As
filed with the Securities and Exchange Commission on April 23,
2019
Registration No.
333-230623
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Pre-Effective
Amendment No. 1
to
FORM
S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933
Teucrium
Commodity Trust
(Registrant)
Delaware
(State or other
jurisdiction of incorporation or organization)
6799
(Primary Standard
Industrial Classification Code Number)
27-6715895
(I.R.S. Employer
Identification No.)
c/o Teucrium
Trading, LLC
Three Main
Street
Suite
215
Burlington, VT
05401
Phone:
(802) 540-0019
(Address,
including zip code, and telephone number, including area code, of
Registrant’s principal executive offices)
Sal
Gilbertie
Chief Executive
Officer
Teucrium Trading,
LLC
Three Main
Street
Suite
215
Burlington, VT
05401
Phone:
(802) 540-0019
(Name,
address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
W.
Thomas Conner, Esq.
VedderPrice
P.C.
1401
I Street NW
Suite
1100
Washington,
DC 20005
Approximate
date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration
Statement.
If any of the
securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this Form
is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
If this Form
is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering.
☐
If this Form
is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering.
☐
Indicate by
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
☐
|
Accelerated filer
☒
|
|
Non-accelerated filer
☐
|
Smaller reporting company
☐
Emerging growth company
☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the Securities
Act. ☐
CALCULATION OF REGISTRATION
FEE
Title of Each
Class of Securities to be Registered
|
Amount to be
Registered(1)
|
Proposed Maximum
Offering Price Per Unit(2)
|
Proposed Maximum
Aggregate Offering Price(2)
|
Amount of
Registration Fee(1)(2)
|
Common units of Teucrium Wheat Fund,
a series of the Registrant
|
30,000,000
|
$ 5.43
|
$162,900,000.00
|
$19,743.48
|
(1) This Registration Statement
registers 30,000,000 additional shares of Teucrium Wheat Fund and,
pursuant to Rule 415(a)(6), carries over 15,000,000 unsold shares
of Teucrium Wheat Fund from a Registration Statement on Form S-1
(File No. 333-212481), initially filed on July 12, 2016 and
effective as of July 15, 2016, related to 24,050,000 shares of the
Teucrium Wheat Fund (the”2016 Registration Statement”),
and a Registration Statement on Form S-1 (File No. 333-196209),
initially filed on May 23, 2014 and effective as of June 30, 2014,
relating to 8,550,000 shares of Teucrium Wheat Fund (the
“2014 Registration Statement’), and a Registration
Statement on Form S-1 (File No. 333-167591), initially filed on
June 17, 2010 and effective as of June 13, 2011, relating to
10,000,000 shares of Teucrium Wheat Fund (the “Initial
Registration Statement”). In connection with filing the
Initial Registration Statement, the Registrant paid registration
fees of $5,587.31 with respect to the unsold shares that are being
carried forward to this Registration Statement. Accordingly, no
additional registration fee is due with respect to these unsold
shares.
This Registration Statement contains
a combined prospectus under Rule 429 of the Securities Act which
relates to the prospectus contained in the 2016 Registration
Statement. Upon effectiveness, this Registration Statement, which
is a new Registration Statement, will also act as a post-effective
amendment to the 2016 Registration Statement. Pursuant to Rule
415(a)(6), the offering of unsold shares under the 2016
Registration Statement will be deemed terminated as of the date of
effectiveness of this Registration Statement.
(2) Estimated solely for the purpose
of calculating the registration fee for the 30,000,000 additional
shares of Teucrium Wheat Fund pursuant to Rule 457(d) under the
Securities Act of 1933, based on a net asset value per share of
$5.43 on March 27, 2019.
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 this
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated April
23, 2019
Teucrium Wheat Fund
45,000,000
Shares
Teucrium Wheat Fund (the
“Fund” or “Us” or “We”) is a
commodity pool that is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust. The Fund issues
common units representing fractional undivided beneficial interests
in such Fund, called “Shares.” The Fund continuously
offers creation baskets consisting of 25,000 Shares
(“Creation Baskets”) at their net asset value
(“NAV”) to “Authorized Purchasers” (as
defined below). Authorized Purchasers, in turn, may offer to the
public Shares of any baskets they create. Authorized Purchasers
sell such Shares, which are listed on the NYSE Arca exchange
(“NYSE Arca”), to the public at per Share
offering prices that are expected to reflect, among other factors,
the trading price of the Shares on the NYSE Arca, the NAV of the
Fund at the time the Authorized Purchaser purchased the Creation
Baskets and the NAV at the time of the offer of the Shares to the
public, the supply of and demand for Shares at the time of sale,
and the liquidity of the markets for wheat interests in which the
Fund invests. A list of the Fund’s Authorized Purchasers as
of the date of this Prospectus can be found under “Plan of
Distribution – Distributor and Authorized Purchasers,”
on page 43. The prices of Shares offered by Authorized Purchasers
are expected to fall between the Fund’s NAV and the trading
price of the Shares on the NYSE Arca at the time of sale. The
Fund’s Shares may trade in the secondary market on the NYSE
Arca at prices that are lower or higher than their NAV per Share.
Fund Shares are listed on the NYSE Arca under the symbol
“WEAT.”
The Fund’s sponsor is Teucrium
Trading, LLC (the “Sponsor”). The investment objective
of the Fund is to have the daily changes in percentage terms of the
Fund’s NAV per Share reflect the daily changes in percentage
terms of a weighted average of the closing settlement prices for
three wheat futures contracts.
This is a best efforts offering; the
distributor, Foreside Fund Services, LLC (the
“Distributor”) is not required to sell any specific
number or dollar amount of Shares but will use its best efforts to
sell Shares. An Authorized Purchaser is under no obligation to
purchase Shares. This is intended to be a continuous offering that
will terminate on April 29, 2022 unless suspended or terminated at
any earlier time for certain reasons specified in this prospectus
or unless extended as permitted under the rules under the
Securities Act of 1933. See “Prospectus Summary – The
Shares” and “Creation and Redemption of Shares –
Rejection of Purchase Orders” below.
Investing in the
Fund involves significant risks. See “What Are the Risk
Factors Involved with an Investment in the Fund?” beginning
on page 15. The Fund is not a mutual fund registered under the
Investment Company Act of 1940 and is not subject to regulation
under such Act.
NEITHER THE
SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE
SECURITIES OFFERED IN THIS PROSPECTUS OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY
FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE
DOCUMENT.
This prospectus
is in two parts: a disclosure document and a statement of
additional information. These parts are bound together, and both
contain important information.
The date of this prospectus is April
23, 2019.
COMMODITY FUTURES
TRADING COMMISSION RISK DISCLOSURE STATEMENT
YOU SHOULD
CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO
PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE
THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS
WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET
VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN
THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR
ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER,
COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY
FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE
SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF
THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 41 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
12.
THIS BRIEF
STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY
TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD
CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION
OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE
10.
YOU SHOULD ALSO
BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR
OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE
UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES
MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR
DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER,
UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE
ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN
NONUNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE
POOL MAY BE EFFECTED.
SWAPS
TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY
OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR
SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK,
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND
OPERATIONAL RISK.
HIGHLY CUSTOMIZED
SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH
MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED
TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS
A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN
UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE
RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP
TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION
MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY
NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE
COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL'S
OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS ASSOCIATED WITH A
TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION
DATE.
TEUCRIUM WHEAT
FUND
TABLE OF
CONTENTS
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6
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7
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7
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7
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7
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9
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9
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10
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11
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11
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12
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13
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15
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15
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20
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26
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26
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27
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27
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29
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29
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29
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31
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32
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34
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36
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37
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37
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38
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39
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40
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42
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42
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43
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43
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45
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45
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46
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49
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49
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50
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55
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58
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59
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59
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59
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59
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60
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60
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60
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60
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60
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61
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62
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68
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71
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72
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73
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74
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S
TATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes
“forward-looking statements” which generally relate to
future events or future performance. In some cases, you can
identify forward-looking statements by terminology such as
“may,” “will,” “should,”
“expect,” “plan,” “anticipate,”
“believe,” “estimate,”
“predict,” “potential” or the negative of
these terms or other comparable terminology. All statements (other
than statements of historical fact) included in this prospectus
that address activities, events or developments that will or may
occur in the future, including such matters as movements in the
commodities markets and indexes that track such movements, the
Fund’s operations, the Sponsor’s plans and references
to the Fund’s future success and other similar matters, are
forward-looking statements. These statements are only predictions.
Actual events or results may differ materially. These statements
are based upon certain assumptions and analyses the Sponsor has
made based on its perception of historical trends, current
conditions and expected future developments, as well as other
factors appropriate in the circumstances. Whether or not actual
results and developments will conform to the Sponsor’s
expectations and predictions, however, is subject to a number of
risks and uncertainties, including the special considerations
discussed in this prospectus, general economic, market and business
conditions, changes in laws or regulations, including those
concerning taxes, made by governmental authorities or regulatory
bodies, and other world economic and political developments. See
“What Are the Risk Factors Involved with an Investment in the
Fund?” Consequently, all the forward looking statements
made in this prospectus are qualified by these cautionary
statements, and there can be no assurance that actual results or
developments the Sponsor anticipates will be realized or, even if
substantially realized, that they will result in the expected
consequences to, or have the expected effects on, the Fund’s
operations or the value of its Shares.
This is only a
summary of the prospectus and, while it contains material
information about the Fund and its Shares, it does not contain or
summarize all of the information about the Fund and the Shares
contained in this prospectus that is material and/or which may be
important to you. You should read this entire prospectus, including
“What Are the Risk Factors Involved with an Investment in the
Fund?” beginning on page 15, before making an investment
decision about the Shares. In addition, this prospectus includes a
statement of additional information that follows and is bound
together with the primary disclosure document. Both the primary
disclosure document and the statement of additional information
contain important information.
P
rincipal Offices of
the Fund and the Sponsor
The principal office of the Trust
and the Fund is located at Three Main Street, Suite 215,
Burlington, Vermont 05401. The telephone number is (802) 540-0019.
The Sponsor’s principal office is also located at Three Main
Street, Suite 215, Burlington, Vermont 05401, and its telephone
number is also (802) 540-0019.
The amount of trading income
required for the redemption value of a Share at the end of one year
to equal the selling price of the Share, assuming a selling price
of $6.04 (the NAV per Share as of January 31, 2019), is $0.07 or
1.16% of the selling price. For more information, see
“Breakeven Analysis” below.
Teucrium Wheat Fund (the
“Fund” or “Us” or “We”), is a
commodity pool that issues Shares that may be purchased and sold on
the NYSE Arca. The Fund is a series of the Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust organized on
September 11, 2009. The Fund is one of five series of the Trust
(collectively, the “Teucrium Funds”). each series
operates as a separate commodity pool. Additional series of the
Trust may be created in the future. The Trust and the Fund operate
pursuant to the Trust’s Third Amended and Restated
Declaration of Trust and Trust Agreement (the “Trust
Agreement”). The Fund was formed and is managed and
controlled by the Sponsor, Teucrium Trading, LLC. The Sponsor is a
limited liability company formed in Delaware on July 28, 2009 that
is registered as a commodity pool operator (“CPO”) with
the Commodity Futures Trading Commission (“CFTC”) and
is a member of the National Futures Association
(“NFA”). The Sponsor registered as a Commodity Trading
Advisor (“CTA”) with the CFTC effective September 8,
2017.
The investment objective of the Fund
is to have the daily changes in percentage terms of the
Shares’ NAV reflect the daily changes in percentage terms of
a weighted average of the closing settlement prices for three
futures contracts for wheat (“Wheat Futures Contracts”)
that are traded on the Chicago Board of Trade
(“CBOT”):
WEAT
Benchmark
CBOT Wheat
Futures Contract
|
Weighting
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Second to expire
|
35%
|
Third to expire
|
30%
|
December following the
third-to-expire
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35%
|
(This weighted average of the three
referenced Wheat Futures Contracts is referred to herein as the
“Benchmark,” and the three Wheat Futures Contracts that
at any given time make up the Benchmark are referred to herein as
the “Benchmark Component Futures
Contracts.”)
The Fund seeks to achieve its
investment objective by investing under normal market conditions in
Benchmark Component Futures Contracts or, in certain circumstances,
in other Wheat Futures Contracts traded on the CBOT, the Kansas
City Board of Trade, the Minneapolis Grain Exchange, or the
Intercontinental Exchange (“ICE”), or on foreign
exchanges. In addition, and to a limited extent, the Fund also may
invest in exchange traded options on Wheat Futures Contracts in
furtherance of the Fund's investment objective. Once position
limits in CBOT Wheat Futures Contracts are applicable, the Fund's
intention is to invest in contracts and instruments such as cash
settled options, forward contracts, and other
overthecounter transactions that are based on the price
of wheat or Wheat Futures Contracts (collectively, “Other
Wheat Interests,” and together with Wheat Futures Contracts,
“Wheat Interests”). See “The Offering –
Futures Contracts” below. By utilizing certain or all of
these investments, the Sponsor will endeavor to cause the
Fund’s performance to closely track that of the Benchmark.
The Sponsor expects to manage the Fund’s investments
directly, although it has been authorized by the Trust to retain,
establish the terms of retention for, and terminate third
party commodity trading advisors to provide such management. The
Sponsor is also authorized to select futures commission merchants
(“FCMs”) to execute the Fund’s transactions in
Wheat Futures Contracts.
Wheat Futures Contracts traded on
the CBOT expire on a specified day in five different months: March,
May, July, September and December. For example, in terms of the
Benchmark, in July of a given year the next-to-expire
or “spot month” Wheat Futures Contract will expire in
July of that year, and the Benchmark Component Futures Contracts
will be the contracts expiring in September of that year (the
second-to-expire contract), December of that year (the
third-to-expire contract), and December of the
following year. As another example, in November of a given year,
the Benchmark Component Futures Contracts will be the contracts
expiring in March, May and December of the following
year.
The Fund seeks to achieve its
investment objective primarily by investing in Wheat Interests such
that daily changes in the Fund’s NAV are expected to closely
track the changes in the Benchmark. The Fund’s positions in
Wheat Interests are changed or “rolled” on a regular
basis in order to track the changing nature of the Benchmark. For
example, five times a year (on the date on which a Wheat Futures
Contract expires), the second-to-expire Wheat Futures
Contract will become the next-to-expire Wheat Futures
Contract and will no longer be a Benchmark Component Futures
Contract, and the Fund’s investments will have to be changed
accordingly. In order that the Fund’s trading does not signal
potential market movements and to make it more difficult for third
parties to profit by trading ahead based on such expected market
movements, the Fund’s investments may not be rolled entirely
on that day, but rather may be rolled over a period of several
days.
The Fund posts on its website
(
www.teucriumweatfund.com
)
the roll dates and the contracts into which it will roll for the
entire upcoming calendar year. This information is updated at the
beginning of the calendar year and as needed throughout the
year.
The Fund incurs certain expenses in
connection with its operations, and holds most of its assets in
income producing, short-term securities for margin and
other liquidity purposes and to meet redemptions that may be
necessary on an ongoing basis. These expenses and income cause
imperfect correlation between changes in the Fund’s NAV and
changes in the Benchmark, because the Benchmark does not reflect
expenses or income. Investors should be aware that because the Fund
incurs certain expenses on an ongoing basis, they may incur a
partial or complete loss of their investment even when the
performance of the Benchmark is positive.
In seeking to achieve the
Fund’s investment objective of tracking the Benchmark, the
Sponsor may for certain reasons cause the Fund to enter into or
hold Wheat Futures Contracts other than the Benchmark Component
Futures Contracts and/or Other Wheat Interests. Other Wheat
Interests that do not have standardized terms and are not exchange
traded, referred to as
“over-the-counter” Wheat Interests, can
generally be structured as the parties to the Wheat Interest
contract desire. Therefore, the Fund might enter into multiple
over the counter Other Wheat Interests intended to
replicate the performance of each of the three Benchmark Component
Futures Contracts, or a single over the counter Other
Wheat Interest designed to replicate the performance of the
Benchmark as a whole. Assuming that there is no default by a
counterparty to an over the counter Other Wheat
Interest, the performance of the Other Wheat Interest will
necessarily correlate with the performance of the Benchmark or the
applicable Benchmark Component Futures Contract. The Fund might
also enter into or hold Wheat Interests other than Benchmark
Component Futures Contracts to facilitate effective trading,
consistent with the discussion of the Fund’s
“roll” strategy in the preceding paragraph. In
addition, the Fund might enter into or hold Wheat Interests that
would be expected to alleviate overall deviation between the
Fund’s performance and that of the Benchmark that may result
from certain market and trading inefficiencies or other reasons. By
utilizing certain or all of the investments described above, the
Sponsor endeavors to cause the Fund’s performance to closely
track that of the Benchmark.
The Fund invests in Wheat Interests
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 Wheat Interests.
After fulfilling such margin and collateral requirements, the Fund
invests the remainder of its proceeds from the sale of baskets in
obligations of the United States government (“Treasury
Securities”), cash equivalents, including money-market funds
and investment grade commercial paper, and/or merely hold such
assets in cash in interest-bearing accounts. Therefore, the focus
of the Sponsor in managing the Fund is investing in Wheat Interests
and in short-term Treasury Securities, cash and/or cash
equivalents. The Fund earns interest income from the short-term
Treasury Securities and/or cash equivalents that it purchases and
on the cash, it holds at financial
institutions.
The Sponsor endeavors to place the
Fund’s trades in Wheat Interests 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. More specifically, the Sponsor
endeavors to manage the Fund so that A will be within plus/minus 10
percent of B, where:
●
|
A is the average daily change in the
Fund’s NAV for any period of 30 successive valuation days,
i.e., any trading day as of which the Fund calculates its NAV,
and
|
●
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B is the average daily change in the
Benchmark over the same period.
|
The Sponsor believes that market
arbitrage opportunities will cause the Fund’s Share price on
the NYSE Arca to track the Fund’s NAV per Share. The Sponsor
believes that the net effect of this expected relationship and the
expected relationship described above between the Fund’s NAV
and the Benchmark will be that the changes in the price of the
Fund’s Shares on the NYSE Arca will track, in percentage
terms, changes in the Benchmark. This relationship may be affected
by various market factors, including but not limited to, the number
of shares of the Fund outstanding and the liquidity of the
underlying holdings.
The Sponsor employs a
“neutral” investment strategy intended to track the
changes in the Benchmark regardless of whether the Benchmark goes
up or goes down. The Fund’s “neutral” investment
strategy is designed to permit investors generally to purchase and
sell the Fund’s Shares for the purpose of investing
indirectly in the wheat market in a cost-effective manner. Such
investors may include participants in the wheat industry and other
industries seeking to hedge the risk of losses in their wheat
related transactions, as well as investors seeking exposure to the
wheat market. Accordingly, depending on the investment objective of
an individual investor, the risks generally associated with
investing in the wheat market and/or the risks involved in hedging
may exist. In addition, an investment in the Fund involves the
risks that the changes in the price of the Fund’s Shares will
not accurately track the changes in the Benchmark, and that changes
in the Benchmark will not closely correlate with changes in the
price of wheat on the spot market. Furthermore, as noted above, the
Fund may also elect to invest in short-term Treasury Securities,
cash and/or cash equivalents to meet its current or potential
margin or collateral requirements with respect to its investments
in Wheat Interests and to invest cash not required to be used as
margin or collateral. The Fund does not expect there to be any
meaningful correlation between the performance of the Fund’s
investments in short-term Treasury Securities, cash and/or cash
equivalents and the changes in the price of wheat or Wheat
Interests. While the level of interest earned on or the market
price of these investments may in some respects correlate to
changes in the price of wheat, this correlation is not anticipated
as part of the Fund’s efforts to meet its objective. This and
certain risk factors discussed in this prospectus may cause a lack
of correlation between changes in the Fund’s NAV and changes
in the price of wheat. The Sponsor does not intend to operate the
Fund in a fashion such that its per Share NAV equals, in dollar
terms, the spot price of a bushel or other unit of wheat or the
price of any particular Wheat Futures Contract.
The Fund creates and redeems Shares
only in blocks called Creation Baskets and Redemption Baskets,
respectively. Only Authorized Purchasers may purchase or redeem
Creation Baskets or Redemption Baskets. An Authorized Purchaser is
under no obligation to create or redeem baskets, and an Authorized
Purchaser is under no obligation to offer to the public Shares of
any baskets it does create. Baskets are generally created when
there is a demand for Shares, including, but not limited to, when
the market price per share is at (or perceived to be at) a premium
to the NAV per Share. Similarly, baskets are generally redeemed
when the market price per share is at (or perceived to be at) a
discount to the NAV per Share. Retail investors seeking to purchase
or sell Shares on any day are expected to effect such transactions
in the secondary market, on the NYSE Arca, at the market price per
share, rather than in connection with the creation or redemption of
baskets. There is a minimum number of baskets and associated shares
specified for the Fund. Once the minimum number of baskets is
reached, there can be no more basket redemptions until there has
been a creation basket. 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. As of January 31, 2019,
these minimum levels for the Fund are 50,000 shares representing 2
baskets.
All proceeds from the sale of
Creation Baskets will be invested as quickly as practicable in the
investments described in this prospectus. The Fund’s cash and
investments are held through the Fund’s Custodian, in
accounts with the Fund’s commodity futures brokers, in demand
deposits with highly rated financial institutions, in
short-term Treasury Securities, in investment grade commercial
paper, or in collateral accounts with respect to over
the counter Wheat Interests. There is no stated maximum time
period for the Fund’s operations and the Fund will continue
until all Shares are redeemed or the Fund is liquidated pursuant to
the terms of the Trust Agreement.
There is no specified limit on the
maximum number of Creation Baskets that can be sold. At some point,
however, applicable position limits on Wheat Futures Contracts or
Other Wheat Interests may practically limit the number of Creation
Baskets that will be sold if the Sponsor determines that the other
investment alternatives available to the Fund at that time will not
enable it to meet its stated investment
objective.
Shares may also be purchased and
sold by individuals and entities that are not Authorized Purchasers
in smaller increments than Creation Baskets on the NYSE Arca.
However, these transactions are effected at bid and ask prices
established by specialist firm(s). Like any listed security, Shares
of the Fund can be purchased and sold at any time a secondary
market is open.
In managing the Fund’s assets,
the Sponsor does not use a technical trading system that
automatically issues buy and sell orders. Instead, each time one or
more baskets are purchased or redeemed, the Sponsor will purchase
or sell Wheat Interests with an aggregate market value that
approximates the amount of cash received or paid upon the purchase
or redemption of the basket(s).
Note
to Secondary Market Investors:
Shares can be directly
purchased from the Fund only in Creation Baskets and only by
Authorized Purchasers. Each Creation Basket consists of 25,000
Shares and therefore requires a significant financial commitment to
purchase. Accordingly, investors who do not have such resources or
who are not Authorized Purchasers should be aware that some of the
information contained in this prospectus, including information
about purchases and redemptions of Shares directly with the Fund,
is only relevant to Authorized Purchasers. Shares are listed and
traded on the NYSE Arca under the ticker symbol “WEAT”
and may be purchased and sold as individual Shares. Individuals
interested in purchasing Shares in the secondary market should
contact their broker. Shares purchased or sold through a broker may
be subject to commissions.
Except when
aggregated in Redemption Baskets, Shares are not redeemable
securities. There is no guarantee that Shares will trade at prices
that are at or near the per Share NAV. There are a minimum
number of baskets and associated shares specified for the Fund.
Once the minimum number of baskets is reached, there can be no more
redemptions until there has been a creation basket. As of January
31, 2019, these minimum levels for the Fund are 50,000 shares
representing 2 baskets.
The Shares are registered as
securities under the Securities Act of 1933 (the “1933
Act”) and the Securities Exchange Act of 1934 (the
“Exchange Act”) and do not provide dividend rights or
conversion rights and there are no sinking funds. The Shares may
only be redeemed when aggregated in Redemption Baskets as discussed
under “Creation and Redemption of Shares” and holders
of Fund Shares (“Shareholders”) generally do not have
voting rights as discussed under “The Trust Agreement –
Voting Rights” below. Cumulative voting is neither permitted
nor required and there are no preemptive rights. The Trust
Agreement provides that, upon liquidation of the Fund, its assets
will be distributed pro rata to the Shareholders based upon the
number of Shares held. Each Shareholder will receive its share of
the assets in cash or in kind, and the proportion of such share
that is received in cash may vary from Shareholder to Shareholder,
as the Sponsor in its sole discretion may
decide.
The offering of Shares under this
prospectus is a continuous offering under Rule 415 of the 1933 Act
and will terminate on April 29, 2022 unless it is extended beyond
such date as permitted by applicable rules under the 1933 Act. The
offering will terminate before such date or before the end of any
extension period if all of the registered Shares have been sold.
However, the Sponsor expects to cause the Trust to file one or more
additional registration statements as necessary to permit
additional Shares to be registered and offered on an uninterrupted
basis. This offering may also be suspended or terminated at any
time for certain specified reasons, including if and when suitable
investments for the Fund are not available or practicable. See
“Creation and Redemption of Shares – Rejection of
Purchase Orders” below. As discussed above, the minimum
purchase requirement for Authorized Purchasers is a Creation
Basket, which consists of 25,000 Shares. The Fund does not require
a minimum purchase amount for investors who purchase Shares from
Authorized Purchasers. There are no arrangements to place funds in
an escrow, trust, or similar account.
T
he
Fund’s Investments in Wheat Interests
A brief description of the principal
types of Wheat Interests in which the Fund may invest is set forth
below.
●
|
A futures contract is an exchange
traded contract traded with standard terms that calls for the
delivery of a specified quantity of a commodity at a specified
price, on a specified date and at a specified location. Typically,
a futures contract is traded out or rolled on an exchange before
delivery or receipt of the underlying commodity is
required.
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●
|
A swap agreement is a bilateral
contract to exchange a periodic stream of payments determined by
reference to a notional amount, with payment typically made between
the parties on a net basis. For instance, in the case of wheat
swap, the Fund may be obligated to pay a fixed price per bushel of
wheat multiplied by a notional number of bushels and be entitled to
receive an amount per bushel equal to the current value of an index
of wheat prices, the price of a specified Wheat Futures Contract,
or the average price of a group of Wheat Futures Contracts such as
the Benchmark (times the same notional number of bushels). As is
the case with futures, swaps are financial contracts and are
typically settled financially between counterparties. Unlike
futures, however, swaps may or may not trade on an exchange and,
therefore, they may be less liquid, may be more expensive, and may
take longer to settle or trade out of.
|
The Fund may also invest to a lesser
extent in the following types of Wheat Interests (“Other
Wheat Interests”):
●
|
A forward contract
(“Forward”) is an over the counter
bilateral contract for the purchase or sale of a specified quantity
of a commodity at a specified price, on a specified date and at a
specified location. Forwards are almost always settled by delivery
of the underlying commodity. Although not impossible, it is unusual
to settle a Forward financially. therefore, Forwards are generally
illiquid.
|
●
|
An option on a futures contract, a
swap agreement, forward contract or a commodity on the spot market
gives the buyer of the option the right, but not the obligation, to
buy or sell a futures contract, swap agreement, forward contract or
commodity, as applicable, at a specified price on or before a
specified date. The seller, or writer, of the option is obligated
to take a position in the underlying interest at a specified price
opposite to the option buyer if the option is exercised. Options on
futures contracts, like the future contracts to which they relate,
are standardized contracts traded on an exchange and are regulated
like futures contracts, while all other options (except for spot
options) are considered swaps and are regulated as
swaps.
|
Unlike exchange traded contracts,
overthecounter contracts expose the Fund to the credit
risk of the other party to the contract. (As discussed below,
exchange traded contracts may expose the Fund to the risk of
the clearing broker’s and/or the exchange clearing
house(s)’ bankruptcy.) The Sponsor does not currently intend
to purchase and sell wheat in the “spot market” for the
Fund. Spot market transactions are cash transactions in which the
buyer and seller agree to the immediate purchase and sale of a
commodity, usually with a two-day settlement period. In
addition, the Sponsor does not currently intend that the Fund will
enter into or hold spot month Wheat Futures Contracts, except that
spot month contracts that were formerly secondtoexpire
contracts may be held for a brief period until they can be disposed
of in accordance with the Fund’s roll
strategy.
Although the Fund has the ability to
trade over the counter contracts and swaps, the Sponsor
anticipates that 100% of the Fund’s assets will be used to
trade futures.
A more detailed description of Wheat
Interests and other aspects of the wheat and Wheat Interest markets
can be found later in this prospectus.
As noted, the
Fund invests in Wheat Futures Contracts, including those traded on
the CBOT or its affiliates. The Fund expressly disclaims any
association with the CBOT or endorsement of the Fund by such
exchange and acknowledges that “CBOT” and
“Chicago Board of Trade” are registered trademarks of
such exchange.
P
rincipal Investment
Risks of an Investment in the Fund
An investment in the Fund involves a
degree of risk. Some of the risks you may face are summarized
below. A more extensive discussion of these risks appears beginning
on page 15.
●
|
Unlike mutual funds, commodity pools
and other investment pools that manage their investments so as to
realize income and gains for distribution to their investors, the
Fund generally does not distribute dividends to Shareholders. You
should not invest in the Fund if you will need cash distributions
from the Fund to pay taxes on your share of income and gains of the
Fund, if any, or for other purposes.
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●
|
Investors may choose to use the Fund
as a means of investing indirectly in wheat, and there are risks
involved in such investments. The risks and hazards that are
inherent in wheat production may cause the price of wheat to
fluctuate widely. Price movements for wheat are influenced by,
among other things: weather conditions, crop failure, production
decisions, governmental policies, changing demand, the wheat
harvest cycle, and various economic and monetary events. Wheat
production is also subject to U.S. federal, state and local
regulations that materially affect operations.
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●
|
To the extent that investors use the
Fund as a means of investing indirectly in wheat, there is the risk
that the changes in the price of the Fund’s Shares on the
NYSE Arca will not closely track the changes in spot price of
wheat. This could happen if the price of Shares traded on the NYSE
Arca does not correlate closely with the Fund’s NAV. the
changes in the Fund’s NAV do not correlate closely with
changes in the Benchmark. or the changes in the Benchmark do not
correlate closely with changes in the cash or spot price of wheat.
This is a risk because if these correlations are not sufficiently
close, then investors may not be able to use the Fund as a
cost effective way to invest indirectly in wheat or as a
hedge against the risk of loss in wheat related
transactions.
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●
|
Only an Authorized Purchaser may
engage in creation or redemption transactions with the Fund. The
Fund has a limited number of institutions that act as Authorized
Purchasers. To the extent that these institutions exit the business
or are unable or unwilling to proceed with creation and/or
redemption orders with respect to the Fund, and no Authorized
Purchaser is able or willing to step forward to create or redeem
shares of the Fund, Fund Shares may, particularly in times of
market stress, trade at a discount to the NAV per Share and
possibly face trading halts and/or delisting. In addition, a
decision by a market maker or lead market maker to step away from
activities for the Fund, particularly in times of market stress,
could adversely affect liquidity, the spread between the bid and
ask quotes for the Fund’s Shares, and potentially the price
of the Shares. The Sponsor can make no guarantees that
participation by Authorized Purchasers or market makers will
continue.
|
●
|
The price relationship between the
near month Wheat Futures Contract to expire and the Benchmark
Component Futures Contracts will vary and may impact both the
Fund’s total return over time and the degree to which such
total return tracks the total return of wheat price indices. In
cases in which the near month contract’s price is lower than
later expiring contracts’ prices (a situation known as
“contango” in the futures markets), then absent the
impact of the overall movement in wheat prices the value of the
Benchmark Component Futures Contracts would tend to decline as they
approach expiration which could cause the Benchmark Component
Futures Contracts, and therefore the Fund’s total return, to
track lower.
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●
|
In cases in which the near month
contract’s price is higher than later expiring
contracts’ prices (a situation known as
“backwardation” in the futures markets), then absent
the impact of the overall movement in wheat prices the value of the
Benchmark Component Futures Contracts would tend to rise as they
approach expiration. In the event of a prolonged period of
contango, and absent the impact of rising or falling wheat prices,
this could have a significant negative impact on the Fund’s
NAV and total return, and you could incur a partial or total loss
of your investment in the Fund.
|
●
|
Investors, including those who
directly participate in the wheat market, may choose to use the
Fund as a vehicle to hedge against the risk of loss and there are
risks involved in hedging activities. While hedging can provide
protection against an adverse movement in market prices, it can
also preclude a hedger’s opportunity to benefit from a
favorable market movement.
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●
|
The structure and operation of the
Fund may involve conflicts of interest. For example, a conflict may
arise because the Sponsor and its principals and affiliates may
trade for themselves. In addition, the Sponsor has sole current
authority to manage the investments and operations of the Fund,
including the authority of the Sponsor to allocate expenses to and
between the Teucrium Funds and the interests of the Sponsor may
conflict with the Shareholders’ best
interests.
|
●
|
Investors, including those who
directly participate in the wheat market, may choose to use the
Fund as a vehicle to hedge against the risk of loss and there are
risks involved in hedging activities. While hedging can provide
protection against an adverse movement in market prices, it can
also preclude a hedger’s opportunity to benefit from a
favorable market movement.
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●
|
You will have no rights to
participate in the management of the Fund and will have to rely on
the duties and judgment of the Sponsor to manage the
Fund.
|
|
|
●
|
The Fund pays fees and expenses that
are incurred regardless of whether it is
profitable.
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●
|
The Fund seeks to have the changes
in its Shares’ NAV in percentage terms track changes in the
Benchmark in percentage terms, rather than profit from speculative
trading of Wheat Interests. The Sponsor therefore endeavors to
manage the Fund so that the Fund’s assets are, unlike those
of many other commodity pools, not leveraged (
i.e.
, so that the aggregate amount of
the Fund’s exposure to losses from its investments in Wheat
Interests at any time will not exceed the value of the Fund’s
assets). There is no assurance that the Sponsor will successfully
implement this investment strategy. If the Sponsor permits the Fund
to become leveraged, you could lose all or substantially all of
your investment if the Fund's trading positions suddenly turn
unprofitable. These movements in price may be the result of factors
outside of the Sponsor's control and may not be anticipated by the
Sponsor.
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●
|
The Fund may invest in Other Wheat
Interests. To the extent that these Other Wheat Interests are
contracts individually negotiated between their parties, they may
not be as liquid as Wheat Futures Contracts and will expose the
Fund to credit risk that its counterparty may not be able to
satisfy its obligations to the Fund.
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●
|
The regulation of futures markets,
futures contracts, and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or a
trading facility.
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●
|
The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Considerable regulatory attention has been focused on
non-traditional investment pools that are publicly distributed in
the United States and that use trading in futures and options as an
investment strategy and not for hedging or price discovery
purposes, therefore altering traditional participation in futures
and swaps markets. There is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability of
the Fund to continue to implement its investment strategy. In
addition, various national governments outside of the United States
have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Fund is impossible to predict but
could be substantial and adverse.
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●
|
Failures or breaches of the
electronic systems of the Fund, the Sponsor, the Custodian, or the
Fund’s other service providers, market makers, Authorized
Purchasers, NYSE Arca, exchanges on which Wheat Futures Contracts
or Other Wheat Interests are traded or cleared, or counterparties
to financial transactions with the Fund, have the ability to cause
disruptions and negatively impact the Fund’s business
operations, potentially resulting in financial losses to the Fund
and its shareholders. While the Fund has established business
continuity plans and risk management systems seeking to address
system breaches or failures, there are inherent limitations in such
plans and systems. Furthermore, the Fund cannot control the cyber
security plans and systems of the Custodian, Administrator or the
Fund’s other service providers, market makers, Authorized
Purchasers, NYSE Arca, exchanges on which Wheat Futures Contracts
or Other Wheat Interests are traded or cleared, or
counterparties.
|
For additional risks, see
“What Are the Risk Factors Involved with an Investment in the
Fund?”
F
inancial Condition of the
Fund
The Fund’s NAV is determined
as of the earlier of the close of the New York Stock Exchange or
4:00 p.m. New York time on each day that the NYSE Arca is open for
trading.
For a glossary of defined terms, see
Appendix A.
The breakeven analysis below
indicates the approximate dollar returns and percentage returns
required for the redemption value of a hypothetical initial
investment in a single Share, assuming a selling price of $6.04
(the NAV per Share as of January 31, 2019), to equal the amount
invested twelve months after the investment was made. This
breakeven analysis refers to the redemption of baskets by
Authorized Purchasers and is not related to any gains an individual
investor would have to achieve in order to break even. The
breakeven analysis is an approximation only.
Assumed selling price
per Share
|
$
6.04
|
Sponsor
Fee (1.00%)
(1)
|
$
0.06
|
Creation
Basket Fee
(2)
|
$
0.01
|
Estimated
Brokerage Fees
(3)
|
$
0.01
|
Other Fund
Fees and Expenses
(4)
|
$
0.15
|
Interest
Income
(5)
|
$
(0.16
)
|
Amount of trading
income (loss) required for the redemption value at the end of one
year to equal the selling price of the Share
|
$
0.07
|
Percentage
of selling price per share
(6)
|
1.16
%
|
(1)
The Fund is obligated to pay the
Sponsor a management fee at the annual rate of 1.00% of the
Fund’s average daily net assets, payable monthly. The Sponsor
can elect to waive the payment of the fee in any amount at its sole
discretion, at any time and from time to time, in order to reduce
the Fund’s expenses or for any other
purpose.
(2)
Authorized Purchasers are required
to pay a Creation Basket fee of $250 for each order they place to
create one or more baskets. An order must be at least one basket,
which is 25,000 Shares. This breakeven analysis assumes a
hypothetical investment in a single Share, so the Creation Basket
fee is $.01 ($250/25,000).
(3)
This amount is based on the actual
brokerage fees for the Fund calculated on an annualized basis. The
Fund currently pays $4.50 per Wheat Futures Contract purchase or
sale (rounded to $0.01 in this table based on fees accrued to the
Fund for the year ended December 31, 2018).
(4)
Other Fund Fees and Expenses are an
estimate based on an allocation to the Fund of the total estimated
expenses anticipated to be incurred by the Trust on behalf of the
Fund, net of any expenses or sponsor fee waived by the Sponsor, and
include: Professional fees (primarily legal, auditing and tax
preparation related costs). Custodian and Administrator fees and
expenses, Distribution and Marketing fees (primarily fees paid to
the Distributor, costs related to regulatory compliance activities
and other costs related to the trading activities of the Fund).
Business Permits and Licenses. General and Administrative expenses
(primarily insurance and printing), and Other Expenses. The
expenses presented are based on estimated expenses for the current
fiscal year, and do not represent the maximum amounts payable under
the contracts with third party service providers, as
discussed below in the section of this disclosure document entitled
“Contractual Fees and Compensation Arrangements with the
Sponsor and third party Service Providers.” The per
share cost of these fixed or estimated fees has been calculated
assuming that the Fund has $57.1 million in assets which was the
approximate amount of assets as of January 31, 2019. The Sponsor
can elect to pay (or waive reimbursement for) certain fees or
expenses that would generally be paid by the Fund, although it has
no contractual obligation to do so. Any election to pay or waive
reimbursement for fees and expenses that would generally be paid by
the Fund can be changed at the discretion of the
Sponsor.
(5)
The Fund earns interest on funds it
deposits at financial institutions and the Custodian, short-term
Treasury Securities and on commercial paper; it estimates that the
interest rate will be 2.60% based on the interest rate currently
earned on available cash balances as of February 28, 2019. The
actual rate may vary and not all assets of the Fund will earn
interest.
(6)
This represents the estimated
approximate percentage of selling price per share net of any
expenses or Sponsor fees waived by the Sponsor. The estimated
approximate percentage of selling price per share before waived
expenses or Sponsor fees is 1.16% based on the Fund assets, net
asset value per share and shares outstanding as of January 31,
2019. The fees waived by the Sponsor is an estimate, can be applied
to any expense related to the Fund, and may be terminated at any
time at the discretion of the Sponsor.
Offering
|
The Fund offers
Creation Baskets consisting of 25,000 Shares through the
Distributor to Authorized Purchasers. Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 Shares at the
Fund’s NAV. The Shares trade on the NYSE
Arca.
|
|
|
Use of
Proceeds
|
The
Sponsor applies substantially all of the Fund’s assets toward
investing in Wheat Interests, short-term Treasury Securities, cash
and/or cash equivalents. The Sponsor deposits a portion of the
Fund’s net assets with the FCM or other custodians to be used
to meet its current or potential margin or collateral requirements
in connection with its investment in Wheat Interests. The Fund uses
only short-term Treasury Securities, cash and/or cash equivalents
to satisfy these requirements. The Sponsor expects that all
entities that will hold or trade the Fund’s assets will be
based in the United States and will be subject to United States
regulations. The Sponsor believes that approximately 3-5% of the
Fund’s assets will normally be committed as margin for Wheat
Futures Contracts and Other Wheat Interests. However, from time to
time, the percentage of assets committed as margin/collateral may
be substantially more, or less, than such range.
The
remaining portion of the Fund’s assets is held as cash or
cash equivalents, in short-term Treasury Securities, in money
market funds or demand deposit accounts. All interest income earned
on these investments is retained for the Fund’s
benefit.
|
|
|
NYSE Arca
Symbol
|
“WEAT”
|
|
|
Creation and
Redemption
|
Authorized
Purchasers pay a $250 fee per order to create Creation Baskets, and
a $250 fee per order for Redemption Baskets. Authorized Purchasers
are not required to sell any specific number or dollar amount of
Shares. The per share price of Shares offered in Creation Baskets
is the total NAV of the Fund calculated as of the close of the NYSE
Arca on that day, divided by the number of issued and outstanding
Shares.
|
|
|
InterSeries
Limitation on Liability
|
While the Fund is
currently one of five separate series of the Trust, additional
series may be created in the future. The Trust has been formed and
will be operated with the goal that the Fund and any other series
of the Trust will be liable only for obligations of such series,
and a series will not be responsible for or affected by any
liabilities or losses of or claims against any other series. If any
creditor or shareholder in any particular series (such as the Fund)
were to successfully assert against a series a claim with respect
to its indebtedness or Shares, the creditor or shareholder could
recover only from that particular series and its assets.
Accordingly, the debts and other obligations incurred, contracted
for or otherwise existing solely with respect to a particular
series will be enforceable only against the assets of that series,
and not against any other series or the Trust generally or any of
their respective assets. The assets of the Fund and any other
series will include only those funds and other assets that are paid
to, held by or distributed to the series on account of and for the
benefit of that series, including, without limitation, amounts
delivered to the Trust for the purchase of Shares in a
series.
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|
|
Registration
Clearance and Settlement
|
Individual
certificates are not issued for the Shares. Instead, Shares will be
represented by one or more global certificates, which are deposited
by the transfer agent with the Depository Trust Company
(“DTC”) and registered in the name of Cede & Co.,
as nominee for DTC. The global certificates evidence all of the
Shares outstanding at any time.
|
|
Beneficial interests
in Shares are held through DTC’s book entry system,
which means that Shareholders are limited to: (1) participants in
DTC such as banks, brokers, dealers and trust companies (“DTC
Participants”), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant
(“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect
Participants, in each case who satisfy the requirements for
transfers of Shares. DTC Participants acting on behalf of investors
holding Shares through such DTC Participants’ accounts in DTC
will follow the delivery practice applicable to securities eligible
for DTC’s Same Day Funds Settlement System. Shares are
credited to DTC Participants’ securities accounts following
confirmation of receipt of payment.
|
Net Asset
Value
|
The NAV
is calculated by taking the current market value of the
Fund’s total assets and subtracting any liabilities and
dividing the balance by the number of Shares. Under the
Fund’s current operational procedures, the Fund’s
administrator, U.S. Bancorp Fund Services, LLC, doing business as
U.S. Global Fund Services (the “Administrator”) will
calculate the NAV of the Fund’s Shares as of the earlier of
4:00 p.m. New York time or the close of the New York Stock Exchange
each day.
ICE Data Indices,
LLC
will calculate an approximate net asset value every 15
seconds throughout each day that the Fund’s Shares are traded
on the NYSE Arca for as long as the CBOT’s main pricing
mechanism is open.
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|
|
Fund
Expenses
|
The Fund pays the
Sponsor a management fee at an annual rate of 1.00% of the
Fund’s average daily net assets. The Fund is also responsible
for other ongoing fees, costs and expenses of its operations,
including (i) brokerage and other fees and commissions incurred in
connection with the trading activities of the Fund. (ii) expenses
incurred in connection with registering additional Shares of the
Fund or offering Shares of the Fund. (iii) the routine expenses
associated with the preparation and, if required, the printing and
mailing of monthly, quarterly, annual and other reports required by
applicable U.S. federal and state regulatory authorities, Trust
meetings and preparing, printing and mailing proxy statements to
Shareholders. (iv) the payment of any distributions related to
redemption of Shares. (v) payment for routine services of the
Trustee, legal counsel and independent accountants. (vi) payment
for routine accounting, bookkeeping, custody and transfer agency
services, whether performed by an outside service provider or by
Affiliates of the Sponsor. (vii) postage and insurance. (viii)
costs and expenses associated with investor relations and services.
(ix) costs of preparation of all federal, state, local and foreign
tax returns and any taxes payable on the income, assets or
operations of the Fund. and (x) extraordinary expenses (including,
but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto).
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The Sponsor bore the
costs and expenses related to the initial offer and sale of Shares,
including registration fees paid or to be paid to the SEC, the
Financial Industry Regulatory Authority (“FINRA”) or
any other regulatory or self-regulatory organization
(“SRO”). None of the costs and expenses related to the
initial offer and sale of Shares, which totaled approximately
$450,000, were or are chargeable to the Fund, and the Sponsor did
not and may not recover any of these costs and expenses from the
Fund. Total fees to be paid by the Fund, net of the expenses waived
by the Sponsor, are currently estimated to be approximately 1.16%
of the daily net assets of the Fund for the twelve month
period ending April 29, 2020, though this amount may change in
future years. The Sponsor may, in its discretion, pay or reimburse
the Fund for, or waive a portion of its management fee to offset,
expenses that would otherwise be borne by the
Fund.
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General expenses of
the Trust will be allocated among the existing Teucrium Funds and
any future series of the Trust as determined by the Sponsor in its
discretion. The Trust may be required to indemnify the Sponsor, and
the Trust and/or the Sponsor may be required to indemnify the
Trustee, Distributor or Administrator, under certain
circumstances.
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Termination
Events
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The Trust and the
Fund shall continue in existence from the date of their formation
in perpetuity, unless the Trust or the Fund, as the case may be, is
sooner terminated upon the occurrence of certain events specified
in the Trust Agreement, including the following: (1) the filing of
a certificate of dissolution or cancellation of the Sponsor or
revocation of the Sponsor’s charter or the withdrawal of the
Sponsor, unless shareholders holding a majority of the outstanding
shares of the Trust, voting together as a single class, elect
within ninety (90) days after such event to continue the business
of the Trust and appoint a successor Sponsor. (2) the occurrence of
any event which would make the existence of the Trust or the Fund
unlawful. (3) the suspension, revocation, or termination of the
Sponsor’s registration as a CPO with the CFTC or membership
with the NFA. (4) the insolvency or bankruptcy of the Trust or the
Fund. (5) a vote by the shareholders holding at least seventy
five percent (75%) of the outstanding shares of the, voting
together as a single class, Trust to dissolve the Trust subject to
certain conditions. and (6) the determination by the Sponsor to
dissolve the Trust or the Fund, subject to certain conditions. (7)
the Trust is required to be registered as an investment company
under the Investment Company Act of 1940, and (8) DTC is unable or
unwilling to continue to perform its functions and a comparable
replacement is unavailable. Upon termination of the Fund, the
affairs of the Fund shall be wound up and all of its debts and
liabilities discharged or otherwise provided for in the order of
priority as provided by law. The fair market value of the remaining
assets of the Fund shall then be determined by the Sponsor.
Thereupon, the assets of the Fund shall be distributed pro rata to
the Shareholders in accordance with their
Shares.
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Authorized
Purchasers
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A list of Authorized
Purchasers is available from the Distributor. Authorized Purchasers
must be (1) registered broker dealers or other securities
market participants, such as banks and other financial
institutions, that are not required to register as broker
dealers to engage in securities transactions, and (2) DTC
Participants. To become an Authorized Purchaser, a person must
enter into an Authorized Purchaser Agreement with the
Sponsor.
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W
HAT ARE THE
RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE
FUND?
You should
consider carefully the risks described below before making an
investment decision. You should also refer to the other information
included in this prospectus, and the Fund’s and the
Trust’s financial statements and the related notes
incorporated by reference herein. See “Incorporation by
Reference of Certain Information.”
R
isks Associated with Investing
Directly or Indirectly in Wheat
Investing in Wheat Interests subjects the Fund to the risks of the
wheat market, and this could result in substantial fluctuations in
the price of the Fund’s Shares.
The Fund is subject to the risks and
hazards of the wheat market because it invests in Wheat Interests.
The risks and hazards that are inherent in the wheat market may
cause the price of wheat to fluctuate widely. If the changes in
percentage terms of the Fund’s Shares accurately track the
percentage changes in the Benchmark or the spot price of wheat,
then the price of its Shares will fluctuate
accordingly.
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The price and availability of wheat
is influenced by economic and industry conditions, including but
not limited to supply and demand factors such as: crop disease.
weed control. water availability. various planting, growing, or
harvesting problems. severe weather conditions such as drought,
floods, or frost that are difficult to anticipate and which cannot
be controlled. Demand for food products made from wheat flour is
affected by changes in consumer tastes, national, regional and
local economic conditions, and demographic trends. More
specifically, demand for such food products in the United States is
relatively unaffected by changes in wheat prices or disposable
income but is closely tied to tastes and preferences. For example,
in recent years the increase in the popularity of low
carbohydrate diets caused the consumption of wheat flour to
decrease rapidly before rebounding somewhat after 2005. Export
demand for wheat fluctuates yearly, based largely on crop yields in
the importing countries.
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Wheat production is subject to
United States federal, state and local policies and regulations
that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties,
subsidies, incentives, acreage control, and import and export
restrictions on agricultural commodities and commodity products,
can influence the planting of certain crops, the location and size
of crop production, the volume and types of imports and exports,
the availability and competitiveness of feedstocks as raw
materials, and industry profitability. Additionally, wheat
production is affected by laws and regulations relating to, but not
limited to, the sourcing, transporting, storing and processing of
agricultural raw materials as well as the transporting, storing and
distributing of related agricultural products. U.S. Wheat producers
also must comply with various environmental laws and regulations,
such as those regulating the use of certain pesticides, and local
laws that regulate the production of genetically modified crops. In
addition, international trade disputes can adversely affect
agricultural commodity trade flows by limiting or disrupting trade
between countries or regions.
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Seasonal fluctuations in the price
of wheat may cause risk to an investor because of the possibility
that Share prices will be depressed because of the wheat harvest
cycle. In the United States, the market for winter wheat, the type
of wheat upon which CBOT Wheat Futures Contracts are based, is
generally at its lowest point, and wheat prices are generally
lowest, shortly before and during the harvest (in the spring or
early summer), due to the high supply of wheat in the market.
Conversely, winter wheat prices are generally highest in the fall
or early winter, when the wheat harvested that year has largely
been sold and used. In the futures market, these seasonal
fluctuations are typically reflected in contracts expiring in the
relevant season (e.g., contracts expiring during the harvest season
are typically priced lower than contracts expiring in the fall and
early winter). Thus, seasonal fluctuations could result in an
investor incurring losses upon the sale of Fund Shares,
particularly if the investor needs to sell Shares when the
Benchmark Component Futures Contracts are in whole or part, Wheat
Futures Contracts expiring in the spring.
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An investment in the Fund is subject to correlation risk. Your
return on an investment in the Fund may differ from the return of
the Benchmark and depending on certain factors discussed below, you
could incur a partial or total loss of your
investment.
There is a risk that changes in the
price of Shares on the NYSE Arca will not correlate with changes in
the Fund’s NAV. that changes in the NAV will not correlate
with changes in the price of the Benchmark. and/or changes in the
price of the Benchmark will not correlate with changes in the spot
price of wheat. Depending on certain factors associated with each
of these correlations which are discussed in more detail below, you
could incur a partial or total loss of your investment in the
Fund.
The Benchmark is not designed to correlate with the spot price of
wheat and this could cause the changes in the price of the Shares
to substantially vary from the changes in the spot price of wheat.
Therefore, you may not be able to effectively use the Fund to hedge
against wheat related losses or to indirectly invest in
wheat.
The Benchmark Component Futures
Contracts reflect the price of wheat for future delivery, not the
current spot price of wheat, so at best the correlation between
changes in such Wheat Futures Contracts and the spot price of wheat
will be only approximate. Weak correlation between the Benchmark
and the spot price of wheat may result from the typical seasonal
fluctuations in wheat prices discussed above. Imperfect correlation
may also result from speculation in Wheat Interests, technical
factors in the trading of Wheat Futures Contracts, and expected
inflation in the economy as a whole. If there is a weak correlation
between the Benchmark and the spot price of wheat, then the price
of Shares may not accurately track the spot price of wheat and you
may not be able to effectively use the Fund as a way to hedge the
risk of losses in your wheat related transactions or as a way
to indirectly invest in wheat.
Changes in the Fund’s NAV may not correlate well with changes
in the price of the Benchmark. If this were to occur, you may not
be able to effectively use the Fund as a way to hedge against
wheat related losses or as a way to indirectly invest in
wheat.
The Sponsor endeavors to invest the
Fund’s assets as fully as possible in Wheat Interests so that
the changes in percentage terms in the NAV closely correlate with
the changes in percentage terms in the Benchmark. However, changes
in the Fund’s NAV may not correlate with the changes in the
Benchmark for various reasons, including those set forth
below:
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The Fund does not intend to invest
only in the Benchmark Component Futures Contracts. While its
investments in Wheat Futures Contracts other than the Benchmark
Component Futures Contracts, and Other Wheat Interests would be for
the purpose of causing the Fund’s performance to track that
of the Benchmark most effectively and efficiently, the performance
of these Wheat Interests may not correlate well with the
performance of the Benchmark Component Futures Contracts, resulting
in a greater potential for error in tracking price changes in those
futures contracts. Additionally, if the trading market for Wheat
Futures Contracts is suspended or closed, the Fund may not be able
to purchase these investments at the last reported price for such
investments.
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The Fund incurs certain expenses in
connection with its operations and holds most of its assets in
income producing, short-term securities for margin and other
liquidity purposes and to meet redemptions that may be necessary on
an ongoing basis. These expenses and income cause imperfect
correlation between changes in the Fund’s NAV and changes in
the Benchmark.
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The Sponsor may not be able to
invest the Fund’s assets in Wheat Interests having an
aggregate notional amount exactly equal to the Fund’s NAV. As
a standardized contract, a single Wheat Futures Contract is for a
specified amount of wheat, and the Fund’s NAV and the
proceeds from the sale of a Creation Basket is unlikely to be an
exact multiple of that amount. In such case, the Fund could not
invest the entire proceeds from the purchase of the Creation Basket
in such futures contracts. (For example, assuming the Fund receives
$375,000 for the sale of a Creation Basket and that the value
(i.e., the notional amount) of a Wheat Futures Contract is $32,500,
the Fund could only enter into 11 Wheat Futures Contracts with an
aggregate value of $357,500). While the Fund may be better able to
achieve the exact amount of exposure to the wheat market through
the use of over the counter Other Wheat Interests,
there is no assurance that the Sponsor will be able to continually
adjust the Fund’s exposure to such Other Wheat Interests to
maintain such exact exposure. Furthermore, as noted above, the use
of Other Wheat Interests may itself result in imperfect correlation
with the Benchmark. Any amounts not invested in Wheat Interests
held in short-term Treasury Securities, cash and/or cash
equivalents.
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As Fund assets increase, there may
be more or less correlation. On the one hand, as the Fund grows it
should be able to invest in Wheat Futures Contracts with a notional
amount that is closer on a percentage basis to the Fund’s
NAV. For example, if the Fund’s NAV is equal to 4.9 times the
value of a single futures contract, it can purchase only four
futures contracts, which would cause only 81.6% of the Fund’s
assets to be exposed to the wheat market. On the other hand, if the
Fund’s NAV is equal to 100.9 times the value of a single
Wheat Futures Contract, it can purchase 100 such contracts,
resulting in 99.1% exposure. However, at certain asset levels the
Fund may be limited in its ability to purchase Wheat Futures
Contracts due to position limits imposed by the CFTC or position
limits or accountability levels imposed by the relevant exchanges.
In these instances, the Fund would likely invest to a greater
extent in Wheat Interests not subject to these position limits or
accountability levels. To the extent that the Fund invests in Other
Wheat Interests, the correlation between the Fund’s NAV and
the Benchmark may be lower. In certain circumstances, position
limits or accountability levels could limit the number of Creation
Baskets that will be sold.
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If changes in the Fund’s NAV
do not correlate with changes in the Benchmark, then investing in
the Fund may not be an effective way to hedge against wheat
related losses or indirectly invest in
wheat.
Changes in the price of the Fund’s Shares on the NYSE Arca
may not correlate perfectly with changes in the NAV of the
Fund’s
Shares.
If this variation occurs, then you may not be able to effectively
use the Fund to hedge against wheat related losses or to
indirectly invest in wheat.
While it is expected that the
trading prices of the Shares will fluctuate in accordance with the
changes in the Fund’s NAV, the prices of Shares may also be
influenced by other factors, including the supply of and demand for
the Shares, whether for the short term or the longer term. There is
no guarantee that the Shares will not trade at appreciable
discounts from, and/or premiums to, the
Fund’s
NAV. This could cause the changes in
the price of the Shares to substantially vary from the changes in
the spot price of wheat, even if the Fund’s NAV was closely
tracking movements in the spot price of wheat. If this occurs, you
may not be able to effectively use the Fund to hedge the risk of
losses in your wheat related transactions or to indirectly
invest in wheat.
The Fund may experience a loss if it is required to sell short-term
Treasury Securities or cash equivalents at a price lower than the
price at which they were acquired.
If the Fund is required to sell its
short-term Treasury Securities or its cash equivalents at a price
lower than the price at which they were acquired, the Fund will
experience a loss. This loss may adversely impact the price of the
Shares and may decrease the correlation between the price of the
Shares, the Benchmark, and the spot price of wheat. The value of
short-term Treasury Securities and cash equivalents held by the
Fund generally move inversely with movements in interest rates. The
prices of longer maturity securities are subject to greater market
fluctuations as a result of changes in interest rates. While the
short-term nature of the Fund’s investments in short-term
Treasury Securities and cash equivalents should minimize the
interest rate risk to which the Fund is subject, it is possible
that the cash equivalents held by the Fund will decline in
value.
Certain of the Fund’s investments could be illiquid, which
could cause large losses to investors at any time or from time to
time.
The Fund may not always be able to
liquidate its positions in its investments at the desired price for
reasons including, among others, insufficient trading volume,
limits imposed by exchanges or other regulatory organizations, or
lack of liquidity. As to futures contracts, it may be difficult to
execute a trade at a specific price when there is a relatively
small volume of buy and sell orders in a market. Limits imposed by
futures exchanges or other regulatory organizations, such as
accountability levels, position limits and price fluctuation
limits, may contribute to a lack of liquidity with respect to some
exchange traded Wheat Interests. In addition, over
the counter contracts may be illiquid because they are
contracts between two parties and generally may not be transferred
by one party to a third party without the counterparty’s
consent. Conversely, a counterparty may give its consent, but the
Fund still may not be able to transfer an over the
counter Wheat Interest to a third party due to concerns regarding
the counterparty’s credit risk.
A market disruption, such as a
foreign government taking political actions that disrupt the market
in its currency, its wheat production or exports, or in another
major export, can also make it difficult to liquidate a position.
Unexpected market illiquidity may cause major losses to investors
at any time or from time to time. In addition, the Fund does not
intend at this time to establish a credit facility, which would
provide an additional source of liquidity, but instead will rely
only on the cash and/or cash equivalents that it holds to meet its
liquidity needs. The anticipated large value of the positions in
Wheat Interests that the Sponsor will acquire or enter into for the
Fund increases the risk of illiquidity. Because Wheat Interests may
be illiquid, the Fund’s holdings may be more difficult to
liquidate at favorable prices in periods of illiquid markets and
losses may be incurred during the period in which positions are
being liquidated.
If the nature of the participants in the futures market shifts such
that wheat purchasers are the predominant hedgers in the market,
the Fund might have to reinvest at higher futures prices or choose
Other Wheat Interests.
The changing nature of the
participants in the wheat market will influence whether futures
prices are above or below the expected future spot price. Wheat
producers will typically seek to hedge against falling wheat prices
by selling Wheat Futures Contracts. Therefore, if wheat producers
become the predominant hedgers in the futures market, prices of
Wheat Futures Contracts will typically be below expected future
spot prices. Conversely, if the predominant hedgers in the futures
market are the purchasers of the wheat who purchase Wheat Futures
Contracts to hedge against a rise in prices, prices of Wheat
Futures Contracts will likely be higher than expected future spot
prices. This can have significant implications for the Fund when it
is time to sell a Wheat Futures Contract that is no longer a
Benchmark Component Futures Contract and purchase a new Wheat
Futures Contract or to sell a Wheat Futures Contract to meet
redemption requests.
While the Fund does not intend to take physical delivery of wheat
under its Wheat Interests, the possibility of physical delivery
impacts the value of the contracts.
While it is not the current
intention of the Fund to take physical delivery of wheat under its
Wheat Interests, Wheat Futures Contracts are traditionally
physically deliverable contracts, and, unless a portion was not
traded out of or rolled, it is possible to take or make delivery
under these and some Other Wheat Interests. Storage costs
associated with purchasing wheat could result in costs and other
liabilities that could impact the value of Wheat Futures Contracts
or certain Other Wheat Interests. Storage costs include the time
value of money invested in wheat as a physical commodity plus the
actual costs of storing the wheat less any benefits from ownership
of wheat that are not obtained by the holder of a futures contract.
In general, Wheat Futures Contracts have a one-month delay for
contract delivery and the pricing of back month contracts (the back
month is any future delivery month other than the spot month)
includes storage costs. To the extent that these storage costs
change for wheat while the Fund holds Wheat Interests, the value of
the Wheat Interests, and therefore the Fund’s NAV, may change
as well.
The price relationship between the Benchmark Component Futures
Contracts at any point in time and the Wheat Futures Contracts that
will become Benchmark Component Futures Contracts on the next roll
date will vary and may impact both the Fund’s total return
and the degree to which its total return tracks that of wheat price
indices.
The design of the Fund’s
Benchmark is such that the Benchmark Component Futures Contracts
will change five times per year, and the Fund’s investments
must be rolled periodically to reflect the changing composition of
the Benchmark. For example, when the secondto-expire
Wheat Futures Contract becomes the first-to-expire
contract, such contract will no longer be a Benchmark Component
Futures Contract and the Fund’s position in it will no longer
be consistent with tracking the Benchmark. In the event of a wheat
futures market where near-to-expire contracts trade at a higher
price than longer-to-expire contracts, a situation referred to as
“backwardation,” then absent the impact of the overall
movement in wheat prices the value of the Benchmark Component
Futures Contracts would tend to rise as they approach expiration.
As a result, the Fund may benefit because it would be selling more
expensive contracts and buying less expensive ones on an ongoing
basis. Conversely, in the event of a wheat futures market where
near-to-expire contracts trade at a lower price than
longerto-expire contracts, a situation referred to as
“contango,” then absent the impact of the overall
movement in wheat prices the value of the Benchmark Component
Futures Contracts would tend to decline as they approach
expiration. As a result, the Fund’s total return may be lower
than might otherwise be the case because it would be selling less
expensive contracts and buying more expensive ones. The impact of
backwardation and contango may lead the total return of the Fund to
vary significantly from the total return of other price references,
such as the spot price of wheat. In the event of a prolonged period
of contango, and absent the impact of rising or
falling
wheat prices, this could have a
significant negative impact on the Fund’s NAV and total
return, and you could incur a partial or total loss of your
investment in the Fund.
Regulation of the commodity interests and commodity markets is
extensive and constantly changing. future regulatory developments
are impossible to predict but may significantly and adversely
affect the Fund.
The regulation of futures markets,
futures contracts and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Subsequent to the enactment of the DoddFrank Wall
Street Reform and Consumer Protection Act (the
“DoddFrank Act”) in 2010, swap agreements became
fully regulated by the CFTC under the amended Commodity Exchange
Act and the CFTC’s regulations thereunder. Considerable
regulatory attention has been focused on non-traditional
investment pools that are publicly distributed in the United
States. As the DoddFrank Act continues to be implemented by
the CFTC and the SEC, there is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Teucrium Funds, or the
ability of a Fund to continue to implement its investment strategy.
In addition, various national governments outside of the United
States have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Fund is impossible to predict but
could be substantial and adverse.
Further, President Donald J. Trump
has promised and issued several executive orders intended to
relieve the financial burden created by the Dodd-Frank Act,
although these executive orders only set forth several general
principles to be followed by the federal agencies and do not
mandate the wholesale repeal of the Dodd-Frank Act. The scope of
the effect that passage of new financial reform legislation could
have on U.S. securities, derivatives and commodities markets is not
clear at this time because each federal regulatory agency would
have to promulgate new regulations to implement such legislation.
These regulatory changes may affect the continued operation of the
Teucrium Funds. For additional information regarding recent
regulatory developments that may impact the Teucrium Funds or the
Trust, refer to the section entitled “Regulation” of
the Statement of Additional Information.
If you are investing in the Fund for purposes of hedging, you might
be subject to several risks, including the possibility of losing
the benefit of favorable market movements.
Producers and commercial users of
wheat may use the Fund as a vehicle to hedge the risk of losses in
their wheat related transactions. There are several risks in
connection with using the Fund as a hedging device. While hedging
can provide protection against an adverse movement in market
prices, it can also preclude a hedger’s opportunity to
benefit from a favorable market movement. For instance, in a
hedging transaction the hedger may be a user of a commodity
concerned that the hedged commodity will increase in price but must
recognize the risk that the price may instead
decline.
If this happens, the hedger will
have lost the benefit of being able to purchase the commodity at
the lower price because the hedging transaction will result in a
loss that would offset (at least in part) this benefit. Thus, the
hedger foregoes the opportunity to profit from favorable price
movements. In addition, if the hedge is not a perfect one, the
hedger can lose on the hedging transaction and not realize an
offsetting gain in the value of the underlying item being
hedged.
When using Wheat Interests as a
hedging technique, at best, the correlation between changes in
prices of futures contracts and of the items being hedged can be
only approximate. The degree of imperfection of correlation depends
upon circumstances such as: variations in speculative markets,
demand for futures and for wheat products, technical influences in
futures trading, and differences between anticipated costs being
hedged and the instruments underlying the standard futures
contracts available for trading. Even a well conceived hedge
may be unsuccessful to some degree because of unexpected market
behavior as well as the expenses associated with creating the
hedge.
In addition, using an investment in
the Fund as a hedge for changes in food costs generally may not be
successful because changes in the price of wheat may vary
substantially from changes in the prices of other food products. In
addition, the price of wheat and the Fund’s NAV would not
reflect the refining, transportation, and other costs that are
specific to the hedger.
An investment in the Fund may provide you little or no
diversification benefits. Thus, in a declining market, the Fund may
have no gains to offset your losses from other investments, and you
may suffer losses on your investment in the Fund at the same time
you incur losses with respect to other asset
classes.
We cannot predict to what extent the
performance of Wheat Interests will or will not correlate to the
performance of other broader asset classes such as stocks and
bonds. If the Fund’s performance were to move more directly
with the financial markets, you will obtain little or no
diversification benefits from an investment in the Shares. In such
a case, the Fund may have no gains to offset your losses from other
investments, and you may suffer losses on your investment in the
Fund at the same time you incur losses with respect to other
investments.
Variables such as drought, floods,
weather, embargoes, tariffs and other political events may have a
larger impact on wheat and Wheat Interest prices than on
traditional securities and broader financial markets. These
additional variables may create additional investment risks that
subject the Fund’s investments to greater volatility than
investments in traditional securities.
Lower correlation should not be
confused with negative correlation, where the performance of two
asset classes would be opposite of each other. There is no historic
evidence that the spot price of wheat and prices of other financial
assets such as stocks and bonds are negatively correlated. In the
absence of negative correlation, the Fund cannot be expected to be
automatically profitable during unfavorable periods for the stock
market, or vice versa.
T
he
Fund’s Operating Risks
The Fund is not a registered investment company, so you do not have
the protections of the Investment Company Act of
1940.
The Fund is not an investment
company subject to the Investment Company Act of 1940. Accordingly,
you do not have the protections afforded by that statute, which,
for example, requires investment companies to have a board of
directors with a majority of disinterested directors and regulates
the relationship between the investment company and its investment
manager.
The Sponsor is leanly staffed and relies heavily on key personnel
to manage trading activities.
In managing and directing the
day-to-day activities and affairs of the Fund, the
Sponsor relies almost entirely on a small number of individuals
including Mr. Sal Gilbertie, Mr. Steve Kahler and Ms. Cory
Mullen-Rusin. If Mr. Gilbertie, Mr. Kahler or Ms. Mullen-Rusin were
to leave or be unable to carry out their present responsibilities,
it may have an adverse effect on the management of the Fund. To the
extent that the Sponsor establishes additional commodity pools,
even greater demands will be placed on these
individuals.
The Sponsor has limited capital and may be unable to continue to
manage the Fund if it sustains continued
losses.
The Sponsor was formed for the
purpose of managing the Trust, including the Fund, the other
Teucrium Funds, and any other series of the Trust that may be
formed in the future, and has been provided with capital primarily
by its principals and a small number of outside investors. If the
Sponsor operates at a loss for an extended period, its capital will
be depleted, and it may be unable to obtain additional financing
necessary to continue its operations. If the Sponsor were unable to
continue to provide services to the Fund, the Fund would be
terminated if a replacement sponsor could not be found. Any
expenses related to the operation of the Fund would need to be paid
by the Fund at the time of termination.
Position limit, accountability levels and daily price fluctuation
limits set by the CFTC and the exchanges have the potential to
cause tracking error, which could cause the price of Shares to
substantially vary from the Benchmark and prevent you from being
able to effectively use the Fund as a way to hedge against
wheat related losses or as a way to indirectly invest in
wheat.
The CFTC and U.S. designated
contract markets may establish position limits on the maximum net
long or net short futures contracts in commodity interests that any
person or group of persons under common trading control (other than
as a hedge, which an investment by the Fund is not) may hold, own
or control. For example, the current position limit for investments
at any one time in the Wheat Futures Contracts are 600 spot month
contracts, 12,000 contracts expiring in any other single month, and
12,000 total for all months. Wheat Swaps are subject to position
limits that are similar to, but currently measured separately from,
the limits on Wheat Futures Contracts. These position limits are
fixed ceilings that the Fund would not be able to exceed without
specific CFTC authorization
Accountability levels differ from
position limits in that they do not represent a fixed ceiling, but
rather a threshold above which a futures exchange may exercise
greater scrutiny and control over an investor’s positions. If
a Fund were to exceed an applicable accountability level for
investments in futures contracts, the exchange will monitor the
Fund’s exposure and may ask for further information on its
activities, including the total size of all positions, investment
and trading strategy, and the extent of liquidity resources of the
Fund. If deemed necessary by the exchange, the Fund could be
ordered to reduce its
aggregate net
position back to the accountability
level.
In addition to position limits and
accountability limits, the exchanges set daily price fluctuation
limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of futures contracts
may vary either up or down from the previous day’s settlement
price. Once the daily price fluctuation limit has been reached in a
particular futures contract, no trades may be made at a price
beyond that limit.
On December 16, 2016, as mandated by
the Dodd-Frank Act, the CFTC adopted a final rule that aggregate
all positions, for purposes of position limits; such positions
include futures contracts, futures-equivalent positions,
over-the-counter swaps and options (i.e., contracts that are not
traded on exchanges). These aggregation requirements became
effective on February 14, 2017 and could limit the Fund’s
ability to establish positions in commodity over-the-counter
instruments if the assets of the Fund were to grow
substantially.
There are no independent advisers representing Fund
investors.
The Sponsor has consulted with legal
counsel, accountants and other advisers regarding the formation and
operation of the Trust and Fund. No counsel has been appointed to
represent you in connection with the offering of Shares.
Accordingly, you should consult your own legal, tax and financial
advisers regarding the desirability of an investment in the
Shares.
There are technical and fundamental risks inherent in the trading
system the Sponsor intends to employ.
The Sponsor’s trading system
is quantitative in nature and it is possible that the Sponsor may
make errors. Any errors or imperfections in the Sponsor’s
trading system’s quantitative models, or in the data on which
they are based, could adversely affect the Sponsor’s
effective use of such trading systems. It is not possible or
practicable for the Sponsor’s trading system to factor all
relevant, available data into quantitative systems and/or trading
decision. There is no guarantee that the Sponsor will use any
specific data or type of data in making trading decisions on behalf
of the Fund, nor is there any guarantee that the data actually
utilized in making trading decisions on behalf of the Fund will be
the most accurate data or free from errors. In addition, it is
possible that a computer or software program may malfunction and
cause an error in computation.
The Fund and the Sponsor may have conflicts of interest, which may
cause them to favor their own interests to your
detriment.
The Fund and the Sponsor may have
inherent conflicts to the extent the Sponsor attempts to maintain
the Fund’s asset size in order to preserve its fee income and
this may not always be consistent with the Fund’s objective
of having the value of its Shares’ NAV track changes in the
Benchmark. The Sponsor’s officers and employees do not devote
their time exclusively to the Fund. These persons may be directors,
officers or employees of other entities. They could have a conflict
between their responsibilities to the Fund and to those other
entities.
In addition, the Sponsor’s
principals, officers or employees may trade securities and futures
and related contracts for their own accounts. A conflict of
interest may exist if their trades are in the same markets and
occur at the same time as the Fund trades using the clearing broker
to be used by the Fund. A potential conflict also may occur if the
Sponsor’s principals, officers or employees trade their
accounts more aggressively or take positions in their accounts that
are opposite, or ahead of, the positions taken by the
Fund.
The Sponsor has sole current
authority to manage the investments and operations of the Fund, and
this may allow it to act in a way that furthers its own interests
and in conflict with your best interests, including the authority
of the Sponsor to allocate expenses to and between the Teucrium
Funds. Shareholders have very limited voting rights, which will
limit the ability to influence matters such as amendment of the
Trust Agreement, changes in the Fund’s basic investment
policies, dissolution of the Fund, or the sale or distribution of
the Fund’s assets.
Shareholders have only very limited voting rights and generally
will not have the power to replace the Sponsor. Shareholders will
not participate in the management of the Fund and do not control
the Sponsor so they will not have influence over basic matters that
affect the Fund.
Shareholders will have very limited
voting rights with respect to the Fund’s affairs.
Shareholders may elect a replacement Sponsor only if the current
Sponsor resigns voluntarily or loses its corporate charter.
Shareholders will not be permitted to participate in the management
or control of the Fund or the conduct of its business. Shareholders
must therefore rely upon the duties and judgment of the Sponsor to
manage the Fund’s affairs.
The Sponsor may manage a large amount of assets and this could
affect the Fund’s ability to trade
profitably.
Increases in assets under management
may affect trading decisions. While the Fund’s assets are
currently at manageable levels, the Sponsor does not intend to
limit the amount of Fund assets. The more assets the Sponsor
manages, the more difficult it may be for it to trade profitably
because of the difficulty of trading larger positions without
adversely affecting prices and performance and of managing risk
associated with larger positions.
The liability of the Sponsor and the Trustee are limited, and the
value of the Shares will be adversely affected if the Fund is
required to indemnify the Trustee or the
Sponsor.
Under the Trust Agreement, the
Trustee and the Sponsor are not liable, and have the right to be
indemnified, for any liability or expense incurred absent gross
negligence or willful misconduct on the part of the Trustee or
Sponsor, as the case may be. That means the Sponsor may require the
assets of the Fund to be sold in order to cover losses or liability
suffered by the Sponsor or by the Trustee. Any sale of that kind
would reduce the NAV of the Fund and the value of its
Shares.
Although the Shares of the Fund are limited liability investments,
certain circumstances such as bankruptcy could increase a
Shareholder’s liability.
The Shares of the Fund are limited
liability investments. Shareholders may not lose more than the
amount that they invest plus any profits recognized on their
investment. However, Shareholders could be required, as a matter of
bankruptcy law, to return to the estate of the Fund any
distribution they received at a time when the Fund was in fact
insolvent or in violation of its Trust
Agreement.
You cannot be assured of the Sponsor’s continued services,
and discontinuance may be detrimental to the
Fund.
You cannot be assured that the
Sponsor will be willing or able to continue to service the Fund for
any length of time. The Sponsor was formed for the purpose of
sponsoring the Fund and other commodity pools and has limited
financial resources and no significant source of income apart from
its management fees from such commodity pools to support its
continued service for the Fund. If the Sponsor discontinues its
activities on behalf of the Fund or another series of the Trust,
the Fund may be adversely affected. If the Sponsor’s
registrations with the CFTC or memberships in the NFA were revoked
or suspended, the Sponsor would no longer be able to provide
services to the Fund.
The Fund could terminate at any time and cause the liquidation and
potential loss of your investment and could upset the overall
maturity and timing of your investment
portfolio.
The Fund may terminate at any time,
regardless of whether the Fund has incurred losses, subject to the
terms of the Trust Agreement. For example, the dissolution or
resignation of the Sponsor would cause the Trust to terminate
unless shareholders holding a majority of the outstanding shares of
the Trust, voting together as a single class, elect within 90 days
of the event to continue the Trust and appoint a successor Sponsor.
In addition, the Sponsor may terminate the Fund if it determines
that the Fund’s aggregate net assets in relation to its
operating expenses make the continued operation of the Fund
unreasonable or imprudent. As of the date of this prospectus, the
Fund pays the fees, costs, and expenses of its operations. If the
Sponsor and the Fund are unable to raise sufficient funds so that
the Fund’s expenses are reasonable in relation to its NAV,
the Fund may be forced to terminate, and investors may lose all or
part of their investment. Any expenses related to the operation of
the Fund would need to be paid by the Fund at the time of
termination.
However, no level of losses will
require the Sponsor to terminate the Fund. The Fund’s
termination would result in the liquidation of its investments and
the distribution of its remaining assets to the Shareholders on a
pro rata basis in accordance with their Shares, and the Fund could
incur losses in liquidating its investments in connection with a
termination. Termination could also negatively affect the overall
maturity and timing of your investment
portfolio.
As a Shareholder, you will not have the rights enjoyed by investors
in certain other types of entities.
As interests in separate series of a
Delaware statutory trust, the Shares do not involve the rights
normally associated with the ownership of shares of a corporation
(including, for example, the right to bring shareholder oppression
and derivative actions).
In addition, the Shares have limited
voting and distribution rights (for example, Shareholders do not
have the right to elect directors, as the Trust does not have a
board of directors, and generally will not receive regular
distributions of the net income and capital gains earned by the
Fund). The Fund is also not subject to certain investor protection
provisions of the Sarbanes Oxley Act of 2002 and the NYSE Arca
governance rules (for example, audit committee
requirements).
A court could potentially conclude that the assets and liabilities
of the Fund are not segregated from those of another series of the
Trust, thereby potentially exposing assets in the Fund to the
liabilities of another series.
The Fund is a series of a Delaware
statutory trust and not itself a legal entity separate from the
other Teucrium Funds. The Delaware Statutory Trust Act provides
that if certain provisions are included in the formation and
governing documents of a statutory trust organized in series and if
separate and distinct records are maintained for any series and the
assets associated with that series are held in separate and
distinct records and are accounted for in such separate and
distinct records separately from the other assets of the statutory
trust, or any series thereof, then the debts, liabilities,
obligations and expenses incurred by a particular series are
enforceable against the assets of such series only, and not against
the assets of the statutory trust generally or any other series
thereof. Conversely, none of the debts, liabilities, obligations
and expenses incurred with respect to any other series thereof is
enforceable against the assets of such series. The Sponsor is not
aware of any court case that has interpreted this interseries
limitation on liability or provided any guidance as to what is
required for compliance. The Sponsor intends to maintain separate
and distinct records for the Fund and account for the Fund
separately from any other Trust series, but it is possible a court
could conclude that the methods used do not satisfy the Delaware
Statutory Trust Act, which would potentially expose assets in the
Fund to the liabilities of one or more of the Teucrium Funds and/or
any other Trust series created in the future.
The Sponsor and the Trustee are not obligated to prosecute any
action, suit or other proceeding in respect of any Fund
property.
Neither the Sponsor nor the Trustee
is obligated to, although each may in its respective discretion,
prosecute any action, suit or other proceeding in respect of any
Fund property. The Trust Agreement does not confer upon
Shareholders the right to prosecute any such action, suit or other
proceeding.
The Fund does not expect to make cash
distributions.
The Sponsor intends to
reinvest any income and realized gains of the Fund in
additional Wheat Interests rather than distributing cash to
Shareholders. Therefore, unlike mutual funds, commodity pools or
other investment pools that generally distribute income and gains
to their investors, the Fund generally will not distribute cash to
Shareholders. You should not invest in the Fund if you will need
cash distributions from the Fund to pay taxes on your share of
income and gains of the Fund, if any, or for any other reason.
Although the Fund does not intend to make cash distributions, it
reserves the right to do so in the Sponsor’s sole discretion,
in certain situations, including for example, if the income earned
from its investments held directly or posted as margin may reach
levels that merit distribution, e.g., at levels where such income
is not necessary to support its underlying investments in Wheat
Interests and investors adversely react to being taxed on such
income without receiving distributions that could be used to pay
such tax. Cash distributions may be made in these and similar
instances.
There is a risk that the Fund will not have sufficient total net
assets to compensate for the fees and expenses that it must pay and
as such the expense ratio of the Fund may be higher than that filed
in this document.
The Fund pays management fees at an
annual rate of 1.00% of its average net assets, brokerage charges
and various other expenses of its ongoing operations (e.g., fees of
the Administrator, Trustee and Distributor), resulting in a total
estimated expense ratio of approximately 1.16% of net assets, net
of the expenses waived by the Sponsor. These fees and expenses must
be paid in all events, regardless of the Fund’s total net
assets.
If this offering of Shares does not raise sufficient funds to make
the Fund’s future operations viable, the Fund may be forced
to terminate, and investors may lose all or part of their
investment.
All of the expenses relating to the
Fund incurred prior to the commencement of operations (September
19, 2011) were paid by the Sponsor. These payments by the Sponsor
were designed to allow the Fund the ability to commence the public
offering of its Shares. As of the date of this prospectus, the Fund
pays the fees, costs and expenses of its operations. If the Sponsor
and the Fund are unable to raise sufficient funds so that the
Fund’s expenses are reasonable in relation to its NAV, the
Fund may be forced to terminate, and investors may lose all or part
of their investment. Any expenses related to the operation of the
Fund would need to be paid by the Fund at the time of
termination.
The Fund may incur higher fees and expenses upon renewing existing
or entering into new contractual relationships.
The arrangements between clearing
brokers and counterparties on the one hand and the Fund on the
other generally are terminable by the clearing brokers or
counterparty upon notice to the Fund. In addition, the agreements
between the Fund and its third party service providers, such
as the Distributor and the Custodian, are generally terminable at
specified intervals. Upon termination, the Sponsor may be required
to renegotiate or make other arrangements for obtaining similar
services if the Fund intends to continue to operate. Comparable
services from another party may not be available, or even if
available, these services may not be available on the terms as
favorable as those of the expired or terminated
arrangements.
The Fund may experience a higher breakeven if interest rates
decline.
The Fund earns interest on cash
balances available for investment. If actual interest rates earned
were to fall and if the Sponsor were not able to waive expenses
sufficient to cover the deficit, the breakeven estimated by the
Fund in this prospectus could be higher.
The Fund may miss certain trading opportunities because it will not
receive the benefit of the expertise of independent trading
advisors.
The Sponsor does not employ trading
advisors for the Fund. however, the Sponsor reserves the right to
employ them in the future. The only advisor to the Fund is the
Sponsor. A lack of independent trading advisors may be
disadvantageous to the Fund because it will not receive the benefit
of their independent expertise.
The Fund is not actively managed.
The Fund is not actively managed and
is designed to track a benchmark, regardless of whether the price
of the Benchmark Component Futures Contracts is flat, declining or
rising. As a result, the Fund may sustain losses that may have been
avoidable if the Fund was actively managed.
The Net Asset Value calculation of the Fund may be overstated or
understated due to the valuation method employed when a settlement
price is not available on the date of net asset value
calculation.
The Fund’s NAV includes, in
part, any unrealized profits or losses on open swap agreements,
futures or forward contracts. Under normal circumstances, the NAV
reflects the quoted CBOT settlement price of open futures contracts
on the date when the NAV is being calculated. In instances when the
quoted settlement price of futures contracts traded on an exchange
may not be reflective of fair value based on market condition,
generally due to the operation of daily limits or other rules of
the exchange or otherwise, the NAV may not reflect the fair value
of open futures contracts on such date. For purposes of financial
statements and reports, the Sponsor will recalculate the NAV where
necessary to reflect the “fair value” of a Futures
Contract when the Futures Contract closes at its price fluctuation
limit for the day.
An unanticipated number of redemption requests during a short
period of time could have an adverse effect on the NAV of the
Fund.
If a substantial number of requests
for redemption of Redemption Baskets are received by the Fund
during a relatively short period of time, the Fund may not be able
to satisfy the requests from the Fund’s assets not committed
to trading. As a consequence, it could be necessary to liquidate
the Fund’s trading positions before the time that its trading
strategies would otherwise call for
liquidation.
Fund assets may be depleted if investment performance does not
exceed fees.
In addition to certain fees paid to
each Fund’s service providers, each Fund pays the Sponsor a
fee of 1.00% of asset under management per annum, regardless of
Fund performance. Over time, a Fund’s assets could be
depleted if investment performance does not exceed such
fees.
The liquidity of the Shares may be affected by the withdrawal from
participation of Authorized Purchasers, market-makers, or other
significant secondary-market participants which could adversely
affect the market price of the Shares.
Only an Authorized Purchaser may
engage in creation or redemption transactions directly with the
Fund. The Fund has a limited number of institutions that act as
Authorized Purchasers. To the extent that these institutions exit
the business or are unable to proceed with creation and/or
redemption orders with respect to the Fund and no other Authorized
Purchaser is able to step forward to create or redeem Creation
Units, Fund shares may trade at a discount to NAV and possibly face
trading halts and/or delisting. In addition, a decision by a market
maker, lead market maker, or other large investor, to cease
activities for the Fund or a decision by a secondary market
participant to sell a significant number of the Fund’s Shares
could adversely affect liquidity, the spread between the bid and
ask quotes, and potentially the price of the Shares. The Sponsor
can make no guarantees that participation by Authorized Purchasers
or market makers will continue.
If a minimum number of Shares is outstanding, market makers may be
less willing to purchase Shares in the secondary market which may
limit your ability to sell Shares.
There is a minimum number of baskets
and associated Shares specified for the Fund. If the Fund
experienced redemptions that caused the number of Shares
outstanding to decrease to the minimum level of Shares required to
be outstanding, until the minimum number of Shares is again
exceeded through the purchase of a new Creation Basket, there can
be no more redemptions by an Authorized Purchaser. In such case,
market makers may be less willing to purchase Shares from investors
in the secondary market, which may in turn limit the ability of
Shareholders of the Fund to sell their Shares in the secondary
market. As of January 31, 2019, these minimum levels for the Fund
are 50,000 Shares representing two baskets. The minimum level of
Shares specified for the Fund is subject to change. As of January
31, 2019, there were 9,450,004 Shares outstanding. (The current
number of Shares outstanding is posted daily on our website,
www.teucriumwheatfund.com.)
You may be adversely
affected by redemption orders that are subject to postponement,
suspension or rejection under certain
circumstances.
The Trust may, in its discretion,
suspend the right to redeem Shares of the Fund or postpone the
redemption settlement date: (1) for any period during which an
applicable exchange is closed other than customary weekend or
holiday closing, or trading is suspended or restricted. (2) for any
period during which an emergency exists as a result of which
delivery, disposal or evaluation of the Fund’s assets is not
reasonably practicable. (3) for such other period as the Sponsor
determines to be necessary for the protection of Shareholders. (4)
if there is a possibility that any or all of the Benchmark
Component Futures Contracts of the Fund on the CBOT from which the
NAV of the Fund is calculated will be priced at a daily price limit
restriction. or (5) if, in the sole discretion of the Sponsor, the
execution of such an order would not be in the best interest of the
Fund or its Shareholders. In addition, the Trust will reject a
redemption order if the order is not in proper form as described in
the agreement with the Authorized Purchaser or if the fulfillment
of the order, in the opinion of its counsel, might be unlawful. The
Sponsor may also reject a redemption order if the number of Shares
being redeemed would reduce the remaining outstanding Shares to
50,000 Shares (i.e., two baskets of 25,000 Shares each) or less,
unless the Sponsor has reason to believe that the placer of the
redemption order does in fact possess all the outstanding Shares of
the Fund and can deliver them. Any such postponement, suspension or
rejection could adversely affect a redeeming Shareholder. For
example, the resulting delay may adversely affect the value of the
Shareholder’s redemption proceeds if the NAV of the Fund
declines during the period of delay. The Trust Agreement provides
that the Sponsor and its designees will not be liable for any loss
or damage that may result from any such suspension or
postponement.
Any postponement, suspension or
rejection of a redemption order could adversely affect a redeeming
Shareholder. For example, the resulting delay may adversely affect
the value of a Shareholder’s redemption proceeds if the NAV
of the Fund declines during the period of delay. The Trust
Agreement provides that the Sponsor and its designees will not be
liable for any loss or damage that may result from any such
suspension or postponement.
The failure or bankruptcy of a clearing broker could result in
substantial losses for the Fund. the clearing broker could be
subject to proceedings that impair its ability to execute the
Fund’s trades.
Under CFTC regulations, a clearing
broker with respect to the Fund’s exchange traded Wheat
Interests must maintain customers’ assets in a bulk
segregated account. If a clearing broker fails to do so or is
unable to satisfy a substantial deficit in a customer account, its
other customers may be subject to risk of a substantial loss of
their funds in the event of that clearing broker’s
bankruptcy. In that event, the clearing broker’s customers,
such as the Fund, are entitled to recover, even in respect of
property specifically traceable to them, only a proportional share
of all property available for distribution to all of that clearing
broker’s customers. The Fund also may be subject to the risk
of the failure of, or delay in performance by, any exchanges and
markets and their clearing organizations, if any, on which Wheat
Interests are traded.
From time to time, the clearing
brokers may be subject to legal or regulatory proceedings in the
ordinary course of their business. A clearing broker’s
involvement in costly or time consuming legal proceedings may
divert financial resources or personnel away from the clearing
broker’s trading operations, which could impair the clearing
broker’s ability to successfully execute and clear the
Fund’s trades.
The failure or insolvency of the Fund’s Custodian or other
financial institution in which the Fund has deposits could result
in a substantial loss of the Fund’s
assets.
As noted above, the
vast majority of the Fund’s assets are held in short-term
Treasury Securities, in cash and/or cash equivalents with the
Custodian, other financial institutions, or in commercial paper
with a maturity date of 90 days or less. The insolvency of the
Custodian, any financial institution in which the Fund has demand
deposits, a commercial paper issuer, or United States Treasury
could result in a complete loss of the Fund’s assets. The
Fund currently has cash and or cash equivalents at the Custodian,
Rabobank, N.A, in commercial paper, and in short-term United States
Treasury Securities held by the FCM.
Third parties may infringe upon or otherwise violate intellectual
property rights or assert that the Sponsor has infringed or
otherwise violated their intellectual property rights, which may
result in significant costs, litigation and diverted attention of
Sponsor’s management.
Third parties may assert that the
Sponsor has infringed or otherwise violated their intellectual
property rights. Third parties may independently develop business
methods, trademarks or proprietary software and other technology
similar to that of the Sponsor and claim that the Sponsor has
violated their intellectual property rights, including their
copyrights, trademark rights, trade names, trade secrets and patent
rights. As a result, the Sponsor may have to litigate in the future
to determine the validity and scope of other parties’
proprietary rights or defend itself against claims that it has
infringed or otherwise violated other parties’ rights. Any
litigation of this type, even if the Sponsor is successful and
regardless of the merits, may result in significant costs, divert
resources from the Fund, or require the Sponsor to change its
proprietary software and other technology or enter into royalty or
licensing agreements.
The Sponsor has a patent on certain
business methods and procedures used with respect to the Fund. The
Sponsor utilizes certain proprietary software. Any unauthorized use
of such proprietary software, business methods and/or procedures
could adversely affect the competitive advantage of the Sponsor or
the Fund and/or require the Sponsor to take legal action to protect
its rights.
The success of the Fund depends on the ability of the Sponsor to
accurately implement its trading strategies, and any failure to do
so could subject the Fund to losses on such
transactions.
The Sponsor’s trading strategy
is quantitative in nature and it is possible that the Sponsor will
make errors in its implementation. The execution of the
quantitative strategy is subject to human error, such as incorrect
inputs into the Sponsor’s computer systems and incorrect
information provided to the Fund’s clearing brokers. In
addition, it is possible that a computer or software program may
malfunction and cause an error in computation. Any failure,
inaccuracy or delay in executing the Fund’s transactions
could affect its ability to achieve its investment objective. It
could also result in decisions to undertake transactions based on
inaccurate or incomplete information. This could cause substantial
losses on transactions. The Sponsor is not required to reimburse
the Fund for any costs associated with an error in the placement or
execution of a trade in commodity future
interests.
The Fund may experience substantial losses on transactions if the
computer or communications system fails.
The Fund’s trading activities
depend on the integrity and performance of the computer and
communications systems supporting them. Extraordinary transaction
volume, hardware or software failure, power or telecommunications
failure, a natural disaster, cyber-attack or other catastrophe
could cause the computer systems to operate at an unacceptably slow
speed or even fail. Any significant degradation or failure of the
systems that the Sponsor uses to gather and analyze information,
enter orders, process data, monitor risk levels and otherwise
engage in trading activities may result in substantial losses on
transactions, liability to other parties, lost profit
opportunities, damages to the Sponsor’s and Fund’s
reputations, increased operational expenses and diversion of
technical resources.
If the computer and communications systems are not upgraded when
necessary, the Fund’s financial condition could be
harmed.
The development of complex computer
and communications systems and new technologies may render the
existing computer and communications systems supporting the
Fund’s trading activities obsolete. In addition, these
computer and communications systems must be compatible with those
of third parties, such as the systems of exchanges, clearing
brokers and the executing brokers. As a result, if these third
parties upgrade their systems, the Sponsor will need to make
corresponding upgrades to effectively continue its trading
activities. The Sponsor may have limited financial resources for
these upgrades or other technological changes. The Fund’s
future success may depend on the Sponsor’s ability to respond
to changing technologies on a timely and cost-effective
basis.
The Fund depends on the reliable performance of the computer and
communications systems of third parties, such as brokers and
futures exchanges, and may experience substantial losses on
transactions if they fail.
The Fund depends on the proper and
timely function of complex computer and communications systems
maintained and operated by the futures exchanges, brokers and other
data providers that the Sponsor uses to conduct trading activities.
Failure or inadequate performance of any of these systems could
adversely affect the Sponsor’s ability to complete
transactions, including its ability to close out positions, and
result in lost profit opportunities and significant losses on
commodity interest transactions. This could have a material adverse
effect on revenues and materially reduce the Fund’s available
capital. For example, unavailability of price quotations from third
parties may make it difficult or impossible for the Sponsor to
conduct trading activities so that the Fund will closely track the
Benchmark. Unavailability of records from brokerage firms may make
it difficult or impossible for the Sponsor to accurately determine
which transactions have been executed or the details, including
price and time, of any transaction executed. This unavailability of
information also may make it difficult or impossible for the
Sponsor to reconcile its records of transactions with those of
another party or to accomplish settlement of executed
transactions.
The occurrence of a severe weather event, natural disaster,
terrorist attack, or the outbreak, continuation or expansion of war
or other hostilities could disrupt the Fund’s trading
activity and materially affect the Fund’s
profitability.
The operations of the Fund, the
exchanges, brokers and counterparties with which the Fund does
business, and the markets in which the Fund does business could be
severely disrupted in the event of a severe weather event, natural
disaster, major terrorist attack, cyber-attacks, data breach or the
outbreak, continuation or expansion of war or other hostilities.
Global terrorist attacks, anti-terrorism initiatives, and political
unrest continue to fuel this concern. In addition, a prolonged U.S.
government shutdown could weaken the U.S. economy, interfere with
the commodities markets that rely upon data published by U.S.
federal government agencies, and prevent the Fund from receiving
necessary regulatory review or approvals.
Failures or breaches of electronic systems could disrupt the
Fund’s trading activity and materially affect the
Fund’s profitability.
Failures or breaches of the
electronic systems of the Fund, the Sponsor, the Custodian or
mutual funds or other financial institutions in which the Fund
invests, or the Fund’s other service providers, market
makers, Authorized Purchasers, NYSE Arca, exchanges on which Wheat
Futures Contracts or Other wheat interests are traded or cleared,
or counterparties have the ability to cause disruptions and
negatively impact the Fund’s business operations, potentially
resulting in financial losses to the Fund and its shareholders.
Such failures or breaches may include intentional cyber-attacks
that may result in an unauthorized party gaining access to
electronic systems in order to misappropriate the Fund’s
assets or sensitive information. While the Fund has established
business continuity plans and risk management systems seeking to
address system breaches or failures, there are inherent limitations
in such plans and systems. Furthermore, the Fund cannot control the
cyber security plans and systems of the Custodian or mutual funds
or other financial institutions in which the Fund invests, or the
Fund’s other service providers, market makers, Authorized
Purchasers, NYSE Arca, exchanges on which Wheat Futures Contracts
or Other wheat interests are traded or cleared, or
counterparties.
An investment in a Fund faces numerous risks from its shares being
traded in the secondary market, any of which may lead to the
Fund’s shares trading at a premium or discount to
NAV.
Although the Fund’s shares are
listed for trading on the NYSE Arca, there can be no assurance that
an active trading market for such shares will develop or be
maintained. Trading in the Fund’s shares may be halted due to
market conditions or for reasons that, in the view of the NYSE
Arca, make trading in shares inadvisable. There can be no assurance
that the requirements of the NYSE Arca necessary to maintain the
listing of the Fund will continue to be met or will remain
unchanged or that the shares will trade with any volume, or at all.
The NAV of the Fund’s shares will generally fluctuate with
changes in the market value of the Fund’s portfolio holdings.
The market prices of shares will generally fluctuate in accordance
with changes in the Fund’s NAV and supply and demand of
shares on the NYSE Arca. It cannot be predicted whether the
Fund’s shares will trade below, at or above their NAV.
Investors buying or selling Fund shares in the secondary market
will pay brokerage commissions or other charges imposed by brokers
as determined by that broker. Brokerage commissions are often a
fixed amount and may be a significant proportional cost for
investors seeking to buy or sell relatively small amounts of
shares.
The NYSE Arca may halt trading in the Shares which would adversely
impact your ability to sell Shares.
Trading in Shares of the Fund may be
halted due to market conditions or, in light of NYSE Arca rules and
procedures, for reasons that, in view of the NYSE Arca, make
trading in Shares inadvisable. In addition, trading is subject to
trading halts caused by extraordinary market volatility pursuant to
“circuit breaker” rules that require trading to be
halted for a specified period based on a specified market decline.
There can be no assurance that the requirements necessary to
maintain the listing of the Shares will continue to be met or will
remain unchanged. The Fund will be terminated if its Shares are
delisted.
The lack of active trading markets for the Shares of the Fund may
result in losses on your investment in the Fund at the time of
disposition of your Shares.
Although the Shares of the Fund will
be listed and traded on the NYSE Arca, there can be no guarantee
that an active trading market for the Shares of the Fund will be
maintained. If you need to sell your Shares at a time when no
active market for them exists, the price you receive for your
Shares, assuming that you are able to sell them, likely will be
lower than what you would receive if an active market did
exist.
R
isk of Leverage and
Volatility
If the Sponsor causes or permits the Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turn
unprofitable.
Commodity pools’ trading
positions in futures contracts or other commodity interests are
typically required to be secured by the deposit of margin funds
that represent only a small percentage of a futures
contract’s (or other commodity interest’s) entire
market value. This feature permits commodity pools to
“leverage” their assets by purchasing or selling
futures contracts (or other commodity interests) with an aggregate
notional amount in excess of the commodity pool’s assets.
While this leverage can increase a pool’s profits, relatively
small adverse movements in the price of the pool’s commodity
interests can cause significant losses to the pool. While the
Sponsor does not intend to leverage the Fund’s assets, it is
not prohibited from doing so under the Trust Agreement. If the
Sponsor was to cause or permit the Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turn
unprofitable.
The price of wheat can be volatile which could cause large
fluctuations in the price of Shares.
As discussed in more detail above,
price movements for wheat are influenced by, among other things,
weather conditions, crop disease, transportation and storage
difficulties, various planting, growing and harvesting problems,
governmental policies, changing demand, and seasonal fluctuations
in supply. More generally, commodity prices may be influenced by
economic and monetary events such as changes in interest rates,
changes in balances of payments and trade, U.S. and international
inflation rates, currency valuations and devaluations, U.S. and
international economic events, and changes in the philosophies and
emotions of market participants. Because the Fund invests primarily
in interests in a single commodity, it is not a diversified
investment vehicle, and therefore may be subject to greater
volatility than a diversified portfolio of stocks or bonds or a
more diversified commodity pool.
O
ver-the-Counter
Contract Risk
Over the counter transactions are subject to changing
regulation.
A portion of the Fund’s assets
may be used to trade over-the-counter Wheat Interests,
such as forward contracts or swaps. The markets for over
the counter contracts will continue to rely upon the
integrity of market participants in lieu of the additional
regulation imposed by the CFTC on participants in the futures
markets. To date, the forward markets have been largely
unregulated, except for antimanipulation and antifraud
provisions, forward contracts have been executed bilaterally
and, in general historically, forward contracts have not been
cleared or guaranteed by a third party.
While increased regulation of
over the counter commodity interests is likely to
result from changes that are required to be effectuated by the
DoddFrank Act, there is no guarantee that such increased
regulation will be effective to reduce these
risks.
The Fund will be subject to credit risk with respect to
counterparties to over the counter contracts entered
into by the Fund.
The Fund faces the risk of
non-performance by the counterparties to the
over-the-counter contracts. Unlike in futures
contracts, the counterparty to these contracts is generally a
single bank or other financial institution, rather than a clearing
organization backed by a group of financial institutions. As a
result, there will be greater counterparty credit risk in these
transactions. A counterparty may not be able to meet its
obligations to the Fund, in which case the Fund could suffer
significant losses on these contracts.
If a counterparty becomes bankrupt
or otherwise fails to perform its obligations due to financial
difficulties, the Fund may experience significant delays in
obtaining any recovery in a bankruptcy or other reorganization
proceeding. During any such period, the Fund may have difficulty in
determining the value of its contracts with the counterparty, which
in turn could result in the overstatement or understatement of the
Fund’s NAV. The Fund may eventually obtain only limited
recovery or no recovery in such circumstances.
The Fund may be subject to liquidity risk with respect to its
over the counter contracts.
Overthecounter contracts
may have terms that make them less marketable than Wheat Futures
Contracts. Overthecounter contracts are less marketable
because they are not traded on an exchange, do not have uniform
terms and conditions, and are entered into based upon the
creditworthiness of the parties and the availability of credit
support, such as collateral, and in general, they are not
transferable without the consent of the counterparty. These
conditions make such contracts less liquid than standardized
futures contracts traded on a commodities exchange and diminish the
ability to realize the full value of such contracts. In addition,
even if collateral is used to reduce counterparty credit risk,
sudden changes in the value of overthecounter
transactions may leave a party open to financial risk due to a
counterparty default since the collateral held may not cover a
party’s exposure on the transaction in such
situations.
In general, valuing OTC derivatives
is less certain than valuing actively traded financial instruments
such as exchange traded futures contracts and securities because
the price and terms on which such OTC derivatives are entered into
or can be terminated are individually negotiated, and those prices
and terms may not reflect the best price or terms available from
other sources. In addition, while market makers and dealers
generally quote indicative prices or terms for entering into or
terminating OTC contracts, they typically are not contractually
obligated to do so, particularly if they are not a party to the
transaction. As a result, it may be difficult to obtain an
independent value for an outstanding OTC derivatives
transaction.
The foregoing liquidity risks could
impact adversely affect the Fund’s ability to meet its
investment objective.
R
isk of Trading in International
Markets
Trading in international markets would expose the Fund to credit
and regulatory risk.
A significant portion of the Wheat
Futures Contracts entered into by the Fund are traded on United
States exchanges including the CBOT. However, a portion of the
Fund’s trades may take place on markets or exchanges outside
the United States. Some nonU.S. markets present risks because
they are not subject to the same degree of regulation as their U.S.
counterparts. None of the CFTC, NFA, or any domestic exchange
regulates activities of any foreign boards of trade or exchanges,
including the execution, delivery and clearing of transactions, has
the power to compel enforcement of the rules of a foreign board of
trade or exchange or of any applicable nonU.S. laws.
Similarly, the rights of market participants, such as the Fund, in
the event of the insolvency or bankruptcy of anonU.S. market
or broker are also likely to be more limited than in the case of
U.S. markets or brokers. As a result, in these markets, the Fund
has less legal and regulatory protection than it does when it
trades domestically. Currently the Fund does not place trades on
any markets or exchanges outside of the United States and does not
anticipate doing so in the foreseeable future.
In some of these nonU.S.
markets, the performance on a futures contract is the
responsibility of the counterparty and is not backed by an exchange
or clearing corporation and therefore exposes the Fund to credit
risk. Additionally, trading on nonU.S. exchanges is subject
to the risks presented by exchange controls, expropriation,
increased tax burdens and exposure to local economic declines and
political instability. An adverse development with respect to any
of these variables could reduce the profit or increase the loss
earned on trades in the affected international
markets.
International trading activities subject the Fund to foreign
exchange risk.
The price of any nonU.S. Wheat
Interest and, therefore, the potential profit and loss on such
investment, may be affected by any variance in the foreign exchange
rate between the time the order is placed and the time it is
liquidated, offset or exercised. However, a portion of the trades
for the Fund may take place in markets and on exchanges outside the
U.S. Some non-U.S. markets present risks because they are not
subject to the same degree of regulation as their U.S.
counterparts. As a result, changes in the value of the local
currency relative to the U.S. dollar may cause losses to the Fund
even if the contract is profitable.
The CFTC’s implementation of
its regulations under the DoddFrank Act may further affect
the Fund’s ability to enter into foreign exchange contracts
and to hedge its exposure to foreign exchange
losses.
The Fund’s international trading could expose it to losses
resulting from nonU.S. exchanges that are less developed or
less reliable than United States exchanges.
Some nonU.S. exchanges also
may be in a more developmental stage so that prior price histories
may not be indicative of current price dynamics. In addition, the
Fund may not have the same access to certain positions on foreign
trading exchanges as do local traders, and the historical market
data on which the Sponsor bases its strategies may not be as
reliable or accessible as it is for U.S.
exchanges.
Please refer to “U.S. Federal
Income Tax Considerations” for information regarding the U.S.
federal income tax consequences of the purchase, ownership and
disposition of Shares.
Your tax liability from holding Shares may exceed the amount of
distributions, if any, on your Shares.
Cash or property will be distributed
by the Fund at the sole discretion of the Sponsor, and the Sponsor
currently does not intend to make cash or other distributions with
respect to Shares. You will be required to pay U.S. federal income
tax and, in some cases, state, local, or foreign income tax, on
your allocable share of the Fund’s taxable income, without
regard to whether you receive distributions or the amount of any
distributions. Therefore, the tax liability resulting from your
ownership of Shares may exceed the amount of cash or value of
property (if any) distributed.
Your allocable share of income or loss for U.S. federal income tax
purposes may differ from your economic income or loss on your
Shares.
Due to the application of the
assumptions and conventions applied by the Fund in making
allocations for U.S. federal income tax purposes and other factors,
your allocable share of the Fund’s income, gain, deduction or
loss may be different than your economic profit or loss from your
Shares for a taxable year. This difference could be temporary or
permanent and, if permanent, could result in your being taxed on
amounts in excess of your economic income.
Items of income, gain, deduction, loss and credit with respect to
Shares could be reallocated (or for taxable years after December
31, 2017, the Fund itself could be liable for U.S. federal income
tax along with any interest or penalties) if the IRS does not
accept the assumptions and conventions applied by the Fund in
allocating those items, with potential adverse tax consequences for
you.
The Fund is treated as a partnership
for United States federal income tax purposes. The U.S. tax rules
pertaining to entities taxed as partnerships are complex and their
application to publicly traded partnerships such as the Fund is in
many respects uncertain. The Fund applies certain assumptions and
conventions in an attempt to comply with the intent of the
applicable rules and to report taxable income, gains, deductions,
losses and credits in a manner that properly reflects
Shareholders’ economic gains and losses. These assumptions
and conventions may not fully comply with all aspects of the
Internal Revenue Code of 1986, as amended (the “Code”),
and applicable Treasury Regulations, however, and it is possible
that the U.S. Internal Revenue Service (the “IRS”) will
successfully challenge our allocation methods and require us to
reallocate items of income, gain, deduction, loss or credit in a
manner that adversely affects you. If this occurs, you may be
required to file an amended tax return and to pay additional taxes
plus deficiency interest.
In addition, for taxable years
beginning after December 31, 2017, the Fund may be liable for U.S.
federal income tax on any “imputed understatement” of
tax resulting from an adjustment as a result of an IRS audit. The
amount of the imputed understatement generally includes increases
in allocations of items of income or gains to any investor and
decreases in allocations of items of deduction, loss, or credit to
any investor without any offset for any corresponding reductions in
allocations of items of income or gain to any investor or increases
in allocations of items of deduction, loss, or credit to any
investor. If the Fund is required to pay any U.S. federal income
taxes on any imputed understatement, the resulting tax liability
would reduce the net assets of the Fund and would likely have an
adverse impact on the value of the Shares. In such a case, the tax
liability would in effect be borne by Shareholders that own shares
at the time of such assessment, which may be different persons, or
persons with different ownership percentages, then persons owning
Shares for the tax year under audit. Under certain circumstances,
the Fund may be eligible to make an election to cause Shareholders
to take into account the amount of any imputed understatement,
including any interest and penalties. The ability of a publicly
traded partnership such as the Fund to make this election is
uncertain. If the election is made, the Fund would be required to
provide Shareholders who owned beneficial interests in the Shares
in the year to which the adjusted allocations relate with a
statement setting forth their proportionate shares of the
adjustment (“Adjusted K-1s”). The investors would be
required to take the adjustment into account in the taxable year in
which the Adjusted K-1s are issued. For an additional discussion
please see “U.S. Federal Income Tax Considerations –
Other Tax Matters.”
If the Fund is required to withhold tax with respect to any
Non-U.S. Shareholders, the cost of such withholding may be borne by
all Shareholders.
Under certain circumstances, the
Fund may be required to pay withholding tax with respect to
allocations to Non-U.S. Shareholders. Although the Trust Agreement
provides that any such withholding will be treated as being
distributed to the Non-U.S. Shareholder, the Fund may not be able
to cause the economic cost of such withholding to be borne by the
Non-U.S. Shareholder on whose behalf such amounts were withheld
since the Fund does not intend to make any distributions. Under
such circumstances, the economic cost of the withholding may be
borne by all Shareholders, not just the Shareholders on whose
behalf such amounts were withheld. This could have a material
impact on the value of your Shares.
The Fund could be treated as a corporation for federal income tax
purposes, which may substantially reduce the value of your
Shares.
The Trust has received an opinion of
counsel that, under current U.S. federal income tax laws, the Fund
will be treated as a partnership that is not taxable as a
corporation for U.S. federal income tax purposes, provided that (i)
at least 90 percent of the Fund’s annual gross income
consists of “qualifying income” as defined in the Code,
(ii) the Fund is organized and operated in accordance with its
governing agreements and applicable law, and (iii) the Fund does
not elect to be taxed as a corporation for federal income tax
purposes. Although the Sponsor anticipates that the Fund has
satisfied and will continue to satisfy the “qualifying
income” requirement for all of its taxable years, that result
cannot be assured. The Fund has not requested and will not request
any ruling from the IRS with respect to its classification as a
partnership not taxable as a corporation for federal income tax
purposes. If the IRS were to successfully assert that the Fund is
taxable as a corporation for federal income tax purposes in any
taxable year, rather than passing through its income, gains, losses
and deductions proportionately to Shareholders, the Fund would be
subject to tax on its net income for the year at corporate tax
rates. In addition, although the Sponsor does not currently intend
to make distributions with respect to Shares, any distributions
would be taxable to Shareholders as dividend income. Taxation of
the Fund as a corporation could materially reduce the after-tax
return on an investment in Shares and could substantially reduce
the value of your Shares.
Tax legislation that has been or could be enacted may affect you
with respect to your investment in the Fund.
Legislative, regulatory or
administrative changes could be enacted or promulgated at any time,
either prospectively or with retroactive effect, and may adversely
affect the Fund and its Shareholders. Tax legislation informally
known as the Tax Cuts and Jobs Act of 2017 (the “2017 Tax
Cuts and Jobs Act”) was signed into law on December 22, 2017,
generally effective for taxable years beginning on or after January
1, 2018. In addition to modifying income tax rates for individuals
and corporations, the 2017 Tax Cuts and Jobs Act made certain
changes to the tax treatment for passthrough entities, such as the
Fund. Please consult a tax advisor regarding the implications of
the 2017 Tax Cuts and Jobs Act on an investment in Shares of the
Teucrium Funds.
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.
The Fund is a series of the Trust, a
statutory trust organized under the laws of the State of Delaware
on September 11, 2009. Currently, the Trust has five series that
are separate operating commodity pools: the Teucrium Corn Fund, the
Teucrium Wheat Fund, the Teucrium Soybean Fund, the Teucrium Sugar
Fund, and the Teucrium Agricultural Fund. Additional series of the
Trust may be created in the future at the Sponsor’s
discretion. The Fund maintains its main business office at Three
Main Street, Suite 215, Burlington, VT 05401. The Fund is a
commodity pool. It operates pursuant to the terms of the Trust
Agreement, which is dated as of October 21, 2010 and grants full
management control to the Sponsor.
The Fund is publicly traded and
seeks to have the daily changes in percentage terms of the
Shares’ NAV reflect the daily changes in percentage terms of
the price of wheat for future delivery, as measured by the
Benchmark. The Fund invests in a mixture of listed Wheat Futures
Contracts, Other Wheat Interests, cash and cash
equivalents.
See “Prior Performance of the
Fund” on page 31 for more information about prior performance
of the Fund.
The Sponsor of the Trust is Teucrium
Trading, LLC, a Delaware limited liability company. The principal
office of the Sponsor and the Trust are located at Three Main
Street, Suite 215, Burlington, VT 05401. The Sponsor registered as
a CPO with the CFTC and became a member of the NFA on November 10,
2009. The Sponsor registered as a Commodity Trading Advisor
(“CTA”) with the CFTC effective September 8,
2017.
Under the Trust Agreement, the
Sponsor is solely responsible for the management and conducts or
directs the conduct of the business of the Trust, the Fund, and any
series of the Trust that may from time to time be established and
designated by the Sponsor. The Sponsor is required to oversee the
purchase and sale of Shares by Authorized Purchasers and to manage
the Fund’s investments, including to evaluate the credit risk
of FCMs and swap counterparties and to review daily positions and
margin/collateral requirements. The Sponsor has the power to enter
into agreements as may be necessary or appropriate for the offer
and sale of the Fund’s Shares and the conduct of the
Trust’s activities. Accordingly, the Sponsor is responsible
for selecting the Trustee, Administrator, Distributor, the
independent registered public accounting firm of the Trust, and any
legal counsel employed by the Trust. The Sponsor is also
responsible for preparing and filing periodic reports on behalf of
the Trust with the SEC and will provide any required certification
for such reports. No person other than the Sponsor and its
principals was involved in the organization of the Trust or the
Fund.
The Sponsor may determine to engage
marketing agents who will assist the Sponsor in marketing the
Shares. See “Plan of Distribution” for more
information.
The Sponsor maintains a public
website on behalf of the Fund,
www.teucriumweatfund.com
,
which contains information about the Trust, the Fund, and the
Shares, and oversees certain services for the benefit of
Shareholders.
The Sponsor has discretion to
appoint one or more of its affiliates as additional
Sponsors.
The Sponsor receives a fee as
compensation for services performed under the Trust Agreement. The
Sponsor’s fee accrues daily and is paid monthly at an annual
rate of 1.00% of the average daily net assets of the Fund. For the
period from January 1, 2018 through December 31, 2018, the Fund
recognized $648,593 in management fees to the Sponsor. The Fund is
also responsible for other ongoing fees, costs and expenses of its
operations, including brokerage fees, and legal, printing,
accounting, custodial, administration and transfer agency costs,
although the Sponsor bore the costs and expenses related to the
registration of the Shares. None of the costs and expenses related
to the initial registration, offer and sale of Shares, which
totaled approximately $450,000, were or are chargeable to the Fund,
and the Sponsor did not and may not recover any of these costs and
expenses from the Fund.
Shareholders have no right to elect
the Sponsor on an annual or any other continuing basis or to remove
the Sponsor. If the Sponsor voluntarily withdraws, the holders of a
majority of the Trust’s outstanding Shares (excluding for
purposes of such determination Shares owned by the withdrawing
Sponsor and its affiliates) may elect its successor. Prior to
withdrawing, the Sponsor must give ninety days’ written
notice to the Shareholders and the Trustee.
Ownership or
“membership” interests in the Sponsor are owned by
persons referred to as “members.” The Sponsor currently
has three voting or “Class A” members – Mr. Sal
Gilbertie, Mr. Dale Riker and Mr. Carl N. Miller III – and a
small number of non-voting or “Class B” members who
have provided working capital to the Sponsor. Messrs. Gilbertie and
Riker each currently own 45.7% of the Sponsor’s Class A
membership interests, while Mr. Miller holds the remainder, which
is 8.52%.
The Sponsor has an information
technology plan (the “IT Plan”) in place which is part
of the internal controls of the Trust and the Fund. The IT Plan is
tested, and the Sponsor takes reasonable care to look beyond the
controls developed and implemented for the Trust and the Fund
directly to the platforms and controls in place for the key service
providers. Such review of the IT plans of key service providers is
part of the Sponsor’s disaster recovery and business
continuity planning. The Sponsor provides regular training to all
employees of the Sponsor regarding cybersecurity topics, in
addition to real-time dissemination of information regarding
cybersecurity matters as needed. The IT plan is reviewed and
updated as needed, but at a minimum on an annual
basis.
Management of the Sponsor
In general, under the
Sponsor’s Amended and Restated Limited Liability Company
Operating Agreement, as amended from time to time, the Sponsor (and
as a result the Trust and each Fund) is managed by the officers of
the Sponsor. The Chief Executive Officer of the Sponsor
is responsible for the overall strategic direction of the Sponsor
and has general control of its business. The Chief Investment
Officer and President of the Sponsor is primarily responsible for
new investment product development with respect to the Funds. The
Chief Operating Officer has primary responsibility for trade
operations, trade execution, and portfolio activities with respect
to the Fund. The Chief Financial Officer, Chief Accounting Officer
and Chief Compliance Officer acts as the Sponsor’s principal
financial and accounting officer. Furthermore, certain fundamental
actions regarding the Sponsor, such as the removal of officers, the
addition or substitution of members, or the incurrence of
liabilities other than those incurred in the ordinary course of
business and
de minimis
liabilities, may not be taken without the affirmative vote of a
majority of the Class A members (which is generally defined as the
affirmative vote of Mr. Gilbertie and one of the other two Class A
members). The Sponsor has no board of directors, and the
Trust has no board of directors or officers. The three Class A
members of the Sponsor are Sal Gilbertie, Dale Riker and Carl N.
Miller III.
The Officers of the Sponsor, one of
whom is also a Class A member of the Sponsor, are the
following:
Sal Gilbertie
has
been the President of the Sponsor since its inception, its Chief
Investment Officer since September 2011, and its Chief Executive
Officer and Secretary since September 17, 2018, and was approved by
the NFA as a principal of the Sponsor on September 23, 2009 and
registered as an associated person of the Sponsor on November 10,
2009. He maintains his main business office at 65 Adams Road,
Easton, Connecticut 06612. Effective July 16, 2012, Mr.
Gilbertie was registered with the NFA as the Branch Manager for
this location. Since October 18, 2010, Mr. Gilbertie has been
an associated person of the Distributor under the terms of the
Securities Activities and Services Agreement (“SASA”)
between the Sponsor and the Distributor. Additional
information regarding the SASA can be found in the section of this
disclosure document entitled “Plan of
Distribution.” From October 2005 until December 2009,
Mr. Gilbertie was employed by Newedge USA, LLC, an FCM and
broker-dealer registered with the CFTC and the SEC, where he headed
the Renewable Fuels/Energy Derivatives OTC Execution Desk and was
an active futures contract and over-the-counter derivatives trader
and market maker in multiple classes of commodities. (Between
January 2008 and October 2008, he also held a comparable position
with Newedge Financial, Inc., an FCM and an affiliate of Newedge
USA, LLC.) From October 1998 until October 2005, Mr.
Gilbertie was principal and co-founder of Cambial Asset Management,
LLC, an adviser to two private funds that focused on equity
options, and Cambial Financing Dynamics, a private boutique
investment bank. While at Cambial Asset Management, LLC and
Cambial Financing Dynamics, Mr. Gilbertie served as principal and
managed the day-to-day activities of the business and the portfolio
of both companies. Mr. Gilbertie is 58 years
old.
Cory Mullen-Rusin
,
Chief Financial Officer, Chief Accounting Officer and Chief
Compliance Officer, began working for the Sponsor on August 16,
2011. She became the Chief Financial Officer, Chief
Accounting Officer and Chief Compliance Officer on September 17,
2018 and has primary responsibility for the financial management,
compliance and reporting of the Sponsor and is in charge of its
books of account and accounting records, and its accounting
procedures. She maintains her main business office at Three
Main Street, Suite 215, Burlington, Vermont 05401. Ms. Mullen-Rusin
was approved by the NFA as a Principal of the Sponsor on October 8,
2018. Ms. Mullen-Rusin worked directly with the former CFO at
Teucrium for the past seven years. Her responsibilities included
aspects of financial planning, financial operations, and financial
reporting for the Trust and the Sponsor. Additionally, Ms.
Mullen-Rusin assisted in developing, instituting, and monitoring
the effectiveness of processes and procedures to comply with all
regulatory agency requirements. Ms. Mullen-Rusin graduated from
Boston College with a Bachelor of Arts and Science in
Communications in 2009, where she was a four-year scholarship
player on the NCAA Division I Women’s Basketball team.
In 2017, she earned a Master of Business Administration from
Nichols College. Ms. Mullen-Rusin is 31 years
old.
Steve Kahler
, Chief
Operating Officer, began working for the Sponsor in November 2011
as Managing Director in the trading division. He became the Chief
Operating Officer on May 24, 2012 and served in that capacity
through September 6, 2018, at which time he resigned. Mr. Kahler
was unemployed from September 7, 2018 until October 10, 2018, when
he was reappointed as Chief Operating Officer. Mr. Kahler has
primary responsibility for the Trade Operations for the Funds. He
maintains his main business office at 13520 Excelsior Blvd.,
Minnetonka, MN 55345. Mr. Kahler was registered as an
Associated Person of the Sponsor on November 25, 2011, approved as
a Branch Manager of the Sponsor on March 16, 2012 and approved by
the NFA as a Principal of the Sponsor on May 16, 2012. These NFA
registrations were withdrawn on September 7, 2018 and then he
re-registered as an Associated Person and Branch Office Manager of
the Sponsor on October 5, 2018 and as a Principal of the Sponsor on
October 16, 2018. Since January 18, 2012, Mr. Kahler has been an
associated person of the Distributor under the terms of the SASA
between the Sponsor and the Distributor. Additional
information regarding the SASA can be found in the section of this
disclosure document entitled “Plan of Distribution.”
Prior to his employment with the Sponsor, Mr. Kahler worked for
Cargill Inc., an international producer and marketer of food,
agricultural, financial and industrial products and services, from
April 2006 until November 2011 in the Energy Division as Senior
Petroleum Trader. In October 2006 and while employed at Cargill
Inc., Mr. Kahler was approved as an Associated Person of Cargill
Commodity Services Inc., a commodity trading affiliate of Cargill
Inc. from September 13, 2006 to November 9, 2011. Mr. Kahler
graduated from the University of Minnesota with a Bachelors of
Agricultural Business Administration and is 51 years old. Mr.
Kahler is primarily responsible for making trading and investment
decisions for the Fund and other Teucrium Funds, and for directing
Fund and other Teucrium Fund trades for
execution.
Messrs. Gilbertie, Riker, and Kahler
and Ms. Mullen-Rusin are individual “principals,” as
that term is defined in CFTC Rule 3.1, of the Sponsor. These
individuals are principals due to their positions and/or due to
their ownership interests in the Sponsor. Beneficial ownership
interests of the principals, if any, are shown under the section
entitled “Security Ownership of Principal Shareholders and
Management” below and any of the principals may acquire
beneficial interests in the Fund in the future. GFI Group LLC is a
principal for the Sponsor under CFTC Rules due to its ownership of
certain non-voting securities of the Sponsor.
Market Price of Shares
The Fund’s Shares have traded
on the NYSE Arca under the symbol “WEAT” since
September 19, 2011. The following table sets forth the range of
reported high and low sales prices of the Shares as reported on
NYSE Arca for the periods indicated below.
Fiscal Year Ended December 31,
2018
:
|
High
|
Low
|
Quarter
Ended
|
|
|
March 31, 2018
|
$6.98
|
$5.88
|
June 30, 2018
|
$7.06
|
$6.15
|
September 30,
2018
|
$7.18
|
$6.07
|
December 31,
2018
|
$6.43
|
$5.93
|
Fiscal Year Ended December 31,
2017
:
|
High
|
Low
|
Quarter
Ended
|
|
|
March 31, 2017
|
$7.58
|
$6.86
|
June 30, 2017
|
$7.83
|
$6.64
|
September 30,
2017
|
$8.29
|
$6.40
|
December 31,
2017
|
$6.55
|
$5.81
|
As of December 31, 2018, the Fund
had approximately 3,790 Shareholders.
Prior Performance of the Fund
PERFORMANCE DATA
FOR THE FUND
PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The Teucrium Wheat Fund commenced
trading and investment operations on September 19, 2011. The
Teucrium Wheat Fund is listed on NYSE Arca and is neither: (i) a
privately offered pool pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended. (ii) a multi-advisor pool
as defined in CFTC Regulation 4.10(d)(2). or (iii) a
principal protected pool as defined in CFTC Regulation
4.10(d)(3).
Units of beneficial
interest issued (from inception until January 31,
2019)
|
19,050,000
|
Aggregate gross sale
price for units issued
|
$
170,236,243
|
NAV per Share as of
January 31, 2019
|
$
6.04
|
Pool NAV as of
January 31, 2019
|
$
57,100,732
|
Worst monthly
percentage draw-down*
|
(18.10)
%
|
July
2015
|
Worst peak-to-valley
draw-down**
|
(76.20)
%
|
September 2011
– December 2018
|
* A drawdown is a loss
experienced by the fund over a specified period. Drawdowns
are measured on the basis of monthly returns only and do not
reflect intra-month figures. The worst monthly percentage
drawdown reflects the largest single month loss sustained
over the most recent five calendar years and the current
year-to-date.
** The worst
peak-to-valley draw-down 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 draw-down
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 draw-down”
analysis conducted as of the end of April would consider that
“draw-down” to be continuing and to be $3 in amount,
whereas if the NAV per unit had increased by $2 in March, the
draw-down 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
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
January
|
(9.43)
|
%
|
(14.39)
|
%
|
1.09
|
%
|
2.90
|
%
|
5.68
|
%
|
1.51
|
%
|
February
|
7.51
|
%
|
0.92
|
%
|
(6.27)
|
%
|
2.26
|
%
|
5.85
|
%
|
(11.26)
|
%
|
March
|
14.74
|
%
|
(0.73)
|
%
|
3.92
|
%
|
(4.41)
|
%
|
(7.61)
|
%
|
(1.12)
|
%
|
April
|
2.77
|
%
|
(7.52)
|
%
|
1.55
|
%
|
(1.73)
|
%
|
8.40
|
%
|
|
%
|
May
|
(11.56)
|
%
|
(1.29)
|
%
|
(5.03)
|
%
|
(0.29)
|
%
|
2.53
|
%
|
|
%
|
June
|
(8.63)
|
%
|
22.59
|
%
|
(5.41)
|
%
|
15.46
|
%
|
(7.41)
|
%
|
|
%
|
July
|
(7.84)
|
%
|
(18.10)
|
%
|
(5.47)
|
%
|
(7.02)
|
%
|
8.95
|
%
|
|
%
|
August
|
1.00
|
%
|
(4.10)
|
%
|
(9.78)
|
%
|
(11.52)
|
%
|
(4.18)
|
%
|
|
%
|
September
|
(15.74)
|
%
|
5.11
|
%
|
2.57
|
%
|
1.86
|
%
|
(6.17)
|
%
|
|
%
|
October
|
10.36
|
%
|
0.50
|
%
|
2.09
|
%
|
(6.09)
|
%
|
(1.92)
|
%
|
|
%
|
November
|
4.86
|
%
|
(8.00)
|
%
|
(6.95)
|
%
|
(1.30)
|
%
|
(1.14)
|
%
|
|
%
|
December
|
1.68
|
%
|
(1.82)
|
%
|
0.88
|
%
|
(1.64)
|
%
|
(1.65)
|
%
|
|
%
|
Annual Rate of
Return
|
(14.29)
|
%
|
(28.07)
|
%
|
(24.70)
|
%
|
(13.06)
|
%
|
(0.67)
|
%
|
(10.92)
|
%**
|
** 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.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. The
Trustee’s principal offices are located at 1100 North Market
Street, Wilmington, Delaware 198900001. The Trustee is
unaffiliated with the Sponsor. The Trustee’s duties and
liabilities with respect to the offering of Shares and the
management of the Trust and the Fund are limited to its express
obligations under the Trust Agreement.
The Trustee will accept service of
legal process on the Trust in the State of Delaware and will make
certain filings under the Delaware Statutory Trust Act. The Trustee
does not owe any other duties to the Trust, the Sponsor or the
Shareholders. The Trustee is permitted to resign upon at least
sixty (60) days’ notice to the Sponsor. If no successor
trustee has been appointed by the Sponsor within such sixty
day period, the Trustee may, at the expense of the Trust, petition
a court to appoint a successor. The Trust Agreement provides that
the Trustee is entitled to reasonable compensation for its services
from the Sponsor or an affiliate of the Sponsor (including the
Trust), and is indemnified by the Sponsor against any expenses it
incurs relating to or arising out of the formation, operation or
termination of the Trust, or any action or inaction of the Trustee
under the Trust Agreement, except to the extent that such expenses
result from the gross negligence or willful misconduct of the
Trustee. The Sponsor has the discretion to replace the
Trustee.
The Trustee has not signed the
registration statement of which this prospectus is a part and is
not subject to issuer liability under the federal securities laws
for the information contained in this prospectus and under federal
securities laws with respect to the issuance and sale of the
Shares. Under such laws, neither the Trustee, either in its
capacity as Trustee or in its individual capacity, nor any
director, officer or controlling person of the Trustee is, or has
any liability as, the issuer or a director, officer or controlling
person of the issuer of the Shares.
Under the Trust Agreement, the
Trustee has delegated to the Sponsor the exclusive management and
control of all aspects of the business of the Trust and the Fund.
The Trustee has no duty or liability to supervise or monitor the
performance of the Sponsor, nor does the Trustee have any liability
for the acts or omissions of the Sponsor.
Because the Trustee has delegated
substantially all of its authority over the operation of the Trust
to the Sponsor, the Trustee itself is not registered in any
capacity with the CFTC.
The investment objective of the Fund
is to have the daily changes in percentage terms of the
Shares’ NAV reflect the daily changes in percentage terms of
a weighted average of the closing settlement prices for Wheat
Futures Contracts that are traded on the CBOT:
WEAT
Benchmark
CBOT Wheat
Futures Contract
|
Weighting
|
Second to expire
|
35%
|
Third to expire
|
30%
|
December following the
third-to-expire
|
35%
|
The Fund seeks to achieve its
investment objective by investing under normal market conditions in
Benchmark Component Futures Contracts or, in certain circumstances,
in other Wheat Futures Contracts traded on the CBOT or on foreign
exchanges. In addition, and to a limited extent, the Fund also may
invest in exchange traded options on Wheat Futures Contracts
in furtherance of the Fund's investment objective. Once position
limits in CBOT Wheat Futures Contracts are applicable, the Fund's
intention is to invest first in Other Wheat Interests. See
“The Offering – Futures Contracts” below. By
utilizing certain or all of these investments, the Sponsor
endeavors to cause the Fund's performance to closely track that of
the Benchmark.
The Fund invests in Wheat Interests
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 Wheat Interests. After
fulfilling such margin and collateral requirements, the Fund
invests the remainder of its proceeds from the sale of baskets in
short-term Treasury Securities or cash equivalents, including
money-market funds and investment grade commercial paper, and/or
merely hold such assets in cash in interest-bearing accounts.
Therefore, the focus of the Sponsor in managing the Fund is
investing in Wheat Interests and cash and/or cash equivalents. The
Fund earns interest income from the cash equivalents that it
purchases and on the cash it holds at financial
institutions.
The Sponsor expects to manage the
Fund’s investments directly, although it has been authorized
by the Trust to retain, establish the terms of retention for, and
terminate third party commodity trading advisors to provide
such management. The Sponsor has substantial discretion in managing
the Fund’s investments consistent with meeting its investment
objective of tracking the Benchmark, including the discretion: (1)
to choose whether to invest in the Benchmark Component Futures
Contracts or other Wheat Futures Contracts or Other Wheat Interests
with similar investment characteristics. (2) to choose when to
“roll” the Fund’s positions in Wheat Interests as
described below, and (3) to manage the Fund’s investments in
short-term Treasury Securities or in cash and cash
equivalents.
The Fund seeks to achieve its
investment objective primarily by investing in Wheat Interests such
that the changes in its NAV are expected to closely track the
changes in the Benchmark. The Fund’s positions in Wheat
Interests are changed or “rolled” on a regular basis in
order to track the changing nature of the Benchmark. For example,
five times a year (on the date on which a Wheat Futures Contract
expires), the second-to-expire Wheat Futures Contract
will become the next-to-expire Wheat Futures Contract
and will no longer be a Benchmark Component Futures Contract, and
the Fund’s investments will have to be changed accordingly.
In order that the Fund’s trading does not cause unwanted
market movements and to make it more difficult for third parties to
profit by trading based on such expected market movements, the
Fund’s investments may not be rolled entirely on that day,
but rather may be rolled over a period of days.
The Fund posts on its website
(
www.teucriumweatfund.com
)
the roll dates and the contracts into which it will roll for the
entire upcoming calendar year. This information is updated at the
beginning of the calendar year and as needed throughout the
year.
The Sponsor does not intend to
operate the Fund in a fashion such that its per Share NAV will
equal, in dollar terms, the spot price of a bushel or the price of
any particular Wheat Futures Contract.
In seeking to achieve the
Fund’s investment objective of tracking the Benchmark, the
Sponsor may for certain reasons cause the Fund to enter into or
hold Wheat Futures Contracts other than the Benchmark Component
Futures Contracts and/or Other Wheat Interests. Over-the-counter
Wheat Interests can generally be structured as the parties to the
contract desire. Therefore, the Fund might enter into multiple
over the counter Wheat Interests intended to exactly
replicate the performance of each of the three Benchmark Component
Futures Contracts, or a single over the counter Wheat
Interest designed to replicate the performance of the Benchmark as
a whole. Assuming that there is no default by a counterparty to an
over the counter Wheat Interest, the performance of the
Wheat Interest will necessarily correlate exactly with the
performance of the Benchmark or the applicable Benchmark Component
Futures Contract. The Fund might also enter into or hold Wheat
Interests other than the Benchmark Component Futures Contracts to
facilitate effective trading, consistent with the discussion of the
Fund’s “roll” strategy discussed in the preceding
paragraph. In addition, the Fund might enter into or hold Wheat
Interests that would be expected to alleviate overall deviation
between the Fund’s performance and that of the Benchmark that
may result from certain market and trading inefficiencies or other
reasons. By utilizing certain or all of the investments described
above, the Sponsor endeavors to cause the Fund’s performance
to closely track that of the Benchmark.
The Sponsor endeavors to place the
Fund’s trades in Wheat Interests and otherwise manage the
Fund’s investments so that the Fund’s average daily
tracking error against the Benchmark is less than 10 percent over
any period of 30 trading days. More specifically, the Sponsor
endeavors to manage the Fund so that A will be within plus/minus 10
percent of B, where:
●
|
A is the average daily change in the
Fund’s NAV for any period of 30 successive valuation days.
i.e., any trading day as of which the Fund calculates its NAV,
and
|
●
|
B is the average daily change in the
price of the Benchmark over the same period.
|
The Sponsor believes that market
arbitrage opportunities cause daily changes in the Fund’s
Share price on the NYSE Arca to track daily changes in the
Fund’s NAV per Share. The Sponsor believes that the net
effect of this expected relationship and the expected relationship
described above between the Fund’s NAV and the Benchmark will
be that daily changes in the price of the Fund’s Shares on
the NYSE Arca will track daily changes in the Benchmark. This
relationship may be affected by various market factors, including
but not limited to, the number of shares of the Fund outstanding
and the liquidity of the underlying
holdings.
An investment in the Shares provides
a means for diversifying an investor’s portfolio or hedging
exposure to changes in wheat prices. An investment in the Shares
allows both retail and institutional investors to easily gain this
exposure to the wheat market in a transparent, cost effective
manner.
The Sponsor employs a
“neutral” investment strategy intended to track changes
in the Benchmark regardless of whether the Benchmark goes up or
goes down. The Fund’s “neutral” investment
strategy is designed to permit investors generally to purchase and
sell the Fund’s Shares for the purpose of investing
indirectly in the wheat market in a cost-effective manner. Such
investors may include participants in the wheat industry and other
industries seeking to hedge the risk of losses in their
wheat-related transactions, as well as investors seeking exposure
to the wheat market. Accordingly, depending on the investment
objective of an individual investor, the risks generally associated
with investing in the wheat market and/or the risks involved in
hedging may exist. In addition, an investment in the Fund involves
the risk that the changes in the price of the Fund’s Shares
will not accurately track the changes in the Benchmark, and that
changes in the Benchmark will not closely correlate with changes in
the price of wheat on the spot market. Furthermore, as noted above,
the Fund may also elect to invest in short-term Treasury
Securities, cash and/or cash equivalents to meet its current or
potential margin or collateral requirements with respect to its
investments in Wheat Interests and to invest cash not required to
be used as margin or collateral. The Fund does not expect there to
be any meaningful correlation between the performance of the
Fund’s investments in short-term Treasury Securities, cash
and/or cash equivalents and the changes in the price of wheat or
Wheat Interests. While the level of interest earned on, or the
market price of, these investments may in some respects correlate
to changes in the price of wheat, this correlation is not
anticipated as part of the Fund’s efforts to meet its
objective. This and certain risk factors discussed in this
prospectus may cause a lack of correlation between changes in the
Fund’s NAV and changes in the price of wheat. The Sponsor
does not intend to operate the Fund in a fashion such that its per
Share NAV will equal, in dollar terms, the spot price of a bushel
or other unit of wheat, the price of any particular Wheat Futures
Contract.
The Fund’s total portfolio
composition is disclosed each business day that the NYSE Arca is
open for trading on the Fund’s website at
www.teucriumweatfund.com. The website disclosure of portfolio
holdings is made daily and includes, as applicable, the name and
value of each commodity futures contract held and those that are
pending, the name and value of each cash equivalent held in the
Fund, and the amount of cash held in the Fund’s portfolio.
The Fund’s website also includes the NAV, the 4 p.m. Bid/Ask
Midpoint as reported by the NYSE Arca, the last trade price as
reported by the NYSE Arca, the shares outstanding, the shares
available for issuance, and the shares created or redeemed on that
day. The prospectus, Monthly Statements of Account, Quarterly
Performance of the Midpoint versus the NAV (as required by the
CFTC), and the Roll Dates, as well as Forms 10Q, Forms
10K, and other SEC filings for the Fund, are also posted on
the website. The Fund’s website is publicly accessible at no
charge.
The Shares issued by the Fund may
only be purchased by Authorized Purchasers and only in blocks of
25,000 Shares called Creation Baskets. The amount of the purchase
payment for a Creation Basket is equal to the aggregate NAV of
Shares in the Creation Basket. Similarly, only Authorized
Purchasers may redeem Shares and only in blocks of 25,000 Shares
called Redemption Baskets. The amount of the redemption proceeds
for a Redemption Basket is equal to the aggregate NAV of Shares in
the Redemption Basket. The purchase price for Creation Baskets and
the redemption price for Redemption Baskets are the actual NAV
calculated at the end of the business day when a request for a
purchase or redemption is received by the Fund. The NYSE Arca
publishes an approximate NAV intra day based on the prior
day’s NAV and the current price of the Benchmark Component
Futures Contracts, but the price of Creation Baskets and Redemption
Baskets is determined based on the actual NAV calculated at the end
of each trading day.
While the Fund issues Shares only in
Creation Baskets, Shares may also be purchased and sold in much
smaller increments on the NYSE Arca. These transactions, however,
are effected at the bid and ask prices established by the
specialist firm(s). Like any listed security, Shares can be
purchased and sold at any time a secondary market is
open.
The Fund’s Investment Strategy
In managing the Fund’s assets,
the Sponsor does not use a technical trading system that
automatically issues buy and sell orders. Instead, each time one or
more baskets are purchased or redeemed, the Sponsor purchases or
sells Wheat Interests with an aggregate market value that
approximates the amount of cash received or paid upon the purchase
or redemption of the basket(s).
As an example, assume that a
Creation Basket is sold by the Fund, and that the Fund’s
closing NAV per Share is $15.00. In that case, the Fund would
receive $375,000 in proceeds from the sale of the Creation Basket
($15.00 NAV per Share multiplied by 25,000 Shares and ignoring the
Creation Basket fee of $250). If one were to assume further that
the Sponsor wants to invest the entire proceeds from the Creation
Basket in the Benchmark Component Futures Contracts and that the
market value of each such Benchmark Component Futures Contracts is
$32,500 (or otherwise not a round number), the Fund would be unable
to buy an exact number of Wheat Futures Contracts with an aggregate
market value equal to $375,000. Instead, the Fund would be able to
purchase 11 Benchmark Component Futures Contracts with an aggregate
market value of $357,500. Assuming a margin requirement equal to
10% of the value of the Wheat Futures Contracts (although the
actual percentage is approximately 5%), the Fund would be required
to deposit $35,750 in cash with the FCM through which the Wheat
Futures Contracts were purchased. The remainder of the proceeds
from the sale of the Creation Basket, $339,250, would remain
invested in cash, and/or cash equivalents as determined by the
Sponsor from time to time based on factors such as potential calls
for margin or anticipated redemptions.
The specific Wheat Interests
purchased depend on various factors, including a judgment by the
Sponsor as to the appropriate diversification of the Fund’s
investments. While the Sponsor anticipates that a substantial
majority of the Fund’s assets will be invested in CBOT Wheat
Futures Contracts, including the ability to enter into the precise
amount of exposure to the wheat market and position limits on Wheat
Futures Contracts, it may also invest in Other Wheat Interests,
including swaps, in the over the counter market to a
potentially significant degree.
The Sponsor does not anticipate
letting its Wheat Futures Contracts expire and taking delivery of
wheat. Instead, the Sponsor will close out existing positions,
e.g., in response to ongoing changes in the Benchmark or if it
otherwise determines it would be appropriate to do so and reinvest
the proceeds in new Wheat Interests. 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 are agreements
between two parties that are executed on a designated contract
market (“DCM”), i.e., a commodity futures exchange, and
that are cleared and margined through a derivatives clearing
organization (“DCO”), i.e., a clearing house. One party
agrees to buy a commodity such as wheat from the other party at a
later date at a price and quantity agreed upon when the contract is
made. In market terminology, a party who purchases a futures
contract is long in the market and a party who sells a futures
contract is short in the market. The contractual obligations of a
buyer or seller may generally be satisfied by taking or making
physical delivery of the underlying commodity or by making an
offsetting sale or purchase of an identical futures contract on the
same or linked exchange before the designated date of delivery. The
difference between the price at which the futures contract is
purchased or sold and the price paid for the offsetting sale or
purchase, after allowance for brokerage commissions, constitutes
the profit or loss to the trader.
If the price of the commodity
increases after the original futures contract is entered into, the
buyer of the futures contract will generally be able to sell a
futures contract to close out its original long position at a price
higher than that at which the original contract was purchased,
generally resulting in a profit to the buyer. Conversely, the
seller of a futures contract will generally profit if the price of
the underlying commodity decreases, as it will generally be able to
buy a futures contract to close out its original short position at
a price lower than that at which the original contract was sold.
Because the Fund seeks to track the Benchmark directly and profit
when the price of wheat increases and, as a likely result of an
increase in the price of wheat, the price of Wheat Futures
Contracts increase, the Fund will generally be long in the market
for wheat and will generally sell Wheat Futures Contracts only to
close out existing long positions.
Futures contracts are typically
traded on futures exchanges (i.e. DCMs), such as the CBOT, which
provide centralized market facilities in which multiple persons may
trade contracts. Members of a particular futures exchange and the
trades executed on such exchange are subject to the rules of that
exchange. Futures exchanges and their related clearing
organizations (i.e., DCOs) are given reasonable latitude in
promulgating rules and regulations to control and regulate their
members.
Trades on a futures exchange are
generally cleared by the DCO, which provides services designed to
mutualize or transfer the credit risk arising from the trading of
contracts on an exchange. The clearing organization effectively
becomes the other party to the trade, and each clearing member
party to the trade looks only to the clearing organization for
performance.
Wheat Futures Contracts are traded
on the CBOT (which is part of the CME Group) in units of 5,000
bushels. Generally, futures contracts traded on the CBOT are priced
by floor brokers and other exchange members through an electronic,
screen-based system that electronically determines the price by
matching offers to purchase and sell. Futures contracts may also be
based on commodity indices, in that they call for a cash payment
based on the change in the value of the specified index during a
specified period. No futures contracts based on an index of wheat
prices are currently available, although the Fund could enter into
such contracts should they become available in the
future.
Certain typical and significant
characteristics of Wheat Futures Contracts are discussed below.
Additional risks of investing in Wheat Futures Contracts are
included in “What are the Risk Factors Involved with an
Investment in the Fund?”
Impact of Position Limits, Accountability Levels, and Price
Fluctuation Limits.
All of these limits may potentially
cause a tracking error between the price of the Shares and the
Benchmark. This may in turn prevent you from being able to
effectively use the Fund as a way to hedge against wheat
related losses or as a way to indirectly invest in
wheat.
The Fund does not intend to limit
the size of the offering and will attempt to expose substantially
all of its proceeds to the wheat market utilizing Wheat Interests.
If the Fund encounters position limits, accountability levels, or
price fluctuation limits for Wheat Futures Contracts on the CBOT,
it may then, if permitted under applicable regulatory requirements,
purchase Other Wheat Interests and/or Wheat Futures Contracts
listed on foreign exchanges. However, the Wheat Futures Contracts
available on such foreign exchanges may have different underlying
sizes, deliveries, and prices. In addition, the Wheat Futures
Contracts available on these exchanges may be subject to their own
position limits and accountability levels. In any case,
notwithstanding the potential availability of these instruments in
certain circumstances, position limits could force the Fund to
limit the number of Creation Baskets that it
sells.
Price Volatility
Despite daily price limits, the
price volatility of futures contracts generally has been
historically greater than that for traditional securities such as
stocks and bonds. Price volatility often is greater
daytoday as opposed to intraday. Economic factors
that may cause volatility in Wheat Futures Contracts include
changes in interest rates. governmental, agricultural, trade,
fiscal, monetary and exchange control programs and policies.
weather and climate conditions. changing supply and demand
relationships. changes in balances of payments and trade. U.S. and
international rates of inflation. currency devaluations and
revaluations. U.S. and international political and economic events.
and changes in philosophies and emotions of market participants.
Because the Fund invests a significant portion of its assets in
futures contracts, the assets of the Fund, and therefore the price
of the Fund’s Shares, may be subject to greater volatility
than traditional securities.
Term Structure of Futures Contracts and the Impact on Total
Return
Several factors determine the total
return from investing in futures contracts. Because the Fund must
periodically “roll” futures contract positions, closing
out soon-to-expire contracts that are no longer part of
the Benchmark and entering into subsequent-to-expire
contracts, one such factor is the price relationship between
soon-to-expire contracts and
later-to-expire contracts. For example, if market
conditions are such that the prices of soon-to-expire
contracts are higher than later-to-expire contracts (a
situation referred to as “backwardation” in the futures
market), then absent a change in the market, the price of contracts
will rise as they approach expiration. Conversely, if the price of
soon-to-expire contracts is lower than
later-to-expire contracts (a situation referred to as
“contango” in the futures market), then absent a change
in the market the price of contracts will decline as they approach
expiration.
Over time, the price of wheat
fluctuates based on a number of market factors, including demand
for wheat relative to its supply. The value of Wheat Futures
Contracts likewise fluctuates in reaction to a number of market
factors. If investors seek to maintain their holdings in Wheat
Futures Contracts with a roughly constant expiration profile and
not take delivery of the wheat, they must on an ongoing basis sell
their current positions as they approach expiration and invest in
later-toexpire contracts.
If the futures market is in a state
of backwardation (i.e., when the price of wheat in the future is
expected to be less than the current price), the Fund will buy
later-to-expire contracts for a lower price than the
sooner-to-expire contracts that it sells.
Hypothetically, and assuming no changes to either prevailing wheat
prices or the price relationship between the spot price,
soon-to-expire contracts and later
-to-expire contracts, the value of a contract will rise as it
approaches expiration, increasing the Fund’s total return
(ignoring the impact of commission costs and the interest earned on
short-term Treasury Securities, cash and/or cash
equivalents).
If the futures market is in
contango, the Fund will buy later-to-expire contracts
for a higher price than the sooner-to-expire contracts
that it sells. Hypothetically, and assuming no other changes to
either prevailing wheat prices or the price relationship between
the spot price, soon-to-expire contracts and
later-to-expire contracts, the value of a contract will
fall as it approaches expiration, decreasing the Fund’s total
return (ignoring the impact of commission costs and the interest
earned on short-term Treasury Securities, cash and/or cash
equivalents).
Historically, the wheat futures
markets have experienced periods of both contango and
backwardation. Frequently, whether contango or backwardation exists
is a function, among other factors of the seasonality of the wheat
market and the wheat harvest cycle, as discussed
above.
Margin Requirements and Marking to Market Futures
Positions
“Initial margin” is an
amount of funds that must be deposited by a commodity interest
trader with the trader’s broker to initiate an open position
in futures contracts. A margin deposit is like a cash performance
bond. It helps assure the trader’s performance of the futures
contracts that he or she purchases or sells. Futures contracts are
customarily bought and sold on initial margin that represents a
small percentage of the aggregate purchase or sales price of the
contract. The amount of margin required in connection with a
particular futures contract is set by the exchange on which the
contract is traded. Brokerage firms, such as the Fund’s
clearing broker, carrying accounts for traders in commodity
interest contracts may require higher amounts of margin as a matter
of policy to further protect themselves.
Futures contracts are marked to
market at the end of each trading day and the margin required with
respect to such contracts is adjusted accordingly. This process of
marking to market is designed to prevent losses from
accumulating in any futures account. Therefore, if the Fund’s
futures positions have declined in value, the Fund may be required
to post “variation margin” to cover this decline.
Alternatively, if the Fund’s futures positions have increased
in value, this increase will be credited to the Fund’s
account.
O
ver-the-Counter
Derivatives
In addition to futures contracts,
options on futures contracts, derivative contracts that are tied to
various commodities, including wheat, are entered into outside of
public exchanges. These “over-the-counter”
contracts are entered into between two parties in private
contracts, or on a recently formed swap execution facility
(“SEF”) for certain standardized swaps. Unlike Wheat
Futures Contracts, which are guaranteed by a clearing organization,
each party to an over the counter derivative contract
bears the credit risk of the other party (unless such over
the counter swap is cleared through a DCO),
i.e.
, the risk that the other party
will not be able to perform its obligations under its
contract.
Some over the counter
derivatives contracts contain relatively standardized terms and
conditions and are available from a wide range of participants.
Others have highly customized terms and conditions and are not as
widely available. While the Fund may enter into these more
customized contracts, the Fund will only enter into over
the counter contracts containing certain terms and
conditions, as discussed further below, that are designed to
minimize the credit risk to which the Fund will be subject and only
if the terms and conditions of the contract are consistent with
achieving the Fund’s investment objective of tracking the
Benchmark. The over the counter contracts that the Fund
may enter into will take the form of either forward contracts,
swaps or options.
A forward contract is a contractual
obligation to purchase or sell a specified quantity of a commodity
at or before a specified date in the future at a specified price
and, therefore, is economically similar to a futures contract
except that, unlike a futures contract it cannot be financially
settled (i.e., one must intend to make or take delivery of a
commodity under a forward contract). Unlike futures contracts,
however, forward contracts are typically privately negotiated or
are traded in the over the counter markets. Forward
contracts for a given commodity are generally available for various
amounts and maturities and are subject to individual negotiation
between the parties involved. Moreover, generally there is no
direct means of offsetting or closing out a forward contract by
taking an offsetting position as one would a futures contract on a
U.S. exchange. If a trader desires to close out a forward contract
position, he generally will establish an opposite position in the
contract but will settle and recognize the profit or loss on both
positions simultaneously on the delivery date. Thus, unlike in the
futures contract market where a trader who has offset positions
will recognize profit or loss immediately, in the forward market a
trader with a position that has been offset at a profit will
generally not receive such profit until the delivery date, and
likewise a trader with a position that has been offset at a loss
will generally not have to pay money until the delivery date.
However, in some very limited instances such contracts may provide
a right of look out that will allow for the receipt of profit and
payment for losses prior to the delivery date.
An over the counter swap
agreement is a bilateral contract to exchange a periodic stream of
payments determined by reference to a notional amount, with payment
typically made between the parties on a net basis. For instance, in
the case of a wheat swap, the Fund may be obligated to pay a fixed
price per bushel of wheat multiplied by a notional number of
bushels and be entitled to receive an amount per bushel equal to
the current value of an index of wheat prices, the price of a
specified Wheat Futures Contract, or the average price of a group
of Wheat Futures Contracts such as the Benchmark (times the same
notional number of bushels). Each party to the swap is subject to
the credit risk of the other party.
The Fund only enters into over
the counter swaps on a net basis, where the two payment
streams are netted out on a daily basis, with the parties receiving
or paying, as the case may be, only the net amount of the two
payments. Swaps do not generally involve the delivery of underlying
assets or principal and are therefore financially settled.
Accordingly, the Fund’s risk of loss with respect to an
over the counter swap generally is limited to the net
amount of payments that the counterparty is contractually obligated
to make less any collateral deposits the Fund is
holding.
To reduce the credit risk that
arises in connection with over the counter contracts,
the Fund generally enters into an agreement with each counterparty
based on the Master Agreement published by the International Swaps
and Derivatives Association, Inc. that provides for the netting of
the Fund’s overall exposure to its counterparty and for daily
payments based on the marked to market value of the
contract.
The creditworthiness of each
potential counterparty will be assessed by the Sponsor. The Sponsor
assesses or reviews, as appropriate, the creditworthiness of each
potential or existing counterparty to an over-the-counter contract
pursuant to guidelines approved by the Sponsor. The
creditworthiness of existing counterparties will be reviewed
periodically by the Sponsor. The Sponsor’s President, Chief
Investment Officer, and Chief Executive Officer has over 25 years
of experience in over the counter derivatives trading, including
the counterparty creditworthiness analysis inherent therein. There
is no guarantee that the Sponsor’s creditworthiness analysis
will be successful and that counterparties selected for Fund
transactions will not default on their contractual
obligations.
The Fund also may require that a
counterparty be highly rated and/or provide collateral or other
credit support. The Sponsor on behalf of the Fund may enter into
over the counter contracts with various types of
counterparties, including: (a) entities registered as swap dealers
(“SD”) or major swap participants (“MSP”),
or (b) any other entities that qualify as eligible contract
participants (“ECP”).
After the enactment of the
DoddFrank Act, swaps (and options that are regulated as
swaps) are subject to the CFTC’s exclusive jurisdiction and
are regulated as rigorously as futures. Generally, however, if a
swap is entered into with an SD or MSP, such counterparty will
conduct all necessary compliance with respect to swaps and options
under the DoddFrank Act.
See the information presented in the
“Results of Operations” on page 51 of this
prospectus.
Wheat is used to produce flour, the
key ingredient for breads, pasta, crackers and many other food
products, as well as several industrial products such as starches
and adhesives. Wheat by-products are used in livestock feeds. Wheat
is the principal food grain produced in the United States, and the
United States’ output of wheat is typically exceeded only by
that of China, the European Union, the former Soviet nations, known
as the FSU-12, including the Ukraine, and India. The United States
Department of Agriculture (“USDA”) estimates that for
2018-19, the principal global producers of wheat will be the EU,
the former Soviet nations known as the FSU-12, China, India, the
United States, Australia and Canada. The U.S. generates
approximately 7% of the global production, with approximately 51%
of that being exported. For 2018-19, based on the March 2019 USDA
report, global consumption of 742 MMT is estimated to be slightly
higher than production of 733 MMT. If the global supply of wheat
exceeds global demand, this may have an adverse impact on the price
of wheat. The USDA publishes weekly, monthly, quarterly and annual
updates for U.S. domestic and worldwide wheat production and
consumption. These reports are available on the USDA’s
website, www.usda.gov, at no charge. The January 2019 reports were
not published due to a lapse in federal funding. The outlook
provided below is from the March 8, 2019 USDA
report.
There are several types of wheat
grown in the U.S., which are classified in terms of color,
hardness, and growing season. CBOT Wheat Futures Contracts call for
delivery of #2 soft red winter wheat, which is generally grown in
the eastern third of the United States, but other types and grades
of wheat may also be delivered (Grade #1 soft red winter wheat,
Hard Red Winter, Dark Northern Spring and Northern Spring wheat may
be delivered at 3 cents premium per bushel over the contract price
and #2 soft red winter wheat, Hard Red Winter, Dark Northern Spring
and Northern Spring wheat may be delivered at the contract price.)
Winter wheat is planted in the fall and is harvested in the late
spring or early summer of the following year, while spring wheat is
planted in the spring and harvested in late summer or fall of the
same year. Standard Wheat Futures Contracts trade on the CBOT in
units of 5,000 bushels, although 1,000 bushel
“mini-wheat” Wheat Futures Contracts also trade. There
are five months each year in which CBOT Wheat Futures Contracts
expire: March, May, July, September and
December.
If the futures market is in a state
of backwardation (i.e., when the price of wheat in the future is
expected to be less than the current price), the Fund will buy
later-to-expire contracts for a lower price than the
sooner-to-expire contracts that it sells. Hypothetically, and
assuming no changes to either prevailing wheat prices or the price
relationship between immediate delivery, soon-to-expire contracts
and later-to-expire contracts, the value of a contract will rise as
it approaches expiration. If the futures market is in contango, the
Fund will buy later-to-expire contracts for a higher price than the
sooner-to-expire contracts that it sells. Hypothetically, and
assuming no other changes to either prevailing wheat prices or the
price relationship between the spot price, soon-to-expire contracts
and later-to-expire contracts, the value of a contract will fall as
it approaches expiration. Historically, the wheat futures markets
have experienced periods of both contango and backwardation.
Frequently, whether contango or backwardation exists is a function,
among other factors, of the seasonality of the wheat market and the
wheat harvest cycle. All other things being equal, a situation
involving prolonged periods of contango may adversely impact the
returns of the Fund; conversely a situation involving prolonged
periods of backwardation may positively impact the returns of the
Fund.
The price per bushel of wheat in the
United States is primarily a function of both U.S. and global
production, as well as U.S. and global demand. The graph below
shows the USDA published price per bushel by month for the period
January 2007 to January 2019.
On March 8, 2019, the USDA released
its monthly World Agricultural Supply and Demand Estimates (WASDE)
for the Crop Year 2018-19. The exhibit below provides a summary of
historical and current information for United States wheat
production.
T
he Fund’s Investments in
Short-term Treasury Securities, Cash, and Cash
Equivalents
The Fund seeks to have the aggregate
“notional” amount of the Wheat Interests it holds
approximate at all times the Fund’s aggregate NAV. At any
given time, however, most of the Fund’s investments are in
short-term Treasury Securities, cash and cash equivalents that
support the Fund’s positions in Wheat Interests. For example,
the purchase of a Wheat Futures Contract with a stated or notional
amount of $10 million would not require the Fund to pay $10 million
upon entering into the contract; rather, only a margin deposit,
approximately 5% of the notional amount, would be required. To
secure its Wheat Futures Contract obligations, the Fund would
deposit the required margin with the FCM and would separately hold
its remaining assets through its Custodian in cash and cash
equivalents, in demand deposits in highly-rated financial
institutions, in short-term Treasury Securities held by the FCM, in
money-market funds or in commercial paper. Such remaining
assets may be used to meet future margin payments that the Fund is
required to make on its Wheat Futures Contracts. Other Wheat
Interests typically also involve collateral requirements that
represent a small fraction of their notional amounts, so most of
the Fund’s assets dedicated to these Wheat Interests are also
held in short-term Treasury Securities, cash and cash
equivalents.
The Fund earns interest income from
the cash equivalents that it purchases and on the cash it holds
through the Custodian or other financial institutions. The earned
interest income increases the Fund’s NAV. The Fund applies
the earned interest income to the acquisition of additional
investments or uses it to pay its expenses. When the Fund reinvests
the earned interest income, it makes investments that are
consistent with its investment objectives.
Any short-term Treasury Security and
cash equivalent invested in by the Fund will have a remaining
maturity of less than 3 months at the time of investment or will be
subject to a demand feature that enables that Fund to sell the
security within that time period at approximately the
security’s face value (plus accrued interest). Any cash
equivalents invested in by the Fund will be or will be deemed by
the Sponsor to be of investment-credit quality.
O
ther Trading
Policies of the Fund
Exchange for
Related Position
An “exchange for related
position” (“EFRP”) can be used by the Fund as a
technique to facilitate the exchanging of a futures hedge position
against a creation or redemption order, and thus the Fund may use
an EFRP transaction in connection with the creation and redemption
of shares. The market specialist/market maker that is the ultimate
purchaser or seller of shares in connection with the creation or
redemption basket, respectively, agrees to sell or purchase a
corresponding offsetting shares or futures position which is then
settled on the same business day as a cleared futures transaction
by the FCMs. The Fund will become subject to the credit risk of the
market specialist/market maker until the EFRP is settled within the
business day, which is typically 7 hours or less. The Fund reports
all activity related to EFRP transactions under the procedures and
guidelines of the CFTC and the exchanges on which the futures are
traded.
EFRPs are subject to specific rules
of the CME and CFTC guidance. It is likely that EFRP mechanisms
will significantly change in the future which may make it
uneconomical or impossible from a regulatory perspective for the
Fund to utilize these mechanisms.
Options on Futures Contracts
An option on a futures contract
gives the buyer of the option the right, but not the obligation, to
buy or sell a futures contract at a specified price on or before a
specified date. The option buyer deposits the purchase price or
“premium” for the option with his broker, and the money
goes to the option seller. Regardless of how much the market
swings, the most an option buyer can lose is the option premium and
the commissions and fees associated with the transaction. However,
the buyer will typically lose the premium if the exercise price of
the option is above (in the case of an option to buy or
“call” option) or below (in the case of an option to
sell or “put” option) the market value at the time of
exercise. Option sellers, on the other hand, face risks similar to
participants in the futures markets. For example, since the seller
of a call option is assigned a short futures position if the option
is exercised, his risk is the same as someone who initially sold a
futures contract. Because no one can predict exactly how the market
will move, the option seller posts margin to demonstrate his
ability to meet any potential contractual
obligations.
In addition to Wheat Futures
Contracts, there are also a number of options on Wheat Futures
Contracts listed on the CBOT. These contracts offer investors and
hedgers another set of financial vehicles to use in managing
exposure to the commodities market. The Fund may purchase and sell
(write) options on Wheat Futures Contracts in pursuing its
investment objective, except that it will not sell call options
when it does not own the underlying Wheat Futures Contract. The
Fund would make use of options on Wheat Futures Contracts if, in
the opinion of the Sponsor, such an approach would cause the Fund
to more closely track its Benchmark or if it would lead to an
overall lower cost of trading to achieve a given level of economic
exposure to movements in wheat prices.
Liquidity
The Fund invests only in Wheat
Futures Contracts that, in the opinion of the Sponsor, are traded
in sufficient volume to permit the ready taking and liquidation of
positions in these financial interests and in over the
counter commodity interests that, in the opinion of the Sponsor,
may be readily liquidated with the original counterparty or through
a third party assuming the Fund’s
position.
Spot Commodities
While most futures contracts can be
physically settled, the Fund does not intend to take or make
physical delivery. However, the Fund may from time to time trade in
Other Wheat Interests based on the spot price of
wheat.
Leverage
The Sponsor endeavors to have the
value of the Fund’s short-term Treasury Securities, cash, and
cash equivalents, whether held by the Fund or posted as margin or
collateral, at all times approximate the aggregate market value of
its obligations under the Fund’s Wheat
Interests.
Commodity pools’ trading
positions in futures contracts are typically required to be secured
by the deposit of margin funds that represent only a small
percentage of a futures contract’s (or other commodity
interest’s) entire market value. While the Sponsor does not
intend to leverage the Fund’s assets, it is not prohibited
from doing so under the Trust Agreement.
Borrowings
The Fund does not intend to nor
foresee the need to borrow money or establish credit lines. The
Fund maintains short-term Treasury Securities, cash, and cash
equivalents, either held by the Fund or posted as margin or
collateral, with a value that at all times approximates the
aggregate market value of its obligations under Wheat
Interests.
Pyramiding
The Fund does not and will not
employ the technique, commonly known as pyramiding, in which the
speculator uses unrealized profits on existing positions as
variation margin for the purchase or sale of additional positions
in the same or another commodity interest.
T
he
Fund’s Service Providers
Contractual Arrangements with the Sponsor and Third Party
Service Providers
The Sponsor is responsible for
investing the assets of the Fund in accordance with the objectives
and policies of the Fund. In addition, the Sponsor arranges for one
or more third parties to provide administrative, custodial,
accounting, transfer agency and other necessary services to the
Fund. For these services, the Fund is contractually obligated to
pay a monthly management fee to the Sponsor, based on average daily
net assets, at a rate equal to 1.00% per annum. The Sponsor can
elect to waive the payment of this fee in any amount at its sole
discretion, at any time and from time to time, in order to reduce
the Fund’s expenses or for any other
purpose.
In its capacity as the Fund’s
custodian, the Custodian, currently U.S. Bank, N.A., holds the
Fund’s securities, cash and/or cash equivalents pursuant to a
custodial agreement. U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services (“Fund
Services”), an entity affiliated with U.S. Bank, N.A., is the
registrar and transfer agent for the Fund’s Shares. In
addition, USBFS also serves as Administrator for the Fund,
performing certain administrative and accounting services and
preparing certain SEC and CFTC reports on behalf of the Fund. For
these services, the Fund pays fees to the Custodian and USBFS set
forth in the table entitled “Contractual Fees and
Compensation Arrangements with the Sponsor and Third Party
Service Providers.”
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 USBFS is 615
East Michigan Street, Milwaukee, WI, 53202.
The Fund employs Foreside Fund
Services, LLC as the Distributor for the Fund. The Distributor
receives, for its services as distributor for the Fund, a fee which
is set forth in the table entitled “Contractual Fees and
Compensation Arrangements with the Sponsor and Third Party
Service Providers.”
Pursuant to a Consulting Services
Agreement, Foreside Consulting Services, LLC, performs certain
consulting support services for the Trust’s Sponsor, Teucrium
Trading, LLC. Additionally, Foreside Distributors, LLC performs
certain distribution consulting services pursuant to a Distribution
Consulting Agreement with the Trust’s Sponsor, Teucrium
Trading, LLC.
The Distribution Services Agreement
among the Distributor, the Sponsor, and the Trust calls for the
Distributor to work with the Custodian in connection with the
receipt and processing of orders for Creation Baskets and
Redemption Baskets and the review and approval of all Fund sales
literature and advertising materials. The Distributor and the
Sponsor have also entered into a Securities Activities and Service
Agreement (the “SASA”) under which certain employees
and officers of the Sponsor are licensed as registered
representatives or registered principals of the Distributor, under
the FINRA rules (“Registered Representatives”). As
Registered Representatives of the Distributor, these persons are
permitted to engage in certain marketing activities for the Fund
that they would otherwise not be permitted to engage in. Under the
SASA, the Sponsor is obligated to ensure that such marketing
activities comply with applicable law and are permitted by the SASA
and the Distributor’s internal
procedures.
The Distributor’s principal
business address is Three Canal Plaza, Suite 100, Portland, Maine
04101. The Distributor is a broker dealer registered with the
U.S. Securities and Exchange Commission (“SEC”) and a
member of FINRA.
Currently, ED&F Man Capital
Markets, Inc. (“ED&F Man”) serves as the
Fund’s clearing broker to execute and clear the Fund’s
futures and provide other brokerage related services.
ED&F Man is registered as a futures commission merchant
(“FCM”) with the U.S. Commodity Futures Trading
Commission (“CFTC”) and is a member of the National
Futures Association (“NFA”). ED&F Man is also
registered as a broker/dealer with the U.S. Securities and Exchange
Commission and is a member of FINRA. ED&F Man is a clearing
member 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.
There has been no material civil,
administrative, or criminal proceedings pending, on appeal, or
concluded against ED&F Man or its principals in the past five
(5) years.
For a list of concluded
actions, please go to
http://www.nfa.futures.org/basicnet/welcome.aspx
.
This link will take you to the Welcome Page of the NFA’s
Background Affiliation Status Information Center
(“BASIC”). At this page, there is a box where you can
enter the NFA ID of ED&F Man Capital Markets Inc. (0002613) and
then click “Go”. You will be transferred to the
NFA’s information specific to ED&F Man Capital Markets
Inc. Under the heading “Regulatory Actions”, click
“details” and you will be directed to the full list of
regulatory actions brought by the CFTC and
exchanges.
ED&F Man, in its capacity as a
registered FCM, will serve as the Fund's clearing broker and, as
such, will arrange for the execution and clearing of the Fund's
futures and options on futures transactions. ED&F Man acts as
clearing broker for many other funds and
individuals.
The investor should be advised that
ED&F Man is not affiliated with and does not act as a
supervisor of the Fund or the Fund's Sponsor, investment managers,
members, officers, administrators, transfer agents, registrars or
organizers. Additionally, ED&F Man is not acting as an
underwriter or sponsor of the offering of any shares or interests
in the Fund and has not passed upon the adequacy of this
prospectus, the merits of participating in this offering or on the
accuracy of the information contained herein.
Additionally, ED&F Man does not
provide any commodity trading advice regarding the Fund's trading
activities. Investors should not rely upon ED&F Man in deciding
whether to invest in the Fund or retain their interests in the
Fund. Investors should also note that the Fund may select
additional clearing brokers or replace ED&F Man as the Fund's
clearing broker.
Currently, the Sponsor does not
employ commodity trading advisors. If, in the future, the Sponsor
does employ commodity trading advisors, it will choose each advisor
based on arm’s length negotiations and will consider
the advisor’s experience, fees, and
reputation.
Contractual Fees and Compensation Arrangements with the Sponsor and
Third Party Service Providers
Service
Provider
|
Compensation Paid
by the Fund
|
Teucrium Trading, LLC,
Sponsor
|
1.00% of average net assets
annually
|
U.S. Bank N.A.,
Custodian
U.S. Bancorp Fund Services,
LLC,
doing business as U.S. Bank Global
Fund Services, Transfer Agent, Fund Accountant and Fund
Administrator
|
For custody services: 0.0075% of
average gross assets up to $1 billion, and .0050% of average gross
assets over $1 billion, annually, plus certain per-transaction
charges
For Transfer Agency, Fund Accounting
and Fund Administration services, based on the total assets for all
the Teucrium Funds in the Trust: 0.06% of average gross assets on
the first $250 million, 0.05% on the next $250 million, 0.04% on
the next $500 million and 0.03% on the balance over $1 billion
annually
A combined minimum annual fee of
$64,500 for custody, transfer agency, accounting and administrative
services is assessed per Fund.
|
Foreside Fund Services, LLC,
Distributor
|
The Distributor receives a fee of
0.01% of the Fund’s average daily net assets and an aggregate
annual fee of $100,000 for all Teucrium Funds, along with certain
expense reimbursements. Expense reimbursements consist of issuer
costs for sales and advertising review fees and will not exceed
$6,000 for the two-year period of April 29, 2019 to April 29, 2021
(the “two year offering period”). The fees which will
be paid to the Distributor by the Fund for distribution services
will not exceed $135,000 for the two-year offering
period.
Under the Securities Activities and
Service Agreement (the “SASA”), the Distributor
receives compensation from the fund for its activities on behalf of
all the Teucrium Funds. The fees paid to the Distributor pursuant
to the SASA for this offering will not exceed $20,000 for the
two-year offering period. In addition, the Distributor receives
certain expense reimbursements relating to the registration,
continuing education and other administrative expenses of the
Registered Representatives in relation to the Teucrium Funds. The
expense reimbursements for this offering will not exceed $16,000
for the two-year offering period.
In sum, the total fees the
Distributor will receive over the two-year offering period for all
of its services will not exceed $160,000. The total expenses that
will be reimbursed to the Distributor over the two-year offering
period for all of its services will not exceed $16,000, $6,000 of
which are issuer costs for sales and advertising
materials.
|
ED&F Man Capital Markets, Inc.,
Futures Commission Merchant and Clearing Broker
|
$4.50 per Wheat Futures Contract
half-turn
|
Wilmington Trust Company,
Trustee
Employees of the Sponsor Registered
with the Distributor (the “Registered
Representatives”)
|
$3,300 annually for the
Trust
For non-marketing services to the
Fund, $345,000 and, for marketing and wholesaling purposes,
$150,000. These amounts include expenses that will be reimbursed to
the Registered Representatives for travel and other expenses
related to their activities for the Fund. Registered
Representatives will also receive continuing education valued at a
maximum of $2,000 for the two-year offering
period.
|
Other Non-Contractual Payments by the Fund
The Fund pays for all brokerage
fees, taxes and other expenses, including licensing fees for the
use of intellectual property, registration or other fees paid to
the SEC, FINRA, formerly the National Association of Securities
Dealers, or any other regulatory agency in connection with the
offer and sale of subsequent Shares after its initial registration
and all legal, accounting, printing and other expenses associated
therewith. The Fund also pays its portion of the fees and expenses
for services directly attributable to the Fund such as accounting,
financial reporting, regulatory compliance and trading activities,
which the Sponsor elected not to outsource. Certain aggregate
expenses common to all Teucrium Funds within the Trust are
allocated by the Sponsor to the respective funds based on activity
drivers deemed most appropriate by the Sponsor for such expenses,
including but not limited to relative assets under management and
creation order activity. These aggregate common expenses include,
but are not limited to, legal, auditing, accounting and financial
reporting, tax-preparation, regulatory compliance, trading
activities, and insurance costs, as well as fees paid to the
Distributor. A portion of these aggregate common expenses are
related to the Sponsor or related parties of principals of the
Sponsor; these are necessary services to the Teucrium Funds, which
are primarily the cost of performing certain accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund and are included,
primarily, in distribution and marketing fees.
|
Year
Ended
December 31,
2018
|
Year
Ended
December 31,
2017
|
Year
Ended
December 31,
2016
|
Recognized Related
Party Transactions
|
$
9
66,288
|
$
8
93,340
|
$
602,637
|
Waived Related Party
Transactions
|
$
99,345
|
$
1
25,219
|
$
8
7,767
|
The Sponsor can elect to pay (or
waive reimbursement for) certain fees or expenses that would
generally be paid for by the Fund, although it has no contractual
obligation to do so. Any election to pay or waive reimbursement for
fees that would generally be paid by the Fund, can be changed at
the discretion of the Sponsor. All asset-based fees and expenses
are calculated on the prior day's net assets
The contractual and
non-contractual fees and expenses paid by the Fund as
described above (exclusive of the Sponsor’s management fee
and estimated brokerage fees) are as follows, net of any expenses
waived by the Sponsor. These are also the “Other Fund Fees
and Expenses” included in the section entitled
“Breakeven Analysis” in this prospectus on page
12.
Professional Fees
1
|
$
0.04
|
Distribution and Marketing
Fees
2
|
0.09
|
Custodian Fees and
Expenses
3
|
0.01
|
General and Administrative
Fees
4
|
0.01
|
Business Permits and
Licenses
|
0.00
|
Other Expenses
|
0.00
|
Total Other Fund Fees and
Expenses
|
$
0.15
|
(1)
Professional fees consist of
primarily, but not entirely, legal, auditing and tax preparation
related costs.
(2)
Distribution and marketing fees
consist of primarily, but not entirely, fees paid to the
Distributor (Foreside Fund Services, LLC), costs related to
regulatory compliance activities and other costs related to the
trading activities of the Fund.
(3) Custodian and Administrator fees
consist of fees to the Administrator and the Custodian for
accounting, transfer agent and custodian
activities.
(4) General and Administrative fees
consist of primarily, but not entirely, insurance and printing
costs.
Asset based fees are
calculated on a daily basis (accrued at 1/365 of the applicable
percentage of NAV on that day) and paid on a monthly basis. NAV is
calculated by taking the current market value of the Fund’s
total assets and subtracting any liabilities.
Registered Form
Shares are issued in registered form
in accordance with the Trust Agreement. USBFS has been appointed
registrar and transfer agent for the purpose of transferring Shares
in certificated form. USBFS keeps a record of all Shareholders and
holders of the Shares in certificated form in the registry
(“Register”). The Sponsor recognizes transfers of
Shares in certificated form only if done in accordance with the
Trust Agreement. The beneficial interests in such Shares are held
in book entry form through participants and/or accountholders
in DTC.
Book Entry
Individual certificates are not
issued for the Shares. Instead, Shares are represented by one or
more global certificates, which are deposited by the Administrator
with DTC and registered in the name of Cede & Co., as nominee
for DTC. The global certificates evidence all of the Shares
outstanding at any time. Shareholders are limited to (1)
participants in DTC such as banks, brokers, dealers and trust
companies (“DTC Participants”), (2) those who maintain,
either directly or indirectly, a custodial relationship with a DTC
Participant (“Indirect Participants”), and (3) those
who hold interests in the Shares through DTC Participants or
Indirect Participants, in each case who satisfy the requirements
for transfers of Shares. DTC Participants acting on behalf of
investors holding Shares through such participants’ accounts
in DTC will follow the delivery practice applicable to securities
eligible for DTC’s Same Day Funds Settlement System.
Shares are credited to DTC Participants’ securities accounts
following confirmation of receipt of payment.
DTC
DTC has advised us as follows: It is
a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a
“clearing corporation” within the meaning of the New
York Uniform Commercial Code and a “clearing agency”
registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities for DTC Participants and
facilitates the clearance and settlement of transactions between
DTC Participants through electronic book entry changes in
accounts of DTC Participants.
The Shares are only transferable
through the book entry system of DTC. Shareholders who are
not DTC Participants may transfer their Shares through DTC by
instructing the DTC Participant holding their Shares (or by
instructing the Indirect Participant or other entity through which
their Shares are held) to transfer the Shares. Transfers are made
in accordance with standard securities industry
practice.
Transfers of interests in Shares
with DTC are made in accordance with the usual rules and operating
procedures of DTC and the nature of the transfer. DTC has
established procedures to facilitate transfers among the
participants and/or accountholders of
DTC. Because DTC can only act on
behalf of DTC Participants, who in turn act on behalf of Indirect
Participants, the ability of a person or entity having an interest
in a global certificate to pledge such interest to persons or
entities that do not participate in DTC, or otherwise take actions
in respect of such interest, may be affected by the lack of a
certificate or other definitive document representing such
interest.
DTC has advised us that it will take
any action permitted to be taken by a Shareholder (including,
without limitation, the presentation of a global certificate for
exchange) only at the direction of one or more DTC Participants in
whose account with DTC interests in global certificates are
credited and only in respect of such portion of the aggregate
principal amount of the global certificate as to which such DTC
Participant or Participants has or have given such
direction.
I
nterSeries Limitation on
Liability
Because the Trust was established as
a Delaware statutory trust, each Teucrium Fund and each other
series that may be established under the Trust in the future will
be operated so that it will be liable only for obligations
attributable to such series and will not be liable for obligations
of any other series or affected by losses of any other series. If
any creditor or shareholder of any particular series (such as the
Fund) asserts against the series a valid claim with respect to its
indebtedness or shares, the creditor or shareholder will only be
able to obtain recovery from the assets of that series and not from
the assets of any other series or the Trust
generally.
The assets of the Fund and any other
series will include only those funds and other assets that are paid
to, held by or distributed to the series on account of and for the
benefit of that series, including, without limitation, amounts
delivered to the Trust for the purchase of shares in a series. This
limitation on liability is referred to as the Inter-Series
Limitation on Liability. The Inter-Series Limitation on
Liability is expressly provided for under the Delaware Statutory
Trust Act, which provides that if certain conditions (as set forth
in Section 3804(a)) are met, then the debts of any particular
series will be enforceable only against the assets of such series
and not against the assets of any other series or the Trust
generally. In furtherance of the InterSeries Limitation on
Liability, every party providing services to the Trust, the Fund or
the Sponsor on behalf of the Trust or the Fund, will acknowledge
and consent in writing to the Inter-Series Limitation on
Liability with respect to such party’s
claims.
The existence of a Trustee should
not be taken as an indication of any additional level of management
or supervision over the Fund. Consistent with Delaware law, the
Trustee acts in an entirely passive role, delegating all authority
for the management and operation of the Fund and the Trust to the
Sponsor. The Trustee does not provide custodial services with
respect to the assets of the Fund.
Buying and Selling Shares
Most investors buy and sell Shares
of the Fund in secondary market transactions through brokers.
Shares trade on the NYSE Arca under the ticker symbol
“WEAT.” Shares are bought and sold throughout the
trading day like other publicly traded securities. When buying or
selling Shares through a broker, most investors incur customary
brokerage commissions and charges. Investors are encouraged to
review the terms of their brokerage account for details on
applicable charges and, as discussed below under “U.S.
Federal Income Tax Considerations,” any provisions
authorizing the broker to borrow Shares held on your
behalf.
Distributor and Authorized Purchasers
The offering of the Fund’s
Shares is a best efforts offering. The Fund continuously offers
Creation Baskets consisting of 25,000 Shares at their NAV through
the Distributor to Authorized Purchasers. Deutsche Bank Securities,
Inc. was the initial Authorized Purchaser. The initial Authorized
Purchaser purchased two Creation Baskets of 50,000 Shares each at a
per Share price of $25.00 on September 18, 2011. All Authorized
Purchasers pay a $250 fee for each Creation Basket
order.
The Sponsor and the Trust are
parties to an Amended and Restated Distribution Services Agreement
dated as of November 17, 2010 (the “Distribution
Agreement”), which amended and restated in its entirety a
Distribution Services Agreement between the Sponsor, the Trust, and
Foreside Fund Services, LLC (the “Distributor”) dated
as of October 15, 2010. Pursuant to the Distribution Agreement the
Distributor, together with USBFS, is required to provide services
in connection with the receipt and processing of orders for
Creation Baskets and Redemption baskets of units of the funds that
are series of the Trust, including the Fund.
The Distribution Agreement, as
amended, remains in full force and effect between the parties. The
Distribution Agreement was most recently amended on December 10,
2014 and was previously amended on May 25, 2011, October 1, 2011,
and April 22, 2014. The first amendment to the Distribution
Agreement, dated May 25, 2011, provided for the application of the
agreement to additional series of the Trust and revised the fee
schedule, including the specific fees and expenses allocable to the
Fund and each of the funds that are series of the
Trust.
The second amendment and third
amendments revised the fee schedule between the parties, including
the specific fees and expenses allocable to the Fund and each
Teucrium Fund. The fourth amendment eliminated the two series of
the Trust which ceased operations on December 21,
2014.
The Distributor receives a fee at an
annual rate of 0.01% of each Teucrium Fund’s average daily
net assets calculated and billed monthly, and an annual aggregate
fee of $100,000 for all Teucrium Funds for which the Distributor
serves as such. The fee to be paid to the Distributor will not
exceed $160,000 for the two-year offering period. The Distributor
also receives certain expense reimbursements for its filing of
sales and advertising material on behalf of the Fund. These expense
reimbursements are issuer costs and will not exceed $6,000 for the
two-year offering period.
The Sponsor and the Distributor are
also parties to a Securities Activities and Services Agreement, as
amended from time to time (the “SASA”), pursuant to
which certain employees and officers of the Sponsor are licensed as
Registered Representatives or registered principals of the
Distributor under FINRA rules. As Registered Representatives of the
Distributor, these persons are permitted to engage in certain
marketing activities for the Fund that they would otherwise not be
permitted to engage in. Under the SASA, the Distributor receives
compensation for its activities on behalf of the Teucrium Funds
which will not exceed $20,000 for the two-year offering period, as
well as certain expense reimbursements relating to the
registration, continuing education and other administrative
expenses of the Registered Representatives in relation to the
Teucrium Funds, which will not exceed $10,000 for the two year
offering period. The Registered Representatives will also be paid
non-transaction based compensation for certain
nonmarketing related services provided to the Fund. This
amount will not exceed $345,000 over the two-year offering period.
Registered Representatives will also be paid for marketing and
wholesaling services to the Fund. This amount will not exceed
$150,000 over the two-year offering period. Of these amounts, the
Sponsor will pay approximately $50,000. The remainder will be paid
by the Fund. Registered Representatives will also receive
continuing education valued at a maximum of $2,000 for the two-year
offering period.
In no event may the aggregate
compensation from any source payable to underwriters, broker
dealers, or affiliates thereof for distribution related
services in connection with this offering exceed ten percent (10%)
of the gross proceeds of this offering.
The offering of baskets is being
made in compliance with Conduct Rule 2310 of FINRA. Accordingly,
Authorized Purchasers will not make any sales to any account over
which they have discretionary authority without the prior written
approval of a purchaser of Shares.
The per share price of Shares
offered in Creation Baskets on any day is the total NAV of the Fund
calculated shortly after the close of the NYSE Arca on that day
divided by the number of issued and outstanding Shares. An
Authorized Purchaser is not required to sell any specific number or
dollar amount of Shares.
By executing an Authorized Purchaser
Agreement, an Authorized Purchaser becomes part of the group of
parties eligible to purchase baskets from, and put baskets for
redemption to, the Fund. An Authorized Purchaser is under no
obligation to create or redeem baskets or to offer to the public
Shares of any baskets it does create. If an Authorized Purchaser
sells Shares that it has created to the public, it will be expected
to sell them at per Share offering prices that are expected
to reflect, among other factors, the trading price of the Shares on
the NYSE Arca, the NAV of the Fund at the time the Authorized
Purchaser purchased the Creation Baskets and the NAV at the time of
the offer of the Shares to the public, the supply of and demand for
Shares at the time of sale, and the liquidity of the Wheat Interest
markets. The prices of Shares offered by Authorized Purchasers are
expected to fall between the Fund’s NAV and the trading price
of the Shares on the NYSE Arca at the time of
sale.
The following entities have entered
into Authorized Purchaser Agreements with respect to the Fund:
Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill
Lynch Professional Clearing Corp., Goldman Sachs & Co., Citadel
Securities, LLC, and Virtu Financial BD LLC.
Because new Shares can be created
and issued on an ongoing basis, at any point during the life of the
Fund, a “distribution,” as such term is used in the
1933 Act, will be occurring. Authorized Purchasers, other broker
dealers and other persons are cautioned that some of their
activities may result in their being deemed participants in a
distribution in a manner that would render them statutory
underwriters and subject them to the prospectus delivery and
liability provisions of the 1933 Act. For example, an Authorized
Purchaser, other broker dealer firm or its client will be
deemed a statutory underwriter if it purchases a basket from the
Fund, breaks the basket down into the constituent Shares and sells
the Shares to its customers. or if it chooses to couple the
creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for the Shares.
In contrast, Authorized Purchasers may engage in secondary market
or other transactions in Shares that would not be deemed
“underwriting.” For example, an Authorized Purchaser
may act in the capacity of a broker or dealer with respect to
Shares that were previously distributed by other Authorized
Purchasers. A determination of whether a particular market
participant is an underwriter must take into account all the facts
and circumstances pertaining to the activities of the broker
dealer or its client in the particular case, and the examples
mentioned above should not be considered a complete description of
all the activities that would lead to designation as an underwriter
and subject them to the prospectus delivery and liability
provisions of the 1933 Act.
Dealers who are neither Authorized
Purchasers nor “underwriters” but are nonetheless
participating in a distribution (as contrasted to ordinary
secondary trading transactions), and thus dealing with Shares that
are part of an “unsold allotment” within the meaning of
Section 4(a)(3)(C) of the 1933 Act, would be unable to take
advantage of the prospectus delivery exemption provided by
Section 4(a)(3) of the 1933 Act.
The Sponsor expects that any broker
dealers selling Shares will be members of FINRA. Investors
intending to create or redeem baskets through Authorized Purchasers
in transactions not involving a broker dealer registered in
such investor’s state of domicile or residence should consult
their legal advisor regarding applicable broker dealer
regulatory requirements under the state securities laws prior to
such creation or redemption.
While the Authorized Purchasers may
be indemnified by the Sponsor, they will not be entitled to receive
a discount or commission from the Trust or the Sponsor for their
purchases of Creation Baskets.
The Fund’s NAV per Share is
calculated by:
●
|
taking the current market value of
its total assets, and
|
●
|
subtracting any liabilities and
dividing the balance by the number of Shares.
|
USBFS, in its capacity as the
“Administrator”, calculates the NAV of the Fund once
each trading day. It calculates NAV as of the earlier of the close
of the New York Stock Exchange or 4:00 p.m. New York time. The NAV
for a particular trading day will is released after 4:15 p.m. New
York time.
In determining the value of Wheat
Futures Contracts, the Administrator uses the CBOT closing price,
except that the “fair value” of a Wheat Futures
Contract (as described in more detail below) may be used when Wheat
Futures Contracts close at their price fluctuation limit for the
day. The Administrator determines the value of all other Fund
investments as of the earlier of the close of the New York Stock
Exchange or 4:00 p.m. New York time, in accordance with the current
Services Agreement between the Administrator and the Trust. The
value of over the counter Wheat Interests is determined
based on the value of the commodity or Futures Contract underlying
such Wheat Interest, except that a fair value may be determined if
the Sponsor believes that the Fund is subject to significant credit
risk relating to the counterparty to such Wheat Interest. Cash
equivalents held by the Fund are valued by the Administrator using
values received from recognized third party vendors (such as
Reuters) and dealer quotes. NAV includes any unrealized profit or
loss on open Wheat Interests and any other credit or debit accruing
to the Fund but unpaid or not received by the
Fund.
The fair value of a Wheat Interest
shall be determined by the Sponsor in good faith and in a manner
that assesses the Wheat Interest’s value based on a
consideration of all available facts and all available information
on the valuation date. When a Wheat Futures Contract has closed at
its price fluctuation limit, the fair value determination attempts
to estimate the price at which such Wheat Futures Contract would be
trading in the absence of the price fluctuation limit (either above
such limit when an upward limit has been reached or below such
limit when a downward limit has been reached). Typically, this
estimate will be made primarily by reference to the price of
comparable Wheat Interests trading in the over the
counter market. The fair value of a Wheat Interest may not reflect
such security’s market value or the amount that the Fund
might reasonably expect to receive for the Wheat Interest upon its
current sale.
In addition, in order to provide
updated information relating to the Fund for use by investors and
market professionals, NYSE Arca calculates and disseminates
throughout the trading day an updated “indicative fund
value.” The indicative fund value is calculated by using the
prior day’s closing NAV per Share of the Fund as a base and
updating that value throughout the trading day to reflect changes
in the value of the Fund’s Wheat Interests during the trading
day. Changes in the value of cash 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.
New York time to 4:00 p.m. New York
time. The normal trading hours for Wheat Futures Contracts on the
CBOT are generally shorter than those of the NYSE Arca. This means
that there is a gap in time at the beginning and the end of each
day during which the Fund’s Shares are traded on the NYSE
Arca, but realtime CBOT trading prices for Wheat Futures
Contracts traded on such exchange are not available. As a result,
during those gaps there is no update to the indicative fund value.
The trading hours for the CBOT can be found at
http://www.cmegroup.com/trading_hours/commoditieshours.html.
The NYSE Arca disseminates the
indicative fund value through the facilities of CTA/CQ High Speed
Lines. In addition, the indicative fund value is published on the
NYSE Arca’s website and is available through online
information services such as Bloomberg and
Reuters.
Dissemination of the indicative fund
value provides additional information that is not otherwise
available to the public and is useful to investors and market
professionals in connection with the trading of Fund Shares on the
NYSE Arca. Investors and market professionals are able throughout
the trading day to compare the market price of the Fund and the
indicative fund value. If the market price of Fund Shares diverges
significantly from the indicative fund value, market professionals
may have an incentive to execute arbitrage trades. For example, if
the Fund appears to be trading at a discount compared to the
indicative fund value, a market professional could buy Fund Shares
on the NYSE Arca, aggregate them into Redemption Baskets, and
receive the NAV of such Shares by redeeming them to the Trust,
provided that there is not a minimum number of shares outstanding
for the Fund. Such arbitrage trades can tighten the tracking
between the market price of the Fund and the indicative fund
value.
C
reation and Redemption of
Shares
The Fund creates and redeems Shares
from time to time, but only in one or more Creation Baskets or
Redemption Baskets. The creation and redemption of baskets are only
made in exchange for delivery to the Fund or the distribution by
the Fund of the amount of cash, cash equivalents and/or commodity
futures equal to the combined NAV of the number of Shares included
in the baskets being created or redeemed determined as of 4:00 p.m.
New York time on the day the order to create or redeem baskets is
properly received.
Authorized Purchasers are the only
persons that may place orders to create and redeem baskets.
Authorized Purchasers must be (1) either registered broker
dealers or other securities market participants, such as
banks and other financial institutions, that are not required to
register as broker dealers to engage in securities
transactions as described below, and (2) DTC Participants. To
become an Authorized Purchaser, a person must enter into an
Authorized Purchaser Agreement with the Sponsor. The Authorized
Purchaser Agreement provides the procedures for the creation and
redemption of baskets and for the delivery of the cash, cash
equivalents and/or commodity futures required for such creations
and redemptions. The Authorized Purchaser Agreement and the related
procedures attached thereto may be amended by the Sponsor without
the consent of any Shareholder, and the related procedures may
generally be amended by the Sponsor without the consent of the
Authorized Purchaser. Authorized Purchasers pay a transaction fee
of $250 to the Sponsor for each creation order they place and a fee
of $250 per order for redemptions. Authorized Purchasers who make
deposits with the Fund in exchange for baskets receive no fees,
commissions or other form of compensation or inducement of any kind
from either the Trust or the Sponsor, and no such person will have
any obligation or responsibility to the Trust or the Sponsor to
effect any sale or resale of Shares.
Certain Authorized Purchasers are
expected to be capable of participating directly in the physical
wheat and the Wheat Interest markets. Some Authorized Purchasers or
their affiliates may from time to time buy or sell wheat or Wheat
Interests and may profit in these instances.
Each Authorized Purchaser will be
required to be registered as a broker dealer under the
Exchange Act and a member in good standing with FINRA, or be exempt
from being or otherwise not required to be registered as a
broker dealer or a member of FINRA, and will be qualified to
act as a broker or dealer in the states or other jurisdictions
where the nature of its business so requires. Certain Authorized
Purchasers may also be regulated under federal and state banking
laws and regulations. Each Authorized Purchaser has its own set of
rules and procedures, internal controls and information barriers it
deems appropriate in light of its own regulatory
regime.
Under the Authorized Purchaser
Agreement, the Sponsor has agreed to indemnify the Authorized
Purchasers against certain liabilities, including liabilities under
the 1933 Act, and to contribute to the payments the Authorized
Purchasers may be required to make in respect of those
liabilities.
The following description of the
procedures for the creation and redemption of baskets is only a
summary and an investor should refer to the relevant provisions of
the Trust Agreement and the form of Authorized Purchaser Agreement
for more detail, each of which has been incorporated by reference
as an exhibit to the registration statement of which this
prospectus is a part. See “Where You Can Find More
Information” for information about where you can obtain the
registration statement.
Creation Procedures
On any business day, an Authorized
Purchaser may place an order with USBFS in their capacity as the
transfer agent to create one or more baskets. For purposes of
processing purchase and redemption orders, a “business
day” means any day other than a day when any of the NYSE
Arca, the CBOT or the New York Stock Exchange is closed for regular
trading. Purchase orders must be placed by 1:15 p.m. New York time
or the close of regular trading on the New York Stock Exchange,
whichever is earlier. The day on which the Distributor receives a
valid purchase order is referred to as the purchase order
date.
By placing a purchase order, an
Authorized Purchaser agrees to deposit cash, cash equivalents,
commodity futures and/or a combination thereof with the Fund, as
described below. Prior to the delivery of baskets for a purchase
order, the Authorized Purchaser must also have wired to the Sponsor
the non-refundable transaction fee due for the purchase
order. Authorized Purchasers may not withdraw a purchase order
without the prior consent of the Sponsor in its
discretion.
Determination of Required Deposits
The total deposit required to create
each basket (“Creation Basket Deposit”) is the amount
of cash, cash equivalents and/or commodity futures that is in the
same proportion to the total assets of the Fund (net of estimated
accrued but unpaid fees, expenses and other liabilities) on the
purchase order date as the number of Shares to be created under the
purchase order is in proportion to the total number of Shares
outstanding on the purchase order date. The Sponsor determines,
directly in its sole discretion or in consultation with the
Custodian and the Administrator, the requirements for cash, cash
equivalents and/or commodity futures that may be included in
deposits to create baskets. If cash equivalents are to be included
in a Creation Basket Deposit for orders placed on a given business
day, the Administrator will publish an estimate of the Creation
Basket Deposit requirements at the beginning of such
day.
Delivery of Required Deposits
An Authorized Purchaser who places a
purchase order is responsible for transferring to the Fund’s
account with the Custodian the required amount of cash, cash
equivalents and/or commodity futures by the end of the next
business day following the purchase order date or by the end of
such later business day, not to exceed three business days after
the purchase order date, as agreed to between the Authorized
Purchaser and the Custodian when the purchase order is placed (the
“Purchase Settlement Date”). Upon receipt of the
deposit amount, the Custodian directs DTC to credit the number of
baskets ordered to the Authorized Purchaser’s DTC account on
the Purchase Settlement Date.
Because orders to purchase baskets
must be placed by 1:15 p.m., New York time, but the total payment
required to create a basket during the continuous offering period
will not be determined until 4:00 p.m., New York time, on the date
the purchase order is received, Authorized Purchasers will not know
the total amount of the payment required to create a basket at the
time they submit an irrevocable purchase order for the basket. The
Fund’s NAV and the total amount of the payment required to
create a basket could rise or fall substantially between the time
an irrevocable purchase order is submitted and the time the amount
of the purchase price in respect thereof is
determined.
Rejection of Purchase Orders
The Sponsor acting by itself or
through the Distributor or transfer agent may reject a purchase
order or a Creation Basket Deposit if:
●
|
it determines that, due to position
limits or otherwise, investment alternatives that will enable the
Fund to meet its investment objective are not available or
practicable at that time.
|
●
|
it determines that the purchase
order or the Creation Basket Deposit is not in proper
form.
|
●
|
it believes that acceptance of the
purchase order or the Creation Basket Deposit would have adverse
tax consequences to the Fund or its
Shareholders.
|
●
|
the acceptance or receipt of the
Creation Basket Deposit would, in the opinion of counsel to the
Sponsor, be unlawful.
|
●
|
circumstances outside the control of
the Sponsor, Distributor or transfer agent make it, for all
practical purposes, not feasible to process creations of
baskets.
|
●
|
there is a possibility that any or
all of the Benchmark Component Futures Contracts of the Fund on the
CBOT from which the NAV of the Fund is calculated will be priced at
a daily price limit restriction. or
|
●
|
if, in the sole discretion of the
Sponsor, the execution of such an order would not be in the best
interest of the Fund or its Shareholders.
|
None of the Sponsor, Distributor or
transfer agent will be liable for the rejection of any purchase
order or Creation Basket Deposit.
Redemption Procedures
The procedures by which an
Authorized Purchaser can redeem one or more baskets mirror the
procedures for the creation of baskets. On any business day, an
Authorized Purchaser may place an order with the transfer agent to
redeem one or more baskets. Redemption orders must be placed by
1:15 p.m. New York time or the close of regular trading on the New
York Stock Exchange, whichever is earlier. A redemption order so
received will be effective on the date it is received in
satisfactory form by the Distributor. The redemption procedures
allow Authorized Purchasers to redeem baskets and do not entitle an
individual Shareholder to redeem any Shares in an amount less than
a Redemption Basket, or to redeem baskets other than through an
Authorized Purchaser. By placing a redemption order, an Authorized
Purchaser agrees to deliver the baskets to be redeemed through
DTC’s book entry system to the Fund by the end of the
next business day following the effective date of the redemption
order or by the end of such later business day, not to exceed three
business days after the effective date of the redemption order, as
agreed to between the Authorized Purchaser and the transfer agent
when the redemption order is placed (the “Redemption
Settlement Date”). Prior to the delivery of the redemption
distribution for a redemption order, the Authorized Purchaser must
also have wired to the Sponsor’s account at the Custodian the
nonrefundable transaction fee due for the redemption order.
An Authorized Purchaser may not withdraw a redemption order without
the prior consent of the Sponsor in its
discretion.
Determination of Redemption Distribution
The redemption distribution from the
Fund consists of a transfer to the redeeming Authorized Purchaser
of an amount of cash, cash equivalents and/or commodity futures
that is in the same proportion to the total assets of the Fund (net
of estimated accrued but unpaid fees, expenses and other
liabilities) on the date the order to redeem is properly received
as the number of Shares to be redeemed under the redemption order
is in proportion to the total number of Shares outstanding on the
date the order is received. The Sponsor, directly or in
consultation with the Custodian and the Administrator, determines
the requirements for cash, cash equivalents and/or commodity
futures, including the remaining maturities of the cash equivalents
and proportions of cash equivalents and cash, that may be included
in distributions to redeem baskets. If cash equivalents are to be
included in a redemption distribution for orders placed on a given
business day, the Custodian and the 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
the Fund will be delivered to the Authorized Purchaser on the
Redemption Settlement Date if the Fund’s DTC account has been
credited with the baskets to be redeemed. If the Fund’s DTC
account has not been credited with all of the baskets to be
redeemed by the end of such date, the redemption distribution will
be delivered to the extent of whole baskets received. Any remainder
of the redemption distribution will be delivered on the next
business day after the Redemption Settlement Date to the extent of
remaining whole baskets received if the Sponsor receives the fee
applicable to the extension of the Redemption Settlement Date which
the Sponsor may, from time to time, determine and the remaining
baskets to be redeemed are credited to the Fund’s DTC account
on such next business day. Any further outstanding amount of the
redemption order shall be cancelled. Pursuant to information from
the Sponsor, the Custodian will also be authorized to deliver the
redemption distribution notwithstanding that the baskets to be
redeemed are not credited to the Fund’s DTC account by 1:15
p.m. New York time on the Redemption Settlement Date if the
Authorized Purchaser has collateralized its obligation to deliver
the baskets through DTC’s book entry system on such
terms as the Sponsor may from time to time
determine.
Suspension or Rejection of Redemption Orders
The Sponsor may, in its discretion,
suspend the right of redemption, or postpone the redemption
settlement date, (1) for any period during which the NYSE Arca or
CBOT is closed other than customary weekend or holiday closings, or
trading on the NYSE Arca or CBOT is suspended or restricted, (2)
for any period during which an emergency exists as a result of
which delivery, disposal or evaluation of cash equivalents is not
reasonably practicable, (3) for such other period as the Sponsor
determines to be necessary for the protection of the Shareholders,
(4) if there is a possibility that any or all of the Benchmark
Component Futures Contracts of the Fund on the CBOT from which the
NAV of the Fund is calculated will be priced at a daily price limit
restriction, or (5) if, in the sole discretion of the Sponsor, the
execution of such an order would not be in the best interest of the
Fund or its Shareholders. For example, the Sponsor may determine
that it is necessary to suspend redemptions to allow for the
orderly liquidation of the Fund’s assets at an appropriate
value to fund a redemption. If the Sponsor has difficulty
liquidating the Fund’s positions, e.g., because of a market
disruption event in the futures markets or an unanticipated delay
in the liquidation of a position in an over the counter
contract, it may be appropriate to suspend redemptions until such
time as such circumstances are rectified. None of the Sponsor, the
Distributor, or the transfer agent will be liable to any person or
in any way for any loss or damages that may result from any such
suspension or postponement.
Redemption orders must be made in
whole baskets. The Sponsor will reject a redemption order if the
order is not in proper form as described in the Authorized
Purchaser Agreement or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful.
The Sponsor may also reject a
redemption order if the number of Shares being redeemed would
reduce the remaining outstanding Shares to 50,000 Shares (i.e., two
baskets of 25,000 Shares each) or less, unless the Sponsor has
reason to believe that the placer of the redemption order does in
fact possess all the outstanding Shares of the Fund and can deliver
them.
Creation and Redemption Transaction Fees
To compensate the Sponsor for its
expenses in connection with the creation and redemption of baskets,
an Authorized Purchaser is required to pay a transaction fee to the
Sponsor of $250 per order. The transaction fees may be reduced,
increased or otherwise changed by the Sponsor.
Tax Responsibility
Authorized Purchasers are
responsible for any transfer tax, sales or use tax, stamp tax,
recording tax, value added tax or similar tax or governmental
charge applicable to the creation or redemption of baskets,
regardless of whether or not such tax or charge is imposed directly
on the Authorized Purchaser, and agree to indemnify the Sponsor and
the Fund if they are required by law to pay any such tax, together
with any applicable penalties, additions to tax and interest
thereon.
S
econdary Market
Transactions
As noted, the Fund will create and
redeem Shares from time to time, but only in one or more Creation
Baskets or Redemption Baskets. The creation and redemption of
baskets are only made in exchange for delivery to the Fund or the
distribution by the Fund of the amount of cash, cash equivalents
and/or commodity futures equal to the aggregate NAV of the number
of Shares included in the baskets being created or redeemed
determined on the day the order to create or redeem baskets is
properly received.
As discussed above, Authorized
Purchasers are the only persons that may place orders to create and
redeem baskets. Authorized Purchasers must be registered broker
dealers or other securities market participants, such as
banks and other financial institutions that are not required to
register as broker dealers to engage in securities
transactions. An Authorized Purchaser is under no obligation to
create or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public Shares of any baskets it does
create. Authorized Purchasers that do offer to the public Shares
from the baskets they create will do so at per Share offering
prices that are expected to reflect, among other factors, the
trading price of the Shares on the NYSE Arca, the NAV of the Shares
at the time the Authorized Purchaser purchased the Creation
Baskets, the NAV of the Shares at the time of the offer of the
Shares to the public, the supply of and demand for Shares at the
time of sale, and the liquidity of the Wheat Interest markets. The
prices of Shares offered by Authorized Purchasers are expected to
fall between the Fund’s NAV and the trading price of the
Shares on the NYSE Arca at the time of sale. Shares initially
comprising the same basket but offered by Authorized Purchasers to
the public at different times may have different offering prices.
An order for one or more baskets may be placed by an Authorized
Purchaser on behalf of multiple clients. Shares are expected to
trade in the secondary market on the NYSE Arca. Shares may trade in
the secondary market at prices that are lower or higher relative to
their NAV per Share. The amount of the discount or premium in the
trading price relative to the NAV per Share may be influenced by
various factors, including the number of investors who seek to
purchase or sell Shares in the secondary market and the liquidity
of the Wheat Interest markets. While the Shares trade on the NYSE
Arca until 4:00 p.m. New York time, liquidity in the markets for
Wheat Interests may be reduced after the close of the CBOT. As a
result, during this time, trading spreads, and the resulting
premium or discount, on the Shares may widen.
The Sponsor causes the Fund to
transfer the proceeds of the sale of Creation Baskets to the
Custodian or another custodian for use in trading activities. The
Sponsor invests the Fund’s assets in Wheat Futures Contracts,
and Other Wheat Interests, short-term Treasury Securities, cash,
and cash equivalents. When the Fund purchases Wheat Futures
Contracts and certain Other Wheat Interests that are exchange
traded, the Fund is required to deposit with the FCM on
behalf of the exchange a portion of the value of the contract or
other interest as security to ensure payment for the obligation
under the Wheat Interests at maturity. This deposit is known as
initial margin. Counterparties in transactions in over
the counter Wheat Interests will generally impose similar
collateral requirements on the Fund. The Sponsor invests the
Fund’s assets that remain after margin and collateral is
posted in short-term Treasury Securities, cash and/or cash
equivalents. Subject to these margin and collateral requirements,
the Sponsor has sole authority to determine the percentage of
assets that will be:
●
|
held as margin or collateral with
the FCM or other custodians.
|
●
|
used for other investments.
and
|
●
|
held in bank accounts to pay current
obligations and as reserves.
|
In general, the Fund expects that it
will be required to post approximately 5% of the notional amount of
a Wheat Interest as initial margin when entering into such Wheat
Interest. Ongoing margin and collateral payments will generally be
required for both exchange traded and over the
counter Wheat Interests based on changes in the value of the Wheat
Interests. Furthermore, ongoing collateral requirements with
respect to over the counter Wheat Interests are
negotiated by the parties, and may be affected by overall market
volatility, volatility of the underlying commodity or index, the
ability of the counterparty to hedge its exposure under the Wheat
Interest, and each party’s creditworthiness. In light of the
differing requirements for initial payments under exchange
traded and over the counter Wheat Interests and
the fluctuating nature of ongoing margin and collateral payments,
it is not possible to estimate what portion of the Fund’s
assets will be posted as margin or collateral at any given time.
The short-term Treasury Securities, cash, and cash equivalents held
by the Fund constitute reserves that are available to meet ongoing
margin and collateral requirements. All interest income is used for
the Fund’s benefit.
An FCM, counterparty, government
agency or commodity exchange could increase margin or collateral
requirements applicable to the Fund to hold trading positions at
any time. Moreover, margin is merely a security deposit and has no
bearing on the profit or loss potential for any positions held.
Further, under recently adopted CFTC rules, the Fund may be
obligated to post initial and variation margin with respect to
swaps (and options that qualify as swaps) and traded over the
counter, and, where applicable, on SEFs.
The approximate 5% of the
Fund’s assets held by the FCM are held in segregation
pursuant to the CEA and CFTC regulations.
M
anagement’s Discussion and Analysis of Financial
Condition and Results of Operations
Critical Accounting
Policies
Preparation of the financial
statements and related disclosures in conformity with U. S.
generally accepted accounting principles (“GAAP”)
requires the application of appropriate accounting rules and
guidance, as well as the use of estimates, and requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue, and expense and related
disclosure of contingent assets and liabilities during the
reporting period of the combined financial statements and
accompanying notes. The Trust’s application of these policies
involves judgments, and actual results may differ from the
estimates used.
The Sponsor has determined that the
valuation of commodity interests that are not traded on a U.S. or
internationally recognized futures exchange (such as swaps and
other over the counter contracts) involves a critical
accounting policy. The values which are used by the Teucrium Funds
for futures contracts will be provided by the commodity broker who
will use market prices when available, while over the
counter contracts will be valued based on the present value of
estimated future cash flows that would be received from or paid to
a third party in settlement of these derivative contracts prior to
their delivery date. Values will be determined on a daily
basis.
Commodity futures contracts held by
the Fund are recorded on the trade date. All such transactions are
recorded on the identified cost basis and marked to market daily.
Unrealized appreciation or depreciation on commodity futures
contracts are reflected in the statement of operations as the
difference between the original contract 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 statement of
operations. Interest on cash equivalents and deposits with the FCM
are recognized on the accrual basis. The Fund earns interest on
funds held at the custodian and at other financial institutions at
prevailing market rates for such investments.
Cash and cash equivalents are cash
held at financial institutions in demand deposit accounts or
highly liquid investments with original maturity dates of
three months or less at inception. The Fund reports 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 a substantial portion of its assets on
deposit with banks. Assets deposited with financial institutions
may, at times, exceed federally insured limits.
The use of fair value to measure
financial instruments, with related unrealized gains or losses
recognized in earnings in each period is fundamental to the
Trust’s financial statements. 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 Trust
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 Trust.
Unobservable inputs reflect the Trust’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: a)
Level 1
Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Trust has the ability to
access. Valuation adjustments and block discounts are not applied
to Level 1 securities and financial instruments. Since valuations
are based on quoted prices that are readily and regularly available
in an active market, valuation of these securities and financial
instruments does not entail a significant degree of judgment, b)
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, and c)
Level 3
Valuations based on inputs that are unobservable and
significant to the overall fair value measurement. See the notes
within the financial statements for further
information.
The Fund and the Trust record their
derivative activities at fair value. Gains and losses from
derivative contracts are included in the statement of operations.
Derivative contracts include futures contracts related to commodity
prices. Futures, which are listed on a national securities
exchange, such as the CBOT or the New York Mercantile Exchange
(“NYMEX”), or reported on another national market, are
generally categorized in Level 1 of the fair value hierarchy. OTC
derivatives contracts (such as forward and swap contracts) which
may be valued using models, depending on whether significant inputs
are observable or unobservable, are categorized in Levels 2 or 3 of
the fair value hierarchy.
Brokerage commissions on all open
commodity futures contracts are accrued on a full-turn
basis.
Margin is the minimum amount of
funds that must be deposited by a commodity 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 are 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 Teucrium
Funds’ 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 Teucrium Funds’ trading, the Teucrium Funds (and not
its shareholders personally) are subject to margin
calls.
The Sponsor is responsible for
investing the assets of the Funds in accordance with the objectives
and policies of Fund. The Fund pays for all brokerage fees, taxes
and other expenses, including licensing fees for the use of
intellectual property, registration or other fees paid to the SEC,
FINRA, or any other regulatory agency in connection with the offer
and sale of subsequent Shares after its initial registration and
all legal, accounting, printing and other expenses associated
therewith. The Fund also pays its portion of the fees and expenses
for services directly attributable to the Fund such as accounting,
financial reporting, regulatory compliance and trading activities,
which the Sponsor elected not to outsource. Certain aggregate
expenses common to all Teucrium Funds within the Trust are
allocated by the Sponsor to the respective Funds based on activity
drivers deemed most appropriate by the Sponsor for such expenses,
including but not limited to relative assets under management and
creation order activity. These aggregate common expenses include,
but are not limited to, legal, auditing, accounting and financial
reporting, tax-preparation, regulatory compliance, trading
activities, and insurance costs, as well as fees paid to the
Distributor. A portion of these aggregate common expenses are
related to the Sponsor or related parties of principals of the
Sponsor; these are necessary services to the Teucrium Funds, which
are primarily the cost of performing certain accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Funds and are included,
primarily, in distribution and marketing fees. In addition, the
Funds, except for TAGS which has no such fee, are contractually
obligated to pay a monthly management fee to the Sponsor, based on
average daily net assets, at a rate equal to 1.00% per
annum.
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.
For tax purposes, the Fund will be
treated as a partnership. Therefore, the Fund does not record a
provision for income taxes because the partners report their share
of a 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.
For commercial paper, the Teucrium
Funds use the effective interest method for calculating the actual
interest rate in a period based on the amount of a financial
instrument's book value at the beginning of the accounting period.
Accretion on these investments are recognized on the effective
interest method in U.S. dollars and recognized in cash equivalents.
All discounts on purchase prices of debt securities are accreted
over the life of the respective security.
Results of Operations
The Teucrium Wheat Fund commenced
investment operations on September 19, 2011. The investment
objective of the Fund is to have the daily changes in percentage
terms of the Shares’ Net Asset Value reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”), specifically: (1) the
second-to-expire CBOT Wheat Futures Contract, weighted 35%, (2) the
third-to-expire CBOT Wheat Futures Contract, weighted 30%, and (3)
the CBOT Wheat Futures Contract expiring in the December following
the expiration month of the third-to-expire contract, weighted 35%.
On December 31, 2018, the Fund held a total of 2,106 CBOT wheat
futures contracts with a notional value of $55,151,250. The
contracts had a liability fair value of $3,985,400. The weighting
of the notional value of the contracts was weighted as follows: (1)
35% to MAY19 CBOT contracts, (2) 30% to JUL19 CBOT contracts, and
(3) 35% to DEC19 CBOT contracts.
The benchmark for the Fund is the
Teucrium Wheat Index (TWEAT) which is defined as: A weighted
average of daily changes in the closing settlement prices of (1)
the second-to-expire Wheat Futures Contract traded on the CBOT,
weighted 35%, (2) the third-to-expire CBOT Wheat Futures Contract,
weighted 30%, and (3) the CBOT Wheat Futures Contract expiring in
the December following the expiration month of third-to-expire
contract, weighted 35%. To convert to an index, 100 is set to $25,
the opening day price of WEAT
.
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TWEAT for two periods. One period is
December 31, 2017 compared to December 31, 2018. The second period
is from the commencement of operations to December 31, 2018. The
Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the NAV do
include the impacts of both expenses and interest
income.
Period
|
Change in NAV per
share
|
Change in Market
Price
|
Change in the
Benchmark (TWEAT)
|
December 31, 2017
to
December 31,
2018
|
-0.76%
|
-1.17%
|
0.95%
|
September 19, 2011
to
December 31,
2018
|
-75.72%
|
-76.16%
|
-66.27%
|
For the
Year Ended December 31, 2018 Compared to the Years Ended December
31, 2017 and 2016
On
December 31, 2018, the Fund had 9,275,004 shares outstanding and
net assets of $55,149,873. This is in comparison to 10,250,004
shares outstanding and net assets of $61,416,019 on December 31,
2017 and 9,050,004 shares outstanding with net assets of
$62,344,759 on December 31, 2016. Shares outstanding decreased by
975,000 or 10% for the period of 2018 when compared to 2017. This
decrease was, in the opinion of management, due to larger projected
U.S. supply, reduced domestic use and higher ending stocks. In
2018, the Fund issued 2,000,000 shares and purchased 2,975,000
shares as part of creation and redemption baskets. In 2017, the
Fund issued 5,375,000 shares and purchased 4,175,000 shares as part
of creation and redemption baskets. For the period 2018 compared to
2016, there was an increase in shares outstanding of 225,000 shares
or 2%. In 2016, the Fund issued 6,475,000 shares and purchased
325,000 shares as part of creation and redemption
baskets.
Total net assets for the Fund were
$55,149,873 on December 31, 2018, compared to $61,416,019 on
December 31, 2017 and $62,344,759 on December 31, 2016. The Net
Asset Values (“NAV”) per share related to these
balances were $5.95, $5.99, and $6.89 respectively. When comparing
December 31, 2018 with 2017, the net assets decreased by 10%, which
was driven by a decrease in the number of shares outstanding of
10%. When comparing December 31, 2018 with 2016, there was a
decrease in total net assets of 12%, driven by a combination of an
increase in total shares outstanding of 2%, which was offset by a
decrease in the NAV per share of ($0.94) or 14%. The closing prices
per share for 2018, 2017 and 2016, as reported by the NYSE Arca,
were $5.93, $6.00, and $6.88, respectively. The change from
December 31, 2018 over prior years was a 1% decrease from 2017 and
a 14% decrease from 2016.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2018 and serves to illustrate the relative changes of these
components.
The total income for the year ended
December 31, 2018 was $2,455,989 resulting primarily from the net
change in realized gain on commodity futures contracts totaling
$2,502,112, and by a net change in unrealized depreciation of
commodity futures contracts of ($1,389,350). Total loss was
($3,234,218) in 2017, and ($11,396,927) in 2016. Realized gain or
loss on trading of commodity futures contracts is a function of: 1)
the change in the price of the particular contracts sold as part of
a “roll” in contracts as the nearest to expire
contracts are exchanged for the appropriate contact given the
investment objective of the fund, 2) the change in the price of
particular contracts sold in relation to redemption of shares, 3)
the gain or loss associated with rebalancing trades which are made
to ensure conformance to the benchmark and 4) the number of
contracts held and then sold for either circumstance
aforementioned. Unrealized gain or loss on trading of commodity
futures contracts is a function of the change in the price of
contracts held on the final date of the period versus the purchase
price for each contract and the number of contracts held in each
contract month. The Sponsor has a static benchmark as described
above and trades futures contracts to adhere to that benchmark and
to adjust for the creation or redemption of
shares.
Interest income for year ended
December 31, 2018, 2017, and 2016, respectively, was $1,343,227,
$745,357, and $231,598. This increase year-over-year was the result
of the Sponsor investing, at times, a portion of the available cash
for the Fund in alternative demand deposit savings accounts with
more attractive overnight deposit rates. Effective October 3, 2017,
the Fund began investing in investment grade commercial paper with
maturities of ninety days or less. These investments provide a
higher rate than money market products offered in the past.
Interest rates paid on cash balances of the Fund have increased
beginning March 2017 and have continued to increase through
December 2018. These higher levels of interest rates are projected
to remain at the current level in 2019 or slightly increase, absent
any decreases in the Federal Funds rate.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2018 were
$2,675,481; total expenses for 2017 were $2,678,613 and $1,854,582
in 2016. This represents a ($3,132) or 0% decrease for 2018 over
2017 and a $820,899 or 44% increase for 2018 over 2016. The
decrease for 2018 over 2017 was driven by: 1) a ($5,614) or 1%
decrease in management fee paid to the Sponsor due to lower average
net assets; 2) a ($10,650) or 2% decrease in professional fees
related to auditing, legal and tax preparation fees; 3) a ($17,521)
or 12% decrease in custodian fees and expenses; and 4) a ($3,515)
or 3% decrease in general and administrative expenses. These
decreases were offset by increases in: 1) a $24,415 or 2% increase
in distribution and marketing expenses; 2) a $26 or 0% increase in
business permits and licenses; 3) a $4,159 or 7% increase in
brokerage commissions due to an increase in contracts purchased and
rolled; and 4) a $5,568 or 15% increase in other expenses. The
decreases in operating expenses were due to expense controls under
taken by the Sponsor and lower average net asset balance relative
to the other Funds.
The increase for 2018 over 2016 was
driven by increases in all expense categories period over period
except for business permits and licenses, which decreased by
($18,357) or 47%. The increase was driven by: 1) a $233,446 or 56%
increase in management fee paid to the Sponsor due to higher
average net assets; 2) a $256,117 or 80% increase in professional
fees related to auditing, legal and tax preparation fees; 3) a
$317,276 or 41% increase in distribution and marketing expenses; 4)
a $4,721 or 4% increase in custodian fees and expenses; 5) a
$12,198 or 13% increase in general and administrative expenses; 6)
a $15,470 or 32% increase in brokerage commissions due to an
increase in contracts purchased and rolled; and 7) a $28 or 0%
increase in other expenses. The increases year over year were
generally due to higher average net assets relative to other funds.
The total expense ratio gross of expenses waived by the Sponsor for
these years was 4.13% in 2018, 4.09% in 2017, and 4.47% in 2016.
The management fee is calculated at an annual rate of 1% of the
Fund’s daily average net assets.
The Sponsor has the ability to elect
to pay certain expenses on behalf of the Fund or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. For the year ended December 31, 2018, the
Sponsor waived fees of $234,736; the Sponsor has determined that no
reimbursement will be sought in future periods for those expenses
which have been waived for the year. The Sponsor permanently waived
$323,244 of expenses in 2017 and $140,028 in
2016.
Total expenses net of expenses
waived by the Sponsor and reimbursement to the Sponsor for
previously waived expenses (“Total expenses, net”) for
2018, 2017 and 2016 were $2,440,745, $2,355,369, and $1,714,554
respectively. The total expense ratio net of expenses waived by the
Sponsor periods was 3.76% in 2018, 3.60% in 2017, and 4.13% in
2016. Net investment loss, which includes the impact of expenses
and interest income, was 1.69% in 2018, 2.46% in 2017, and 3.57% in
2016.
Other than the management fee to the
Sponsor and the brokerage commissions, most of the expenses
incurred by the Fund are associated with the day-to-day operation
of the Fund and the necessary functions related to regulatory
compliance. These are generally based on contracts, which extend
for some period of time and up to one year, or commitments
regardless of the level of assets under management. The structure
of the Fund and the nature of the expenses are such that as total
net assets grow, there is a scalability of expenses that may allow
the total expense ratio to be reduced. However, if total net assets
for the Fund fall, the total expense ratio of the Fund will
increase unless additional reductions are made by the Sponsor to
the daily expense accrual. The Sponsor can elect to adjust the
daily expense accruals at its discretion based on market conditions
and other Fund considerations.
Net cash provided by (used in) the
Fund’s operating activities during the period was $10,649,606
in 2018, ($4,660,527) in 2017 and ($14,596,770) in 2016. In 2018,
proceeds from the sale of shares were $12,997,590 representing
2,000,000 shares while payments for redemption of shares were
$19,278,980 representing 2,975,000 shares. In 2017, proceeds from
the sale of shares were $35,809,657 representing 5,375,000 shares
while payments for redemption of shares were $31,148,810
representing 4,175,000 shares. In 2016, proceeds from the sale of
shares were $51,690,600 representing 6,475,000 shares while
payments for the redemption of shares were $2,763,620 representing
325,000 shares.
The seasonality patterns for wheat
futures prices are impacted by a variety of factors. These include,
but are not limited to, the harvest in the fall, the planting
conditions in the spring, and the weather throughout the critical
germination and growing periods. Prices for wheat futures are
affected by the availability and demand for substitute agricultural
commodities, including corn and soybeans. The price of wheat
futures contracts is also influenced by global economic conditions,
including the demand for exports to other countries. Such factors
will impact the performance of the Fund and the results of
operations on an ongoing basis. The Sponsor cannot predict the
impact of such factors
Benchmark Performance
As noted above, the Sponsor
endeavors to place the Fund’s trades in Wheat Interests 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.
More specifically, the Sponsor will endeavor to manage the Fund so
that A will be within plus/minus 10 percent of B,
where:
●
|
A is the average daily change in the
Fund’s NAV for any period of 30 successive valuation days,
i.e., any trading day as of which the Fund calculates its NAV,
and
|
●
|
B is the average daily change in the
Benchmark over the same period.
|
During the period from January 1,
2018 through December 31, 2018, the average daily change in the
Fund’s NAV was within plus/minus 10 percent of the average
daily change in the Fund’s Benchmark.
Liquidity and Capital Resources
The Fund does not make use of
borrowings or other lines of credit to meet its obligations. The
Fund meets its liquidity needs in the normal course of business
from the proceeds of the sale of its investments or from the cash
and/or cash equivalents that it intends to hold at all times. The
Fund’s liquidity needs include redeeming Shares, providing
margin deposits for existing futures contracts or the purchase of
additional futures contracts, posting collateral for
over-the-counter Wheat Interests, and payment of expenses,
summarized below under “Contractual
Obligations.”
All of the Fund’s source of
capital is derived from the offering of Shares to Authorized
Purchasers. Authorized Purchasers may then subsequently redeem such
Shares. The Fund in turn allocates its net assets to commodities
trading. A significant portion of NAV is held in short-term
Treasury Securities, cash, and cash equivalents, which is used as
margin for the Fund’s trading in commodities. The percentage
that cash equivalents bear to the total net assets will vary from
period to period as the market values of the Fund’s Wheat
Interests change. The balance of the net assets is held in the
Fund’s commodity trading account. Interest earned on
interest bearing assets of the Fund is paid to the
Fund.
The investments of the Fund in Wheat
Interests may be subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For
example, the CBOT limits the fluctuations in Wheat Futures Contract
prices during a single day by regulations referred to as
“daily limits.” During a single day, no trades may be
executed at prices beyond the daily limit. Once the price of a
Wheat Futures Contract has increased or decreased by an amount
equal to the daily limit, positions in the contracts can neither be
taken nor liquidated unless the traders are willing to effect
trades at or within the limit. Such market conditions could prevent
the Fund from promptly liquidating a position in Wheat Futures
Contracts.
Beginning in the quarter-ended June
30, 2015, the Sponsor invested a portion of the available cash for
the Teucrium Funds in alternative demand-deposit savings accounts;
as of January 31, 2019, the Sponsor has cash deposits at Rabobank,
N.A., a U.S. chartered bank headquartered in Roseville, CA. These
accounts have higher overnight deposit rates than were available in
the money market products at the Custodians that had been utilized
solely in the past. In addition, the Fund has established an
account at Morgan Stanley so that the Fund may invest in commercial
paper rated at the date of purchase “Prime-1” or
“Prime-2” by Moody’s and/or “A-1” or
“A-2” by S&P, or if unrated, of comparable quality
as determined by the Sponsor. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by
banks or bank holding companies, corporations and finance
companies. The duration until maturity of such commercial paper
held by the Fund will not exceed ninety days.
Market Risk
Trading in Wheat Interests such as
Wheat Futures Contracts involves the Fund entering into contractual
commitments to purchase or sell specific amounts of wheat at a
specified date in the future. The gross or face amount of the
contracts significantly exceeds the future cash requirements of the
Fund since the Fund typically closes out any open positions prior
to the contractual expiration date. As a result, the Fund’s
market risk is the risk of loss arising from the decline in value
of the contracts, not from the need to make delivery under the
contracts. The Fund considers the “fair value” of
derivative instruments to be the unrealized gain or loss on the
contracts. The market risk associated with the commitment by the
Fund to purchase a specific commodity is limited to the aggregate
face amount of the contracts held.
The exposure of the Fund to market
risk depends on a number of factors including the markets for
wheat, the volatility of interest rates and foreign exchange rates,
the liquidity of the Wheat Interest markets and the relationships
among the contracts held by the Fund. The limited experience of the
Sponsor trading Wheat Interests in a manner that tracks changes in
the Benchmark
,
as well as
drastic market events, could ultimately lead to substantial losses
for the shareholders.
Credit Risk
When the Fund enters into Wheat
Interests, it is exposed to the credit risk that the counterparty
will not be able to meet its obligations. For purposes of credit
risk, the counterparty for the Wheat Futures Contracts traded on
the CBOT is the clearinghouse associated with the CBOT. In general,
clearinghouses are backed by their members who may be required to
share in the financial burden resulting from the nonperformance of
one of their members, which should significantly reduce credit
risk. Some foreign exchanges are not backed by their clearinghouse
members but may be backed by a consortium of banks or other
financial institutions. Unlike in the case of exchange traded
futures contracts, the counterparty to an over the
counter Wheat Interest contract is generally a single bank or other
financial institution such as an SD. As a result, there is greater
counterparty credit risk in over the counter
transactions. There can be no assurance that any counterparty,
clearing house, or their financial backers will satisfy their
obligations to the Fund.
The Fund may engage in off exchange
transactions broadly called an “exchange for related
position” (“EFRP”) transaction. For purposes of
the Dodd-Frank Act and related CFTC rules, an EFRP transaction is
treated as a “swap.” An “exchange for related
position” (“EFRP”) can be used by the Fund as a
technique to facilitate the exchanging of a futures hedge position
against a creation or redemption order, and thus the Fund or an
Underlying Fund may use an EFRP transaction in connection with the
creation and redemption of shares. The market specialist/market
maker that is the ultimate purchaser or seller of shares in
connection with the creation or redemption basket, respectively,
agrees to sell or purchase a corresponding offsetting shares or
futures position which is then settled on the same business day as
a cleared futures transaction by the FCMs. The Fund will become
subject to the credit risk of the market specialist/market maker
until the EFRP is settled within the business day, which is
typically 7 hours or less. The Fund reports all activity related to
EFRP transactions under the procedures and guidelines of the CFTC
and the exchanges on which the futures are
traded.
The Sponsor attempts to manage the
credit risk of the Fund by following certain trading limitations
and policies. In particular, the Fund intends to post margin and
collateral and/or hold liquid assets that will be equal to
approximately the face amount of the Wheat Interests it holds. The
Sponsor has implemented procedures that include, but are not
limited to, executing and clearing trades and entering into
over the counter transactions only with parties it
deems creditworthy and/or requiring the posting of collateral by
such parties for the benefit of the Fund to limit its credit
exposure.
The Fund will generally retain cash
positions of approximately 95% of total net assets; this balance
represents the total net assets less the initial margin
requirements held by the FCM. These cash assets are either: 1)
deposited by the Sponsor in demand deposit accounts of financial
institutions which are rated in the highest short-term rating
category by a nationally recognized statistical rating organization
or deemed by the Sponsor to be of comparable quality; 2) invested
in short-term Treasury Securities through the FCM or commercial
paper; or 3) held in a money-market fund which is deemed to be a
cash equivalent under the most recent SEC
definition.
Off Balance Sheet Financing
As of the date of this prospectus,
neither the Trust nor the Fund has any loan guarantees, credit
support or other off-balance sheet arrangements of any kind other
than agreements entered into in the normal course of business,
which may include indemnification provisions relating to certain
risks service providers undertake in performing services which are
in the best interests of the Fund. While the Fund’s exposure
under these indemnification provisions cannot be estimated, they
are not expected to have a material impact on the Fund’s
financial positions.
Redemption Basket Obligation
Other than as necessary to meet the
investment objective of the Fund and pay its contractual
obligations described below, the Fund requires liquidity to redeem
Redemption Baskets. The Fund intends to satisfy this obligation
through the transfer of cash of the Fund (generated, if necessary,
through the sale of cash equivalents) in an amount proportionate to
the number of Shares being redeemed, as described above under
“Redemption Procedures.”
Contractual Obligations
The Fund’s primary contractual
obligations are with the Sponsor and certain other service
providers. The Sponsor, in return for its services, is entitled to
a management fee calculated as a fixed percentage of the
Fund’s NAV, currently 1.00% of its average net assets. The
Fund also is responsible for all ongoing fees, costs and expenses
of its operation, including (i) brokerage and other fees and
commissions incurred in connection with the trading activities of
the Fund. (ii) expenses incurred in connection with registering
additional Shares of the Fund or offering Shares of the Fund after
the time any Shares have begun trading on NYSE Arca. (iii) the
routine expenses associated with the preparation and, if required,
the printing and mailing of monthly, quarterly, annual and other
reports required by applicable U.S. federal and state regulatory
authorities, Trust meetings and preparing, printing and mailing
proxy statements to Shareholders. (iv) the payment of any
distributions related to redemption of Shares. (v) payment for
routine services of the Trustee, legal counsel and independent
accountants. (vi) payment for routine accounting, bookkeeping,
custody and transfer agency services, whether performed by an
outside service provider or by Affiliates of the Sponsor. (vii)
postage and insurance. (viii) costs and expenses associated with
client relations and services. (ix) costs of preparation of all
federal, state, local and foreign tax returns and any taxes payable
on the income, assets or operations of the Fund. and (x)
extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any indemnification
related thereto).
While the Sponsor has agreed to pay
registration fees to the SEC, FINRA and any other regulatory agency
in connection with the offer and sale of the Shares offered through
this prospectus, the legal, printing, accounting and other expenses
associated with such registrations, and the initial fee of $5,000
for listing the Shares on the NYSE Arca, the Fund will be
responsible for any registration fees and related expenses incurred
in connection with any future offer and sale of Shares of the Fund
in excess of those offered through this
prospectus.
The Fund pays its own brokerage and
other transaction costs. The Fund pays fees to FCMs in connection
with its transactions in futures contracts. FCM fees are estimated
to be minimal annually for the Fund. In general, transaction costs
on over the counter Wheat Interests and other
short-term securities are embedded in the purchase or sale price of
the instrument being purchased or sold and may not readily be
estimated. Other expenses to be paid by the Fund, including but not
limited to the fees paid to the Custodian, Administrator and
Distributor with respect to the Fund, are estimated to be 2.53% for
the twelve-month period ending April 29, 2020, though this amount
may change in future years. The Sponsor may, in its discretion, pay
or reimburse the Fund for, or waive a portion of its management fee
to offset, expenses that would otherwise be borne by the
Fund.
Any general expenses of the Trust
will be allocated among the Teucrium Funds and each other series
that may be established under the Trust in the future as determined
by the Sponsor in its sole and absolute discretion. The Trust is
also responsible for extraordinary expenses, including, but not
limited to, legal claims and liabilities and litigation costs and
any indemnification related thereto. The Trust and/or the Sponsor
may be required to indemnify the Trustee, Distributor or
Custodian/Administrator under certain
circumstances.
The parties cannot anticipate the
amount of payments that will be required under these arrangements
for future periods as the Fund’s NAV and trading levels to
meet their investment objectives will not be known until a future
date. These agreements are effective for a specific term agreed
upon by the parties with an option to renew, or, in some cases, are
in effect for the duration of the Fund’s
existence.
The parties may terminate these
agreements earlier for certain reasons listed in the
agreements.
The following paragraphs are a
summary of certain provisions of the Trust Agreement. The following
discussion is qualified in its entirety by reference to the Trust
Agreement.
Authority of the Sponsor
The Sponsor is generally authorized
to perform all acts deemed necessary to carry out the purposes of
the Trust and to conduct the business of the Trust. The Trust and
the Fund will continue to exist until terminated in accordance with
the Trust Agreement. The Sponsor’s authority includes,
without limitation, the right to take the following
actions:
●
|
To enter into, execute, deliver and
maintain contracts, agreements and any other documents as may be in
furtherance of the Trust’s purpose or necessary or
appropriate for the offer and sale of the Shares and the conduct of
Trust activities.
|
●
|
To establish, maintain, deposit
into, sign checks and otherwise draw upon accounts on behalf of the
Trust with appropriate banking and savings institutions, and
execute and accept any instrument or agreement incidental to the
Trust’s business and in furtherance of its
purposes.
|
●
|
To supervise the preparation and
filing of any registration statement (and supplements and
amendments thereto) for the Fund.
|
●
|
To adopt, implement or amend, from
time to time, such disclosure and financial reporting, information
gathering, and control policies and procedures as are necessary or
desirable to ensure compliance with applicable disclosure and
financial reporting obligations under any applicable securities
laws.
|
●
|
To make any necessary determination
or decision in connection with the preparation of the Trust’s
financial statements and amendments thereto.
|
●
|
To prepare, file and distribute, if
applicable, any periodic reports or updates that may be required
under the Exchange Act, the CEA or rules and regulations
promulgated thereunder.
|
●
|
To pay or authorize the payment of
distributions to the Shareholders and expenses of the
Fund.
|
●
|
To make any elections on behalf of
the Trust under the Code, or any other applicable U.S. federal or
state tax law as the Sponsor shall determine to be in the best
interests of the Trust. and
|
●
|
In its sole discretion, to determine
to admit an affiliate or affiliates of the Sponsor as additional
Sponsors.
|
The Sponsor’s Obligations
In addition to the duties imposed by
the Delaware Trust Statute, under the Trust Agreement the Sponsor
has the following obligations as a sponsor of the
Trust:
●
|
Devote to the business and affairs
of the Trust such of its time as it determines in its discretion
(exercised in good faith) to be necessary for the benefit of the
Trust and the Shareholders of the Fund.
|
●
|
Execute, file, record and/or publish
all certificates, statements and other documents and do any and all
other things as may be appropriate for the formation, qualification
and operation of the Trust and for the conduct of its business in
all appropriate jurisdictions.
|
●
|
Appoint and remove independent
public accountants to audit the accounts of the Trust and employ
attorneys to represent the Trust.
|
●
|
Use its best efforts to maintain the
status of the Trust as a statutory trust for state law purposes and
as a partnership for U.S. federal income tax
purposes.
|
●
|
Invest, reinvest, hold uninvested,
sell, exchange, write options on, lease, lend and, subject to
certain limitations set forth in the Trust Agreement, pledge,
mortgage, and hypothecate the estate of the Fund in accordance with
the purposes of the Trust and any registration statement filed on
behalf of the Fund.
|
●
|
Have fiduciary responsibility for
the safekeeping and use of the Trust’s assets, whether or not
in the Sponsor’s immediate possession or
control.
|
●
|
Enter into and perform agreements
with each Authorized Purchaser, receive from Authorized Purchasers
and process properly submitted purchase orders, receive Creation
Basket Deposits, deliver or cause the delivery of Creation Baskets
to the Depository for the account of the Authorized Purchaser
submitting a purchase order.
|
●
|
Receive from Authorized Purchasers
and process or cause the Distributor or other Fund service provider
to process, properly submitted redemption orders, receive from the
redeeming Authorized Purchasers through the Depository, and
thereupon cancel or cause to be cancelled, Shares corresponding to
the Redemption Baskets to be redeemed.
|
●
|
Interact with the Depository.
and
|
●
|
Delegate duties to one or more
administrators, as the Sponsor determines.
|
To the extent that, at law (common
or statutory) or in equity, the Sponsor has duties (including
fiduciary duties) and liabilities relating thereto to the Trust,
the Fund, the Shareholders or to any other person, the Sponsor will
not be liable to the Trust, the Fund, the Shareholders or to any
other person for its good faith reliance on the provisions of the
Trust Agreement or this prospectus unless such reliance constitutes
gross negligence or willful misconduct on the part of the
Sponsor.
Liability and Indemnification
Under the Trust Agreement, the
Sponsor, the Trustee and their respective Affiliates (collectively,
“Covered Persons”) shall have no liability to the
Trust, the Fund, or to any Shareholder for any loss suffered by the
Trust or the Fund which arises out of any action or inaction of
such Covered Person if such Covered Person, in good faith,
determined that such course of conduct was in the best interest of
the Trust or the Fund and such course of conduct did not constitute
gross negligence or willful misconduct of such Covered Person.
Subject to the foregoing, neither the Sponsor nor any other Covered
Person shall be personally liable for the return or repayment of
all or any portion of the capital or profits of any Shareholder or
assignee thereof, it being expressly agreed that any such return of
capital or profits made pursuant to the Trust Agreement shall be
made solely from the assets of the applicable Teucrium Fund without
any rights of contribution from the Sponsor or any other Covered
Person. A Covered Person shall not be liable for the conduct or
willful misconduct of any administrator or other delegatee selected
by the Sponsor with reasonable care, provided, however, that the
Trustee and its Affiliates shall not, under any circumstances be
liable for the conduct or willful misconduct of any administrator
or other delegatee or any other person selected by the Sponsor to
provide services to the Trust.
To the extent that, at law (common
or statutory) or in equity, the Sponsor has duties (including
fiduciary duties) and liabilities relating to the Trust, the
Teucrium Funds, the shareholders of the Teucrium Funds, or to any
other person, the Sponsor, acting under the Trust Agreement, shall
not be liable to the Trust, the Teucrium Funds, the shareholders of
the Teucrium Funds or to any other person for its good faith
reliance on the provisions of the Trust Agreement. The provisions
of the Trust Agreement, to the extent they restrict or eliminate
the duties and liabilities of the Sponsor otherwise existing at law
or in equity, replace such other duties and liabilities of the
Sponsor.
The Trust Agreement also provides
that the Sponsor shall be indemnified by the Trust (or by a series
separately to the extent the matter in question relates to a single
series or disproportionately affects a specific series in relation
to other series) against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by
it in connection with its activities for the Trust, provided that
(i) the Sponsor was acting on behalf of or performing services for
the Trust and has determined, in good faith, that such course of
conduct was in the best interests of the Trust and such liability
or loss was not the result of gross negligence, willful misconduct,
or a breach of the Trust Agreement on the part of the Sponsor and
(iii) any such indemnification will only be recoverable from the
assets of the applicable series. The Sponsor’s rights to
indemnification permitted under the Trust Agreement shall not be
affected by the dissolution or other cessation to exist of the
Sponsor, or the withdrawal, adjudication of bankruptcy or
insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy
Code by or against the Sponsor.
The
Trust Agreement provides that the Sponsor and the Trust shall
indemnify the Trustee and its successors, assigns, legal
representatives, officers, directors, shareholders, employees,
agents and servants (the “Trustee Indemnified Parties”)
against any liabilities, obligations, losses, damages, penalties,
taxes (excluding any taxes on the compensation received for
services as Trustee or on indemnity payments received), claims,
actions, suits, costs, expenses or disbursements which may be
imposed on a Trustee Indemnified Party relating to or arising out
of the formation, operation or termination of the Trust, the
execution, delivery and performance of any other agreements to
which the Trust is a party, or the action or inaction of the
Trustee under the Trust Agreement or any other agreement, except
for expenses resulting from the gross negligence or willful
misconduct of a Trustee Indemnified Party. Further, certain
officers of the Sponsor are insured against liability for certain
errors or omissions which an officer may incur or that may arise
out of his or her capacity as such.
Notwithstanding the above, the
Sponsor shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of U.S.
federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs), or (iii) a court of
competent jurisdiction approves a settlement of the claims against
a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The payment of any indemnification
shall be allocated, as appropriate, among the Trust’s series.
The Trust and its series shall not incur the cost of that portion
of any insurance which insures any party against any liability, the
indemnification of which is prohibited under the Trust
Agreement.
Expenses incurred in defending a
threatened or pending action, suit or proceeding against the
Sponsor shall be paid by the Trust in advance of the final
disposition of such action, suit or proceeding, if (i) the legal
action relates to the performance of duties or services by the
Sponsor on behalf of the Trust. (ii) the legal action is initiated
by a party other than the Trust. and (iii) the Sponsor undertakes
to repay the advanced funds with interest to the Trust in cases in
which it is not entitled to indemnification.
The Trust Agreement provides that
the Sponsor and the Trust shall indemnify the Trustee and its
successors, assigns, legal representatives, officers, directors,
shareholders, employees, agents and servants (the “Trustee
Indemnified Parties”) against any liabilities, obligations,
losses, damages, penalties, taxes, claims, actions, suits, costs,
expenses or disbursements which may be imposed on a Trustee
Indemnified Party relating to or arising out of the formation,
operation or termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is a party,
or the action or inaction of the Trustee under the Trust Agreement
or any other agreement, except for expenses resulting from the
gross negligence or willful misconduct of a Trustee Indemnified
Party. Further, certain officers of the Sponsor are insured against
liability for certain errors or omissions which an officer may
incur or that may arise out of his or her capacity as
such.
In the event the Trust is made a
party to any claim, dispute, demand or litigation or otherwise
incurs any liability or expense as a result of or in connection
with any Shareholder’s (or assignee’s) obligations or
liabilities unrelated to the Trust business, such Shareholder (or
assignees cumulatively) is required under the Trust Agreement to
indemnify the Trust for all such liability and expense incurred,
including attorneys’ and accountants’
fees.
Withdrawal of the Sponsor
The Sponsor may withdraw voluntarily
as the Sponsor of the Trust only upon ninety (90) days’ prior
written notice to the holders of the Trust’s outstanding
shares and the Trustee. If the withdrawing Sponsor is the last
remaining Sponsor, shareholders holding a majority (over 50%) of
the outstanding shares of the Teucrium Funds, voting together as a
single class (not including shares acquired by the Sponsor through
its initial capital contribution) may vote to elect a successor
Sponsor. The successor Sponsor will continue the business of
the
Trust. Shareholders have no right to
remove the Sponsor.
In the event of withdrawal, the
Sponsor is entitled to a redemption of the shares it acquired
through its initial capital contribution to any of the series of
the Trust at their NAV per Share. If the Sponsor withdraws and a
successor Sponsor is named, the withdrawing Sponsor shall pay all
expenses as a result of its withdrawal.
Meetings
Meetings of the Trust’s
shareholders may be called by the Sponsor and will be called by it
upon the written request of Shareholders holding at least 25% of
the outstanding Shares of the Trust or the Fund, as applicable (not
including Shares acquired by the Sponsor through its initial
capital contribution). The Sponsor shall deposit in the United
States mail or electronically transmit written notice to all
Shareholders of the Fund of the meeting and the purpose of the
meeting, which shall be held on a date not less than 30 nor more
than 60 days after the date of mailing of such notice, at a
reasonable time and place. Where the meeting is called upon the
written request of the shareholders of the Fund, or any other
Teucrium Fund, as applicable, such written notice shall be mailed
or transmitted not more than 45 days after such written request for
a meeting was received by the Sponsor. Any notice of meeting shall
be accompanied by a description of the action to be taken at the
meeting and, if applicable, an opinion of independent counsel as to
the effect of such proposed action on the liability of shareholders
of the Fund, or any other Teucrium Fund, as applicable, for the
debts of the applicable Teucrium Fund. Shareholders may vote in
person or by proxy at any such meeting. The Sponsor shall be
entitled to establish voting and quorum requirements and other
reasonable procedures for shareholder voting. Any action required
or permitted to be taken by Shareholders by vote may be taken
without a meeting by written consent setting forth the actions so
taken. Such written consents shall be treated for all purposes as
votes at a meeting. If the vote or consent of any Shareholder to
any action of the Trust, the Fund or any Shareholder, as
contemplated by the Trust Agreement, is solicited by the Sponsor,
the solicitation shall be effected by notice to each Shareholder
given in the manner provided in accordance with the Trust
Agreement.
Voting Rights
Shareholders have very limited
voting rights. Specifically, the Trust Agreement provides that
shareholders of the Teucrium Funds holding shares representing at
least a majority (over 50%) of the outstanding shares of the
Teucrium Funds voting together as a single class (excluding shares
acquired by the Sponsor in connection with its initial capital
contribution to any Trust series) may vote to (i) continue the
Trust by electing a successor Sponsor as described above, and (ii)
approve amendments to the Trust Agreement that impair the right to
surrender Redemption Baskets for redemption. (Trustee consent to
any amendment to the Trust Agreement is required if the Trustee
reasonably believes that such amendment adversely affects any of
its rights, duties or liabilities.) In addition, shareholders of
the Teucrium Funds holding shares representing seventy five
percent (75%) of the outstanding shares of the Teucrium Funds,
voting together as a single class (excluding shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to dissolve the Trust upon not less than
ninety (90) days’ notice to the Sponsor. Shareholders have no
voting rights with respect to the Trust or the Fund except as
expressly provided in the Trust Agreement.
Limited Liability of Shareholders
Shareholders shall be entitled to
the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the general
corporation law of Delaware, and no Shareholder shall be liable for
claims against, or debts of the Trust or the Fund in excess of his
share of the Fund’s assets. The Trust or the Fund shall not
make a claim against a Shareholder with respect to amounts
distributed to such Shareholder or amounts received by such
Shareholder upon redemption unless, under Delaware law, such
Shareholder is liable to repay such amount.
The Trust or the Fund shall
indemnify to the full extent permitted by law and the Trust
Agreement each Shareholder (excluding the Sponsor to the extent of
its ownership of any Shares acquired through its initial capital
contribution) against any claims of liability asserted against such
Shareholder solely because of its ownership of Shares (other than
for taxes on income from Shares for which such Shareholder is
liable).
Every written note, bond, contract,
instrument, certificate or undertaking made or issued by the
Sponsor on behalf of the Trust or the Fund shall give notice to the
effect that the same was executed or made by or on behalf of the
Trust or the Fund and that the obligations of such instrument are
not binding upon the Shareholders individually but are binding only
upon the assets and property of the Fund and no recourse may be had
with respect to the personal property of a Shareholder for
satisfaction of any obligation or claim.
Amendments to the Trust Agreement
Effective April 16, 2018, the
Sponsor, pursuant to its authority under the Trust Agreement, has
amended the Trust Agreement to reflect certain provisions of the
Bipartisan Budget Act of 2015 and the tax legislation commonly
referred to as the Tax Cuts and Jobs Act of 2017, each of which
became effective on January 1, 2018. The changes to the Trust
Agreement reflect changes to partnership audit rules under the Code
and reflect certain changes to partnership rules under the Code
(see
“U.S. Federal Income
Tax Considerations”
for additional information about
the changes to the Code.)
T
he Sponsor Has Conflicts of
Interest
There are present and potential
future conflicts of interest in the Trust’s structure and
operation you should consider before you purchase Shares. The
Sponsor may use this notice of conflicts as a defense against any
claim or other proceeding made.
The Sponsor’s principals,
officers and employees, do not devote their time exclusively to the
Funds. Under the organizational documents of the Sponsor, Mr. Sal
Gilbertie in his respective capacities as President, Chief
Investment Officer of the Sponsor and Chief Executive Officer and
Secretary of the Sponsor, is obligated to use commercially
reasonable efforts to manage the Sponsor, devote such amount of
time to the Sponsor as would be consistent with his role in
similarly placed commodity pool operators, and remain active in
managing the Sponsor until he is no longer managing members of the
Sponsor or the Sponsor dissolves. In addition, the Sponsor expects
that operating the Teucrium Funds will generally constitute the
principal and full-time business activity of its principals,
officers and employees. Notwithstanding these obligations and
expectations, the Sponsor’s principals may be directors,
officers or employees of other entities, and may manage assets of
other entities, including the other Teucrium Funds, through the
Sponsor or otherwise. In particular, the principals could have a
conflict between his responsibilities to the Fund on the one hand
and to those other entities on the other. The Sponsor believes that
it currently has sufficient personnel, time, and working capital to
discharge its responsibilities to the Fund in a fair manner and
that these persons’ conflicts should not impair his ability
to provide services to the Fund. However, it is not possible to
quantify the proportion of his time that the Sponsor’s
personnel will devote to the Fund and its
management.
The Sponsor and its principals,
officers and employees may trade securities, futures and related
contracts for their own accounts, creating the potential for
preferential treatment of their own accounts. Shareholders will not
be permitted to inspect the trading records of such persons or any
written policies of the Sponsor related to such trading. A conflict
of interest may exist if their trades are in the same markets and
at approximately the same times as the trades for the Fund. A
potential conflict also may occur when the Sponsor’s
principals trade their accounts more aggressively or take positions
in their accounts which are opposite, or ahead of, the positions
taken by the Fund.
The Sponsor has sole current
authority to manage the investments and operations of the Fund, and
this may allow it to act in a way that furthers its own interests
which may create a conflict with your best interests, including the
authority of the Sponsor to allocate expenses to and between the
Teucrium Funds. Shareholders have very limited voting rights with
respect to the Fund, which will limit the ability to influence
matters such as amendment of the Trust Agreement, change in the
Fund’s basic investment policies, or dissolution of the Fund
or the Trust.
The Sponsor serves as the Sponsor to
the Teucrium Funds and may in the future serve as the Sponsor or
investment adviser to commodity pools other than the Teucrium
Funds. The Sponsor may have a conflict to the extent that its
trading decisions for the Fund may be influenced by the effect they
would have on the other pools it manages. In addition, the Sponsor
may be required to indemnify the officers and directors of the
other pools, if the need for indemnification arises. This potential
indemnification will cause the Sponsor’s assets to decrease.
If the Sponsor’s other sources of income are not sufficient
to compensate for the indemnification, it could cease operations,
which could in turn result in Fund losses and/or termination of the
Fund.
If the Sponsor acquires knowledge of
a potential transaction or arrangement that may be an opportunity
for the Fund, it shall have no duty to offer such opportunity to
the Fund. The Sponsor will not be liable to the Fund or the
Shareholders for breach of any fiduciary or other duty if Sponsor
pursues such opportunity or directs it to another person or does
not communicate such opportunity to the Fund. Neither the Fund nor
any Shareholder has any rights or obligations by virtue of the
Trust Agreement, the trust relationship created thereby, or this
prospectus in such business ventures or the income or profits
derived from such business ventures. The pursuit of such business
ventures, even if competitive with the activities of the Fund, will
not be deemed wrongful or improper.
Resolution of Conflicts Procedures
The Trust Agreement provides that
whenever a conflict of interest exists between the Sponsor or any
of its Affiliates, on the one hand, and the Trust, any shareholder
of a Trust series, or any other person, on the other hand, the
Sponsor shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such
conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by
the Sponsor, the resolution, action or terms so made, taken or
provided by the Sponsor shall not constitute a breach of the Trust
Agreement or any other agreement contemplated therein or of any
duty or obligation of the Sponsor at law or in equity or
otherwise.
The Sponsor or any affiliate thereof
may engage in or possess an interest in other profit seeking
or business ventures of any nature or description, independently or
with others, whether or not such ventures are competitive with the
Trust and the doctrine of corporate opportunity, or any analogous
doctrine, shall not apply to the Sponsor. If the Sponsor acquires
knowledge of a potential transaction, agreement, arrangement or
other matter that may be an opportunity for the Trust, it shall
have no duty to communicate or offer such opportunity to the Trust,
and the Sponsor shall not be liable to the Trust or to the
Shareholders for breach of any fiduciary or other duty by reason of
the fact that the Sponsor pursues or acquires for, or directs such
opportunity to, another person or does not communicate such
opportunity or information to the Trust. Neither the Trust nor any
Shareholder shall have any rights or obligations by virtue of the
Trust Agreement, or the trust relationship created thereby in or to
such independent ventures or the income or profits or losses
derived therefrom, and the pursuit of such ventures, even if
competitive with the activities of the Trust, shall not be deemed
wrongful or improper. Except to the extent expressly provided in
the Trust Agreement, the Sponsor may engage or be interested in any
financial or other transaction with the Trust, the Shareholders or
any affiliate of the Trust or the Shareholders.
I
nterests of Named Experts and
Counsel
No expert hired by the Fund to give
advice on the preparation of this offering document has been hired
on a contingent fee basis, nor do any of them have any present or
future expectation of interest in the Sponsor, Distributor,
Authorized Purchasers, Custodian/Administrator or other service
providers to the Fund.
P
rovisions of Federal and State
Securities Laws
This offering is made pursuant to
federal and state securities laws. The SEC and state securities
agencies take the position that indemnification of the Sponsor that
arises out of an alleged violation of such laws is prohibited
unless certain conditions are met. Those conditions require that no
indemnification of the Sponsor or any underwriter for the Fund may
be made in respect of any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities
laws unless: (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as
to the party seeking indemnification and the court approves the
indemnification. (ii) such claim has been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the party
seeking indemnification. or (iii) a court of competent jurisdiction
approves a settlement of the claims against the party seeking
indemnification and finds that indemnification of the settlement
and related costs should be made, provided that, before seeking
such approval, the Sponsor or other indemnitee must apprise the
court of the position held by regulatory agencies against such
indemnification.
The Trust keeps its books of record
and account at its office located at Three Main Street, Suite 215,
Burlington, VT 05401 or at the offices of the Administrator, U.S.
Bancorp, Fund Services, LLC, doing business as U.S. Bank Global
Fund Services, , located at 615 East Michigan Street, Milwaukee,
Wisconsin 53202, or such office, including of an administrative
agent, as it may subsequently designate upon notice. The books of
account of the Fund are open to inspection by any Shareholder (or
any duly constituted designee of a Shareholder) at all times during
the usual business hours of the Fund upon reasonable advance notice
to the extent such access is required under CFTC rules and
regulations. In addition, the Trust keeps a copy of the Trust
Agreement on file in its office which will be available for
inspection by any Shareholder at all times during its usual
business hours upon reasonable advance notice.
A
nalysis of Critical Accounting
Policies
The Fund’s critical accounting
policies are set forth in the financial statements that are
incorporated by reference in this prospectus prepared in accordance
with accounting principles generally accepted in the United States
of America, which require the use of certain accounting policies
that affect the amounts reported in these financial statements,
including the following: (i) Fund trades are accounted for on a
trade date basis and marked to market on a daily basis. (ii)
the difference between the cost and market value of Wheat Interests
is recorded as “change in unrealized profit/loss” for
open (unrealized) contracts and recorded as “realized
profit/loss” when open positions are closed out. and (iii)
earned interest income, as well as the fees and expenses of the
Fund, are recorded on an accrual basis. The Sponsor believes that
all relevant accounting assumptions and policies have been
considered.
S
tatements, Filings, and
Reports to Shareholders
The Trust will furnish to DTC
Participants for distribution to Shareholders annual reports (as of
the end of each fiscal year) for the Fund as are required to be
provided to Shareholders by the CFTC and the NFA. These annual
reports will contain financial statements prepared by the Sponsor
and audited by an independent registered public accounting firm
designated by the Sponsor. The Trust will also post monthly reports
to the Fund’s website (
www.teucriumweatfund.com
).
These monthly reports will contain certain unaudited financial
information regarding the Fund, including the Fund’s NAV. The
Sponsor will furnish to the Shareholders other reports or
information which the Sponsor, in its discretion, determines to be
necessary or appropriate. In addition, under SEC rules the Trust
will be required to file quarterly and annual reports for the Fund
with the SEC, which need not be sent to Shareholders but will be
publicly available through the SEC. The Trust will post the same
information that would otherwise be provided in the Trust’s
CFTC, NFA and SEC reports on the Fund’s website
www.teucriumweatfund.com.
The Sponsor is responsible for the
registration and qualification of the Shares under the federal
securities laws, federal commodities laws, and laws of any other
jurisdiction as the Sponsor may select. The Sponsor is responsible
for preparing all required reports but has entered into an
agreement with the Administrator to prepare these reports on the
Trust’s behalf.
The accountants’ report on its
audit of the Fund’s financial statements will be furnished by
the Trust to Shareholders upon request. The Trust will make such
elections, file such tax returns, and prepare, disseminate and file
such tax reports for the Fund, as it is advised by its counsel or
accountants are from time to time required by any applicable
statute, rule or regulation.
PricewaterhouseCoopers
(“PwC”), 2001 Ross Avenue, Suite 1800, Dallas, Texas
75201-2997, will provide tax information in accordance with
applicable U.S. Treasury Regulations. Persons treated as middlemen
for purposes of these regulations may obtain tax information
regarding the Fund from PwC or from the Fund’s website,
www.teucriumweatfund.com
.
The fiscal year of the Fund is the
calendar year.
The rights of the Sponsor, the
Trust, the Fund, DTC (as registered owner of the Fund’s
global certificate for Shares) and the Shareholders are governed by
the laws of the State of Delaware, except with respect to causes of
action for violations of U.S. federal or state securities laws. The
Trust Agreement and the effect of every provision thereof shall
control over any contrary or limiting statutory or common law of
the State of Delaware, other than the Delaware Trust
Statute.
S
ecurity Ownership
of Principal Shareholders and Management
The following table sets forth
information regarding the beneficial ownership of shares by the
executive officers of the Sponsor as of December 31, 2018. Except
as listed, no other executive officer of the Sponsor is a
beneficial owner of shares of the Fund.
(1)
Title of
Class
|
(2)
Name of
Beneficial Owner
|
(3)
Amount and nature
of Beneficial Ownership
|
(4)
Percent of
Class
|
WEAT
|
Sal Gilbertie
|
200
common units
|
*
|
__________________
*Less than 1%.
The Fund is not aware of any 5%
holder of its Shares.
Litigation and Claims
Within the past 10 years of the date
of this prospectus, there have been no material administrative,
civil or criminal actions against the Sponsor, the Trust or the
Fund, or any principal or affiliate of any of them. This includes
any actions pending, on appeal, concluded, threatened, or otherwise
known to them.
Legal Opinion
Vedder Price P.C. has been retained
to advise the Trust and the Sponsor with respect to the Shares
being offered hereby and has passed upon the validity of the Shares
being issued hereunder. Vedder Price P.C. has also provided the
Sponsor with its opinion with respect to federal income tax matters
addressed herein.
Experts
The financial statements of the
Trust and the Fund, and management’s assessment of the
effectiveness of internal control over financial reporting of the
Trust and the Fund incorporated by reference in this prospectus and
elsewhere in the registration statement have been so incorporated
by reference in reliance upon the reports of Grant Thornton LLP,
independent registered public accountants, upon the authority of
said firm as experts in accounting and
auditing.
This Privacy Policy explains the
policies of the Sponsor, a commodity pool operator registered with
the CFTC, and (i) the Trust, and (ii) each commodity pool for which
the Sponsor serves as Sponsor currently or in the future including
Teucrium Corn Fund, Teucrium Wheat Fund, Teucrium Sugar Fund, and
Teucrium Soybean Fund, and Teucrium Agricultural Fund (each of
which is a series of the Trust), relating to the collection,
maintenance, and use of nonpublic personal information about the
Teucrium Funds’ investors, as required under federal law.
Federal law gives investors the
right to limit some but not all sharing of their nonpublic personal
information. Federal law also requires the Sponsor to tell
investors how it collects, shares, and protects such nonpublic
personal information. Please read this policy carefully to
understand what the Sponsor does.
This Privacy Policy
applies to the nonpublic personal information of investors who are
individuals and who obtain financial products or services from the
Sponsor, the Trust, and the Teucrium Funds primarily for personal,
family, or household purposes. This Privacy Policy applies to both
current and former Fund investors; the Sponsor will only disclose
nonpublic personal information about former investors to the same
extent as for current investors, as described
below.
Collection of Nonpublic Personal Information
The Sponsor may collect or have
access to nonpublic personal information about current and former
Fund investors for certain purposes relating to the operation of
the Teucrium Funds. This information may include information
received from investors, such as their name, social security
number, telephone number, and address, and information about
investors’ holdings and transactions in shares of the
Teucrium Funds.
Use and Disclosure of Nonpublic Personal
Information
The Sponsor recognizes and respects
the privacy expectation of each of the Teucrium Funds’
investors. The Sponsor believes that the confidentiality and
protection of investors’ nonpublic personal information is
one of its fundamental responsibilities. This means, most
importantly, that the Sponsor does not sell nonpublic personal
information to any third parties. The Sponsor primarily uses
investors’ nonpublic personal information to complete
financial transactions that may be requested.
Below are the circumstances in which
the Sponsor may disclose investors’ nonpublic personal
information to third parties; investors may not opt out of these
disclosures:
●
|
The Sponsor may provide an
investor’s nonpublic personal information to non-affiliated
service providers involved in servicing and administering products
and services for, or on behalf of the Sponsor (
e.g.
, accountants, compliance
consultants, legal advisors, broker-dealers, introducing brokers,
futures commissions merchants, investment companies, investment
advisers, commodity trading advisors, commodity pool operators,
administrators, and custodians). In all such cases, the Sponsor
will provide the third party with only the nonpublic personal
information necessary to carry out its assigned responsibilities
and only for that purpose.
|
●
|
The Sponsor will release nonpublic
personal information if directed by an investor to do so. The
Sponsor may also release nonpublic personal information to persons
acting in a fiduciary or representative capacity on behalf of an
investor.
|
●
|
The Sponsor may release an
investor’s nonpublic personal information to courts and other
parties related to a subpoena or other court, government, or SRO
order or process, as authorized by law.
|
●
|
The Sponsor may release an
investor’s nonpublic personal information to regulators
(including SROs) or governmental entities that have made a
reasonable request for such information, as authorized by
law.
|
●
|
The Sponsor may release an
investor’s nonpublic personal information to certain
governmental entities and others to prevent money laundering or in
connection with tax filings, as authorized by
law.
|
Investors’ nonpublic personal
information, particularly information about investors’
holdings and transactions in shares of the Teucrium Funds, may be
shared between and amongst the Sponsor and the Teucrium Funds.
An investor cannot opt-out of the
sharing of nonpublic personal information between and amongst the
Sponsor and the Teucrium Funds.
However, the Sponsor and the
Teucrium Funds will not use this information for any
cross-marketing purposes.
In other
words, all investors will be treated as having “opted
out” of receiving marketing solicitations from Teucrium Funds
other than the Teucrium Fund(s) in which it
invests.
Protection of Nonpublic Personal Information
●
|
The Sponsor restricts access to
investors’ nonpublic personal information only to those
employees, agents, and representatives who require that information
to provide financial products and services.
|
●
|
The Sponsor requires all employees,
financial professionals, and companies providing services on its
behalf to keep investors’ nonpublic personal information
confidential.
|
●
|
Third parties with whom the Sponsor
shares investor nonpublic personal information must agree to follow
appropriate standards of security and confidentiality, which
includes safeguarding such information physically, electronically,
and procedurally.
|
●
|
The Sponsor maintains physical,
technical, administrative, and procedural safeguards that comply
with federal standards to protect the confidentiality and security
of investors’ nonpublic personal information including, where
applicable, its disposal.
|
●
|
Employees, agents, and
representatives who have access to shareholder reports or other
correspondence containing investors’ nonpublic personal
information are required to utilize passwords on all electronic
devices used to carry out their professional
responsibilities.
|
U
.S. Federal Income Tax
Considerations
The following
discussion summarizes the material U.S. federal income tax
consequences of the purchase, ownership and disposition of Shares
of the Fund and the U.S. federal income tax treatment of the Fund.
Except where noted otherwise, it deals only with the tax
consequences relating to Shares held as capital assets by U.S.
Shareholders (as defined below) who are not subject to special tax
treatment. For example, in general it does not address the tax
consequences, such as, but not limited to dealers in securities or
currencies or commodities, traders in securities or dealers or
traders in commodities that elect to use a mark-to-market method of
accounting, financial institutions, tax-exempt entities (except as
discussed below), insurance companies, persons holding Shares as a
part of a position in a “straddle” or as part of a
“hedging,” “conversion” or other integrated
transaction for federal income tax purposes, persons with
“applicable financial statements within the meaning of
Section 451 (b) of the Internal Revenue Code of 1986, as amended
(the “Code”), or holders of Shares whose
“functional currency” is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of
the Code, and regulations (“Treasury Regulations”),
rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified (possibly
with retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed
below.
The Sponsor has received the opinion
of Vedder Price P.C. (“Vedder Price”), counsel to the
Trust, that the material U.S. federal income tax consequences to
the Fund and to U.S. Shareholders and Non-U.S. Shareholders (as
defined below) will be as described in the following paragraphs. In
rendering its opinion, Vedder Price has relied on the facts and
assumptions described in this prospectus as well as certain factual
representations made by the Trust and the Sponsor. This opinion is
not binding on the Internal Revenue Service (the "IRS"). No
ruling has been requested from the IRS with respect to any matter
affecting the Fund or prospective investors, and the IRS may
disagree with the tax positions taken by the Trust. If the IRS were
to challenge the Trust’s tax positions in litigation, they
might not be sustained by the courts.
As used herein, the term “U.S.
Shareholder” means a Shareholder that is, for United States
federal income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation created or organized in or under
the laws of the United States or any political subdivision thereof,
(iii) an estate the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust
that (X) 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 (Y) 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 aquiring, owning and disposing of Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED
TO CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME
TAX CONSEQUENCES OF AN INVESTMENT IN SHARES, AS WELL AS ANY
APPLICABLE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF
ITS PARTICULAR CIRCUMSTANCES.
Tax Classification of the Trust and the Fund
The Trust is organized and will be
operated as a statutory trust in accordance with the provisions of
the Trust Agreement and applicable Delaware law. Notwithstanding
the Trust’s status as a statutory trust and the Fund’s
status as a series of the Trust, due to the nature of its
activities the Fund will be treated as a partnership rather than a
trust for U.S. federal income tax purposes. In addition, the
trading of Shares on the NYSE Arca will cause the Fund to be
classified as a “publicly traded partnership” for
federal income tax purposes. Under the Code, a publicly traded
partnership is generally taxable as a corporation. In the case of
an entity (such as the Fund) not registered under the Investment
Company Act of 1940 as amended, 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 futures, forwards, options, and, provided the partnership is a
trader or investor with respect to such assets, swaps and other
notional principal contracts with respect to commodities. The Trust
and the Sponsor have represented the following to Vedder
Price:
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at least 90% of the Fund’s
gross income for each taxable year will constitute
“qualifying income” within the meaning of Code section
7704 (as described above);
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the Fund is organized and will be
operated in accordance with its governing documents and applicable
law; and
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the Fund has not elected, and will
not elect, to be classified as a corporation for U.S. federal
income tax purposes.
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Based in part on these
representations, Vedder Price is of the opinion that the Fund will
be treated as a partnership that it is not taxable as a corporation
for U.S. federal income tax purposes. The Fund’s taxation as
a partnership rather than a corporation will require the Sponsor to
conduct the Fund’s business activities in such a manner that
it satisfies the requirements of the qualifying income exception on
a continuing basis. No assurances can be given that the
Fund’s operations for any given year will produce income that
satisfies these requirements. Vedder Price will not review the
Fund’s ongoing compliance with these requirements and will
have no obligation to advise the Trust, the Fund or the
Fund’s Shareholders in the event of any subsequent change in
the facts, representations or applicable law relied upon in
reaching its opinion.
If the Fund failed to satisfy the
qualifying income exception in any year, other than a failure that
is determined by the IRS to be inadvertent and that is cured within
a reasonable time after discovery (in which case, as a condition of
relief, the Fund could be required to pay the government amounts
determined by the IRS), the Fund would be taxable as a corporation
for federal income tax purposes and would pay federal income tax on
its income at regular corporate rates. In that event, Shareholders
would not report their share of the Fund’s income or loss on
their tax returns. Distributions by the Fund (if any) would be
treated as dividend income to the Shareholders to the extent of the
Fund’s current and accumulated earnings and profits.
Accordingly, if the Fund were to be taxable as a corporation, it
would likely have a material adverse effect on the economic return
from an investment in the Fund and on the value of the
Shares.
The remainder of this summary
assumes that the Fund is classified for federal income tax purposes
as a partnership that it is not taxable as a
corporation.
U.S. Shareholders
Tax Consequences of Ownership of Shares
Taxation of the Fund’s Income
. No
U.S. federal income tax is paid by the Fund on its income. Instead,
the Fund files annual partnership returns, and each U.S.
Shareholder is required to report on its U.S. federal income tax
return its allocable share of the income, gain, loss, deductions
and credits reflected on such returns. If the Fund recognizes
income in the form of interest on short-term Treasury Securities or
cash equivalents and net capital gains from cash settlement of
Wheat Interests for a taxable year, Shareholders must report their
share of these items even though the Fund makes no distributions of
cash or property during the taxable year. Consequently, a
Shareholder may be taxable on income or gain recognized by the Fund
but receive no cash distribution with which to pay the resulting
tax liability or may receive a distribution that is insufficient to
pay such liability. Because the Sponsor currently does not intend
to make distributions, it is likely that a U.S. Shareholder that
realizes net income or gain with respect to Shares for a taxable
year will be required to pay any resulting tax from sources other
than Fund distributions. Additionally, individuals with modified
adjusted gross income in excess of $200,000 ($250,000 in the case
of married individuals filing jointly) and certain estates and
trusts are subject to an additional 3.8% tax on their “net
investment income,” which generally includes net income from
interest, dividends, annuities, royalties, and rents, and net
capital gains (other than certain amounts earned from trades or
businesses). Also included as income subject to the additional 3.8%
tax is income from businesses involved in the trading of financial
instruments or commodities.
Monthly Conventions for Allocations of the
Fund’s Profit and Loss and Capital Account
Restatements
. Under Code section 704, the determination of a
partner’s distributive share of any item of income, gain,
loss, deduction or credit is governed by the applicable
organizational document unless the allocation provided by such
document lacks “substantial economic effect.” An
allocation that lacks substantial economic effect nonetheless will
be respected if it is in accordance with the partners’
interests in the partnership, determined by taking into account all
facts and circumstances relating to the economic arrangements among
the partners. Subject to the possible exception for certain
conventions to be used by the Fund as discussed below, allocations
pursuant to the Trust Agreement should be considered as having
substantial economic effect or being in accordance with
Shareholders’ interests in the Fund.
In situations where a
partner’s interest in a partnership is redeemed or sold
during a taxable year, the Code generally requires that partnership
tax items for the year be allocated to the partner using either an
interim closing of the books or a daily proration method. The Fund
intends to allocate tax items using an interim closing of the books
method under which income, gains, losses and deductions will be
determined on a monthly basis, taking into account the Fund’s
accrued income and deductions and gains and losses (both realized
and unrealized) for the month. The tax items for each month during
a taxable year will then be allocated among the holders of Shares
in proportion to the number of Shares owned by them as of the close
of trading on the last trading day of the preceding month (the
“monthly allocation convention”).
Under the monthly allocation
convention, an investor who disposes of a Share during the current
month will be treated as disposing of the Share as of the end of
the last day of the calendar month. For example, an investor who
buys a Share on April 10 of a year and sells it on May 20 of the
same year will be allocated all of the tax items attributable to
May (because it is deemed to hold the Share through the last day of
May) but none of those attributable to April. The tax items
attributable to that Share for April will be allocated to the
person who is the actual or deemed holder of the Share as of the
close of trading on the last trading day of March. Under the
monthly allocation convention, an investor who purchases and sells
a Share during the same month, and therefore does not hold (and is
not deemed to hold) the Share at the close of the last trading day
of either that month or the previous month, will receive no
allocations with respect to that Share for any period. Accordingly,
investors may receive no allocations with respect to Shares that
they actually held or may receive allocations with respect to
Shares attributable to periods that they did not actually hold the
Shares.
By investing in Shares, a U.S.
Shareholder agrees that, in the absence of new legislation,
regulatory or administrative guidance, or judicial rulings to the
contrary, it will file its U.S. income tax returns in a manner that
is consistent with the monthly allocation convention as described
above and with the IRS Schedule K-1 or any successor form provided
to Shareholders by the Fund or the Trust.
For any month in which a Creation
Basket is issued or a Redemption Basket is redeemed, the Fund will
credit or debit the “book” capital accounts of existing
Shareholders with the amount of any unrealized gain or loss,
respectively, on Fund assets. For this purpose, unrealized gain or
loss will be computed based on the lowest NAV of the Fund’s
assets during the month in which Shares are issued or redeemed,
which may be different than the value of the assets on the date of
an issuance or redemption. The capital accounts as adjusted in this
manner will be used in making tax allocations intended to account
for differences between the tax basis and fair market value of
property owned by the Fund at the time new Shares are issued or
outstanding Shares are redeemed (so-called “reverse Code
section 704(c) allocations”). The intended effect of these
adjustments is to equitably allocate among Shareholders any
unrealized appreciation or depreciation in the Fund’s assets
existing at the time of a contribution or redemption for book and
tax purposes.
The conventions used by the Fund, as
noted above, in making tax allocations may cause a Shareholder to
be allocated more or less income or loss for U.S. federal income
tax purposes than its proportionate share of the economic income or
loss realized by the Fund during the period it held its Shares.
This mismatch between taxable and economic income or loss in some
cases may be temporary, reversing itself in a later year when the
Shares are sold, but could be permanent. For example, a Shareholder
could be allocated income accruing after it sold its Shares,
resulting in an increase in the basis of the Shares (see
“
Tax Basis of
Shares
”, below). In connection with the disposition of
the Shares, the additional basis might produce a capital loss the
deduction of which may be limited (see “
Limitations on Deductibility of Losses and
Certain Expenses
”, below).
Section 754 election.
The Fund intends
to make the election permitted by section 754 of the Code, which
election is irrevocable without the consent of the IRS. The effect
of this election is that when a secondary market sale of Shares
occurs, the Fund adjusts the purchaser’s proportionate share
of the tax basis of the Fund’s assets to fair market value,
as reflected in the price paid for the Shares, as if the purchaser
had directly acquired an interest in the Fund’s assets. The
section 754 election is intended to eliminate disparities between a
partner’s basis in its partnership interest and its share of
the tax basis of the partnership’s assets, so that the
partner’s allocable share of taxable gain or loss on a
disposition of an asset will correspond to its share of the
appreciation or depreciation in the value of the asset since it
acquired its interest. Depending on the price paid for Shares and
the tax basis of the Fund’s assets at the time of the
purchase, the effect of the section 754 election on a purchaser of
Shares may be favorable or unfavorable. In order to make the
appropriate basis adjustments in a cost-effective manner, the Fund
will use certain simplifying conventions and assumptions. In
particular, the Fund will obtain information regarding secondary
market transactions in its Shares and use this information to make
adjustments to the Shareholders’ indirect basis in Fund
assets. It is possible the IRS could successfully assert that the
conventions and assumptions applied are improper and require
different basis adjustments to be made, which could adversely
affect some Shareholders.
Section 1256 Contracts
. Under the Code,
special rules apply to instruments constituting “section 1256
contracts.” A section 1256 contract is defined as including,
in relevant part: (1) a futures contract that is traded on or
subject to the rules of a national securities exchange which is
registered with the SEC, a domestic board of trade designated as a
contract market by the CFTC, or any other board of trade or
exchange designated by the Secretary of the Treasury, and with
respect to which the amount required to be deposited and the amount
that may be withdrawn depends on a system of “marking to
market”; and (2) a non-equity option traded on or subject to
the rules of a qualified board or exchange. Section 1256 contracts
held at the end of each taxable year are treated as if they were
sold for their fair market value on the last business day of the
taxable year (
i.e.
, are
“marked to market”). In addition, any gain or loss
realized from a disposition, termination or marking-to-market of a
section 1256 contract is treated as long-term capital gain or loss
to the extent of 60% thereof, and as short-term capital gain or
loss to the extent of 40% thereof, without regard to the actual
holding period (“60-40 treatment”).
Many of the Fund’s Wheat
Futures Contracts will qualify as “section 1256
contracts” under the Code. Some Other Wheat Interests that
are cleared through a qualified board or exchange will also
constitute section 1256 contracts. Gain or loss recognized as a
result of the disposition, termination or marking-to-market of the
Fund’s section 1256 contracts during a calendar month will be
subject to 60-40 treatment and allocated to Shareholders in
accordance with the monthly allocation convention. Commodity swaps
will most likely not qualify as section 1256 contracts. If a
commodity swap is not taxable as a section 1256 contract, any gain
or loss on the swap will be recognized at the time of disposition
or termination as long-term or short-term capital gain or loss
depending on the holding period of the swap in the Fund’s
hands.
Foreign
exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt
securities, certain futures contracts, forward contracts, options
and similar investments denominated in a foreign currency, and
payables or receivables denominated in a foreign currency are
subject to section 988 of the Code, which generally causes such
gain and loss to be treated as ordinary income or loss. To the
extent the Fund hold foreign investments, it may be subject to
withholding and other taxes imposed by foreign countries. Tax
treaties between certain countries and the United States may reduce
or eliminate such taxes. Because the amount of the Fund’s
investments in various countries will change from time to time, it
is not possible to determine the effective rate of such taxes in
advance.
Limitations on Deductibility of Losses and
Certain Expenses
. A number of different provisions of the
Code may defer or disallow the deduction of losses or expenses
allocated to Shareholders by the Fund, including but not limited to
those described below.
A Shareholder’s deduction of
its allocable share of any loss of the Fund is limited to the
lesser of (1) the tax basis in its Shares or (2) in the case of a
Shareholder that is an individual or a closely held corporation,
the amount which the Shareholder is considered to have “at
risk” with respect to the Fund’s activities. In
general, the amount at risk initially will be a Shareholder’s
invested capital. Losses in excess of the amount at risk must be
deferred until years in which the Fund generates additional taxable
income against which to offset such carryover losses or until
additional capital is placed at risk.
Individuals and other non-corporate
taxpayers are permitted to deduct capital losses only to the extent
of their capital gains for the taxable year plus $3,000 of other
income. Unused capital losses can be carried forward and used in
future years, subject to these same limitations. In addition, an
individual taxpayer may elect to carry back net losses on section
1256 contracts to each of the three preceding years and use them to
offset section 1256 contract gains in those years, subject to
certain limitations. Corporate taxpayers generally may deduct
capital losses only to the extent of capital gains, subject to
special carryback and carryforward rules.
The deduction for expenses incurred
by non-corporate taxpayers constituting “miscellaneous
itemized deductions,” generally including investment-related
expenses (other than interest and certain other specified
expenses), is suspended for taxable years beginning after December
31, 2017 and before January 1, 2026. During these taxable years,
non-corporate taxpayers will not be able to deduct miscellaneous
itemized deductions. Provided the suspension is not extended, for
taxable years ending on or after January 1, 2026, miscellaneous
itemized deductions are deductible only to the extent they exceed
2% of the taxpayer’s adjusted gross income for the year.
Although the matter is not free from doubt, we believe management
fees the Fund pays to the Sponsor and other expenses of the Fund
constitute investment-related expenses subject to this
miscellaneous itemized deduction limitation, rather than expenses
incurred in connection with a trade or business and will report
these expenses consistent with that interpretation. For taxable
years beginning on or after January 1, 2026, the Code imposes
additional limitations on the amount of certain itemized deductions
allowable to individuals with adjusted gross income in excess of
certain amounts by reducing the otherwise allowable portion of such
deductions by an amount equal to the lesser of:
● 3% of the individual’s
adjusted gross income in excess of certain threshold amounts;
or
● 80% of the amount of certain
itemized deductions otherwise allowable for the taxable
year.
Non-corporate Shareholders generally
may deduct “investment interest expense” only to the
extent of their “net investment income.” Investment
interest expense of a Shareholder will generally include any
interest expense accrued by the Fund and any interest paid or
accrued on direct borrowings by a Shareholder to purchase or carry
its Shares, such as interest with respect to a margin account. Net
investment income generally includes gross income from property
held for investment (including “portfolio income” under
the passive loss rules but not, absent an election, long-term
capital gains or certain qualifying dividend income) less
deductible expenses other than interest directly connected with the
production of investment income.
If the Fund incurs
indebtedness, the Fund’s ability to deduct interest on its
indebtedness allocable to its trade or business is limited to an
amount equal to the sum of (1) the Fund’s business interest
income during the year and (2) 30% of the Fund’s adjusted
taxable income for such taxable year. If the Fund is not entitled
to fully deduct its business interest in any taxable year, such
excess business interest expense will be allocated to each
Shareholder as excess business interest and can be carried forward
by the Shareholder to successive taxable years and used to offset
any excess taxable income allocated by the Fund to such
Shareholder. Any excess business interest expense allocated to a
Shareholder will reduce such Shareholder’s basis in its
Shares in the year of the allocation even if the expense does not
give rise to a deduction to the Shareholder in that year.
Immediately prior to a Shareholder’s disposition of its
Shares, the Shareholder’s basis will be increased by the
amount by which such basis reduction exceeds the excess interest
expense that has been deducted by such
Shareholder.
To the extent that the Fund
allocates losses or expenses to you that must be deferred or are
disallowed as a result of these or other limitations in the Code,
you may be taxed on income in excess of your economic income or
distributions (if any) on your Shares. As one example, you could be
allocated and required to pay tax on your share of interest income
accrued by the Fund for a particular taxable year, and in the same
year allocated a share of a capital loss that you cannot deduct
currently because you have insufficient capital gains against which
to offset the loss. As another example, you could be allocated and
required to pay tax on your share of interest income and capital
gain for a year but be unable to deduct some or all of your share
of management fees and/or margin account interest incurred by you
with respect to your Shares. Shareholders are urged to consult
their own professional tax advisor regarding the effect of
limitations under the Code on their ability to deduct their
allocable share of the Fund’s losses and
expenses.
Tax Basis of Shares
A Shareholder’s tax basis in
its Shares is important in determining (1) the amount of taxable
gain or loss it will realize on the sale or other disposition of
its Shares, (2) the amount of non-taxable distributions that it may
receive from the Fund, and (3) its ability to utilize its
distributive share of any losses of the Fund on its tax return. A
Shareholder’s initial tax basis of its Shares will equal its
cost for the Shares plus its share of the Fund’s liabilities
(if any) at the time of purchase. In general, a Shareholder’s
“share” of those liabilities will equal the sum of (i)
the entire amount of any otherwise nonrecourse liability of the
Fund as to which the Shareholder or an affiliate of the Shareholder
is the creditor (a “partner nonrecourse liability”) and
(ii) a pro rata share of any nonrecourse liabilities of the Fund
that are not partner nonrecourse liabilities as to any
Shareholder.
A Shareholder’s tax basis in
its Shares generally will be (1) increased by (a) its allocable
share of the Fund’s taxable income and gain and (b) any
additional contributions by the Shareholder to the Fund and (2)
decreased (but not below zero) by (a) its allocable share of the
Fund’s tax deductions and losses and (b) any distributions by
the Fund to the Shareholder. For this purpose, an increase in a
Shareholder’s share of the Fund’s liabilities will be
treated as a contribution of cash by the Shareholder to the Fund
and a decrease in that share will be treated as a distribution of
cash by the Fund to the Shareholder. Pursuant to certain IRS
rulings, a Shareholder will be required to maintain a single,
“unified” basis in all Shares that it owns. As a
result, when a Shareholder that acquired its Shares at different
prices sells less than all of its Shares, such Shareholder will not
be entitled to specify particular Shares (
e.g.
, those with a higher basis) as
having been sold. Rather, it must determine its gain or loss on the
sale by using an “equitable apportionment” method to
allocate a portion of its unified basis in its Shares to the Shares
sold.
Treatment of Fund Distributions
. If the
Fund makes non-liquidating distributions to Shareholders, such
distributions generally will not be taxable to the Shareholders for
federal income tax purposes except to the extent that the amount of
cash distributed exceeds the Shareholder’s adjusted basis of
its interest in the Fund immediately before the distribution. Any
cash 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 form a partnership, a marketable security distributed
to a partner is generally treated as cash. This treatment, however,
does not apply to distributions to "eligible partners" of an
"investment partnership," a s those terms are defined in the
Code.
Tax Consequences of
Disposition of Share
s
If a Shareholder sells its Shares,
it will recognize gain or loss equal to the difference between the
amount realized and its adjusted tax basis for the Shares sold. A
Shareholder’s amount realized will be the sum of the cash or
the fair market value of other property received plus its share of
the Fund's liabilities.
Gain or loss recognized by a
Shareholder on the sale or exchange of Shares held for more than
one year will generally be taxable as long-term capital gain or
loss; otherwise, such gain or loss will generally be taxable as
short-term capital gain or loss. A special election is available
under the Treasury Regulations that allows Shareholders to identify
and use the actual holding periods for the Shares sold for purposes
of determining whether the gain or loss recognized on a sale of
Shares will give rise to long-term or short-term capital gain or
loss. It is expected that most Shareholders will be eligible to
elect, and generally will elect, to identify and use the actual
holding period for Shares sold. If a Shareholder who has differing
holding period for its Shares fails to make the election or is not
able to identify the holding periods of the Shares sold, the
Shareholder will have a split holding period in the Shares sold.
Under such circumstances, a Shareholder will be required to
determine its holding period in the Shares sold by first
determining the portion of its entire interest in the Fund that
would give rise to long-term capital gain or loss if its entire
interest were sold and the portion that would give rise to
short-term capital gain or loss if the entire interest were sold.
The Shareholder would then treat each Share sold as giving rise to
long-term capital gain or loss and short-term capital gain or loss
in the same proportions as if it had sold its entire interest in
the Fund.
Under Section 751 of the Code, a
portion of a Shareholder’s gain or loss from the sale of
Shares (regardless of the holding period for such Shares), will be
separately computed and taxed as ordinary income or loss to the
extent attributable to “unrealized receivables” or
“inventory” owned by the Fund. The term
“unrealized receivables” includes, among other things,
market discount bonds and short-term debt instruments to the extent
such items would give rise to ordinary income if sold by the Fund.
However, the short-term capital gain on section 1256 contracts
resulting from 60-40 treatment, described above, should not be
subject to this rule.
If some or all of a
Shareholder’s Shares are lent by its broker or other agent to
a third party — for example, for use by the third party in
covering a short sale — the Shareholder may be considered as
having made a taxable disposition of the loaned Shares, in which
case —
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the Shareholder may recognize
taxable gain or loss to the same extent as if it had sold the
Shares for cash;
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any of the income, gain, loss or
deduction allocable to those Shares during the period of the loan
is not reportable by the Shareholder for tax purposes;
and
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any distributions the Shareholder
receives with respect to the Shares under the loan agreement will
be fully taxable to the Shareholder, most likely as ordinary
income.
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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 Tax Matters
Information Reporting. The Fund
provides tax information to the Shareholders and to the IRS, as
needed. Shareholders of the Fund are treated as partners for
federal income tax purposes. Accordingly, the Fund will furnish
Shareholders each year, with tax information on IRS Schedule K-1
(Form 1065), which will be used by the Shareholders in completing
their tax returns. The IRS has ruled that assignees of partnership
interests who have not been admitted to a partnership as partners
but who have the capacity to exercise substantial dominion and
control over the assigned partnership interests will be considered
partners for federal income tax purposes. On the basis of this
ruling, except as otherwise provided herein, we will treat as a
Shareholder any person whose shares are held on their behalf by a
broker or other nominee if that person has the right to direct the
nominee in the exercise of all substantive rights attendant to the
ownership of the Shares.
Persons who hold an interest in the
Fund as a nominee for another person are required to furnish to us
the following information: (1) the name, address and taxpayer
identification number of the beneficial owner and the nominee; (2)
whether the beneficial owner is (a) a person that is not a U.S.
person, (b) a foreign government, an international organization or
any wholly-owned agency or instrumentality of either of the
foregoing, or (c) a tax-exempt entity; (3) the number and a
description of Shares acquired or transferred for the beneficial
owner; and (4) certain information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales. Brokers and financial institutions are
required to furnish additional information, including whether they
are U.S. persons and certain information on Shares they acquire,
hold or transfer for their own account. A penalty of $250 per
failure (as adjusted for inflation), up to a maximum of $3,000,000
per calendar year (as adjusted for inflation), is imposed by the
Code for failure to report such information correctly to the Fund.
If the failure to furnish such information correctly is determined
to be willful, the per failure penalty increases to $500 (as
adjusted for inflation) or, if greater, 10% of the aggregate amount
of items required to be reported, and the $3,000,000 maximum does
not apply. The nominee is required to supply the beneficial owner
of the Shares with the information furnished to the
Fund.
Partnership Audit Procedures. The
IRS may audit the federal income tax returns filed by the Fund.
Adjustments resulting from any such audit may require a Shareholder
to adjust a prior year’s tax liability and could result in an
audit of the Shareholder’s own return. Any audit of a
Shareholder’s return could result in adjustments of
non-partnership items as well as Fund items. Partnerships are
generally treated as separate entities for purposes of federal tax
audits, judicial review of administrative adjustments by the IRS,
and tax settlement proceedings. The tax treatment of partnership
items of income, gain, loss and deduction are determined at the
partnership level in a unified partnership proceeding rather than
in separate proceedings with the partners. The Code provides for
one partner to be designated as the “tax matters
partner” and to represent the partnership for purposes of
these proceedings. The Trust Agreement appoints the Sponsor as the
tax matters partner of the Fund.
The Bipartisan Budget Act of 2015
adopted a new partnership-level audit and assessment procedure for
all entities treated as partnerships for U.S. federal income tax
purposes. These new rules generally apply to partnership taxable
years beginning after December 31, 2017. Under these rules, tax
deficiencies (including interest and penalties) that arise from an
adjustment to partnership items generally would be assessed and
collected from the partnership (rather than from the partners), and
generally would be calculated using maximum applicable tax rates
(although such partnership level tax may be reduced or eliminated
under limited circumstances). A narrow category of partnerships
(generally, partnerships having no more than 100 partners that
consist exclusively of individuals, C corporations, S corporations
and estates) are permitted to elect out of the new
partnership-level audit rules. As an alternative to
partnership-level tax liability, a partnership may elect to furnish
adjusted Schedule K-1s to the IRS and to each person who was a
partner in the audit year, stating such partner’s share of
any partnership adjustments, and each such partner would then take
the adjustments into account on its tax returns in the year in
which it receives its adjusted Schedule K-1 (rather than by
amending their tax returns for the audited year). If the Fund were
subject to a partnership level tax as a result of these new rules,
the economic return of all Shareholders (including Shareholders
that did not own Shares in the Fund during the taxable year to
which the audit relates) may be affected.
To address these new rules, the
Sponsor amended the Trust Agreement so that if the Fund becomes
subject to any tax as a result of any adjustment to taxable income,
gain, loss, deduction or credit for any taxable year of the Fund
(pursuant to a tax audit or otherwise), such Shareholder (and each
former Shareholder) is obligated to indemnify the Fund and the
Sponsor against any such taxes (including any interest and
penalties) to the extent such tax (or portion thereof) is properly
attributable to such Shareholder (or former Shareholder). In
addition, the Sponsor, on behalf of the Fund, will be authorized to
take any action permitted under applicable law to avoid the
assessment of any such taxes against the Fund (including an
election to issue adjusted Schedule K-1s to the Shareholders
(and/or former Shareholders) which takes such adjustments to
taxable income, gain, loss, deduction or credit into
account.
Reportable Transaction Rules. In
certain circumstances the Code and Treasury Regulations require
that the IRS be notified of transactions through a disclosure
statement attached to a taxpayer’s United States federal
income tax return. These disclosure rules may apply to transactions
irrespective of whether they are structured to achieve particular
tax benefits. They could require disclosure by the Trust or
Shareholders if a Shareholder incurs a loss in excess of a
specified threshold from a sale or redemption of its Shares and
possibly in other circumstances. While these rules generally do not
require disclosure of a loss recognized on the disposition of an
asset in which the taxpayer has a “qualifying basis”
(generally a basis equal to the amount of cash paid by the taxpayer
for such asset), they apply to a loss recognized with respect to
interests in a pass-through entity, such as the Shares, even if the
taxpayer’s basis in such interests is equal to the amount of
cash it paid. In addition, significant monetary penalties may be
imposed in connection with a failure to comply with these reporting
requirements. Investors should consult their own tax advisor
concerning the application of these reporting requirements to their
specific situation.
Tax-Exempt Organizations. Subject to
numerous exceptions, qualified retirement plans and individual
retirement accounts, charitable organizations and certain other
organizations that otherwise are exempt from U.S. federal income
tax (collectively, “exempt organizations”) nonetheless
are subject to the tax on unrelated business taxable income
(“UBTI”). Generally, UBTI means the gross income
derived by an exempt organization from a trade or business that it
regularly carries on, the conduct of which is not substantially
related to the exercise or performance of its exempt purpose or
function, less allowable deductions directly connected with that
trade or business. If the Fund were to regularly carry on (directly
or indirectly) a trade or business that is unrelated with respect
to an exempt organization Shareholder, then in computing its UBTI,
the Shareholder must include its share of (1) the Fund’s
gross income from the unrelated trade or business, whether or not
distributed, and (2) the Fund’s allowable deductions directly
connected with that gross income. An exempt organization that has
more than one unrelated trade or business must compute its UBTI
seperately for each such trade or
business.
UBTI generally does not include
dividends, interest, or payments with respect to securities loans
and gains from the sale of property (other than property held for
sale to customers in the ordinary course of a trade or business).
Nonetheless, income on, and gain from the disposition of,
“debt-financed property” is UBTI. Debt-financed
property generally is income-producing property (including
securities), the use of which is not substantially related to the
exempt organization’s tax-exempt purposes, and with respect
to which there is “acquisition indebtedness” at any
time during the taxable year (or, if the property was disposed of
during the taxable year, the 12-month period ending with the
disposition). Acquisition indebtedness includes debt incurred to
acquire property, debt incurred before the acquisition of property
if the debt would not have been incurred but for the acquisition,
and debt incurred subsequent to the acquisition of property if the
debt would not have been incurred but for the acquisition and at
the time of acquisition the incurrence of debt was foreseeable. The
portion of the income from debt-financed property attributable to
acquisition indebtedness is equal to the ratio of the average
outstanding principal amount of acquisition indebtedness over the
average adjusted basis of the property for the year. The Fund
currently does not anticipate that it will borrow money to acquire
investments; however, the Fund cannot be certain that it will not
borrow for such purpose in the future. In addition, an exempt
organization Shareholder that incurs acquisition indebtedness to
purchase its Shares in the Fund may have
UBTI.
The federal tax rate applicable to
an exempt organization Shareholder on its UBTI generally will be
either the corporate or trust tax rate, depending upon the
Shareholder’s form of organization. The Fund may report to
each such Shareholder information as to the portion, if any, of the
Shareholder’s income and gains from the Fund for any year
that will be treated as UBTI; the calculation of that amount is
complex, and there can be no assurance that the Fund’s
calculation of UBTI will be accepted by the IRS. An exempt
organization Shareholder will be required to make payments of
estimated federal income tax with respect to its
UBTI.
Regulated Investment Companies.
Interests in and income from “qualified publicly traded
partnerships” satisfying certain gross income tests are
treated as qualifying assets and income, respectively, for purposes
of determining eligibility for regulated investment company
(“RIC”) status. A RIC may invest up to 25% of its
assets in interests in qualified publicly traded partnerships. The
determination of whether a publicly traded partnership such as the
Fund is a qualified publicly traded partnership is made on an
annual basis. The Fund expects to be a qualified publicly traded
partnership in each of its taxable years. However, such
qualification is not assured.
Non-U.S. Shareholders
Generally, non-U.S. persons who
derive U.S. source income or gain from investing or engaging in a
U.S. business are taxable on two categories of income. The first
category consists of amounts that are fixed or determinable, annual
or periodic income, such as interest, dividends and rent that are
not connected with the operation of a U.S. trade or business
(“FDAP”). The second category is income that is
effectively connected with the conduct of a U.S. trade or business
(“ECI”). FDAP income (other than interest that is
considered “portfolio interest;” as discussed below) is
generally subject to a 30% withholding tax, which may be reduced
for certain categories of income by a treaty between the U.S. and
the recipient’s country of residence. In contrast, ECI is
generally subject to U.S. tax on a net basis at graduated rates
upon the filing of a U.S. tax return. Where a non-U.S. person has
ECI as a result of an investment in a partnership, the ECI is
currently subject to a withholding tax at a rate of 37% for
individual Shareholders and a rate of 21% for corporate
Shareholders. The tax withholding on ECI, which is the highest tax
rate under Code section 1 for non-corporate Non-U.S. Shareholders
and Code section 11(b) for corporate Non-U.S. Shareholders, may
increase in future tax years if tax rates increase from their
current levels.
Withholding on Allocations and
Distributions. The Code provides that a non-U.S. person who is a
partner in a partnership that is engaged in a U.S. trade or
business during a taxable year will also be considered to be
engaged in a U.S. trade or business during that year. Classifying
an activity by a partnership as an investment or an operating
business is a factual determination. Under certain safe harbors in
the Code, an investment fund whose activities consist of trading in
stocks, securities, or commodities for its own account generally
will not be considered to be engaged in a U.S. trade or business
unless it is a dealer is such stocks, securities, or commodities.
This safe harbor applies to investments in commodities only if the
commodities are of a kind customarily dealt in on an organized
commodity exchange and if the transaction is of a kind customarily
consummated at such place. Although the matter is not free from
doubt, the Fund believes that the activities directly conducted by
the Fund do not result in the Fund being engaged in a trade or
business within in the United States. However, there can be no
assurance that the IRS would not successfully assert that the
Fund’s activities constitute a U.S. trade or
business.
In the event that the Fund’s
activities were considered to constitute a U.S. trade or business,
the Fund would be required to withhold at the highest rate
specified in Code section 1 (currently 37%) on allocations of our
income to non-corporate Non-U.S. Shareholders and the highest rate
specified in Code section 11(b) (currently 21%) on allocations of
our income to corporate Non-U.S. Shareholders, when such income is
distributed. Non-U.S. Shareholders would also be subject to a 10%
withholding tax on the consideration payable upon a sale or
exchange of such Non-U.S. Shareholder’s Shares, although the
IRS has temporarily suspended this withholding for interests in
publicly traded partnerships until regulations implementing such
withholding are issued. A Non-U.S. Shareholder with ECI will
generally be required to file a U.S. federal income tax return, and
the return will provide the Non-U.S. Shareholder with the mechanism
to seek a refund of any withholding in excess of such
Shareholder’s actual U.S. federal income tax liability. Any
amount withheld by the Fund will be treated as a distribution to
the Non-U.S. Shareholder to the extent possible. In some cases, the
Fund may not be able to match the economic cost of satisfying its
withholding obligations to a particular Non-U.S. Shareholder, which
may result in said cost being borne by the Fund, generally, and
accordingly, by all Shareholders.
If the Fund is not treated as
engaged in a U.S. trade or business, a Non-U.S. Shareholder may
nevertheless be treated as having FDAP income, which would be
subject to a 30% withholding tax (possibly subject to reduction by
treaty), with respect to some or all of its distributions from the
Fund or its allocable share of Fund income. Amounts withheld on
behalf of a Non-U.S. Shareholder will be treated as being
distributed to such Shareholder.
To the extent any interest income
allocated to a Non-U.S. Shareholder that otherwise constitutes FDAP
is considered “portfolio interest,” neither the
allocation of such interest income to the non-U.S. Shareholder nor
a subsequent distribution of such interest income to the non-U.S.
Shareholder will be subject to withholding, provided that the
Non-U.S. Shareholder is not otherwise engaged in a trade or
business in the U.S. and provides the Fund with a timely and
properly completed and executed IRS Form W-8BEN or other applicable
form. In general, portfolio interest is interest paid on debt
obligations issued in registered form, unless the recipient owns
10% or more of the voting power of the issuer. A Non-U.S.
Shareholder’s allocable share of interest on U.S. bank
deposits, certificates of deposit and discount obligations with
maturities from original issue of 183 days or less should also not
be subject to withholding. Generally, other interest from U.S.
sources paid to the Fund and allocable to Non-U.S. Shareholders
will be subject to withholding.
In order for the Fund to avoid
withholding on any interest income allocable to Non-U.S.
Shareholders that would qualify as portfolio interest, it will be
necessary for all Non-U.S. Shareholders to provide the Fund with a
timely and properly completed and executed Form W-8BEN (or other
applicable form).
Gain from Sale of Shares. Gain from
the sale or exchange of Shares may be taxable to a Non-U.S.
Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the U.S. for 183 days or more during
the taxable year. In such case, the nonresident alien individual
will 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 "FACTA", 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. 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
and proceeds from the sale of its Shares. Under certain
circumstances, a Non-U.S. Shareholder may be eligible for a refund
or credit of such taxes.
Prospective Non-U.S. Shareholders
should consult their own tax advisor regarding these and other tax
issues unique to Non-U.S. Shareholders.
Backup Withholding
The Fund may be required to withhold
U.S. federal income tax (“backup withholding”) from
payments to: (1) any Shareholder who fails to furnish the Fund with
his, her or its correct taxpayer identification number or a
certificate that the Shareholder is exempt from backup withholding,
and (2) any Shareholder with respect to whom the IRS notifies the
Fund that the Shareholder is subject to backup withholding. Backup
withholding is not an additional tax and may be returned or
credited against a taxpayer’s regular federal income tax
liability if appropriate information is provided to the IRS. The
backup withholding rate is the fourth lowest rate applicable to
individuals under Code section 1(c) (currently 24%) and may
increase in future tax years.
Other Tax Considerations
In addition to federal income taxes,
Shareholders may be subject to other taxes, such as state and local
income taxes, unincorporated business taxes, business franchise
taxes, and estate, inheritance or intangible taxes that may be
imposed by the various jurisdictions in which the Fund does
business or owns property or where the Shareholders reside.
Although an analysis of those various taxes is not presented here,
each prospective Shareholder should consider their potential impact
on its investment in the Fund. It is each Shareholder’s
responsibility to file the appropriate U.S. federal, state, local,
and foreign tax returns. Vedder Price has not provided an opinion
concerning any aspects of state, local or foreign tax or U.S.
federal tax other than those U.S. federal income tax issues
discussed herein.
I
nvestment by ERISA
Accounts
General
Most employee benefit plans and
individual retirement accounts (“IRAs”) are subject to
the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), or the Code, or both. This section discusses
certain considerations that arise under ERISA and the Code that a
fiduciary of: (i) an employee benefit plan as defined in ERISA.
(ii) a plan as defined in Section 4975 of the Code. or
(ii)
any collective
investment vehicle, business trust, investment partnership, pooled
separate account or other entity the assets of which are treated as
comprised (at least in part) of “plan assets” under the
ERISA “plan assets” rules (“plan asset
entity”) who has investment discretion should take into
account before deciding to invest the plan’s assets in the
Fund. Employee benefit plans under ERISA, plans under the Code and
plan asset entities are collectively referred to below as
“plans,” and fiduciaries with investment discretion are
referred to below as “plan
fiduciaries.”
This summary is based on the
provisions of ERISA and the Code as of the date hereof. This
summary is not intended to be complete, but only to address certain
questions under ERISA and the Code likely to be raised by your
advisors. The summary does not include state or local
law.
Potential plan
investors are urged to consult with their own professional advisors
concerning the appropriateness of an investment in the Fund and the
manner in which Shares should be purchased.
Special Investment Considerations
Each plan fiduciary must consider
the facts and circumstances that are relevant to an investment in
the Fund, including the role that an investment in the Fund would
play in the plan’s overall investment portfolio. Each plan
fiduciary, before deciding to invest in the Fund, must be satisfied
that the investment is prudent for the plan, that the investments
of the plan are diversified so as to minimize the risk of large
losses, and that an investment in the Fund complies with the terms
of the plan. The Sponsor is not undertaking to provide investment
advice, or to give advice in a fiduciary capacity, in connection
with a plan’s investment in the Fund.
The Fund and Plan Assets
A regulation issued under ERISA
contains rules for determining when an investment by a plan in an
equity interest of a statutory trust will result in the underlying
assets of the statutory trust being deemed plan assets for purposes
of ERISA and Section 4975 of the Code. Those rules provide that
assets of a statutory trust will not be plan assets of a plan that
purchases an equity interest in the statutory trust if the equity
interest purchased is a publicly offered security. If the
underlying assets of a statutory trust are considered to be assets
of any plan for purposes of ERISA or Section 4975 of the Code, the
operations of that trust would be subject to and, in some cases,
limited by the provisions of ERISA and Section 4975 of the
Code.
The publicly offered security
exception described above applies if the equity interest is a
security that is:
(1)
|
freely transferable (determined
based on the relevant facts and circumstances).
|
(2)
|
part of a class of securities that
is widely held (meaning that the class of securities is owned by
100 or more investors independent of the issuer and of each other).
and
|
(3)
|
either (a) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange
Act or (b) sold to the plan as part of a public offering pursuant
to an effective registration statement under the 1933 Act and the
class of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be allowed
by the SEC) after the end of the fiscal year of the issuer in which
the offering of such security occurred.
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The plan asset regulations under
ERISA state that the determination of whether a security is freely
transferable is to be made based on all the relevant facts and
circumstances. In the case of a security that is part of an
offering in which the minimum investment is $10,000 or less, the
following requirements, alone or in combination, ordinarily will
not affect a finding that the security is freely transferable: (1)
a requirement that no transfer or assignment of the security or
rights relating to the security be made that would violate any
federal or state law. and (2) a requirement that no transfer or
assignment be made without advance written notice given to the
entity that issued the security.
The Sponsor believes that the
conditions described above are satisfied with respect to the
Shares. The Sponsor believes that the Shares therefore constitute
publicly offered securities, and the underlying assets of the
Fund should not be considered to constitute plan assets of any plan
that purchases Shares.
Prohibited Transactions
ERISA and the Code generally
prohibit certain transactions involving a plan and persons who have
certain specified relationships to the plan. In general, Shares may
not be purchased with the assets of a plan if the Sponsor, the
clearing brokers, the trading advisors (if any), or any of their
affiliates, agents or employees either:
●
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exercise any discretionary authority
or discretionary control with respect to management of the
plan.
|
●
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exercise any authority or control
with respect to management or disposition of the assets of the
plan.
|
●
|
render investment advice for a fee
or other compensation, direct or indirect, with respect to any
moneys or other property of the plan.
|
●
|
have any authority or responsibility
to render investment advice with respect to any monies or other
property of the plan. or
|
●
|
have any discretionary authority or
discretionary responsibility in the administration of the
plan.
|
Also, a prohibited transaction may
occur under ERISA or the Code when circumstances indicate that (1)
the investment in Shares is made or retained for the purpose of
avoiding application of the fiduciary standards of ERISA, (2) the
investment in Shares constitutes an arrangement under which the
Fund is expected to engage in transactions that would otherwise be
prohibited if entered into directly by the plan purchasing the
Shares, (3) the investing plan, by itself, has the authority or
influence to cause the Fund to engage in such transactions, or (4)
a person who is prohibited from transacting with the investing plan
may, but only with the aid of certain of its affiliates and the
investing plan, cause the Fund to engage in such transactions with
such person.
Special IRA Rules
IRAs are not subject to
ERISA’s fiduciary standards, but are subject to their own
rules, including the prohibited transaction rules of Section 4975
of the Code, which generally mirror ERISA’s prohibited
transaction rules. For example, IRAs are subject to special custody
rules and must maintain a qualifying IRA custodial arrangement
separate and distinct from the Fund and its custodial arrangement.
If a separate qualifying custodial arrangement is not maintained,
an investment in the Shares will be treated as a distribution from
the IRA. Second, IRAs are prohibited from investing in certain
commingled investments, and the Sponsor makes no representation
regarding whether an investment in Shares is an inappropriate
commingled investment for an IRA. Third, in applying the prohibited
transaction provisions of Section 4975 of the Code, in addition to
the rules summarized above, the individual for whose benefit the
IRA is maintained is also treated as the creator of the IRA. For
example, if the owner or beneficiary of an IRA enters into any
transaction, arrangement, or agreement involving the assets of his
or her IRA to benefit the IRA owner or beneficiary (or his or her
relatives or business affiliates) personally, or with the
understanding that such benefit will occur, directly or indirectly,
such transaction could give rise to a prohibited transaction that
is not exempted by any available exemption. Moreover, in the case
of an IRA, the consequences of a non-exempt prohibited
transaction are that the IRA’s assets will be treated as if
they were distributed, causing immediate taxation of the assets
(including any early distribution penalty tax applicable under
Section 72 of the Code), in addition to any other fines or
penalties that may apply.
Exempt Plans
Certain employee benefit plans may
be governmental plans or church plans. Governmental plans and
church plans are generally not subject to ERISA, nor do the
prohibited transaction provisions described above apply to them.
These plans are, however, subject to prohibitions against certain
related-party transactions under Section 503 of the Code,
which are similar to the prohibited transaction rules described
above. In addition, the fiduciary of any governmental or church
plan must consider any applicable state or local laws and any
restrictions and duties of common law imposed upon the
plan.
No view is expressed as to whether
an investment in the Fund (and any continued investment in the
Fund), or the operation and administration of the fund, is
appropriate or permissible for any governmental plan or church plan
under Code Section 503, or under any state, county, local or other
law relating to that type of plan.
Allowing an
investment in the Fund is not to be construed as a representation
by the Trust, the Fund, the Sponsor, any trading advisor, any
clearing broker, the Distributor or legal counsel or other advisors
to such parties or any other party that this investment meets some
or all of the relevant legal requirements with respect to
investments by any particular plan or that this investment is
appropriate for any such particular plan. The person with
investment discretion should consult with the plan’s attorney
and financial advisors as to the propriety of an investment in the
Fund in light of the circumstances of the particular plan, current
tax law and ERISA.
I
NCORPORATION BY REFERENCE OF
CERTAIN INFORMATION
We are a reporting company and file
annual, quarterly and current reports and other information with
the SEC. The rules of the SEC allow us to “incorporate by
reference” information that we file with them, which means
that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is an
important part of this prospectus. This prospectus incorporates by
reference the documents set forth below that have been previously
filed with the SEC and any other future filing that we make with
the SEC under Section 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934 (in each case other than those documents or
portions of those documents not deemed to have been filed in
accordance with SEC rules) between the date of this prospectus and
the termination of the offering of the securities to be issued
under the registration statement:
●
|
our Annual Report on Form 10-K for
the fiscal year ended December 31, 2018, filed with the SEC on
March 15, 2019.
|
Any statement contained in a
document incorporated by reference in this prospectus shall be
deemed to be modified or superseded for purposes of this prospectus
to the extent that a statement contained in this prospectus or in
any other subsequently filed document that also is or is deemed to
be incorporated by reference in this prospectus modifies or
supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide to each person to
whom a prospectus is delivered, including any beneficial owner, a
copy of any document incorporated by reference in the prospectus
(excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference in that document) at no
cost, upon written or oral request at the following address or
telephone number:
Teucrium Wheat
Fund
Attention: Cory
Mullen-Rusin
Three Main Street Suite
215
Burlington, VT
05401
(802) 540-0019
Our Internet website is
www.teucriumweatfund.com.
We
make our electronic filings with the SEC, including our annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to these reports
available on our website free of charge as soon as practicable
after we file or furnish them with the SEC. The information
contained on our website is not incorporated by reference in this
prospectus and should not be considered a part of this
prospectus.
I
NFORMATION YOU
SHOULD KNOW
This prospectus contains information
you should consider when making an investment decision about the
Shares. You should rely only on the information contained in this
prospectus or any applicable prospectus supplement. None of the
Trust, the Fund or the Sponsor has authorized any person to provide
you with different information and, if anyone provides you with
different or inconsistent information, you should not rely on it.
This prospectus is not an offer to sell the Shares in any
jurisdiction where the offer or sale of the Shares is not
permitted.
The information contained in this
prospectus was obtained from us and other sources believed by us to
be reliable.
You should disregard anything we
said in an earlier document that is inconsistent with what is
included in this prospectus or any applicable prospectus
supplement. Where the context requires, when we refer to this
“prospectus,” we are referring to this prospectus and
(if applicable) the relevant prospectus
supplement.
You should not assume that the
information in this prospectus or any applicable prospectus
supplement is current as of any date other than the date on the
front page of this prospectus or the date on the front page of any
applicable prospectus supplement.
We include cross references in this
prospectus to captions in these materials where you can find
further related discussions. The table of contents tells you where
to find these captions.
W
HERE YOU CAN
FIND MORE INFORMATION
The Trust has filed on behalf of the
Fund a registration statement with the SEC under the 1933 Act. This
prospectus does not contain all of the information set forth in the
registration statement (including the exhibits to the registration
statement), parts of which have been omitted in accordance with the
rules and regulations of the SEC. For further information about the
Trust, the Fund or the Shares, please refer to the registration
statement, which you may inspect online at www.sec.gov. Information
about the Trust, the Fund and the Shares can also be obtained from
the Fund’s website, which is
www.teucriumweatfund.com
.
The Fund’s website address is only provided here as a
convenience to you and the information contained on or connected to
the website is not part of this prospectus or the registration
statement of which this prospectus is part. The Trust is subject to
the informational requirements of the Exchange Act and will file
certain reports and other information with the SEC under the
Exchange Act. The Sponsor will file an updated prospectus annually
for the Fund pursuant to the 1933 Act. The reports and other
information can be inspected online at www.sec.gov which is an
Internet site maintained by the SEC that contains reports, proxy
and information statements and other information regarding issuers
that file electronically with the SEC.
Glossary of
Defined Terms
In this prospectus, each of the
following terms have the meanings set forth after such
term:
Administrator:
U.S. Bancorp Fund
Services, LLC, doing business as U.S. Bank Global Fund
Services.
Authorized Purchaser:
One that purchases
or redeems Creation Baskets or Redemption Baskets, respectively,
from or to the Fund.
Benchmark
: A weighted average of daily
changes in the closing settlement prices of (1) the
second-to-expire Wheat Futures Contract traded on the
CBOT, weighted 35%, (2) the third-to-expire CBOT Wheat
Futures Contract, weighted 30%, and (3) the CBOT Wheat Futures
Contract expiring in the December following the expiration month of
third-to-expire contract, weighted
35%.
Benchmark Component Futures Contracts:
The three Wheat Futures Contracts that at any given time make up
the Benchmark.
Business Day:
Any day other than a day
when any of the NYSE Arca, the CBOT or the New York Stock Exchange
is closed for regular trading.
CFTC:
Commodity Futures Trading
Commission, an independent federal agency with the mandate to
regulate commodity futures and options in the United
States.
Chicago Board of Trade (CBOT):
The
primary exchange on which Wheat Futures Contracts are traded in the
U.S. The Fund expressly disclaims any association with the CBOT or
endorsement of the Fund by the CBOT and acknowledges that
“CBOT” and “Chicago Board of Trade” are
registered trademarks of such exchange. The CBOT is part of the CME
Group.
Code:
Internal Revenue Code of 1986, as
amended.
Commodity Pool:
An enterprise in which
several individuals contribute funds in order to trade futures
contracts or options on futures contracts
collectively.
Commodity Pool Operator or CPO:
Any
person engaged in a business which is of the nature of an
investment trust, syndicate, or similar enterprise, and who, in
connection therewith, solicits, accepts, or receives from others,
funds, securities, or property, either directly or through capital
contributions, the sale of stock or other forms of securities, or
otherwise, for the purpose of trading in any swap or commodity for
future delivery or commodity option on or subject to the rules of
any contract market.
Creation Basket:
A block of 25,000
Shares used by the Fund to issue Shares.
Custodian:
U.S. Bank,
N.A.
Distributor:
Foreside Fund Services,
LLC.
DTC:
The Depository Trust Company. DTC
will act as the securities depository for the
Shares.
DTC
Participant:
An entity that has an account with
DTC.
Exchange Act:
The Securities Exchange
Act of 1934.
Exchange for Related Position:
A
privately negotiated and simultaneous exchange of a futures
contract position for a swap or other over the counter
instrument on the corresponding commodity.
FINRA:
Financial Industry Regulatory
Authority, formerly the National Association of Securities
Dealers.
Indirect Participants:
Banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or
indirectly.
Limited Liability Company (LLC):
A type
of business ownership combining several features of corporation and
partnership structures.
Margin:
The amount of equity required
for an investment in futures contracts.
NAV:
Net Asset Value of the
Fund.
NFA:
National Futures
Association.
NSCC:
National Securities Clearing
Corporation.
1933
Act:
The Securities Act of 1933.
Option:
The right, but not the
obligation, to buy or sell a futures contract or forward contract
at a specified price on or before a specified
date.
Other Wheat Interests:
Other wheat
related investments such as options on Wheat Futures Contracts,
swaps agreements and forward contracts relating to wheat, and
over the counter transactions that are based on the
price of wheat, Wheat Futures Contracts and indices based on the
foregoing.
Over the Counter Derivative:
A financial contract, whose value is designed to track the return
on stocks, bonds, currencies, commodities, or some other benchmark,
that is traded over the counter or off organized
exchanges.
Redemption Basket:
A block of 25,000
Shares used by the Fund to redeem Shares.
SEC:
Securities and Exchange
Commission.
Secondary Market:
The stock exchanges
and the over the counter market. Securities are first
issued as a primary offering to the public. When the securities are
traded from that first holder to another, the issues trade in these
secondary markets.
Shareholders:
Holders of
Shares.
Shares:
Common units representing
fractional undivided beneficial interests in the
Fund.
Sponsor:
Teucrium Trading, LLC, a
Delaware limited liability company, which is registered as a
Commodity Pool Operator, who controls the investments and other
decisions of the Fund.
Spot
Contract:
A cash market transaction in which the buyer and
seller agree to the immediate purchase and sale of a commodity,
usually with a two-day settlement.
Swap
Agreement:
An over the counter derivative that
generally involves an exchange of a stream of payments between the
contracting parties based on a notional amount and a specified
index.
Tracking Error:
Possibility that the
daily NAV of the Fund will not track the
Benchmark.
Trust Agreement:
The Fourth Amended and
Restated Declaration of Trust and Trust Agreement of the Trust
effective as of April 15, 2018.
Valuation Day:
Any day as of which the
Fund calculates its NAV.
Wheat Futures Contracts:
Futures
contracts for wheat that are traded on the CBOT, the Kansas City
Board of Trade, the Minneapolis Grain Exchange, or foreign
exchanges.
Wheat Interests:
Wheat Futures Contracts
and Other Wheat Interests.
You:
The owner of
Shares.
STATEMENT OF
ADDITIONAL INFORMATION
TEUCRIUM WHEAT
FUND
This statement of additional
information is the second part of a two-part document. The first
part is the Fund’s disclosure document. The disclosure
document and this statement of additional information are bound
together, and both parts contain important information. This
statement of additional information should be read in conjunction
with the disclosure document. To obtain a copy of the disclosure
document without charge, call the Fund at 802-540-0019. Before you
decide whether to invest, you should read the entire prospectus
carefully and consider the risk factors beginning on page
15.
This statement of additional
information and accompanying disclosure document are both dated
April 29, 2019.
TEUCRIUM WHEAT
FUND
TABLE OF
CONTENTS
|
|
Commodity Market
Participants
|
79
|
Regulation
|
79
|
Potential Advantages
of Investment
|
82
|
Fund
Performance
|
82
|
Commodity Market
Participants
The two broad classes of persons who
trade commodities are hedgers and speculators. Hedgers include
financial institutions that manage or deal in interest
rate-sensitive instruments, foreign currencies or stock portfolios,
and commercial market participants, such as farmers and
manufacturers, that market or process commodities. Hedging is a
protective procedure designed to effectively lock in prices that
would otherwise change due to an adverse movement in the price of
the underlying commodity, such as the adverse price movement
between the time a merchandiser or processor enters into a contract
to buy or sell a raw or processed commodity at a certain price and
the time he must perform the contract. For example, if a hedger
contracts to physically sell the commodity at a future date, he may
simultaneously buy a futures or forward contract for the necessary
equivalent quantity of the commodity. At the time for performance
of the physical contract, the hedger may accept delivery under his
futures contract and sell the commodity quantity as required by the
physical contract or he may buy the actual commodity, sell it under
the physical contract and close out his futures contract position
by making an offsetting sale.
The Commodity Interest markets
enable the hedger to shift the risk of price fluctuations. The
usual objective of the hedger is to protect the profit that he
expects to earn from farming, merchandising, or processing
operations rather than to profit from his trading. However, at
times the impetus for a hedge transaction may result in part from
speculative objectives and hedgers can end up paying higher prices
than they would have if they did not enter into a Commodity
Interest transaction if current market prices are lower than the
locked-in price.
Unlike the hedger, the speculator
generally expects neither to make nor take delivery of the
underlying commodity. Instead, the speculator risks his capital
with the hope of making profits from price fluctuations in the
commodities. The speculator is, in effect, the risk bearer who
assumes the risks that the hedger seeks to avoid. Speculators
rarely make or take delivery of the underlying commodity; rather
they attempt to close out their positions prior to the delivery
date. A speculator who takes a long position generally will make a
profit if the price of the underlying commodity goes up and incur a
loss if the price of the underlying commodity goes down, while a
speculator who takes a short position generally will make a profit
if the price of the underlying commodity goes down and incur a loss
if the price of the underlying commodity goes
up.
Regulation
The regulation of futures markets,
futures contracts, and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
Pursuant to authority in the CEA,
the NFA has been formed and registered with the CFTC as a
registered futures association. At the present time, the NFA is the
only SRO for commodity interest professionals, other than futures
exchanges. The CFTC has delegated to the NFA responsibility for the
registration of CPOs and FCMs and their respective associated
persons. The Sponsor and the Fund’s clearing broker are
members of the NFA. As such, they will be subject to NFA standards
relating to fair trade practices, financial condition and consumer
protection. The NFA also arbitrates disputes between members and
their customers and conducts registration and fitness screening of
applicants for membership and audits of its existing members.
Neither the Trust nor the Teucrium Funds are required to become a
member of the NFA. The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Considerable regulatory attention has been focused on
non-traditional investment pools that are publicly distributed in
the United States. There is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability of
a Fund to continue to implement its investment strategy. In
addition, various national governments outside of the United States
have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Teucrium Funds is impossible to
predict but could be substantial and adverse.
The CFTC possesses exclusive
jurisdiction to regulate the activities of commodity pool operators
and commodity trading advisors with respect to "commodity
interests," such as futures and swaps and options, and has adopted
regulations with respect to the activities of those persons and/or
entities. Under the Commodity Exchange Act (“CEA”), a
registered commodity pool operator, such as the Sponsor, is
required to make annual filings with the CFTC and the NFA
describing its organization, capital structure, management and
controlling persons. In addition, the CEA authorizes the CFTC to
require and review books and records of, and documents prepared by,
registered commodity pool operators. Pursuant to this authority,
the CFTC requires commodity pool operators to keep accurate,
current and orderly records for each pool that they operate. The
CFTC may suspend the registration of a commodity pool operator (1)
if the CFTC finds that the operator’s trading practices tend
to disrupt orderly market conditions, (2) if any controlling person
of the operator is subject to an order of the CFTC denying such
person trading privileges on any exchange, and (3) in certain other
circumstances. Suspension, restriction or termination of the
Sponsor’s registration as a commodity pool operator would
prevent it, until that registration were to be reinstated, from
managing the Fund, and might result in the termination of the Fund
if a successor sponsor is not elected pursuant to the Trust
Agreement. Neither the Trust nor the Fund is required to be
registered with the CFTC in any capacity.
The Fund’s investors are
afforded prescribed rights for reparations under the CEA. Investors
may also be able to maintain a private right of action for
violations of the CEA. The CFTC has adopted rules implementing the
reparation provisions of the CEA, which provide that any person may
file a complaint for a reparations award with the CFTC for
violation of the CEA against a floor broker or an FCM, introducing
broker, commodity trading advisor, CPO, and their respective
associated persons.
The regulations of the CFTC and the
NFA prohibit any representation by a person registered with the
CFTC or by any member of the NFA, that registration with the CFTC,
or membership in the NFA, in any respect indicates that the CFTC or
the NFA has approved or endorsed that person or that person’s
trading program or objectives. The registrations and memberships of
the parties described in this summary must not be considered as
constituting any such approval or endorsement. Likewise, no futures
exchange has given or will give any similar approval or
endorsement.
Trading venues in the United States
are subject to varying degrees of regulation under the CEA
depending on whether such exchange is a designated contract market
(i.e. a futures exchange) or a swap execution facility. Clearing
organizations are also subject to the CEA and the rules and
regulations adopted thereunder as administered by the CFTC. The
CFTC’s function is to implement the CEA’s objectives of
preventing price manipulation and excessive speculation and
promoting orderly and efficient commodity interest markets. In
addition, the various exchanges and clearing organizations
themselves as SROs exercise regulatory and supervisory authority
over their member firms.
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”) was
enacted in response to the economic crisis of 2008 and 2009 and it
significantly altered the regulatory regime to which the securities
and commodities markets are subject. To date, the CFTC has issued
proposed or final versions of almost all of the rules it is
required to promulgate under the Dodd-Frank Act, and it continues
to issue proposed versions of additional rules that it has
authority to promulgate. Provisions of the new law include the
requirement that position limits be established on a wide range of
commodity interests, including agricultural, energy, and
metal-based commodity futures contracts, options on such futures
contracts and uncleared swaps that are economically equivalent to
such futures contracts and options (“Reference
Contracts”); new registration and recordkeeping requirements
for swap market participants; capital and margin requirements for
“swap dealers” and “major swap
participants,” as determined by the new law and applicable
regulations; reporting of all swap transactions to swap data
repositories; and the mandatory use of clearinghouse mechanisms for
sufficiently standardized swap transactions that were historically
entered into in the over-the-counter market, but are now designated
as subject to the clearing requirement; and margin requirements for
over-the-counter swaps that are not subject to the clearing
requirements.
In addition, considerable regulatory
attention has recently been focused on non-traditional publicly
distributed investment pools such as the Fund. Furthermore, various
national governments have expressed concern regarding the
disruptive effects of speculative trading in certain commodity
markets and the need to regulate the derivatives markets in
general. The effect of any future regulatory change on the Teucrium
Funds is impossible to predict but could be substantial and
adverse.
The Dodd-Frank Act was intended to
reduce systemic risks that may have contributed to the 2008/2009
financial crisis. Since the first draft of what became the
Dodd-Frank Act, opponents have criticized the broad scope of the
legislation and, in particular, the regulations implemented by
federal agencies as a result. Since 2010, and most notably in 2015
and 2016, Republicans have proposed comprehensive legislation both
in the House and the Senate of the US Congress. These bills are
intended to pare back some of the provisions of the Dodd-Frank Act
of 2010 that critics view as overly broad, unnecessary to the
stability of the U.S. financial system, and inhibiting the growth
of the U.S. economy. Further, during the campaign and after taking
office, President Donald J. Trump has promised and issued several
executive orders intended to relieve the financial burden created
by the Dodd-Frank Act, although these executive orders only set
forth several general principles to be followed by the federal
agencies and do not mandate the wholesale repeal of the Dodd-Frank
Act. The scope of the effect that passage of new financial reform
legislation could have on U.S. securities, derivatives and
commodities markets is not clear at this time because each federal
regulatory agency would have to promulgate new regulations to
implement such legislation. Nevertheless, regulatory reform may
have a significant impact on U.S.-regulated
entities.
Position Limits,
Aggregation Limits, Price Fluctuation Limits
On December 16, 2016, the CFTC
issued a final rule to amend part 150 of the CFTC’s
regulations with respect to the policy for aggregation under the
CFTC’s position limits regime for futures and option
contracts on nine agricultural commodities (“the Aggregation
Requirements”). This final rule addressed the circumstances
under which market participants would be required to aggregate all
their positions, for purposes of the position limits, of all
positions in Reference Contracts of the 9 agricultural commodities
held by a single entity and its affiliates, regardless of whether
such positions exist on US futures exchanges, non-US futures
exchanges, or in over-the-counter swaps. An affiliate of a market
participant is defined as two or more persons acting pursuant to an
express or implied agreement or understanding. The Aggregation
Requirements became effective on February 14, 2017. On August 10,
2017, the CFTC issued No-Action Relief Letter No. 17-37 to clarify
several provisions under regulation 150.4 regarding position
aggregation filing requirements of market participants. The Sponsor
does not anticipate that this order will have an impact on the
ability of the Fund to meet its respective investment
objectives.
In addition, on December 30, 2016,
the CFTC reproposed regulations that would establish revised
specific limits on speculative positions in futures contracts,
option contracts and swaps on 25 agricultural, energy and metals
commodities (the “Proposed Position Limit
Rules”).
The Proposed Position Limit Rules
were a reproposal and the CFTC has requested comments from the
public. It remains to be seen whether the Proposed Position Limit
Rules will become effective as the CFTC has proposed, as comments
could result in modifications to the proposed limits or
implementation could be delayed for other reasons. In general, the
Proposed Position Limit Rules do not appear to have a substantial
or adverse effect on the Fund. However, if the total net assets of
the Fund were to increase significantly from current levels, the
Position Limit Rules as proposed could negatively impact the
ability of the Fund to meet its respective investment objectives
through limits that may inhibit the Sponsor’s ability to sell
additional Creation Baskets of the Fund. However, it is not
expected that the Fund will reach asset levels that would cause
these position limits to be reached in the near
future.
In addition, the Proposed Position
Limit Rules state that the CFTC will review, and may amend, the
Position Limit Rules at a minimum every two years and more often as
deemed necessary. Such future amendments may affect the Fund, and
it may, at that time, be substantial and adverse. By way of
example, future amendments, in combination with the Position Limit
Rules, may negatively impact the ability of the Fund to meet its
respective investment objectives through limits that may inhibit
the Sponsor’s ability to sell additional Creation Baskets of
the Fund, if the total net assets of a Fund grow significantly from
current levels.
The futures exchanges, e.g. the CME,
may under the Proposed Position Limit Rules impose position limits
which are lower than those imposed by the CFTC. Such a limit by an
exchange on which the Fund trades futures contracts may negatively
and adversely impact the ability of the Fund to meet its respective
investment objectives through limits that may inhibit the
Sponsor’s ability to sell additional Creation Baskets of the
Fund. No such lower limits by an exchange are currently in
place.
The aggregate position limits
currently in place under the current position limits and the
Aggregation Requirements are as follows for each of the commodities
traded by the Fund:
Commodity Future
|
Spot Month Position
Limit
|
All Month Aggregate Position
Limit
|
wheat
|
600 contracts
|
12,000 contracts
|
The aggregate speculative position
limits currently as proposed in the Proposed Position Limit Rules
are as follows for each of the commodities traded by the
Fund:
Commodity Future
|
Spot Month Position
Limit
|
All Month Aggregate Position
Limit
|
wheat
|
600 contracts
|
32,800 contracts
|
Accountability levels differ from
position limits in that they do not represent a fixed ceiling, but
rather a threshold above which a futures exchange may exercise
greater scrutiny and control over an investor’s positions. If
the Fund were to exceed an applicable accountability level for
investments in futures contracts, the exchange will monitor the
Fund’s exposure and may ask for further information on its
activities, including the total size of all positions, investment
and trading strategy, and the extent of liquidity resources of the
Fund. If deemed necessary by the exchange, the Fund could be
ordered to reduce its aggregate net position back to the
accountability level.
In addition to position limits and
accountability levels, the exchanges set daily price fluctuation
limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of futures contracts
may vary either up or down from the previous day’s settlement
price. Once the daily price fluctuation limit has been reached in a
particular futures contract, no trades may be made at a price
beyond that limit.
As of May 1, 2014, the CME replaced
the fixed price fluctuation limits with variable price limits for
wheat. The change, which is now effective and is described in the
CME Group Special Executive Report S7038 and can be accessed
at
http://www.cmegroup.com/toolsinformation/lookups/advisories/ser/SER7038.html.
Margin for OTC
Uncleared Swaps
During 2015 and 2016, the CFTC and
the US bank prudential regulators completed their rulemakings under
the Dodd-Frank Act on margin for uncleared over-the-counter swaps
(and option agreements that qualify as swaps). Margin requirements
went into effect for the largest swap entities in September 2016
and went into effect for financial end users in March 2017. Under
these regulations, swap dealers (such as sell-side counterparties
to swaps), major swap participants, and financial end users (such
as buy-side counterparties to swaps who are not physical traders)
are required in most instances, to post and collect initial and
variation margin, depending on the regulatory classification of
their counterparty. European and Asian regulators are also
implementing similar regulations, which were scheduled to become
effective on the same dates as the US-promulgated rules. As a
result of these requirements, additional capital will be required
to be committed to the margin accounts to support transactions
involving uncleared over-the-counter swaps and, consequently, these
transactions may become more expensive. While the Fund currently
does not generally engage in uncleared over the counter swaps, to
the extent they do so in the future, the additional margin required
to be posted could adversely impact the profitability (if any) to
the Fund from entering into these transactions.
FCMs
The CEA requires all FCMs, such as
the Teucrium Funds’ clearing brokers, to meet and maintain
specified fitness and financial requirements, to segregate customer
funds from proprietary funds and account separately for all
customers’ funds and positions, and to maintain specified
books and records open to inspection by the staff of the CFTC. The
CFTC has similar authority over introducing brokers, or persons who
solicit or accept orders for commodity interest trades but who do
not accept margin deposits for the execution of trades. The CEA
authorizes the CFTC to regulate trading by FCMs and by their
officers and directors, permits the CFTC to require action by
exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute
complaints for damages arising from alleged violations of the CEA.
The CEA also gives the states powers to enforce its provisions and
the regulations of the CFTC.
On November 14, 2013, the CFTC
published final regulations that require enhanced customer
protections, risk management programs, internal monitoring and
controls, capital and liquidity standards, customer disclosures and
auditing and examination programs for FCMs. The rules are intended
to afford greater assurances to market participants that customer
segregated funds and secured amounts are protected, customers are
provided with appropriate notice of the risks of futures trading
and of the FCMs with which they may choose to do business, FCMs are
monitoring and managing risks in a robust manner, the capital and
liquidity of FCMs are strengthened to safeguard the continued
operations and the auditing and examination programs of the CFTC
and the SROs are monitoring the activities of FCMs in a thorough
manner.
Potential
Advantages of Investment
Interest Income
Unlike some alternative investment
funds, the Fund does not borrow money in order to obtain leverage,
so the Fund does not incur any interest expense. Rather, the
Fund’s margin deposits and cash reserves are maintained in
short-term Treasury Securities, cash and cash equivalents and
interest is generally earned on available assets, which include
unrealized profits credited to the Fund’s
accounts
Fund
Performance
The following graph sets forth the
historical performance of the Fund from commencement of operations
on September 19, 2011 until January 31, 2019.
PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
PART II
Information Not
Required in the Prospectus
Item
13.
Other Expenses of Issuance and
Distribution.
Set
forth below is an estimate (except as indicated) of the amount of
fees and expenses (other than underwriting commissions and
discounts) payable by the registrant in connection with the
issuance and distribution of the units pursuant to the prospectus
contained in this registration statement.
|
|
Amount
|
|
SEC registration fee
(actual)
|
|
$
|
19,711
|
|
NYSE Arca Listing Fee
(actual)
|
|
|
n/a
|
|
FINRA filing fees
(actual)
|
|
|
n/a
|
|
Blue Sky
expenses
|
|
|
n/a
|
|
Auditor’s fees and
expenses
|
|
$
|
3,000
|
|
Legal fees and
expenses
|
|
$
|
6,000
|
|
Printing
expenses
|
|
$
|
2,000
|
|
Miscellaneous
expenses
|
|
|
n/a
|
|
Total
|
|
$
|
30,711
|
|
Item 14.
Indemnification
of Directors and Officers
The Trust’s Fourth Amended and
Restated Declaration of Trust and Trust Agreement (the “Trust
Agreement”) provides that the Sponsor shall be indemnified by
the Trust (or, by a series of the Trust separately to the extent
the matter in question relates to a single series or
disproportionately affects a series in relation to other series)
against any losses, judgments, liabilities, expenses and amounts
paid in settlement of any claims sustained by it in connection with
its activities for the Trust, provided that (i) the Sponsor was
acting on behalf of or performing services for the Trust and has
determined, in good faith, that such course of conduct was in the
best interests of the Trust and such liability or loss was not the
result of gross negligence, willful misconduct, or a breach of the
Trust Agreement on the part of the Sponsor and (ii) any such
indemnification will only be recoverable from the applicable trust
estate or trust estates. All rights to indemnification
permitted by the Trust Agreement and payment of associated expenses
shall not be affected by the dissolution or other cessation to
exist of the Sponsor, or the withdrawal, adjudication of bankruptcy
or insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy
Code by or against the Sponsor.
Notwithstanding the foregoing, the
Sponsor shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of U.S.
federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee and the
court approves the indemnification of such expenses (including,
without limitation, litigation costs) or (iii) a court of competent
jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The Trust and its series shall not
incur the cost of that portion of any insurance which insures any
party against any liability, the indemnification of which is
prohibited by the Trust Agreement.
Expenses incurred
in defending a threatened or pending civil, administrative or
criminal action, suit or proceeding against the Sponsor shall be
paid by the Trust or the applicable series of the Trust in advance
of the final disposition of such action, suit or proceeding, if (i)
the legal action relates to the performance of duties or services
by the Sponsor on behalf of the Trust or a series of the Trust;
(ii) the legal action is initiated by a party other than the Trust;
and (iii) the Sponsor undertakes to repay the advanced funds with
interest to the Trust or the applicable series of the Trust in
cases in which it is not entitled to indemnification under the
Trust Agreement.
For purposes of the indemnification
provisions of the Trust Agreement, the term “Sponsor”
includes, in addition to the Sponsor, any other covered person
performing services on behalf of the Trust and acting within the
scope of the Sponsor’s authority as set forth in the Trust
Agreement.
In the event the
Trust or a series of the Trust is made a party to any claim,
dispute, demand or litigation or otherwise incurs any loss,
liability, damage, cost or expense as a result of or in connection
with any Shareholder’s (or assignee’s) obligations or
liabilities unrelated to Trust business, such Shareholder (or
assignees cumulatively) shall indemnify, defend, hold harmless, and
reimburse the Trust or the applicable series of the Trust for all
such loss, liability, damage, cost and expense incurred, including
attorneys’ and accountants’
fees.
The payment of any amount pursuant
to the Trust Agreement shall take into account the allocation of
liabilities and other amounts, as appropriate, among the series of
the Trust.
Item 15.
Recent
Sales of Unregistered Securities
Not applicable.
Item 16.
|
Exhibits and Financial Statement Schedules
|
(a)
Exhibits
|
|
Fourth Amended and Restated
Declaration of Trust and Trust Agreement of the Registrant.
*
|
|
|
Certificate of Trust of the
Registrant. (1)
Instrument Establishing the Fund.
(2)
|
|
|
Opinion of Vedder Price P.C.
relating to the legality of the Shares. *
|
|
|
Opinion of Vedder Price P.C. with
respect to federal income tax
consequences.*
|
|
|
Form of Authorized Purchaser
Agreement.(including as Exhibit B to the Third Amended and Restated
Declaration of Trust and Trust Agreement) *
|
|
|
Amended and Restated Distribution
Services Agreement. (3)
|
|
|
Amendment to Amended and Restated
Distribution Services Agreement. (4)
|
|
|
Second Amendment to Amended and
Restated Distribution Services Agreement. (5)
|
|
|
Third Amendment to Amended and
Restated Distribution Services Agreement. (6)
Fourth Amendment to Amended and
Restated Distribution Services Agreement. (7)
|
|
|
Fund Accounting Servicing Agreement.
(9)
|
|
|
Transfer Agent Servicing Agreement.
(10)
|
|
|
|
|
|
Fund Administration Servicing
Agreement. (11)
|
|
|
|
|
|
Distribution Consulting and
Marketing Services Agreement (12)
|
|
23.1
|
Consents of Vedder Price P.C.
(included in Exhibits 5.1 and 8.1)*
|
|
|
Consent of Grant Thornton,
Independent Registered Public Accounting Firm.
*
|
|
|
Power of Attorney (included on
signature page of this Registration Statement as filed
herein).
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* Filed
herein.
(1) Previously filed as Exhibit 3.2
to Registrant’s Registration Statement on Form S-1
(333-162033), filed on September 21, 2009 and incorporated by
reference herein.
(2) Previously filed as Exhibit 3.3
to Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-1 (333-167591), filed on March 9, 2011 and
incorporated by reference herein.
(3) Previously filed as Exhibit
10.2(1) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund, filed on November 1, 2011 and incorporated
by reference herein.
(4) Previously filed as Exhibit
10.2(2) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund, filed on November 1, 2011 and incorporated
by reference herein.
(5) Previously filed as Exhibit
10.2(3) to the Registrant’s Current Report on Form 8-K for
the Teucrium Corn Fund, filed on November 1, 2011 and incorporated
by reference herein.
(6) Previously filed as
like-numbered exhibit to Pre-Effective Amendment No. 1 to
Registrant’s Registration Statement on Form S-1 (333-187463),
filed on April 26, 2013 and incorporated by reference
herein.
(7) Previously filed as Exhibit 10.9
to Registrant’s Registration Statement on Form S-1 (File No.
333-201953) filed on February 9, 2015 and incorporated by reference
herein.
(8) Previously filed as Exhibit 10.8
to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2015, filed on March 15, 2016, and incorporated
by reference herein.
(9) Previously filed as Exhibit 10.9
to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2015, filed on March 15, 2016, and incorporated
by reference herein.
(10) Previously filed as Exhibit
10.10 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2015, filed on March 15, 2016, and
incorporated by reference herein.
(11) Previously filed as Exhibit
10.11 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2015, filed on March 15, 2016, and
incorporated by reference herein.
(12) Previously filed as Exhibit
10.6 to Post-Effective Amendment No. 1 to Registrant’s
Registration Statement on Form S-1 (333-162033) filed on October
22, 2010 and incorporated by reference herein.
(b)
Financial Statement
Schedules
The financial statement schedules
are either not applicable or the required information is included
in the financial statements and footnotes related
thereto.
Item 17.
Undertakings
(a) The undersigned registrant
hereby undertakes:
(1) To file, during any period
in which offers, or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus
required by section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to
such information in the registration statement.
Provided,
however, that paragraphs (a)(1)(i), (ii), and (iii) of this section
do not apply if the registration statement is on Form S-1, Form
S-3, Form SF-3 or Form F-3 and the information required to be
included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement, or, as to a registration statement
on Form S-3, is contained in a form of prospectus filed pursuant to
§ 230.424(b) that is part of the registration
statement.
(2) That, for the purpose of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial
bona fide
offering thereof.
(3) To remove from registration
by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of
determining liability under the Securities Act of 1933 to any
purchaser:
(i) If the registrant is
subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
(5) That, for the purpose of
determining liability of the registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that
in a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser:
(i) Any preliminary prospectus
or prospectus of the undersigned registrant relating to the
offering required to be filed pursuant to
Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of any other
free writing prospectus relating to the offering containing
material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned
registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned registrant
to the purchaser.
(b) Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Pursuant to the requirements of the
Securities Act of 1933, the Registrant has duly caused this
Registration Statement on Form S-1 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the town of
Burlington, state of Vermont, on April 23,
2019.
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Teucrium
Commodity Trust
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By: Teucrium Trading, LLC,
Sponsor
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Date: April 23,
2019
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By:
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/s/ Sal
Gilbertie
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Sal Gilbertie
Principal Executive Officer,
Secretary and Member
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Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed
by the following persons in the capacities and on the dates as
indicated. The document may be executed by signatories hereto on
any number of counterparts, all of which shall constitute one and
the same instrument. The undersigned members and officers of
Teucrium Trading, LLC, the sponsor of Teucrium Commodity Trust,
hereby constitute and appoint Sal Gilbertie, Cory Mullen Rusin and
Steve Kahler and each of them with full power to act with full
power of substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and behalf
in the capacities indicated below this Registration Statement on
Form S-1 and any and all amendments thereto, including
post-effective amendments to this Registration Statement and to
sign any and all additional registration statements relating to the
same offering of securities as this Registration Statement that are
filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission and thereby ratify and confirm that such
attorneys-in-fact, or any of them, or their substitutes shall
lawfully do or cause to be done by virtue
hereof.
Signature
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Title
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Date
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/s/ Sal
Gilbertie
Sal Gilbertie
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President/Chief Executive
Officer/Investment Officer/Member of the
Sponsor
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April 23, 2019
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/s/ Cory
Mullen-Rusin
Cory
Mullen-Rusin
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Chief Financial Officer/Chief
Accounting Officer/Chief Compliance Officer/Principal Financial
Officer
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April 23, 2019
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/s/ Steve Kahler
Steve Kahler
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Chief Operating
Officer
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April 23, 2019
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EXHIBIT
INDEX
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Form of Authorized Purchaser
Agreement (included as Exhibit B to the Fourth Amended and Restated
Declaration of Trust and Trust
Agreement).
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