 (specifically, the records specified in 17 C.F.R. 4.23(a)(1) through (8), (10) through (12) and (b)(1)), and other applicable federal securities laws and created pursuant to the performance of the Administrator’s obligations under this Agreement. USBFS will also maintain those records of the Trust and the Trust including any changes, modifications or amendments thereto (the “Trust Records”) and will act as document repository for such Trust Records. Upon receipt of such Trust Records, USBFS will issue a receipt for such Trust Records. USBFS shall maintain a complete and orderly inventory of all Trust Records for which it has issued a receipt. USBFS shall be under no duty or obligation to audit or reconcile the content, nor shall it be responsible for the accuracy or completeness of those Trust Records not created by it. Upon written request in a form to be determined by USBFS and the Trust, USBFS will return or release the requested Trust Records to such persons or entities pursuant to the Instructions provided by the Trust. Once one or more Trust Records have been returned or released by USBFS, USBFS shall have no further duty or obligation to act as repository for said previously released Trust Records. The Sponsor represents and warrants that: (a) promptly after the date of this Agreement, it will, at its own expense, deliver, cause to be delivered or make available to USBFS all of the Trust Records in effect as of the date of this Agreement; (b) it will, on a continuing basis and at its own expense, promptly deliver, cause to be delivered or make available to USBFS any Trust Records created after the date of this Agreement; (c) it has adequate record-keeping policies and procedures in effect to ensure that all Trust Records are promptly provided to USBFS pursuant to the terms of this Agreement; (d) it shall be responsible for the accuracy and completeness of any Trust Records not created by USBFS; and (e) it shall be responsible for ensuring the Trust’s or the Funds’ compliance with, fulfillment of its obligations under or enforcement of, any Trust Records not created by USBFS. USBFS acknowledges that the records maintained and preserved by it pursuant to this Agreement are the property of the Trust and will be, at the Trust’s expense, surrendered promptly upon reasonable request, provided, however, that USBFS may retain such copies of such records in such form as may be required to comply with any applicable law, rule, regulation, or order of any governmental, regulatory, or judicial authority of competent jurisdiction. Notwithstanding anything in this Agreement to the contrary, the Trust acknowledges and agrees that if the Trust elects to use a electronic transmission method to communicate trade instructions to USBFS the Trust shall be responsible for maintaining the Trust’s records as they relate to the Trust’s review and approval of individuals authorized to place trading instructions as described in Rule 31a-1(b)(10) promulgated under the 1940 Act.
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| 14. | Compliance with Laws |
The Trust has and retains primary responsibility for all compliance matters relating to the Trust, including but not limited to compliance with the 1933 Act, 1934 Act, the Internal Revenue Code of 1986, the Sarbanes-Oxley Act of 2002, the USA Patriot Act of 2001, the rules and regulations of the SEC, CFTC, NFA, the securities exchange on which any Shares are listed and the policies and limitations of the Trust relating to its portfolio investments as set forth in its registration statement. Trust Services’ services hereunder shall not relieve the Trust or Sponsor of its responsibilities for assuring such compliance.
| 15. | Term of Agreement; Amendment |
| A. | This Agreement shall become effective as of the date written above and will continue in effect for a period of three (3) years. Following the initial term, this Agreement shall automatically renew for successive one (1) year terms unless either party provides written notice at least 90 days prior to the end of the then current term that it will not be renewing the Agreement. |
| B. | Subject to Section 16, this Agreement may be terminated by either party (in whole or with respect to one or more Trust) upon giving 90 days’ prior written notice to the other party or such shorter notice period as is mutually agreed upon by the parties. |
| C. | USBFS may terminate this Agreement immediately (in whole or with respect to one or more Trust) if the continued service of such Trust or the Trust would cause USBFS or any of its affiliates to be in violation of any applicable law, rule, regulation, or order of any governmental, regulatory or judicial authority of competent jurisdiction, or if the Trust or the Trust (or any affiliate thereof) commits any act, or becomes involved in any situation or occurrence, tending to bring itself into public disrepute, contempt, scandal, or ridicule, or such that the continued association with the Trust or the Trust would reflect unfavorably upon Trust Services’ reputation, provided that in such event USBFS shall, to the extent it is legally permitted and able to do so, provide reasonable assistance to transition such Trust or the Trust to a successor service provider. |
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| D. | This Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within 15 days of notice of such breach to the breaching party. |
| E. | This Agreement may not be amended or modified in any manner except by written agreement executed by USBFS and the Trust, and authorized or approved by the Trust’s Board of Trustees. |
| 16. | Duties in the Event of Termination |
In the event that, in connection with termination, a successor to any of Trust Services’ duties or responsibilities hereunder is designated by the Trust by written notice to USBFS, USBFS will promptly, upon such termination and at the expense of the Trust, transfer to such successor all relevant books, records, correspondence and other data established or maintained by USBFS under this Agreement in a form reasonably acceptable to the Trust (if such form differs from the form in which USBFS has maintained the same, the Trust shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Trust Services’ personnel in the establishment of books, records and other data by such successor. If no such successor is designated, then such books, records and other data shall be returned to the Trust and Sponsor. The Trust shall also pay any fees associated with record retention and/or tax reporting obligations that USBFS is obligated under applicable law, regulation, or rule to continue following the termination.
| 17. | Early Termination |
In the absence of any material breach of this Agreement, should the Trust elect to terminate this Agreement (in whole or with respect to one or more Trust) prior to the end of the then current term, the Trust agrees to pay the following fees with respect to each Trust subject to the termination:
| a. | all monthly fees through the remaining term of the Agreement, including the repayment of any negotiated discounts (provided that no such fees shall be paid with respect to any Trust following the liquidation of such Trust); |
| b. | all fees associated with converting services to successor service provider; |
| c. | all fees associated with any record retention and/or tax reporting obligations that may not be eliminated due to the conversion to a successor service provider; |
| d. | all miscellaneous costs associated with a. to c. above. |
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| 18. | Assignment |
This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Trust without the written consent of USBFS, or by USBFS without the written consent of the Trust accompanied by the authorization or approval of the Trust’s Sponsor.
| 19. | Governing Law |
This Agreement shall be construed in accordance with the laws of the State of Wisconsin, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1933 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1933 Act or any rule or order of the SEC thereunder.
| 20. | No Agency Relationship |
Nothing herein contained shall be deemed to authorize or empower any party to act as agent for another party to this Agreement, or to conduct business in the name, or for the account, of another party to this Agreement.
| 21. | Services Not Exclusive |
Nothing in this Agreement shall limit or restrict USBFS from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
| 22. | Invalidity |
Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
| 23. | Notices |
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
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Notice to USBFS shall be sent to:
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
Attn: President
and notice to the Trust or Sponsor shall be sent to:
[Trust to confirm]
| 24. | Multiple Originals |
This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
(signatures on the following page)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date last written below.
TIDAL COMMODITY TRUST I
By:___________________________
Name:________________________
Title:_________________________
Date:______________________________
[SPONSOR]
By:________________________________
Name: ____________________________
Title: ______________________________
Date:______________________________
U.S. BANCORP FUND SERVICES, LLC
By:________________________________
Name: ____________________________
Title: Senior Vice President
Date:______________________________
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EXHIBIT A
to the Fund Accounting Agreement
Separate Series of Trust
| Name of Series | |
| Hashdex Bitcoin Futures ETF |
17
EXHIBIT B
to the Fund Accounting Agreement
Fee Schedule
Base Fee for Accounting, Administration, Transfer Agent & Account Services
The following reflects the greater of the basis point fee or annual minimum where [Sponsor name] ("Sponsor") acts as investment adviser to the fund(s) in Tidal Commodity Trust I (the "Trust")
| Annual Minimum per Fund¹ | Basis Points on Trust AUM¹ |
| $ 45,000 for Funds 1-5 | 5 on the first $ 500 million |
| $ 40,000 for Funds 6-10 | 4 on the next $ 500 million |
| $ 30,000 for Funds 11+ | 3 on the balance |
¹ Subject to annual CPI increase - All Urban Consumers - U.S. City Average index, provided that the CPI adjustment will not decrease the base fees (even if the cumulative CPI rate at any point in time is negative).
See APPENDIX A for Services and Associated Fees in addition to the Base Fee
See APPENDIX B for OPTIONAL Supplemental Services and Associated Fees
Once a Fund is operational, should this service agreement with U.S. Bank be terminated prior to the end of the initial two year period, Adviser will be responsible for the balance of the minimum fees for the remainder of the service agreement's 12-month period beginning with the Fund's launch or any anniversary of launch. To avoid doubt, if "the Adviser" launched a Fund on March 1, 2020 and terminated the relationship on June 30, 2021, Adviser would owe U.S. Bank up to 50% of $ 48,000 ($ 45,000 admin/acct/ta + $ 3,000 Custody).
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
Fees are calculated pro rata and billed monthly
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Appendix A - Accounting, Administration, Transfer Agent & Account Services (in addition to the Base Fee)
Pricing Services
For daily pricing of each securities (estimated 252 pricing days annually)
| ■ | $ 0.08 - Listed Instruments and rates which may include but are not limited to: Domestic Equities, Options, ADRs, Foreign Equities, Futures, Forwards, Currency Rates, Total Return Swaps |
| ■ | $ 0.50 - Lower Tier Cost Fixed Income Instruments which may include but are not limited to: Domestic Corporates, Governments and Agency Bonds, Mortgage Backed Securities, and Municipal Bonds |
| ■ | $ 0.80 - Higher Tier Cost Fixed Income Instruments which may include but are not limited to: CMO and Asset Backed Securities Money Market Instruments, Foreign Corporates, Governments and Agency Bonds, and High Yield Bonds |
| ■ | $ 1.00 - Bank Loans |
| ■ | Intraday money market funds pricing, up to 3 times per day |
| ■ | $ 500 per Month Manual Security Pricing (>25 per day) |
| ■ | Derivative Instruments are generally charged at the following rates: |
| ● | $ 0.90 - Interest Rate Swaps, Foreign Currency Swaps |
| ● | $ 1.50 - Swaptions |
| ● | $ 3.00 - Credit Default Swaps |
Note: Prices are based on using U.S. Bank primary pricing service which may vary by security type and are subject to change. Prices do not include set-up fees which may be charged on certain derivative instruments such as swaps. Use of alternative and/or additional sources may result in additional fees. Pricing vendors may designate certain securities as hard to value or as a non-standard security types, such as CLOs, CDOs and complex derivative instruments, which may result in additional swap set up fees. All schedules subject to change depending upon the use of unique security type requiring special pricing or accounting arrangements.
Corporate Action and Factor Services
Fee for ICE data used to monitor corporate actions
| ■ | $ 2.00 per Foreign Equity Security per Month |
| ■ | $ 1.00 per Domestic Equity Security per Month |
| ■ | $ 2.00 per CMOs, Asset Backed, Mortgage Backed Security per Month |
Third Party Administrative Data Charges (descriptive data for analytics, reporting and compliance)
| ■ | $ 1 per security per month for fund administrative |
SEC Modernization Requirements
| ■ | $ 8,000 per year, per Fund - Form N-PORT |
| ■ | $ 250 per year, per Fund - Form N-CEN |
Chief Compliance Officer Support Fee
| ■ | $ 3,500 per trust for each U.S. Bank service selected (administration, accounting, transfer agent, custodian) - CCO support annual fee |
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Chief Compliance Officer Support Fee includes the following services:
| ■ | Access to the CCO Portal including business line Critical Procedures, Compliance Controls, Testing of Controls, Annual U.S. Bank Global Fund Services CCO Review, SOC/ SSAE audits of business lines |
| ■ | Quarterly 38a-1 certifications to the CCO regarding any changes to critical policies, procedures and controls and compliance events as required under Rule 38a-1 of the Investment Company Act |
| ■ | Quarterly CCO teleconferences and other periodic events and webinars |
| ■ | CCO forums held periodically throughout the year in major cities |
| ■ | Annual client conference which includes CCO roundtable discussions |
NOTE: the CCO Support team does NOT serve as the Fund CCO
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
Fees are calculated pro rata and billed monthly
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Appendix B - Supplemental Services for Fund Accounting, Fund Administration & Portfolio Compliance (provided by U.S. Bank upon client need and/or request)
Daily Compliance Services
| ■ | $ 20,000 per fund per year - Base fee |
| ■ | $ 2,500 per fund group - Setup |
Section 18 Daily Compliance Testing (for derivatives and leverage)
| ■ | $ 1,500 set up fee per fund complex |
| ■ | $ 500 per fund per month |
Controlled Foreign Corporation (CFC)
| ■ | $ 15,000 plus U.S. Bank Fee Schedule |
C- Corp Administrative Services
| ■ | $ 15,000 plus 1940 Act C-Corp - U.S. Bank Fee Schedule |
| ■ | $ 25,000 plus 1933 Act C-Corp - U.S. Bank Fee Schedule |
Ongoing Annual Regulatory Administration Services
Add the following for regulatory administration services in support of external legal counsel, including annual registration statement update and drafting of supplements:
| ■ | $ 15,000 first fund |
| ■ | $ 5,000 each additional fund in the same statutory prospectus up to 5 funds |
| ■ | Fees will be negotiated for fund 6+ |
Section 15(c) Reporting
| ■ | $ 2,000 per fund per standard reporting package* |
| ■ | Additional 15c reporting is subject to additional charges |
| ■ | Standard data source - Morningstar; additional charges will apply for other data services |
*Standard reporting packages for annual 15(c) meeting
| ● | Expense reporting package: 2 peer comparison reports (adviser fee) and (net expense ratio w classes on one report) OR Full 15(c) report |
| ● | Performance reporting package: Peer Comparison Report |
Equity & Fixed Income Attribution Reporting
| ■ | Fees are dependent upon portfolio makeup, services required, and benchmark requirements. |
Fees for Special Situations:
| ■ | Fee will be assessed. |
Rule 2a-5 Reporting (valuation reporting and support):
| ■ | $ 2,000 per fund |
Customized delivery of data:
| ■ | TBD |
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Core Tax Services
M-1 book-to-tax adjustments at fiscal and excise year-end, prepare tax footnotes in conjunction with fiscal year-end audit, Prepare Form 1120-RIC federal income tax return and relevant schedules, Prepare Form 8613 and relevant schedules, Prepare Form 1099-MISC Forms, Prepare Annual TDF FBAR (Foreign Bank Account Reporting) filing, Prepare state returns (Limited to two) and Capital Gain Dividend Estimates (Limited to two).
Optional Tax Services
The Base Fee includes the following core tax services: M-1 book-to-tax adjustments at fiscal and excise year-end, prepare tax footnotes in conjunction with fiscal year-end audit, Prepare Form 1120-RIC federal income tax return and relevant schedules, Prepare Form 8613 and relevant schedules, Prepare Form 1099-MISC Forms, Prepare Annual TDF FBAR (Foreign Bank Account Reporting) filing, Prepare state returns (Limited to two) and Capital Gain Dividend Estimates (Limited to two). Additional services excluded from the Base Fee are:
| ■ | $ 5,000 per year - Prepare book-to-tax adjustments & Form 5471 for Controlled Foreign Corporations (CFCs) |
| ■ | $ 1,000 per additional estimate - Additional Capital Gain Dividend Estimates - (First two included in core services) |
| ■ | $ 1,500 per additional return - State tax returns - (First two included in core services) |
Tax Reporting - C-Corporations
Federal Tax Returns
| ■ | $ 25,000 - Prepare corporate Book to tax calculation, average cost analysis and cost basis role forwards, and federal income tax returns for investment fund (Federal returns & 1099 Breakout Analysis) |
| ■ | Prepare Federal and State extensions (If Applicable) - Included in the return fees |
| ■ | $ 2,000 Per estimate - Prepare provision estimates |
State Tax Returns
| ■ | $ 1,500 per state return - Prepare state income tax returns for funds and blocker entities |
| ● | $ 2,000 per state return - Sign state income tax returns |
Assist in filing state income tax returns - Included with preparation of returns
| ■ | $ 1,000 per fund - State tax notice consultative support and resolution |
Miscellaneous Expenses
All other miscellaneous fees and expenses, including but not limited to the following, will be separately billed as incurred: Charges associated with accelerated effectiveness at DTCC, Portfolio Composition File (PCF) management services, SWIFT processing, customized reporting, third-party data provider costs (including GICS, MSCI, Lipper, etc.), postage, stationary, programming, special reports, proxies, insurance, EDGAR/XBRL filing, retention of records, federal and state regulatory filing fees, expenses related to and including travel to and from Board of Trustee meetings, third party auditing and legal expenses, wash sales reporting (GainsKeeper), tax e-filing, PFIC monitoring, conversion expenses (if necessary), and travel related costs.
Fees are calculated pro rata and billed monthly
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Exhibit 10.5
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the last date written on the signature page below, by and between U.S. BANCORP FUND SERVICES, LLC dba U.S. Bank Global Fund Services, a Wisconsin limited liability company (“Fund Services”), TIDAL COMMODITY TRUST I, a Delaware statutory trust (the “Trust”), for itself and on behalf of each of its series listed on Exhibit A to this Agreement (as amended from time to time) (each a “Fund” or an “ETF Series”) and [SPONSOR] , the sponsor of the Funds (the “Sponsor”).
WHEREAS, the Sponsor has exclusive responsibility for the management and control of the business and affairs of the Trust and each Fund; and
WHEREAS, The Trust intends to issue in respect of its portfolios listed on Exhibit A attached hereto (each a “Fund” or an “ETF Series”) an exchange-traded class of shares known as “ETF Shares” for each ETF Series. The ETF Shares shall be created in bundles called “Creation Units.” Each Fund shall create and redeem ETF Shares only in Creation Units principally in kind for portfolio securities of the particular ETF Series (“Deposit Securities”), as more fully described in the current prospectus and statement of additional information of each Fund, included in the Fund’s registration statement on Form S-1, and as authorized under the Order of Exemption filed with the Securities and Exchange Commission. Only brokers or dealers that are “Authorized Participants” and that have entered into an Authorized Participant Agreement with the [Distributor], acting on behalf of the Trust, shall be authorized to create and redeem ETF Shares in Creation Units from the Trust. The Trust wishes to engage Fund Services to perform certain services on behalf of the Trust with respect to the creation and redemption of ETF Shares, as the Trust’s agent, namely: to provide transfer agent services for ETF Shares of each ETF Series; to act as Index Receipt Agent (as such term is defined in the rules of the National Securities Clearing Corporation) with respect to the settlement of trade orders with Authorized Participants; and to provide custody services under the terms of the Custody Agreement, as supplemented hereby, for the settlement of Creation Units against Deposit Securities and/or cash that shall be delivered by Authorized Participants in exchange for ETF Shares and the redemption of ETF Shares in Creation Unit size against the delivery of Redemption Securities and/or cash of each ETF Series.
WHEREAS, each Fund is operated as a commodity pool under the Commodity Exchange Act; and
WHEREAS, each Fund will ordinarily issue for purchase and redeem shares of the Fund (the “Shares) only in aggregations of Shares known as Creation Units (currently 25,000 shares) principally in kind or in cash;
WHEREAS, The Depository Trust Company, a limited purpose trust company organized under the laws of the State of New York (“DTC”), will be the registered owner (the “Shareholder”) of all Shares; and
WHEREAS, the Trust and Sponsor desire to retain Fund Services as its transfer agent, dividend disbursing agent, and agent in connection with certain other activities to each series of the Trust listed on Exhibit A attached hereto (as amended from time to time) (each a “Fund” and collectively the “Funds”).
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NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Appointment of Fund Services as Transfer Agent
The Trust and Sponsor hereby appoints Fund Services as transfer agent of the Trust on the terms and conditions set forth in this Agreement, and Fund Services hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of Fund Services shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against Fund Services hereunder.
2. Services and Duties of Fund Services
Fund Services shall provide the following transfer agent and dividend disbursing agent services:
A. Perform and facilitate the performance of purchases and redemption of Creation Units;
pursuant to such orders that Fund Services as the Index Receipt Agent shall receive from [Distributor] (“Distributor”) and pursuant to the procedures set forth in the Authorized Participant Agreement entered into by the Funds, Fund Services shall transfer appropriate trade instructions to the Funds’ custodian, U.S. Bank N.A. (“Custodian”), pursuant to that such purchase orders register the appropriate number of book entry only the Funds’ Units in the name of The Depository Trust Company (“DTC”) or its nominee as a unit holder (each an “Authorized Participant”) of the Funds and deliver the Basket of Units of the Funds and pursuant to that such redemption orders redeem the appropriate number of the Funds’ Units that are delivered to the designated DTC Participant Account of the Custodian for redemption and debit such Units from the account of the Authorized Participant on the register of the Funds;
B. Prepare and transmit by means of DTC’s book-entry system payments for dividends and distributions on or with respect to the Shares declared by the Trust on behalf of the applicable Fund;
C. On behalf of the Funds, Fund Services shall issue the Funds’ Units in Creation Baskets for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of the Funds’ Units shall be shown on the records of DTC and DTC Participants and not on any records maintained by the Fund Services. In issuing the Funds’ Units through DTC to an Authorized Participant, Fund Services shall be entitled to rely upon the latest Instructions that are received from the Distributor concerning the issuance and delivery of such Units for settlement;
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D. Fund Services shall not issue on behalf of the Funds any of the Funds’ Units where it has received an Instruction from the Funds or the Distributor or written notification from any federal or state authority that the sale of the Funds’ Units has been suspended or discontinued, and Fund Services shall be entitled to rely upon such Instructions or written notification;
E. The Funds’ Units may be redeemed in accordance with the procedures set forth in the relevant Authorized Participant Agreement and Fund Services shall duly process all redemption requests;
F. Fund Services will act only upon Instruction from the Funds and/or the Sponsor in addressing any failure in the delivery of cash, treasuries and/or Units in connection with the issuance and redemption of the Funds’ Units;
G. Record the issuance of Shares of the Trust and maintain a record of the total number of Shares of the Trust which are outstanding, and, based upon data provided to it by the Trust, the total number of authorized Shares. Fund Services shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares;
H. Prepare and transmit to the Trust and the Trust’s administrator and to any applicable securities exchange (as specified to Fund Services by the Trust) information with respect to purchases and redemptions of Shares;
I. On days that the Trust may accept orders for purchases or redemptions, calculate and transmit to Fund Services and the Trust the number of outstanding Shares;
J. On days that the Trust may accept orders for purchases or redemptions (pursuant to the Participant Agreement), transmit to Fund Services, the Trust and DTC the amount of Shares purchased on such day;
K. Confirm to DTC the number of Shares issued to the Shareholder, as DTC may reasonably request;
L. Prepare and deliver other reports, information and documents to DTC as DTC may reasonably request;
M. Maintain those books and records of the Trust specified by the Trust and agreed upon by Fund Services;
N. Prepare a monthly report of all purchases and redemptions of Shares during such month on a gross transaction basis, and identify on a daily basis the net number of Shares either redeemed or purchased on such business day and with respect to each Authorized Participant purchasing or redeeming Shares, the amount of Shares purchased or redeemed.
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O. Fund Services shall record the issuance of the Funds’ Creation Baskets and maintain, pursuant to Rule 17Ad-14(e) under the Securities Exchange Act of 1934, as amended, a record of the total number of the Funds’ Creation Baskets that are authorized, issued and outstanding based upon data provided to Fund Services by the Funds or the Sponsor. Fund Services shall also provide the Funds on a regular basis with the total number of the Funds’ Units authorized, issued and outstanding; provided however that Fund Services shall not be responsible for monitoring the issuance of such Units or compliance with any laws relating to the validity of the issuance or the legality of the sale of such Units.
P. Subject to and in accordance with Section 9 of the Agreement, Fund Services shall create and maintain such books and record which the Trust or Fund Services is, or may be, required to create and maintain in accordance with all laws, rules, and regulations applicable to Fund Services as Transfer Agent. Fund Services agrees to make all books and records available for inspection and use by the Trust or by the SEC at reasonable times, and to otherwise keep confidential. Fund Services shall maintain such books and records for at least six years or for such other period of time as Fund Services and Trust may mutually agree or as required by all applicable laws, rules, and regulations. Fund Services further agrees that all such books and records shall be the property of the Trust.
Q. Upon reasonable notice by the Trust, Fund Services shall make available during regular business hours all records and other data created and maintained by Fund Services as Transfer Agent for reasonable audit and inspections by the Trust, any person retained by the Trust or any shareholder.
4. Anti-Money Laundering and Red Flag Identity Theft Prevention Programs
| A. | The Trust acknowledges that it had an opportunity to review and consider the written procedures provided by Fund Services describing various processes used by Fund Services which are designed to promote the detection and reporting of potential money laundering activity and identity theft by monitoring certain aspects of shareholder activity as well as written procedures for verifying a customer’s identity (collectively, the “Procedures”). Further, the Trust has determined that the Procedures, as part of the Trust’s overall anti-money laundering program and identity theft prevention program responsibilities, are reasonably designed to help: (i) prevent the Trust from being used for money laundering or the financing of terrorist activities; (ii) prevent identity theft; and (iii) achieve compliance with the applicable provisions of the Bank Secrecy Act, the USA Patriot Act of 2001, the Fair and Accurate Credit Transactions Act of 2003, and the implementing regulations thereunder (together “AML Rules”). |
| B. | Based on this determination, the Trust hereby instructs and directs Fund Services to implement the Procedures, as applicable, on the Trust’s behalf, as such may be amended from time to time. It is contemplated that these Procedures will be amended from time to time by Fund Services and any such amended Procedures will be provided to the Trust. Should the Trust desire that Fund Services perform services not provided for in the Procedures, such additional services and the associated cost must be specifically detailed in the attached fee schedule. |
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| C. | The Trust acknowledges and agrees that although it is directing Fund Services to implement the Procedures on its behalf, Fund Services is implementing the Procedures as a service provider to the Trust and the Trust is and remains ultimately responsible for complying with all applicable laws, rules, and regulations with respect to anti-money laundering, customer identification, identity theft prevention, economic sanctions, and terrorist financing, whether under the AML Rules, or otherwise, such as, the establishment and board adoption of its own formal anti-money laundering program and the designation of its own anti-money laundering officer, as applicable. |
| D. | The Trust further acknowledges and agrees that certain portions of the Procedures are applicable to certain products, entities, structures, or geographies and, accordingly, certain portions of the Procedures may not be implemented with respect to the Trust. The Trust has had the opportunity to discuss the Procedures with Fund Services, and the Trust understands and agrees which portions of the Procedures may not be implemented on behalf of the Trust. Without limitation of the foregoing, Fund Services shall not be responsible for providing anti-money laundering or customer identification services with respect to certain intermediary or dealer-controlled customer accounts (i.e., level 0 sub-accounts through the Fund/SERV system operated by the National Securities Clearing Corporation) and other fund client relationships where there is a sub-transfer agency or similar arrangement between the Trust and the intermediary. |
| E. | The Trust hereby directs, and Fund Services acknowledges, that Fund Services shall (i) permit federal regulators access to such information and records maintained by Fund Services and relating to Fund Services’ implementation of the Procedures, on behalf of the Trust, as they may request, and (ii) permit such federal regulators to inspect Fund Services’ implementation of the Procedures on behalf of the Trust. |
5. Compensation
Fund Services shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit B attached hereto (as amended from time to time). Fund Services shall be compensated for such miscellaneous expenses (e.g., telecommunication charges, postage and delivery charges, and reproduction charges) as are reasonably incurred by Fund Services in performing its duties hereunder. Fund Services shall also be compensated for any increases in costs due to the adoption of any new or amended industry, regulatory or other applicable rules. The Trust shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the monthly billing notice, except for any fee or expense subject to a good faith dispute. The Trust shall notify Fund Services in writing within 30 calendar days following receipt of each invoice if the Trust is disputing any amounts in good faith. The Trust shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid, if any. Notwithstanding anything to the contrary, amounts owed by the Trust to Fund Services shall only be paid out of assets and property of the particular Fund involved.
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6. Representations and Warranties
| A. | The Trust and Sponsor hereby represents and warrants to Fund Services, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
| (1) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (2) | This Agreement has been duly authorized, executed and delivered by the Trust in accordance with all requisite action and constitutes a valid and legally binding obligation of the Trust, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; |
| (3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement; and |
| (4) | A registration statement under the 1933 Act, as amended, has been made effective prior to the effective date of this Agreement and will remain effective during the term of this Agreement, and appropriate state securities law filings will be made prior to the effective date of this Agreement and will continue to be made during the term of this Agreement as necessary to enable the Trust to make a continuous public offering of its shares. |
| (5) | All records of the Trust (including, without limitation, all shareholder and account records) provided to Fund Services by the Trust or by a prior transfer agent of the Trust are accurate and complete and Fund Services is entitled to rely on all such records in the form provided; and |
| B. | Fund Services hereby represents and warrants to the Trust and Sponsor, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
| (1) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
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| (2) | This Agreement has been duly authorized, executed and delivered by Fund Services in accordance with all requisite action and constitutes a valid and legally binding obligation of Fund Services, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; |
| (3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement; and |
| (4) | It is a registered transfer agent under the Exchange Act. |
7. Standard of Care; Indemnification; Limitation of Liability
| A. | Fund Services shall exercise reasonable care in the performance of its duties under this Agreement. Neither Fund Services nor any of its affiliates or suppliers shall be liable for any error of judgment; mistake of law; fraud or misconduct by the Trust, any Fund, the adviser or any other service provider to the Trust or a Fund, or any employee of the foregoing; or for any loss suffered by the Trust, a Fund, or any third party in connection with Fund Services’ duties under this Agreement, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond Fund Services’ reasonable control, except a loss arising out of or relating to Fund Services’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if Fund Services has exercised reasonable care in the performance of its duties under this Agreement, the Trust shall indemnify and hold harmless Fund Services and its affiliates and suppliers from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that Fund Services or its affiliates and suppliers may sustain or incur or that may be asserted against Fund Services or its affiliates and suppliers by any person arising out of or related to (X) any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to Fund Services by any duly authorized officer of the Trust, as approved by the Board of Trustees of the Trust, or (Y) the Data, or any information, service, report, analysis or publication derived therefrom, except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to Fund Services’ refusal or failure to comply with the terms of this Agreement (other than where such compliance would violate applicable law) or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Trust, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Fund Services” shall include Fund Services’ directors, officers and employees. Neither party to this Agreement shall be liable to the other party for consequential, special or punitive damages under any provision of this Agreement. |
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In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, Fund Services shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. Fund Services will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of Fund Services. Fund Services agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Trust shall be entitled to inspect Fund Services’ premises and operating capabilities at any time during regular business hours of Fund Services, upon reasonable notice to Fund Services. Moreover, Fund Services shall provide the Trust, at such times as the Trust may reasonably require, copies of reports rendered by independent accountants on the internal controls and procedures of Fund Services relating to the services provided by Fund Services under this Agreement.
Notwithstanding the above, Fund Services reserves the right to reprocess and correct administrative errors at its own expense.
| B. | In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent. |
| C. | The indemnity and defense provisions set forth in this Section 7 shall indefinitely survive the termination and/or assignment of this Agreement. |
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| D. | If Fund Services is acting in another capacity for the Trust pursuant to a separate agreement, nothing herein shall be deemed to relieve Fund Services of any of its obligations in such other capacity. |
8. Data Necessary to Perform Services
The Trust or its agent shall furnish to Fund Services the data necessary to perform the services described herein at such times and in such form as mutually agreed upon.
9. Proprietary and Confidential Information
| A. | Fund Services agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present, or potential shareholders of the Trust (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except (i) after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where Fund Services may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Trust. Records and other information which have become known to the public through no wrongful act of Fund Services or any of its employees, agents or representatives, and information that was already in the possession of Fund Services prior to receipt thereof from the Trust or its agent, shall not be subject to this paragraph. |
Further, Fund Services will adhere to the privacy policies adopted by the Trust pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, Fund Services shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Trust and its shareholders.
| B. | The Trust agrees on behalf of itself and its trustees, officers, and employees to treat confidentially and as proprietary information of Fund Services, all non-public information relative to Fund Services (including, without limitation, the Data and information regarding Fund Services’ pricing, products, services, customers, suppliers, financial statements, processes, know-how, trade secrets, market opportunities, past, present or future research, development or business plans, affairs, operations, systems, computer software in source code and object code form, documentation, techniques, procedures, designs, drawings, specifications, schematics, processes and/or intellectual property), and not to use such information for any purpose other than in connection with the services provided under this Agreement, except (i) after prior notification to and approval in writing by Fund Services, which approval shall not be unreasonably withheld and may not be withheld where the Trust may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Fund Services. Information which has become known to the public through no wrongful act of the Trust or any of its employees, agents or representatives, and information that was already in the possession of the Trust prior to receipt thereof from Fund Services, shall not be subject to this paragraph. |
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| C. | Notwithstanding anything herein to the contrary, (i) the Trust shall be permitted to disclose the identity of Fund Services as a service provider, redacted copies of this Agreement, and such other information as may be required in the Trust’s registration or offering documents, or as may otherwise be required by applicable law, rule, or regulation, and (ii) Fund Services shall be permitted to include the name of the Trust in lists of representative clients in due diligence questionnaires, RFP responses, presentations, and other marketing and promotional purposes. |
10. Records
Fund Services shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Trust, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, as required by the Securities Exchange Act of 1934, as amended, the rules of the stock exchange on which the Funds’ shares are listed, 17 C.F.R. 4.23 (specifically, the records specified in 17 C.F.R. 4.23(a)(1) through (8), (10) through (12) and (b)(1)), and other applicable federal securities laws and created pursuant to the performance of the Administrator’s obligations under this Agreement. The Administrator will also maintain those records of the Trust and the Funds including any changes, modifications or amendments thereto (the “Fund Records”) and will act as document repository for such Fund Records. Upon receipt of such Fund Records, the Administrator will issue a receipt for such Fund Records. The Administrator shall maintain a complete and orderly inventory of all Fund Records for which it has issued a receipt. The Administrator shall be under no duty or obligation to audit or reconcile the content, nor shall the Administrator be responsible for the accuracy or completeness of those Fund Records not created by the Administrator. Upon written request in a form to be determined by Administrator and the Trust, the Administrator will return or release the requested Fund Records to such persons or entities pursuant to the Instructions provided by the Trust. Once one or more Fund Records have been returned or released by the Administrator, the Administrator shall have no further duty or obligation to act as repository for said previously released Fund Records. The Sponsor represents and warrants that: (a) promptly after the date of this Agreement, it will, at its own expense, deliver, cause to be delivered or make available to the Administrator all of the Fund Records in effect as of the date of this Agreement; (b) it will, on a continuing basis and at its own expense, promptly deliver, cause to be delivered or make available to the Administrator any Fund Records created after the date of this Agreement; (c) it has adequate record-keeping policies and procedures in effect to ensure that all Fund Records are promptly provided to the Administrator pursuant to the terms of this Agreement; (d) it shall be responsible for the accuracy and completeness of any Fund Records not created by the Administrator; and (e) it shall be responsible for ensuring the Trust’s or the Funds’ compliance with, fulfillment of its obligations under or enforcement of, any Fund Records not created by the Administrator. The Administrator acknowledges that the records maintained and preserved by the Administrator pursuant to this Agreement are the property of the Trust and will be, at the Trust’s expense, surrendered promptly upon reasonable request. Notwithstanding the foregoing, Fund Services may retain such copies of such records in such form as may be required to comply with any applicable law, rule, regulation, or order of any governmental, regulatory, or judicial authority of competent jurisdiction. In performing its obligations under this Section, Fund Services may utilize micrographic and electronic storage media as well as independent third party storage facilities.
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11. Compliance with Laws
The Trust has and retains primary responsibility for all compliance matters relating to the Fund, including but not limited to compliance with the 1933 Act, CFTC, NFA, NYSE, the Internal Revenue Code of 1986, the Sarbanes-Oxley Act of 2002, the USA Patriot Act of 2001 and the policies and limitations of the Fund relating to its portfolio investments as set forth in its Prospectus and statement of additional information. Fund Services’ services hereunder shall not relieve the Trust of its responsibilities for assuring such compliance or the Sponsor’s oversight responsibility with respect thereto.
12. Term of Agreement; Amendment
| A. | This Agreement shall become effective as of the date written above and will continue in effect for a period of three (3) years. Following the initial term, this Agreement shall automatically renew for successive one (1) year terms unless either party provides written notice at least 90 days prior to the end of the then current term that it will not be renewing the Agreement. |
| B. | Subject to Section 16, this Agreement may be terminated by either party (in whole or with respect to one or more Funds) upon giving 90 days’ prior written notice to the other party or such shorter notice period as is mutually agreed upon by the parties. |
| C. | Fund Services may terminate this Agreement immediately (in whole or with respect to one or more Funds) if the continued service of such Funds or the Trust would cause Fund Services or any of its affiliates to be in violation of any applicable law, rule, regulation, or order of any governmental, regulatory or judicial authority of competent jurisdiction, or if the Funds or the Trust (or any affiliate thereof) commits any act, or becomes involved in any situation or occurrence, tending to bring itself into public disrepute, contempt, scandal, or ridicule, or such that the continued association with the Funds or the Trust would reflect unfavorably upon Fund Services’ reputation, provided that in such event Fund Services shall, to the extent it is legally permitted and able to do so, provide reasonable assistance to transition such Funds or the Trust to a successor service provider. |
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| D. | This Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within 15 days of notice of such breach to the breaching party. |
This Agreement may not be amended or modified in any manner except by written agreement executed by Fund Services and the Trust, and authorized or approved by the Trust’s Board of Trustees.
13. Early Termination
In the absence of any material breach of this Agreement, should the Trust elect to terminate this Agreement (in whole or with respect to one or more Funds) prior to the end of the then current term, the Trust agrees to pay the following fees with respect to each Fund subject to the termination:
a. all monthly fees through the remaining term of the Agreement, including the repayment of any negotiated discounts (provided that no such fees shall be paid with respect to any Fund following the liquidation of such Fund);
b. all fees associated with converting services to successor service provider;
c. all fees associated with any record retention and/or tax reporting obligations that may not be eliminated due to the conversion to a successor service provider;
d. all miscellaneous costs associated with a. to c. above.
14. Duties in the Event of Termination
In the event that, in connection with the termination of this Agreement, a successor to any of Fund SBFS’ duties or responsibilities hereunder is designated by the Trust by written notice to Fund Services, Fund Services will promptly, upon such termination and at the expense of the Trust, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by Fund Services under this Agreement in a form reasonably acceptable to the Trust (if such form differs from the form in which Fund Services has maintained the same, the Trust shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Fund Services’ personnel in the establishment of books, records, and other data by such successor. If no such successor is designated, then such books, records and other data shall be returned to the Trust and Sponsor.
15. Assignment
This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Trust without the written consent of Fund Services, or by Fund Services without the written consent of the Trust accompanied by the authorization or approval of the Trust’s Sponsor.
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16. Governing Law
This Agreement shall be construed in accordance with the laws of the State of Wisconsin, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1933 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1933 Act or any rule or order of the Securities and Exchange Commission thereunder.
17. No Agency Relationship
Nothing herein contained shall be deemed to authorize or empower either party to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement.
18. Services Not Exclusive
Nothing in this Agreement shall limit or restrict Fund Services from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
19. Invalidity
Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
20. Notices
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
Notice to Fund Services shall be sent to:
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
Attn: President
and notice to the Trust or Sponsor shall be sent to:
[Trust to confirm]
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21. Multiple Originals
This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date last written below.
TIDAL COMMODITY TRUST I
By:___________________________
Name:________________________
Title:_________________________
Date:_________________________
[SPONSOR]
By:________________________________
Name: ____________________________
Title: ______________________________
Date:______________________________
U.S. BANCORP FUND SERVICES, LLC
By:________________________________
Name: ____________________________
Title: Senior Vice President
Date:______________________________
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Exhibit A to the Transfer Agent Servicing Agreement
Separate Series of Trust
| Name of Series | |
Hashdex Bitcoin Futures ETF
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Exhibit B to the Transfer Agent Servicing Agreement
Base Fee for Accounting, Administration, Transfer Agent & Account Services
The following reflects the greater of the basis point fee or annual minimum where [Sponsor name] ("Sponsor") acts as investment adviser to the fund(s) in Tidal Commodity Trust I (the "Trust")
| Annual Minimum per Fund¹ | Basis Points on Trust AUM¹ |
| $ 45,000 for Funds 1-5 | 5 on the first $ 500 million |
| $ 40,000 for Funds 6-10 | 4 on the next $ 500 million |
| $ 30,000 for Funds 11+ | 3 on the balance |
¹ Subject to annual CPI increase - All Urban Consumers - U.S. City Average index, provided that the CPI adjustment will not decrease the base fees (even if the cumulative CPI rate at any point in time is negative).
See APPENDIX A for Services and Associated Fees in addition to the Base Fee
See APPENDIX B for OPTIONAL Supplemental Services and Associated Fees
Once a Fund is operational, should this service agreement with U.S. Bank be terminated prior to the end of the initial two year period, Adviser will be responsible for the balance of the minimum fees for the remainder of the service agreement's 12-month period beginning with the Fund's launch or any anniversary of launch. To avoid doubt, if "the Adviser" launched a Fund on March 1, 2020 and terminated the relationship on June 30, 2021, Adviser would owe U.S. Bank up to 50% of $ 48,000 ($ 45,000 admin/acct/ta + $ 3,000 Custody).
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
Fees are calculated pro rata and billed monthly
17
Appendix A - Accounting, Administration, Transfer Agent & Account Services (in addition to the Base Fee)
Pricing Services
For daily pricing of each securities (estimated 252 pricing days annually)
| ■ | $ 0.08 - Listed Instruments and rates which may include but are not limited to: Domestic Equities, Options, ADRs, Foreign Equities, Futures, Forwards, Currency Rates, Total Return Swaps |
| ■ | $ 0.50 - Lower Tier Cost Fixed Income Instruments which may include but are not limited to: Domestic Corporates, Governments and Agency Bonds, Mortgage Backed Securities, and Municipal Bonds |
| ■ | $ 0.80 - Higher Tier Cost Fixed Income Instruments which may include but are not limited to: CMO and Asset Backed Securities Money Market Instruments, Foreign Corporates, Governments and Agency Bonds, and High Yield Bonds |
| ■ | $ 1.00 - Bank Loans |
| ■ | Intraday money market funds pricing, up to 3 times per day |
| ■ | $ 500 per Month Manual Security Pricing (>25 per day) |
| ■ | Derivative Instruments are generally charged at the following rates: |
| ● | $ 0.90 - Interest Rate Swaps, Foreign Currency Swaps |
| ● | $ 1.50 - Swaptions |
| ● | $ 3.00 - Credit Default Swaps |
Note: Prices are based on using U.S. Bank primary pricing service which may vary by security type and are subject to change. Prices do not include set-up fees which may be charged on certain derivative instruments such as swaps. Use of alternative and/or additional sources may result in additional fees. Pricing vendors may designate certain securities as hard to value or as a non-standard security types, such as CLOs, CDOs and complex derivative instruments, which may result in additional swap set up fees. All schedules subject to change depending upon the use of unique security type requiring special pricing or accounting arrangements.
Corporate Action and Factor Services
Fee for ICE data used to monitor corporate actions
| ■ | $ 2.00 per Foreign Equity Security per Month |
| ■ | $ 1.00 per Domestic Equity Security per Month |
| ■ | $ 2.00 per CMOs, Asset Backed, Mortgage Backed Security per Month |
Third Party Administrative Data Charges (descriptive data for analytics, reporting and compliance)
| ■ | $ 1 per security per month for fund administrative |
SEC Modernization Requirements
| ■ | $ 8,000 per year, per Fund - Form N-PORT |
| ■ | $ 250 per year, per Fund - Form N-CEN |
18
Chief Compliance Officer Support Fee
| ■ | $ 3,500 per trust for each U.S. Bank service selected (administration, accounting, transfer agent, custodian) - CCO support annual fee |
Chief Compliance Officer Support Fee includes the following services:
| ■ | Access to the CCO Portal including business line Critical Procedures, Compliance Controls, Testing of Controls, Annual U.S. Bank Global Fund Services CCO Review, SOC/ SSAE audits of business lines |
| ■ | Quarterly 38a-1 certifications to the CCO regarding any changes to critical policies, procedures and controls and compliance events as required under Rule 38a-1 of the Investment Company Act |
| ■ | Quarterly CCO teleconferences and other periodic events and webinars |
| ■ | CCO forums held periodically throughout the year in major cities |
| ■ | Annual client conference which includes CCO roundtable discussions |
NOTE: the CCO Support team does NOT serve as the Fund CCO
Additional services not included above shall be mutually agreed upon at the time of the service being added. In addition to the fees described above, additional fees may be charged to the extent that changes to applicable laws, rules or regulations require additional work or expenses related to services provided (e.g., compliance with new liquidity risk management and reporting requirements).
Fees are calculated pro rata and billed monthly
19
Appendix B - Supplemental Services for Fund Accounting, Fund Administration & Portfolio Compliance (provided by U.S. Bank upon client need and/or request)
Daily Compliance Services
| ■ | $ 20,000 per fund per year - Base fee |
| ■ | $ 2,500 per fund group - Setup |
Section 18 Daily Compliance Testing (for derivatives and leverage)
| ■ | $ 1,500 set up fee per fund complex |
| ■ | $ 500 per fund per month |
Controlled Foreign Corporation (CFC)
| ■ | $ 15,000 plus U.S. Bank Fee Schedule |
C- Corp Administrative Services
| ■ | $ 15,000 plus 1940 Act C-Corp - U.S. Bank Fee Schedule |
| ■ | $ 25,000 plus 1933 Act C-Corp - U.S. Bank Fee Schedule |
Ongoing Annual Regulatory Administration Services
Add the following for regulatory administration services in support of external legal counsel, including annual registration statement update and drafting of supplements:
| ■ | $ 15,000 first fund |
| ■ | $ 5,000 each additional fund in the same statutory prospectus up to 5 funds |
| ■ | Fees will be negotiated for fund 6+ |
Section 15(c) Reporting
| ■ | $ 2,000 per fund per standard reporting package* |
| ■ | Additional 15c reporting is subject to additional charges |
| ■ | Standard data source - Morningstar; additional charges will apply for other data services |
*Standard reporting packages for annual 15(c) meeting
| ● | Expense reporting package: 2 peer comparison reports (adviser fee) and (net expense ratio w classes on one report) OR Full 15(c) report |
| ● | Performance reporting package: Peer Comparison Report |
Equity & Fixed Income Attribution Reporting
| ■ | Fees are dependent upon portfolio makeup, services required, and benchmark requirements. |
Fees for Special Situations:
| ■ | Fee will be assessed. |
Rule 2a-5 Reporting (valuation reporting and support):
| ■ | $ 2,000 per fund |
Customized delivery of data:
| ■ | TBD |
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Core Tax Services
M-1 book-to-tax adjustments at fiscal and excise year-end, prepare tax footnotes in conjunction with fiscal year-end audit, Prepare Form 1120-RIC federal income tax return and relevant schedules, Prepare Form 8613 and relevant schedules, Prepare Form 1099-MISC Forms, Prepare Annual TDF FBAR (Foreign Bank Account Reporting) filing, Prepare state returns (Limited to two) and Capital Gain Dividend Estimates (Limited to two).
Optional Tax Services
The Base Fee includes the following core tax services: M-1 book-to-tax adjustments at fiscal and excise year-end, prepare tax footnotes in conjunction with fiscal year-end audit, Prepare Form 1120-RIC federal income tax return and relevant schedules, Prepare Form 8613 and relevant schedules, Prepare Form 1099-MISC Forms, Prepare Annual TDF FBAR (Foreign Bank Account Reporting) filing, Prepare state returns (Limited to two) and Capital Gain Dividend Estimates (Limited to two). Additional services excluded from the Base Fee are:
| ■ | $ 5,000 per year - Prepare book-to-tax adjustments & Form 5471 for Controlled Foreign Corporations (CFCs) |
| ■ | $ 1,000 per additional estimate - Additional Capital Gain Dividend Estimates - (First two included in core services) |
| ■ | $ 1,500 per additional return - State tax returns - (First two included in core services) |
Tax Reporting - C-Corporations
Federal Tax Returns
| ■ | $ 25,000 - Prepare corporate Book to tax calculation, average cost analysis and cost basis role forwards, and federal income tax returns for investment fund (Federal returns & 1099 Breakout Analysis) |
| ■ | Prepare Federal and State extensions (If Applicable) - Included in the return fees |
| ■ | $ 2,000 Per estimate - Prepare provision estimates |
State Tax Returns
| ■ | $ 1,500 per state return - Prepare state income tax returns for funds and blocker entities |
| ● | $ 2,000 per state return - Sign state income tax returns |
Assist in filing state income tax returns - Included with preparation of returns
| ■ | $ 1,000 per fund - State tax notice consultative support and resolution |
Miscellaneous Expenses
All other miscellaneous fees and expenses, including but not limited to the following, will be separately billed as incurred: Charges associated with accelerated effectiveness at DTCC, Portfolio Composition File (PCF) management services, SWIFT processing, customized reporting, third-party data provider costs (including GICS, MSCI, Lipper, etc.), postage, stationary, programming, special reports, proxies, insurance, EDGAR/XBRL filing, retention of records, federal and state regulatory filing fees, expenses related to and including travel to and from Board of Trustee meetings, third party auditing and legal expenses, wash sales reporting (GainsKeeper), tax e-filing, PFIC monitoring, conversion expenses (if necessary), and travel related costs.
Fees are calculated pro rata and billed monthly
21
Exhibit 10.6
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of [ ], by and Tidal ETF Services LLC, a Delaware limited liability company (“Tidal”), Tidal Commodities Trust I, a Delaware statutory trust (the “Trust”), for itself and on behalf of each of its series listed on Exhibit A to this Agreement (as amended from time to time) (each a “Fund”) and Tidal Investments LLC (the ”Sponsor”).
WHEREAS, each Fund is operated as a commodity pool under the Commodity Exchange Act and is registered with the U.S. Securities and Exchange Commission (“SEC”) by means of a registration statement on Form S-1 or Form S-3, as applicable (each a “Registration Statement”) under the Securities Act of 1933, as amended (“1933 Act”); and
WHEREAS, the Sponsor has exclusive responsibility for the management and control of the business and affairs of the Trust and each Fund; and
WHEREAS, the Trust and Sponsor desire to retain Tidal to provide fund administration services to each Fund listed on Exhibit A attached hereto (as amended from time to time) the services described herein, all as more fully set forth below;
WHEREAS, the Trust and Sponsor desire to retain Tidal to provide to each Fund the fund administration services described herein, all as more fully set below;
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Appointment of Tidal as Fund Administrator
The Trust and Sponsor hereby appoint Tidal as fund administrator for the term of this Agreement to perform the services and duties described herein. Tidal hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of Tidal shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against Tidal hereunder.
2. Delivery of Documents
The Trust and the Sponsor will on a continuing basis provide, or make available to, Tidal:
| A. | Copies of the Trust’s most recent registration statement under the Securities Act of 1933; |
| B. | Copies of all agreements between the Trust and its service providers, including without limitation, sponsor and distribution agreements; |
| C. | Copies of each Fund’s valuation procedures, to the extent they are developed; |
| D. | A copy of the Trust’s charter documents; |
| E. | Any other documents or resolutions which relate to or affect Tidal’s performance of its duties hereunder; and |
| F. | Copies of any and all amendments or supplements to the foregoing. |
B. Services and Duties of Tidal
Tidal shall provide the following administration services to each Fund:
| A. | General Fund Management: |
(1) Act as liaison among Fund service providers.
(2) Supply:
a. Office facilities (which may be in Tidal’s, or an affiliate’s, or Fund’s own offices).
b. Non-investment-related statistical and research data as requested.
(3) Audits:
a. For the annual Fund audit and quarterly review, assist with and provide information for appropriate schedules and materials. Provide requested information to the independent auditors, and facilitate the audit process.
b. For SEC or other regulatory audits, provide requested information to the SEC or other regulatory agencies and facilitate the audit process.
c. For all audits, provide office facilities, as needed.
(4) Assist with overall operations of the Fund.
(5) Pay Fund expenses upon written authorization from the Trust or Sponsor.
(6) Keep the Trust’s governing documents, including its charter and bylaws, but only to the extent such documents are provided to Tidal by the Trust or its representatives for safe keeping. Maintain required books and records for each Fund, as required by all applicable statutes, rules and regulations. This will be subject to and in accordance with Section 9 of the Agreement, maintain files of registration statements, Fund contracts, compliance materials and other Fund documents that are prepared by Tidal or furnished to Tidal by the Fund, as required by the U.S. Securities and Exchange Commission (“SEC”), U.S. Commodity Futures Trading Commission (“CFTC”), National Futures Association (“NFA”) and NYSE rules adopted thereunder, as they may be amended from time to time, and other requirements.
B. Compliance:
(1) Regulatory Compliance:
a. Monitor Fund's compliance with the policies and investment limitations as set forth in its registration statement.
b. Perform its duties hereunder in compliance with all applicable laws and regulations and provide any sub-certifications reasonably requested by the Trust in connection with (i) any certification required of the Trust pursuant to the Sarbanes-Oxley Act of 2002 (the “SOX Act”) or any rules or regulations promulgated by the SEC thereunder, and (ii) the operation of Tidal’s compliance program as it relates to the Trust, provided the same shall not be deemed to change Tidal’s standard of care as set forth herein.
c. Monitor applicable regulatory and operational service issues, including exchange listing requirements.
(2) SEC Registration and Reporting:
a. Within the appropriate production cycle, prepare one Quarterly Report on Form 10-Q for the Funds for each of the first three fiscal quarters of the Funds, or as necessary. The preparation of each Form 10-Q includes the coordination of all printer and author edits, the review of printer drafts and the review of final printer invoices.
b. Within the appropriate production cycle, assist with preparation of an Annual Report on Form 10-K for the Funds’ fiscal year.
c. At the request of the Sponsor, assist with the coordination of the requests for information/documentation from the SEC, CFTC, NFA and NYSE Arca.
C. Financial Reporting:
(1) Provide financial data required by the registration statement.
(2) Within the appropriate time period following the end of the Funds’ required monthly reporting period, prepare an Account Statement in compliance with the requirements of CFTC Rule § 4.22(a), including a Statement of Income (Loss) and a Statement of Changes in Net Asset Value; Tidal shall coordinate the filing of the Account Statements with the NFA. Upon review and approval of each above-mentioned report by the Sponsor, Tidal shall file such reports with the CFTC and/or NFA, as required, including any applicable executive officer certifications or other exhibits to such reports.
(3) Supervise the Fund’s custodian and fund accountants in the maintenance of the Fund’s general ledger and in the preparation of the Fund’s financial statements, including oversight of expense accruals and payments, the determination of net asset value and the declaration and payment of dividends and other distributions to shareholders.
(4) Monitor expense accruals and make adjustments as necessary; notify the Trust’s management of adjustments expected to materially affect the Fund’s expense ratio.
(5) Prepare and review the Fund’s Financial Statements:
a. Statement of Financial Condition.
b. Statement of Investments.
c. Statement of Operations.
d. Statement of Changes in Net Assets.
e. Statement of Cash Flows.
f. Notes to the Financial Statements.
g. Review of other financial data included in 10-Qs and 10-Ks.
h. Any other information that may be required by rule or regulation.
D. Tax Reporting (as applicable):
(1) Prepare for the review of the independent accountants and/or Fund Management the federal and state tax returns including, without limitation, Form 1120 RIC and applicable state returns including any necessary schedules. Tidal will prepare annual Fund federal and state income tax return filings as authorized by and based on the instructions received by the Sponsor and/or its independent accountant.
(2) Provide the Fund’s Sponsor and independent accountant with tax reporting information pertaining to the Fund and available to Tidal as required in a timely manner.
(3) Monitor wash sale losses
(4) As needed, calculate Qualified Dividend Income (“QDI”) for qualifying Fund Shareholders.
4. Compensation
Tidal shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit B hereto (as amended from time to time). Tidal shall also be compensated for such out-of-pocket expenses (e.g., telecommunication charges, postage and delivery charges, and reproduction charges) as are reasonably incurred by Tidal in performing its duties hereunder. The Trust shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the monthly billing notice, except for any fee or expense subject to a good faith dispute. The Trust shall notify Tidal in writing within 30 calendar days following receipt of each invoice if the Trust is disputing any amounts in good faith. The Trust shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Trust is disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of 1½% per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Trust to Tidal shall only be paid out of the assets and property of the particular Fund involved.
5. Representations and Warranties
A. The Trust and Sponsor each hereby represents and warrants to Tidal, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
(1) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;
(2) This Agreement has been duly authorized, executed and delivered by the Trust or Sponsor, as applicable, in accordance with all requisite action and constitutes a valid and legally binding obligation of the Trust or Sponsor, as applicable, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties;
(3) It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.
B. Tidal hereby represents and warrants to the Trust and Sponsor, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
(1) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder;
(2) This Agreement has been duly authorized, executed and delivered by Tidal in accordance with all requisite action and constitutes a valid and legally binding obligation of Tidal, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and
(3) It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement.
6. Standard of Care; Indemnification; Limitation of Liability
A. Tidal shall exercise reasonable care in the performance of its duties under this Agreement. Tidal shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with its duties under this Agreement, including losses resulting from mechanical breakdowns or power supplies beyond Tidal’s control, except a loss arising out of or relating to Tidal’s refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if Tidal has exercised reasonable care in the performance of its duties under this Agreement, the Trust shall indemnify and hold harmless Tidal from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that Tidal may sustain or incur or that may be asserted against Tidal by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to Tidal by any duly authorized officer of the Trust or the Sponsor, except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to Tidal’s refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Trust, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Tidal” shall include Tidal’s directors, officers and employees.
Each Fund shall indemnify Tidal against and save Tidal harmless from any loss, damage or expense, including counsel fees and other costs and expenses of a defense against any claim or liability, arising from any one or more of the following:
(1) Errors in records or instructions, explanations, information, specifications or documentation of any kind, as the case may be, supplied to Tidal by any third party described above or by or on behalf of a Fund;
(2) Action or inaction taken or omitted to be taken by Tidal pursuant to written or oral instructions of the fund or otherwise without negligence or willful misconduct.;
(3) Any action taken or omitted to be taken by Tidal in good faith in accordance with the advice or opinion of counsel for a Fund or its own counsel;
(4) Any improper use by a Fund or its agents, distributor or investment advisor of any valuations or computations supplied by Tidal pursuant to this Agreement.
Tidal shall indemnify and hold the Trust harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Trust may sustain or incur or that may be asserted against the Trust by any person arising out of any action taken or omitted to be taken by Tidal as a result of Tidal’s refusal or failure to comply with the terms of this Agreement, or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of Tidal, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Trust” shall include the Trust’s trustees, officers and employees.
Neither party to this Agreement shall be liable to the other party for consequential, special or punitive damages under any provision of this Agreement.
In the event of a mechanical breakdown or power supplies beyond its control, Tidal shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. Tidal will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of Tidal. Tidal agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Trust shall be entitled to inspect Tidal’s premises and operating capabilities at any time during regular business hours of Tidal, upon reasonable notice to Tidal. Moreover, Tidal shall provide the Trust, at such times as the Trust may reasonably require, copies of reports rendered by independent accountants on the internal controls and procedures of Tidal relating to the services provided by Tidal under this Agreement.
Notwithstanding the above, Tidal reserves the right to reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent.
C. The indemnity and defense provisions set forth in this Section 6 shall indefinitely survive the termination and/or assignment of this Agreement.
D. If Tidal is acting in another capacity for the Trust pursuant to a separate agreement, nothing herein shall be deemed to relieve Tidal of any of its obligations in such other capacity.
E. Paid Tax Preparer Disclaimer: In conjunction with the tax services provided to each Fund by Fund Services hereunder, Tidal shall not be deemed to act as an income tax return preparer for any purpose including as such term is defined under Section 7701(a)(36) of the Internal Revenue Code (“IRC”), or any successor thereof. Any information provided by Tidal to a Fund for income tax reporting purposes with respect to any item of income, gain, loss, or credit will be performed solely in Tidal’s administrative capacity. Tidal shall not be required to determine, and shall not take any position with respect to whether, the reasonable belief standard described in Section 6694 of the IRC has been satisfied with respect to any income tax item. Each Fund, and any appointees thereof, shall have the right to inspect the transaction summaries produced and aggregated by Tidal, and any supporting documents thereto, in connection with the tax reporting services provided to each Fund by Tidal. Tidal shall not be liable for the provision or omission of any tax advice with respect to any information provided by Tidal to a Fund. The tax information provided by Tidal shall be pertinent to the data and information made available to us, and is neither derived from nor construed as tax advice.
7. Data Necessary to Perform Services
The Trust or its agent shall furnish to Tidal the data necessary to perform the services described herein at such times and in such form as mutually agreed upon.
8. Proprietary and Confidential Information
Tidal agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Trust, all records and other information relative to the Trust and prior, present, or potential shareholders of the Trust (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld (i) where Tidal may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Trust. Records and other information which have become known to the public through no wrongful act of Tidal or any of its employees, agents or representatives, and information that was already in the possession of Tidal prior to receipt thereof from the Trust or its agent, shall not be subject to this paragraph.
Further, Tidal will adhere to the privacy policies adopted by the Trust pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, Tidal shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Trust and its shareholders.
9. Records
Tidal shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Trust, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, as required by the Securities Exchange Act of 1934, as amended, the rules of the stock exchange on which the Funds’ shares are listed, 17 C.F.R. 4.23 (specifically, the records specified in 17 C.F.R. 4.23(a)(1) through (8), (10) through (12) and (b)(1)), and other applicable federal securities laws and created pursuant to the performance of the Administrator’s obligations under this Agreement. Tidal will also maintain those records of the Trust and the Funds including any changes, modifications or amendments thereto (the “Fund Records”) and will act as document repository for such Fund Records. Upon receipt of such Fund Records, Tidal will issue a receipt for such Fund Records. Tidal shall maintain a complete and orderly inventory of all Fund Records for which it has issued a receipt. Tidal shall be under no duty or obligation to audit or reconcile the content, nor shall it be responsible for the accuracy or completeness of those Fund Records not created by it. Upon written request in a form to be determined by Tidal and the Trust, Tidal will return or release the requested Fund Records to such persons or entities pursuant to the Instructions provided by the Trust. Once one or more Fund Records have been returned or released by Tidal, Tidal shall have no further duty or obligation to act as repository for said previously released Fund Records. The Sponsor represents and warrants that: (a) promptly after the date of this Agreement, it will, at its own expense, deliver, cause to be delivered or make available to Tidal all of the Fund Records in effect as of the date of this Agreement; (b) it will, on a continuing basis and at its own expense, promptly deliver, cause to be delivered or make available to Tidal any Fund Records created after the date of this Agreement; (c) it has adequate record-keeping policies and procedures in effect to ensure that all Fund Records are promptly provided to Tidal pursuant to the terms of this Agreement; (d) it shall be responsible for the accuracy and completeness of any Fund Records not created by Tidal; and (e) it shall be responsible for ensuring the Trust’s or the Funds’ compliance with, fulfillment of its obligations under or enforcement of, any Fund Records not created by Tidal. Tidal acknowledges that the records maintained and preserved by it pursuant to this Agreement are the property of the Trust and will be, at the Trust’s expense, surrendered promptly upon reasonable request. In performing its obligations under this Section, Tidal may utilize micrographic and electronic storage media as well as independent third party storage facilities.
10. Compliance with Laws
The Trust has and retains primary responsibility for all compliance matters relating to the Funds, including but not limited to compliance with the 1933 Act, 1934 Act, the Internal Revenue Code of 1986, the Sarbanes-Oxley Act of 2002, the USA Patriot Act of 2001, the rules and regulations of the SEC, U.S. Commodity Futures Trading Commission, National Futures Association, the securities exchange on which any Shares are listed and the policies and limitations of the Fund relating to its portfolio investments as set forth in its registration statement . Tidal’s services hereunder shall not relieve the Trust or Sponsor of its responsibilities for assuring such compliance.
11. Term of Agreement; Amendment
This Agreement shall become effective as of the date first written above and will continue in effect for a period of three (3) years. This Agreement may be terminated by any party upon giving 90 days prior written notice to the other parties or such shorter period as is mutually agreed upon by the parties. Notwithstanding the foregoing, this Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within 15 days of notice of such breach to the breaching party. This Agreement may not be amended or modified in any manner except by written agreement executed by Tidal and the Trust, and authorized or approved by the Sponsor.
12. Duties in the Event of Termination
In the event that, in connection with termination, a successor to any of Tidal’s duties or responsibilities hereunder is designated by the Trust by written notice to Tidal, Tidal will promptly, upon such termination and at the expense of the Trust, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by Tidal under this Agreement in a form reasonably acceptable to the Trust (if such form differs from the form in which Tidal has maintained the same, the Trust shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Tidal’s personnel in the establishment of books, records, and other data by such successor. If no such successor is designated, then such books, records and other data shall be returned to the Trust and Sponsor.
13. Early Termination
In the absence of any material breach of this Agreement, should the Trust and Sponsor elect to terminate this Agreement prior to the end of the initial three (3) year term, the Trust agrees to pay the following fees:
(1) all monthly fees through the life of the Agreement, including the repayment of any negotiated discounts;
(2) all fees associated with converting services to successor service provider;
(3) all fees associated with any record retention and/or tax reporting obligations that may not be eliminated due to the conversion to a successor service provider;
(4) all out-of-pocket costs associated with (1) to (3) above
14. Assignment
This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Trust without the written consent of Tidal, or by Tidal without the written consent of the Trust accompanied by the authorization or approval of the Trust’s Sponsor.
15. Governing Law
This Agreement shall be construed in accordance with the laws of the State of Wisconsin, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1933 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1933 Act or any rule or order of the SEC thereunder.
16. No Agency Relationship
Nothing herein contained shall be deemed to authorize or empower any party to act as agent for another party to this Agreement, or to conduct business in the name, or for the account, of another party to this Agreement.
17. Services Not Exclusive
Nothing in this Agreement shall limit or restrict Tidal from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
18. Invalidity
Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
19. Notices
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
Notice to Tidal shall be sent to:
Tidal ETF Services LLC
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
Attn: Head of Fund Administration
and notice to the Trust or Sponsor shall be sent to:
Tidal Investments LLC
234 West Florida Street, Suite 203
Milwaukee, Wisconsin 53204
20. Multiple Originals
This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
{Signatures on the following page}
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date first above written.
TIDAL COMMODITY TRUST I
By:_______________________________________
Name: ____________________________________
Title: ______________________________________
TIDAL INVESTMENTS, LLC
By:________________________________
Name: ____________________________
Title: ______________________________
TIDAL ETF SERVICES, LLC
By:______________________________
Name: ____________________________
Title: ____________________________
Exhibit A to the Fund Administration Servicing Agreement – Tidal Commodity Trust I
Separate Series of Tidal Commodity Trust I
|
Name of Series Hashdex Bitcoin Futures ETF |
Exhibit B (Fee Schedule) to the Fund Administration Servicing Agreement
Exhibit 23.3
 | taitweller.com |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement filed on Form S-4 by Tital Commodities Trust I of our report dated October 30, 2023, relating to our audit of the Statement of Assets and Liabilities of the Hashdex Bitcoin Futures ETF, a series of Tidal Commodities Trust I, as of October 24, 2023, included in this Form S-4.
/s/ TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
October 30, 2023
Tait Weller • Philadelphia Office • O: 215.979.8800 • F: 215.979.8811 • Two Liberty Place • 50 S. 16th Street • Suite 2900 • Philadelphia, PA 19102-2529
Exhibit 23.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 1, 2023, with respect to the financial statements of Hashdex Bitcoin Futures ETF, a series of the Teucrium Commodity Trust contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”
/s/ GRANT THORNTON LLP
New York, NY
October 30, 2023
Exhibit 10.7
Amended and Restated
‘33 Act Fund Platform Support Agreement
This Amended and Restated ‘33 Act Fund Platform Support Agreement (the “Agreement”) is made and entered into by and among Toroso Investments, LLC (“Toroso”), Tidal ETF Services LLC (“Tidal”), Hashdex Asset Management Ltd. (“Hashdex”), and Teucrium Trading, LLC (“Teucrium”) as of October 24, 2023 (the “Effective Date”). Each of Toroso, Tidal, Hashdex, and Teucrium may be referred to herein as a “Party,” or collectively, as the “Parties.”
Preamble:
Whereas, Toroso is a Delaware limited liability company, and is an investment adviser registered with the Securities and Exchange Commission (the “SEC”) pursuant to the Investment Advisers Act of 1940 as amended (the “Advisers Act”);
Whereas, Toroso is also registered as a commodity pool operator (“CPO”) and a commodity trading adviser (“CTA”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”);
Whereas, Tidal is a Delaware limited liability company that specializes in, among other things, consulting and administrative support services to pooled investment vehicles;
Whereas, Hashdex is a Cayman Islands investment manager that specializes in, among other things, the management, research, investment analysis and other investment support services of funds and ETFs with investment strategies involving bitcoin and other cryptoassets;
Whereas, Teucrium is registered as a CPO and a CTA with the CFTC and is a member of the NFA;
Whereas, Teucrium has developed the Hashdex Bitcoin Futures Fund (formerly Teucrium Bitcoin Futures Fund) (the “Fund”), which as of the date of this Agreement is a series of the Teucrium Commodity Trust (the “Trust”), which Trust is governed by a certain Fifth Amended and Restated Declaration of Trust and Trust Agreement dated as of April 26, 2019 by and between Teucrium Trading, LLC as Sponsor and Wilmington Trust as Delaware Trustee (the “Current Trustee”);
Whereas, the Parties entered into a certain ’33 Act Fund Platform Support Agreement dated as of May 23, 2022, as amended from time to time (the “Prior Agreement”);
Whereas, Toroso has organized a new Delaware statutory trust (the “New Trust”), and will use commercially reasonable efforts to cause the New Trust to create a new series thereof (the “New Fund”) and to cause the New Trust to enter into an agreement pursuant to which, among other things, (a) the assets of the Fund (and certain other assets as applicable) will be transferred to the New Fund as a series of the New Trust, in exchange for (i) shares of beneficial interest, no par value per share, of the New Fund, and (ii) the assumption by the New Fund of all of the liabilities of the of the Fund, and (b) the distribution of New Fund shares to the shareholders of the Fund in liquidation of the Fund (the “Merger”);
Whereas, each Party’s respective financial obligations and rights to any profits associated with the Fund (and the New Fund) are as set forth in Schedule A attached hereto (the “Schedule”); and
Whereas, the Parties desire to restate and in certain cases amend the terms and conditions applicable to the launch, marketing, promotion, development, and ongoing operation of the Fund (and the New Fund) and the Parties’ respective rights in profits and obligations for expenses of the Fund (and the New Fund), as initially set forth in the Prior Agreement.
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Terms:
NOW, THEREFORE, in consideration of the mutual promises and consideration contained herein, the receipt and sufficiency of which is acknowledged by each Party, intending to be legally bound, agree as follows:
| 1. | Definitions. For the purposes of this Agreement: |
“Affiliate” means, when used with respect to a Party, any other Entity directly or indirectly Controlling, Controlled by, or under common Control with the subject Party.
“Approved Stock Exchange” or “Arca” means the NYSE Arca stock exchange for the Fund during such period it remains a series of the Trust. If the Fund is transitioned to the New Trust, the term “Approved Stock Exchange” shall mean a U.S. securities exchange selected by Toroso and Hashdex and set forth in the New Fund’s registration statement.
“Confidential Information” means: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of a Party or the Trust or the New Trust; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the disclosing Party a competitive advantage over its competitors; or (iii) anything designated as confidential or in the case of data or information communicated orally, is declared as confidential or proprietary at the time of disclosure and confirmed in writing by the disclosing Party, summarizing such data or information, within a reasonable period of time thereafter.
“Control” means the direct or indirect ownership of at least 50% of the outstanding voting securities of an Entity, or the right to control the policy decisions of an Entity.
“Entity” means any corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, or other legal entity.
“Net Assets” means the Fund’s net assets or the New Fund’s net assets, as the case may be.
“New Fund” has the meaning set forth in the Preamble.
“New Trust” has the meaning set forth in the Preamble.
“Profit” shall have the meaning set forth in the Schedule.
“Reasonable efforts” shall include taking into account relevant commercial and regulatory factors.
“Regulations” (or “regulatory proceedings”) means regulations and proceedings by governmental agencies (such as the SEC) and self-regulatory organizations (such as FINRA, and securities or futures exchanges).
“Wind-Down Costs” has the meaning set forth on the Schedule.
| 2. | Obligations of the Parties. |
2.1 Each Party shall bear its respective financing and/or payment responsibilities as more fully described in Schedule A.
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2.2 Each of Toroso, Tidal, Teucrium, and Hashdex shall:
2.2.1 to the extent permitted by applicable law, incorporate the Fund (and the New Fund) into its marketing activities where appropriate, which may include, but is not limited to providing a Fund/New Fund launch press release, website data content, Fund launch webinars, follow-on webinars, and Fund promotion via social media outlets; and
2.2.2 use Reasonable Efforts to cooperate with each other Party as necessary to fulfill its respective obligations under this Agreement. For the avoidance of doubt, and without limitation of the foregoing, each Party shall use Reasonable Efforts to cooperate with each other Party and to effect the transition of the Fund to the New Fund under the terms contemplated by the Schedule.
NOTE: Each Party acknowledges and agrees that none of the Parties are registered as a broker-dealer and that none of the Parties shall take, nor be obligated to take, any actions that would require a Party to be so registered as a broker-dealer, although certain of the affiliates of certain Parties may be broker-dealers registered with the SEC. In addition, if any of the Parties takes any action required to be undertaken by a registered person, such person shall be a duly registered representative of a U.S. registered broker-dealer. For purposes of Sections 2.3 and 2.4, no Party or its affiliated broker-dealer, if applicable, shall be required to take any action that is in contravention with any law that is applicable to such Party or any affiliated broker-dealer.
2.3 Existing Fund: During such time as the Fund remains a series of the Trust and except as provided otherwise herein, each Party shall have the following obligations:
2.3.1 Teucrium Obligations:* Unless the Parties otherwise mutually agree, Teucrium shall act as “Sponsor” of the Fund (as that term is used in the prospectus).
2.3.2 Toroso Obligations: None.
2.3.3 Tidal Obligations: None.
2.3.4 Hashdex Obligations: Hashdex shall provide to the other Parties research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the Fund. The Parties agree that, except as otherwise agreed by Hashdex, Hashdex shall be described in the registration statement and prospectus for the Fund as the “Digital Asset Adviser” to the Fund and its Sponsor with an obligation to provide the foregoing services in connection with the Fund.
*It is the intention of the Parties to transition some or all of Teucrium’s obligations to Toroso, Tidal, and/or Hashdex on a time schedule to be mutually agreed. For the avoidance of doubt, Teucrium shall remain the sole Sponsor of the Fund until an amended registration statement is effective.
2.4 New Fund. If the Fund transitions to the New Trust, each Party shall have the following obligations with respect to the New Fund:*
2.4.1 Teucrium Obligations: None.
2.4.2 Toroso Obligations: Toroso shall serve as the “Sponsor” of the New Fund (as that term is used in the prospectus).
2.4.3 Tidal Obligations: Tidal shall provide fund administration and related services for the New Fund.
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2.4.4 Hashdex Obligations: Subject to mutual agreement of the Parties, Hashdex shall provide to Toroso research and analysis regarding bitcoin and bitcoin markets for use in the operation and marketing of the New Fund. The Parties agree that, except as otherwise agreed by Hashdex, Hashdex shall be described in the registration statement and prospectus for the New Fund as the “Digital Asset Adviser” to the New Fund and its Sponsor with an obligation to provide the foregoing services in connection with the New Fund.
* The formalization of such roles with respect to the New Fund shall be made in the format and at a time mutually agreed between Teucrium, Toroso, Tidal, and Hashdex, taking into account the operations of the New Fund and any applicable regulatory requirements.
| 3. | Fund’s Name. |
3.1 The name of the Fund includes “Hashdex,” and it shall not be changed without the written consent of Hashdex. Hashdex hereby represents, warrants and covenants to the other Parties, that Hashdex or its Affiliates is the owner or licensee of the trademarks, service marks and other intellectual property rights in the name of the Fund, and any logos provided by or on behalf of Hashdex in connection with this Agreement (collectively, the “Hashdex Marks”). Hashdex hereby further represents, warrants, and covenants to the other Parties, that Hashdex has the authority to grant all such licenses contemplated hereby. Hashdex hereby provides each of the other Parties a fully paid up, royalty free license to use the Hashdex Marks for purposes related to this Agreement, which shall include, without limitation, including such Hashdex Marks in the Fund’s registration statement and marketing materials. Hashdex hereby grants each of the other Parties the authority to sub-license such Hashdex Marks to one or more of the Trust and the Trust’s service providers for use in connection with this Agreement. This license and such grant of authority will remain in effect for the Term and will apply to the Hashdex Marks notwithstanding the transfer of any such Hashdex Marks by operation of law or otherwise to any permitted successor, corporation, organization, or individual. For the avoidance of doubt, the foregoing license and grant of authority shall terminate upon Hashdex’s withdrawal from this Agreement.
| 4. | [Reserved]. |
| 5. | Term and Termination. |
5.1 Indefinite Term. This Agreement shall be effective as of the Effective Date and shall continue in effect until the earliest of (i) its termination in accordance with Section 4 (Conditions) above, (ii) the Fund or the New Fund, as the case may be, withdraws its registration statement from the SEC or completely liquidates (in either case, other than, in the case of the Fund, to reorganize into the New Fund or another successor entity), (iii) at any time there is only one Party remaining to this Agreement, or (iv) upon written agreement of all of the then-remaining Parties
5.2 Forced Withdrawal. A Party may be forced to withdraw (or elect to withdraw pursuant to clause (ii), (iii) or (iv) below) as a Party to this Agreement upon one or more of the following occurrences:
(i) in accordance with subsection 5.3 below upon such Party’s uncured material breach of this Agreement;
(ii) upon ninety (90) days’ prior written notice by a Party to the other Parties (or such lesser period of time as may be necessary pursuant to law, rule, regulation or court order) if any legislation or regulation is finally adopted or any government interpretation is issued that prevents that Party from fulfilling any of its material obligations contained in this Agreement; or
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(iii) after the first anniversary of this Agreement, a Party may withdraw from this Agreement by providing the other Parties at least 180 days’ written notice; provided that such Party and the remaining Parties shall promptly work together in good faith to address all of such withdrawing Party’s obligations under this Agreement by: (x) assuming one or more of the withdrawing Party’s obligations under this Agreement; (y) engaging a third-party, reasonably satisfactory to all remaining Parties, to assume one or more of the withdrawing Party’s obligations through an amendment of this Agreement; and/or (z) waiving future performance of one or more of the withdrawing Party’s obligations.
5.3 Breach. In the case of (i) breach of any term or condition of the Agreement by a Party that has a material adverse effect on the business, assets, liabilities, operations, condition (financial or otherwise) or results of operations of the Fund (or the New Fund) or the Trust (or the New Trust), or (ii) material breach of any payment obligation of the Agreement, a non-breaching Party or Parties may remove such breaching Party as a party to this Agreement by giving at least thirty (30) days’ prior written notice to all of the other Parties of its intent to cause such removal if such breach is not remedied. Such notice shall specify with particularity the nature of the alleged breach. The date of the breaching Party’s removal as a party from this Agreement shall be set forth in such notice shall be the effective date of such withdrawal unless the breaching Party shall correct such breach within the notice period.
5.4 Effect of Withdrawal. In the event of a Party’s voluntary or forced withdrawal as a party to this Agreement, the withdrawing Party shall forfeit all rights to any revenue or profit generated by the Fund after the date of such withdrawal (but not revenue or profits generated prior to such time, including those that have not been distributed). Subject to Sections 5.5, 6, 7, 8, and 9 below, upon a Party’s withdrawal from this Agreement, the Agreement shall be deemed terminated with respect to such Party and such Party shall have no further financial obligations with respect to Fund costs or expenses that arise after such date.
The remaining Parties shall promptly work together in good faith to address all of such withdrawing Party’s obligations under this Agreement by: (i) assuming one or more of the withdrawing Party’s obligations under this Agreement; (ii) engaging a third-party to assume one or more of the withdrawing Party’s obligations; and/or (iii) waiving future performance of one or more of the withdrawing Party’s obligations.
5.5 Effect of Termination. In the event of the Fund’s wind-down, each then-remaining Party shall bear its respective financial obligation set forth on the Schedule with respect to any Fund Wind-Down Costs. If the Fund is wound down and liquidated within 180 days of a Party’s withdrawal from this Agreement, such Party shall remain obligated to pay its respective portion of the Fund’s Wind-Down Costs unless a third-party successor assumed such Party’s responsibilities under Section 5.2(iii)(y).
| 6. | Warranties and Covenants. |
| 6.1 | Warranties |
Each Party hereby represents and warrants to the other Parties that:
6.1.1 it has the full right, power and authority to execute, deliver and perform this Agreement in accordance with its terms;
6.1.2 this Agreement has been duly executed and delivered by or on behalf of such Party and constitutes a legal, valid, and binding obligation of such Party, enforceable against such Party in accordance with its terms; and
6.1.3 unless expressly set forth herein, no consent, approval, authorization or order of any person or entity is required for the execution delivery or performance of this Agreement by such Party, and neither the execution, delivery nor performance of this Agreement by such Party will (a) conflict with, or result in a breach of, or constitute a default under, or result in a violation of, any organizational document of such Party or any agreement or instrument to which such Party is subject or by which it is bound, or (b) result in the violation of any applicable law, rule, or regulation to which such Party is subject.
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6.2 The representations and warranties set forth in this Section 6 (Warranties) shall survive the execution, delivery, and termination of this Agreement.
6.3 Covenants
6.3.1 Subject to the terms and conditions of this Agreement, each of the Parties agrees to use reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper, or advisable under applicable laws to consummate and make effective, and to satisfy all conditions to the Merger and the other transactions contemplated by this Agreement as expeditiously as reasonably practicable after the date of this Agreement. In furtherance of these goals, within two weeks after the date on which this Agreement is executed, Tidal shall deliver to Teucrium a draft checklist (the “Checklist”) detailing each Party’s action items required to be addressed in connection with the Merger. The parties shall within the next following week finalize such Checklist. Thereafter, Tidal shall be responsible on an ongoing basis for informing Teucrium in writing of any material changes that are required to be made to the Checklist. Notwithstanding anything else herein, Teucrium shall not be responsible for completing action items that are not on (and not reasonably contemplated by) the Checklist.
6.3.2 Each Party shall use commercially reasonable efforts to identify all books and records such Party needs from Teucrium in connection with the Merger.
6.3.3 In no way in derogation of the expenses provisions of this Agreement and for the avoidance of doubt, the costs and expenses incident to preparing, entering into and carrying out this Agreement (whether the Merger is consummated or terminated) shall be borne entirely by Tidal and/or Hashdex, including, without limitation, expenses of preparing, printing, filing and mailing required registration forms with the SEC, preparing and filing other documents with the SEC and other governmental agencies deemed appropriate in connection with the transactions to be consummated in connection with the Merger, and all reasonable attorney’s fees associated therewith.
6.3.4 If the Fund has material contracts or other commitments that will be terminated by the Fund on or prior to the closing date of the Merger, Teucrium shall provide advance written notice to Tidal of all such expected termination costs and expenses. Teucrium understands and acknowledges that, because some of the contractual counterparties will continue to provide services to the New Fund, or for other reasons, counterparties may waiver or reduce their respective termination costs and/or expenses. Tidal shall reimburse Teucrium for only such termination costs and/or expense that the contractual counterparties actually invoice to Teucrium.
| 7. | Limitations of Liability |
7.1 EXCEPT FOR (I) OPERATIONAL COSTS AND PROFITS AS CONTEMPLATED BY SCHEDULE A, (II) BREACH OF SECTION 9 (CONFIDENTIALITY), AND (III) AS OTHERWISE EXPRESSLY CONTEMPLATED BY THIS AGREEMENT, NO PARTY SHALL BE LIABLE FOR ANY, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY LOST PROFITS OR REVENUES, HARM TO BUSINESS, OR LOST SAVINGS OF ANY KIND OR NATURE WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, WARRANTY, STRICT LIABILITY, OR TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE OF ANY KIND, WHETHER ACTIVE OR PASSIVE) EVEN IF SUCH PARTY HAS BEEN NOTIFIED OF THE POSSIBILITY OF SUCH LOSS.
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7.2 If any claim, direct or indirect, arising out of or in connection with this Agreement and involving a Party is not settled in a timely manner under mutually acceptable terms, each Party reserves the right to submit the claim to binding arbitration pursuant to the rules of the American Arbitration Association for Commercial Arbitration.
7.3 Except for a Party’s financial obligations with respect to Fund costs and expenses, a Party’s indemnification obligations, and except if otherwise expressly specified in this Agreement or in the Schedule, in no event will the aggregate liability of any Party, whether in contract, in tort (including negligence), under a warranty, under statute or otherwise, for any claim, direct or otherwise, arising out of or in connection with this Agreement, exceed $500,000, regardless of the cause or form of action. For the avoidance of doubt, any Start-Up Costs, Operational Costs, Profits, and/or Wind-Down Costs payable under this Agreement shall be excluded from the foregoing liability cap.
7.4 Teucrium shall not be liable for actions of any other Party, including but not limited to breach of applicable law, that occur following the Merger.
7.5 The provisions of this Section 7 shall survive the termination or expiration of this Agreement.
| 8. | Indemnification. |
8.1 Each Party (such Party, the “Indemnifying Party”) shall indemnify, defend and hold harmless the other Parties (the “Indemnified Parties”), their respective affiliates, and their respective officers, directors, managers, and employees, against any and all judgments, damages, costs or losses of any kind as a result of any claim, action or proceeding (whether pending or threatened) that arises out of or relates to (i) any breach by the Indemnifying Party of its representations or warranties or agreements under this Agreement, (ii) such Indemnifying Party’s gross negligence or willful misconduct, including the gross negligence or willful misconduct of the Indemnifying Party’s directors, officers, employees, and agents, unless such gross negligence or willful misconduct is carried out at the express written instruction of an Indemnified Party; and/or (iii) any breach of the confidentiality provisions of this Agreement by the Indemnifying Party.
8.2 Each Party shall indemnify, defend, and hold harmless each of the other Parties, and their respective affiliates, and their respective officers, directors, managers, and employees, against any and all judgments, damages, costs or losses of any kind as a result of any claim, action or proceeding (whether pending or threatened) that arises directly out of or relates directly to any untrue statement of a material fact provided by or on behalf of such Party that is intended to be contained in the Fund’s or the New Fund’s registration statement, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Fund or New Fund, as the case may be, by such Indemnifying Party or the omission to state therein a material fact known to the Indemnifying Party which was required to be stated therein or necessary to make the statements therein not misleading.
8.3 Hashdex shall indemnify, defend and hold harmless each of the other Parties, and their respective affiliates, officers, directors, managers, and employees, against any and all judgments, damages, costs or losses of any kind as a result of any claim, action or proceeding (whether pending or threatened) that arises out of or relates to third-party claim with regard to a Party’s, or any of the Fund’s service provider’s use of any Hashdex Marks as contemplated by this Agreement, or in the Trust’s registration statement.
8.4 Each Party (such Party, the “Post-Transfer Indemnifying Party”) shall indemnify, defend and hold harmless Teucrium, and its respective affiliates, officers, directors, and employees, against any and all judgments, damages, costs or losses of any kind as a result of any claim, action or proceeding (whether pending or threatened) relating to actions of such Post-Transfer Indemnifying Party with respect to the New Fund, including but not limited to breach of applicable law, that occur following the Merger.
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8.5 A Party’s indemnification obligations are subject to the following: (i) such Indemnified Party notifies the Indemnifying Party within fifteen (15) days of such claim, action or proceeding, and (ii) such Indemnified Party cooperates with the Indemnifying Party in the defense thereof. Notwithstanding the foregoing, a delay in notice does not relieve an Indemnifying Party of any liability to an Indemnified Party, except to the extent the indemnifying Party shows that the delay prejudiced the defense of the action. The Indemnified Party shall have no right to settle any claim, action, or proceeding without the written consent of the Indemnifying Party without waiving the indemnity hereunder. The Indemnifying Party, in the defense of any such claim, action or proceeding, except with the written consent of such Indemnified Party, shall not consent to entry of any judgment or enter into any settlement which either (i) does not include, as an unconditional term, the grant by the claimant to such Indemnified Party of a release of all liabilities in respect of such claims or (ii) otherwise adversely affects the rights of such Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not be required to indemnify such Indemnified Party to the extent any claims, actions or proceeding arise out of or relate to (i) a breach by such Indemnified Party of its representations or warranties or agreements made herein, or (ii) such Indemnified Party’s negligence or willful misconduct.
8.6 The provisions of this Section 9 shall survive the termination or expiration of this Agreement.
| 9. | Confidential Information. |
9.1 No Party will use, copy, or disclose, or permit any unauthorized person access to, another Party’s Confidential Information, except as expressly directed by such other Party or as permitted herein.
9.2 Each Party agrees that: (a) all Confidential Information shall remain the exclusive property of the owner and the receiving Party shall not use any Confidential Information for any purpose except in furtherance of this Agreement; (b) it shall maintain, and shall use prudent methods to cause its employees and agents to maintain, the confidentiality and secrecy of the Confidential Information; (c) it shall disclose Confidential Information only to those of its employees and agents who have a need to know such information in furtherance of this Agreement and who are aware of the confidential nature of such information or are under an obligation of confidentiality; and (d) it shall use prudent methods to ensure that its employees and agents do not, copy, publish, disclose to others or use (other than pursuant to the terms hereof) the Confidential Information.
9.3 Confidential Information shall not be subject to the above confidentiality obligation to the extent: (i) it is already known to the receiving Party at the time it is obtained; (ii) it is or becomes publicly known or available through no wrongful act of the receiving Party; (iii) it is rightfully received from a third party who, to the receiving Party’s knowledge, is not under a duty of confidentiality; (iv) it is released by the protected Party to a third party without restriction; or (v) it has been or is independently developed or obtained by the receiving Party without reference to the Confidential Information provided by the protected Party.
9.4 Confidential Information may be disclosed by a Party without violating its confidentiality obligations under this Agreement to third parties to the limited extent that: (i) release of the information is necessary or appropriate in connection with the provision of services contemplated by this Agreement (including services to the Fund or the New Fund); (ii) it is required to be disclosed by the receiving Party pursuant to a requirement of a court order, subpoena, governmental or regulatory authority or agency, law, or binding discovery request in pending litigation (provided the receiving Party will provide the disclosing Party written notice of such requirement, to the extent such notice is permitted); (iii) it is requested to be disclosed by a governmental or regulatory authority or agency with jurisdiction over the disclosing Party; or (iv) it is relevant to any claim or cause of action between the Parties or the defense of any claim or cause of action asserted against the receiving Party. Confidential Information shared with third parties in accordance with the foregoing sentence shall otherwise remain subject to the confidentiality obligations of this Section 9. The Parties acknowledge that this Agreement (other than, to the extent permitted by applicable law, Schedule A) may be filed as an exhibit to the Trust’s and the New Trust’s registration statement.
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9.5 Each Party shall promptly report to the other Parties any actual or suspected violation of the terms of this Section 9, and shall take all reasonable steps to prevent, control, or remedy such violation.
9.6 Each Party acknowledges that each other Party is heavily reliant on the confidentiality of its Confidential Information and that the substantial and irreparable damages which such other Party and its affiliates would sustain upon any violation of this Section 9 may be impossible to ascertain with precision and that money damages alone will not provide an adequate remedy to such other Party. In the event of any violation of the undertakings contained in this Section 9, the non-breaching Party shall be entitled, in addition to any other rights or remedies which it may have, to maintain an action for damages, and preliminary and permanent injunctive and other equitable relief, including an accounting for any profits arising from any breach of this Section 9. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Section 9 may be brought in the courts competent jurisdiction in New York, New York, and each Party consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on a Party anywhere. In the case of any trade secrets or other confidential information, each Party waives any requirement that another Party prove the economic value thereof and waives any requirement that such other Party post a bond or other security in connection with the enforcement of its rights hereunder.
| 10. | Advertising. |
10.1 Except as otherwise set forth in this Agreement, a Party shall not use the name, logos, symbols, trademarks, or other images of another Party in connection with any marketing, advertising, or other promotional material, either on-line (e.g., social media) or off-line (e.g., newspapers), relating to this Agreement without the prior written (including email) approval of the relevant other Party.
10.2 Each Party agrees that relevant trademarks may be used during the term of this Agreement in the marketing of the Fund/New Fund (unless, for the avoidance of doubt, such Party has withdrawn from this Agreement), including Fund/New Fund prospectuses, statements of additional information, fact sheets, press releases, the Fund’s/New Fund’s website and marketing campaigns directly connected with the Fund/New Fund, provided, however, that prior to any such use of a Party’s trademark, such Party is afforded at least three (3) business days to consent to such use by receiving a copy of such materials and a request for the Party’s consent. If materials using a Party’s trademark do not differ in a material way from use of such trademark in substantially similar materials to which the Party has consented, then no further consent need be procured from such Party.
10.3 The Fund’s/New Fund’s initial press release (including any promotional material) shall be previously approved by all the Parties in writing (including through email).
| 11. | Miscellaneous. |
11.1 Compliance with Laws. Each Party shall comply with and give all notices required by laws, ordinances, rules, regulations and lawful orders of any public authority (including without limitation child labor laws) bearing on its performance of its duties and obligations under this Agreement. Furthermore, each Party at all times shall observe and comply with all applicable national, supranational (e.g., European Union) and local laws, ordinances and regulations that in any manner affect its performance under this Agreement, and with all applicable orders or decrees as exist at present and those which may be enacted later by bodies or tribunals having jurisdiction or authority over the performance of this Agreement. Each Party agrees that all transactions in connection with this Agreement will be accurately reflected in its books and records, and that no funds or other assets shall be paid directly or indirectly to government officials or persons acting on their behalf for the purpose of influencing government decisions or actions with respect to the Fund. Each Party shall notify the other Parties if it becomes aware of any non-compliance in connection with this Agreement and shall take all appropriate action necessary to ensure compliance by itself and by its subcontractors with such laws, ordinances, rules, applicable regulations, and other policies and procedures bearing on the performance of this Agreement.
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11.2 Expense Verification Rights. The records of each Party to be reviewed for purposes of costs and expenses verification (the “Reviewed Party”), which shall include, but not be limited to, accounting records, reports, receipts, and any other documentation relating directly to the costs and expenses incurred by a Party in connection with performance of this Agreement shall be reviewable and subject to reproduction, during normal working hours, by the Reviewing party (the “Reviewing Party”) or its authorized representative to the extent necessary to adequately evaluate costs and expenses submitted by the Reviewed Party, or as required by governmental authorities or as desirable for any other valid business purpose. The Reviewing Party or its authorized representative shall give the Reviewed Party reasonable advanced notice of intent to review expense records, and shall execute a non-disclosure agreement acceptable to the Reviewed Party in its good faith opinion. Reviews conducted under this provision shall be limited to once per calendar year. Each such review shall be conducted in a manner designed to minimize the impact to the Reviewed Party’s business, including the provision of documents by U.S. mail, email, or similar means of delivery.
11.3 Entire Agreement. This Agreement, including any appendices, schedules, or exhibits hereto (which are hereby expressly incorporated into and made a part of this Agreement), is solely and exclusively among the Parties hereto, and represents the entire understanding and agreement among the Parties with respect to the subject matter hereof, and supersedes all other negotiations, understandings and representations (if any) made by and among such Parties.
11.4 Amendments. The provisions of this Agreement may not be amended, supplemented, waived, or changed orally, except only by a writing signed by all of the Parties to this Agreement. There are no oral or written collateral representations, agreements or understandings except as provided herein. The delay or failure by any Party to insist, in any one or more instances, upon strict performance of any of the terms or conditions of this Agreement or to exercise any right or privilege herein conferred shall not be construed as a waiver of any such term, condition, right or privilege, but the same shall continue in full force and effect.
11.5 Assignments. This Agreement may not be assigned by a Party to any other person or entity without each of the other Party’s prior written consent, which consent shall not be unreasonably withheld if the assignee provides written assurances that it has the requisite licenses and registrations and functional and financial capacity necessary to fully perform all of the assignee’s duties and obligations contemplated by this Agreement. Any assignment or transfer in contravention of this Section 11.5 shall be null and void. For the avoidance of doubt, subject to the provision of the written assurances set forth in first sentence of this Section 11.5 to the other Parties, Teucrium may, without the consent of any of the other Parties, assign this Agreement to its parent, subsidiaries and other affiliates that it controls.
11.6 Binding Effect. All of the terms and provisions of this Agreement, whether so expressed or not, shall be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective legal representatives, successors, and permitted assigns.
11.7 Notices. Any notice required or permitted to be given by a Party to another Party shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by e-mail, registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other Party’s address set forth below, or such other address(es) as may be specified in writing by one Party to another Party.
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If to Toroso:
Toroso Investments, LLC: Attn: Dan Carlson
234 W Florida St, Suite 203
Milwaukee, WI 53204
e-mail: dcarlson@tidalfg.com
If to Tidal:
Tidal ETF Services LLC Attn: Eric Falkeis
234 W Florida St, Suite 203
Milwaukee, WI 53204
e-mail: efalkeis@tidalfg.com
If to Hashdex:
Hashdex Asset Management Ltd.
Attn.: Bruno Ramos de Sousa / Nicole Dyskant Av.
Ataulfo de Paiva, 1120, Loja A, Leblon
Rio de Janeiro, RJ, 22440-035 – Brazil
e-mail: bruno.sousa@hashdex.com / nicole.dyskant@hashdex.com
If to Teucrium:
Teucrium Trading, LLC
Attn: Sal Gilbertie/Cory Mullen-Rusin
Three Main Street, Suite 215 Burlington, VT 05401
email: sal.gilbertie@teucrium.com / cory.mullenrusin@teucrium.com
or, to such other address as any Party may designate by notice complying with the terms of this Section 11.7 and deemed given upon receipt.
11.8 Headings. The headings contained in this Agreement are for convenience of reference only, and shall not limit or otherwise affect in any way the meaning or interpretation of this Agreement.
11.9 Severability. If any part of this Agreement or any other agreement entered into pursuant hereto is contrary to, prohibited by, or deemed invalid under applicable law or regulation, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited, or invalid, but the remainder hereof shall not be invalidated thereby and shall be given full force and effect so far as possible.
11.10 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws.
11.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11.12 Force Majeure. A Party shall be excused from delays in performing or from its failure to perform hereunder to the extent that such delays or failures result from causes beyond the reasonable control of such Party; provided, however, in order to be excused from delay or failure to perform, such Party must act diligently to remedy the cause of such delay or failure, and shall give the other Parties prompt written notice of any such delays or failures.
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11.13 Required Approvals. Where agreement, approval, acceptance, or consent by a Party is required by any provision of this Agreement, such action shall not be unreasonably delayed, conditioned, or withheld.
11.14 Independent Contractors. Nothing in this Agreement shall be deemed to constitute, create, give effect to or otherwise recognize a joint venture, partnership or similar business arrangement or entity of any kind, nor, unless expressly stated herein, make any of the Parties the agent of another Party, and the rights and obligations of each Party shall be limited to those expressly stated in this Agreement.
IN WITNESS WHEREOF, each Party has caused this Amendment to be signed and delivered by a duly authorized officer.
| Toroso Investments, LLC | |||
| By: | /s/ Dan Carlson | ||
| Print Name: | Dan Carlson |
| Title: | CFO | ||
| Date: | 10/24/2023 |
| Tidal Etf Services LLC | |||
| By: | /s/ Dan Carlson | ||
| Print Name: | Dan Carlson |
| Title: | CFO | ||
| Date: | 10/24/2023 |
| Hashdex Asset Management LTD. | |||
| By: | /s/ Marcelo Sampaio | ||
| Print Name: | Marcelo Sampaio |
| Title: | CEO | ||
| Date: | 10/24/2023 |
| Teucrium Trading, LLC | |||
| By: | /s/ Cory Mullen-Rusin | ||
| Print Name: | Cory Mullen-Rusin |
| Title: | CFO | ||
| Date: | 10/24/2023 |
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Schedule A
| 1. | Fund Name/Ticker: Hashdex Bitcoin Futures Fund Ticker: DEFI |
| 2. | Fund Organization: |
| ● | Existing Fund: |
| ○ | The Fund is a commodity pool that issues Shares that may be purchased and sold on NYSE Arca. |
| ○ | The Fund is a series of the Teucrium Commodity Trust, a Delaware statutory trust (the “Trust”). |
| ● | New Fund: |
| ○ | The New Fund will be a commodity pool that issues Shares that may be purchased and sold on an Approved Stock Exchange. |
| ○ | The New Fund will be organized as a series of a Delaware statutory trust (the “New Trust”), which, as of the date of this Agreement, has not be formed. |
| 3. | Fund Characteristics: Except as required by regulatory requirements or by requests from applicable regulators, the Fund’s (and the New Fund’s) characteristics will be substantially similar to those described in its prospectus filed with the SEC in Pre-Effective Amendment No. 2 to the Form S-1 Registration Statement under the Securities Act of 1933. |
| 4. | Start-Up Costs. |
Existing Fund: Teucrium was responsible for paying for all listing, legal, and regulatory costs and expenses incurred in connection with the regulatory process related to the launch of the Fund, including drafting the Fund’s registration statement, exchange listing fees, and other regulatory or service provider fees (“Start-Up Costs”) that were incurred or accrued prior to April 7, 2022.
Beginning April 7, 2022, Toroso and Hashdex became jointly responsible for paying Start- Up Costs for the Fund in accordance with table below, with such Start-Up Costs being pre- approved by Toroso and Hashdex.
New Trust & New Fund: In addition, Toroso and Hashdex shall be jointly responsible for paying Start-Up Costs for the New Trust and the New Fund in accordance with the following table, as pre-approved by the Toroso and Hashdex.
Start-Up Costs Sharing Percentages
| TOROSO SHARE | HASHDEX SHARE |
| 50% | 50% |
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| 5. | Financing and Profit Split: |
| 5.1 | Internal Expenses. Each Party shall be responsible for its own internal expenses (which shall be excluded from Start-Up Costs and Operational Costs (defined below)) including but not limited to the following: compensation and benefits of its employees, members and directors; employee, member and director expenses; leasing; purchasing or maintenance of its facilities and equipment; and development and maintenance of its corporate website. |
| 5.2 | Teucrium Fees for the Fund: |
| 5.2.1 | Teucrium Sponsor Fee: Teucrium shall be entitled to retain a monthly amount equal to ten (10) percent of the Management Fee of the Fund; provided, however, that such fee shall never be less than 0.07% of monthly average net assets of the Fund (the “Sponsor Fee”). |
| 5.2.2 | Teucrium Administrative Fee: During such time as Teucrium is providing administrative and operational services to the Fund, Teucrium shall also be entitled to retain (in addition to the Sponsor Fee and, if applicable, the Trading Fee) an annual fee of $75,000 ($6,259 monthly) (the "Administrative Fee”). |
| 5.2.3 | Teucrium Trading Fee: During such time as Teucrium is providing trading services to the Fund, Teucrium shall also be entitled to retain (in addition to the Sponsor Fee and, if applicable, the Administrative Fee) an amount equal to 4 bps, subject to an annual minimum of $25,000 ($2,0834 monthly) (the “Trading Fee,” and together with Sponsor Fee and Administrative Fee, as applicable, the "Teucrium Fee”). |
| 5.2.4 | Each month, Teucrium shall retain the Teucrium Fee from the Fund’s Management Fee, and Teucrium shall pay the remaining funds to Tidal, as paying agent. |
| 5.3 | Teucrium Fee for the New Fund: |
Teucrium shall be entitled to receive a monthly amount equal to seven (7) percent of the Management Fee of the New Fund (the “New Fund Teucrium Fee”) provided, however, that such fee shall never be less than 0.04% of monthly average net assets of the Fund. As between Toroso and Hashdex, the New Fund Teucrium Fee shall be considered an Operational Cost (as defined below).
| 5.4 | Operational Costs: |
Existing Fund: Upon the launch of the Fund, Teucrium shall be initially responsible for paying all fixed and variable costs and expenses associated with the on-going operation of the Fund, including but not limited to fund administration fees, custody fees, legal fees, exchange listing fees and related service fees, transfer agent fees, compliance fees, fund audit fees, insurance costs, printing and mailing fees, and all other such costs mutually agreed upon by Teucrium (in the case of the Fund or by Hashdex and Toroso in the case of the New Fund) to be necessary for the on-going operation of the Fund, but excluding Marketing Costs (collectively, “Operational Costs”). Toroso and Hashdex shall jointly be responsible for reimbursing Teucrium for Operational Costs each month, with Toroso and Hashdex to bear such Operational Expenses in the following percentages:
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Operational Cost Reimbursement Sharing Percentages
| TOROSO SHARE | HASHDEX SHARE |
| 50% | 50% |
Hashdex shall be responsible for paying for all fixed and variable costs and expenses associated with marketing activities (“Marketing Costs”). Hashdex agrees to incur or reimburse Teucrium and Toroso for Marketing Costs for the benefit of the Fund in an amount of at least $20,000/month, but Hashdex is not obligated to incur more than such amount unless Hashdex otherwise agrees. Hashdex shall have the right to approve all material Marketing Costs before they are incurred.
New Fund: Upon the launch of the New Fund, Toroso and Hashdex shall be jointly responsible for paying all of the New Fund’s Operational Costs per the table below (except to the extent borne by the New Fund), as pre-approved by Toroso and Hashdex. Hashdex shall be responsible for paying for all of the Marketing Costs for the New Fund. Hashdex agrees to incur Marketing Costs for the benefit of the New Fund in an amount of at least $20,000/month, but Hashdex is not obligated to incur more than such amount unless Hashdex otherwise agrees. Hashdex shall have the right to approve all material Marketing Costs before they are incurred.
Operational Costs Sharing Percentages
| TOROSO SHARE | HASHDEX SHARE |
| 50% | 50% |
| 5.5. | Shortfalls & Profits. |
Existing Fund:
In each calendar month that the amount generated by (a) the Fund’s Management Fee (as set forth in its prospectus) (b) minus the Teucrium Fee, is less than (c) the monthly Operational Costs (a “Shortfall“), Teucrium shall notify Toroso and Hashdex of the Shortfall within ten calendar days of the end of such month. Toroso and Hashdex shall pay to Teucrium within fifteen calendar days of their receipt of the Shortfall notice, an amount equal to the full amount of its respective amount of the Shortfall based on their respective percentages set forth in the above table.
In each calendar month that the amount generated by the Fund's Management Fee minus the Teucrium Fee is greater than the monthly Operational Costs (a “Profit”), Teucrium shall notify Toroso and Hashdex of the Profit within ten days of the end of such month. Toroso and Hashdex shall be entitled to receive from Teucrium an amount equal to their respective percentage of the Profit as set forth in the table below. And, in such instances, Teucrium shall disburse such amounts to Toroso and Hashdex within thirty (30) days after each such month- end.
With each notice of either a Shortfall or a Profit, Teucrium shall provide to Toroso and Hashdex a written statement of the calculations with reasonable backup documentation.
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Hashdex and Toroso may request additional backup documentation from Teucrium if they deem necessary.
Profit/Shortfall Sharing Percentages
| TOROSO SHARE | HASHDEX SHARE |
| 50% | 50% |
New Fund:
Tidal shall act as paying agent with respect to the New Fund and, to that end, the Management Fee shall be directed to Tidal solely in its capacity as such.
In each calendar month that the amount generated by the New Fund’s Management Fee (as set forth in its prospectus) is less than the aggregate amount of monthly Operational Costs for the New Fund (a “Shortfall”), Tidal shall notify Toroso and Hashdex of the Shortfall within ten days of the end of the month. Toroso and Hashdex shall pay to Tidal within 15 days of its receipt of the Shortfall notice, as paying agent, an amount equal to the full amount of its respective amount of the Shortfall based on their respective percentages set forth in the above table. In turn, Tidal shall be responsible for making payments to Teucrium (in respect of its entitlements with respect to the New Fund’s Management Fee) and each of the Fund’s service providers for amounts due and payable.
In each calendar month that the amount generated by the Management Fee is greater than the aggregate amount of monthly Operational Costs for the New Fund (a “Profit”), Toroso and Hashdex shall be entitled to receive an amount equal to their respective percentage of the Profit as set forth in the table above. And, in such instances, Tidal shall disburse such amounts to Toroso and Hashdex within thirty (30) days after each such month-end.
With each notice of either a Shortfall or a Profit, Tidal shall provide to Toroso and Hashdex a written statement of the calculations with reasonable backup documentation. Hashdex and Toroso may request additional backup documentation from Tidal if they deem necessary.
| 5.6 | Wind-Down/Transition Costs. If the Fund winds-down, which shall require the pre- approval of the Parties, each of Toroso and Hashdex shall be responsible for one-half of the wind- down expenses (including legal fees) incurred in connection therewith (collectively, “Wind- Down Costs”), which shall include, without limitation, any state or SEC filing fees, costs or expenses. |
Each of Toroso and Hashdex shall be responsible for one-half of the reasonable costs and expenses, subject to pre-approval by Toroso and Hashdex, required to effect the transition of the Fund from the Trust to a New Trust (e.g., via a reorganization of the Fund into a shell portfolio on the New Trust (i.e., the New Fund)), including legal fees reasonably incurred in connection with the transition, such as: preparation of an agreement and plan of reorganization, shareholder meeting materials, and closing documents.
[Remainder of Page Left Blank Intentionally]
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