Filed Pursuant to Rule 424(b)(3)

Registration File No 333-256463

 

PRELIMINARY PROSPECTUS

 

ConvexityShares Daily 1.5x SPIKES Futures ETF (SPKY)

ConvexityShares 1x SPIKES Futures ETF (SPKX)

* Principal U.S. Listing Exchange: NYSE Arca, Inc.

 

ConvexityShares Trust (the “Trust”) is a Delaware statutory trust formed on April 12, 2021 and is currently organized into two separate series. The Trust is a series trust formed pursuant to the Delaware Statutory Trust Act, of which ConvexityShares Daily 1.5x SPIKES Futures ETF and ConvexityShares 1x SPIKES Futures ETF (each, a “Fund” and collectively, the Funds”) are currently the only series. Each Fund is a commodity pool that continuously issues common shares of beneficial interest (“Shares”). Shares represent units of fractional undivided beneficial interest in and ownership of a series of the Trust. The Shares of each Fund are listed for trading on NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”) under the ticker symbol shown above next to each Fund’s name.

 

The ConvexityShares 1x SPIKES Futures ETF (the “Matching Fund”) seeks investment results, before fees and expenses, that match (1x) the performance of the T3 SPIKE Front 2 Futures Index (the “Index”). The ConvexityShares Daily 1.5x SPIKES Futures ETF (the “Leveraged Fund”) seeks investment results, before fees and expenses, that correspond to 150% (1.5x) of the performance of the Index for a single day, not for any other period. A “single day” is measured from the time a Fund calculates its net asset value (“NAV”) to the time of the Fund’s next NAV calculation. The NAV calculation time for the Funds typically is 4:00 p.m. (Eastern Time). The Funds seek to achieve their respective investment objectives through the appropriate amount of exposure to the SPIKES futures contracts included in the Index. Under certain circumstances, the Funds may also invest in futures contracts and swap contracts (“VIX Related Positions”) on the Cboe Volatility Index (“VIX”), an index that tracks volatility and would be expected to perform in a substantially similar manner as the SPIKES Index, in the manner and to the extent described herein. Because the Leveraged Fund’s portfolio is rebalanced daily to meet its leveraged investment object, the Fund may not be suitable for investors who plan to hold it for periods longer than one day, particularly in volatile markets.

 

The Funds are not benchmarked to the SPIKES Volatility Index (the “SPIKES Index”). The Index and the SPIKES Index are two separate indices and can be expected to perform very differently. As such, the Funds can be expected to perform very differently from the SPIKES Index or one-and-a-half times (1.5x) the performance of the SPIKES Index.

 

The Funds are managed and controlled by their sponsor and investment manager, ConvexityShares, LLC (the “Sponsor”). The Funds are obligated to pay the Sponsor a management fee (the “Sponsor Fee”), calculated daily and paid monthly, equal to 0.79% and 0.65% of the Leveraged Fund’s and Matching Fund’s average daily net assets, respectively. From the Sponsor Fee, the Sponsor has contractually agreed to pay all of the routine operational, administrative and other ordinary expenses of the Funds, excluding brokerage fees, interest expenses, and certain non-recurring or extraordinary fees and expenses. The Sponsor has paid all of the expenses related to the organization and offering of the shares in this prospectus, which are estimated to be approximately $348,000 for both Funds. The Index is owned and maintained by Triple Three Partners Pty Ltd, which licenses the use of the Index to its affiliated company, T3i Pty Ltd (Triple Three Partners Pty Ltd and T3i Pty Ltd are collectively referred to herein as “T3 Index”), which sub-licenses the use of the Index to the Sponsor. T3 Index is affiliated with the Sponsor. The Index is calculated and published by Solactive AG. Currently, the Sponsor employs Teucrium Trading, LLC (“Teucrium” or the “Sub-Adviser”), a limited liability company, as a commodity trading advisor to each Fund. Teucrium receives a service fee from the Sponsor in an amount equal to the greater of (i) 0.05% per year of the value of the Fund’s average daily net assets, (ii) $30,000 per year.

 

The Funds are exchange traded funds. This means that most investors who decide to buy or sell shares of the Funds place their trade orders through their brokers and may incur customary brokerage commissions and charges. Shares trade on the NYSE Arca after they are initially purchased by “Authorized Participants,” institutional firms that purchase shares in blocks of 25,000 shares called “Units” (referred to herein as a “Creation Unit” or “Redemption unit,” as applicable) through the Funds’ distributor, Foreside Fund Services, LLC (the “Distributor”). The initial Authorized Participants with respect to each Fund are expected to be UBS Financial Services Inc., Virtu Financial, Inc. and ABN AMRO Clearing Chicago LLC. It is expected that after the date of this prospectus, the initial Authorized Participant will, subject to certain terms and conditions, make minimum initial purchases of at least four initial Creation Units of 25,000 shares of a Fund at an initial price per share of $25.00, equal to $625,000 per Creation Unit. A Fund will not commence trading unless and until its initial Authorized Participant effects the minimum initial purchase. Following the initial purchase by the initial Authorized Participant, shares of a Fund will be offered to Authorized Participants in Creation Units at the Fund’s NAV. The net asset value is calculated by taking the current market value of a Fund’s total assets (after close of NYSE Arca) subtracting any liabilities and dividing that total by the total number of outstanding shares. Authorized Participants may then offer to the public, from time to time, shares from any Creation Unit they create at a per-share market price. The offering of each Fund’s shares is a “best efforts” offering, which means that neither the Distributor nor any Authorized Participant is required to purchase a specific number or dollar amount of shares. The Funds pay a distribution fee consisting of an asset-based fee on the amount of each Fund’s annual net assets, subject to a minimum dollar amount. Authorized Participants will not receive from a Fund, the Sponsor or any of their affiliates any fee or other compensation in connection with the sale of shares.

 

Investors who buy or sell shares during the day from their broker may do so at a premium or discount relative to the NAV of a Fund’s total net assets due to supply and demand forces at work in the secondary trading market for shares that are closely related to, but not identical to, the same forces influencing the prices of the Financial Instruments (as defined in the Prospectus) in which the Funds invest and cash or other cash equivalents that the Funds hold. Investing in the Funds involves significant risks. See “Risk Factors Involved with an Investment in the Funds” beginning on page 4.

 

 

 

 

THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS, INCLUDING RISKS RELATING TO INVESTING IN AND SEEKING EXPOSURE TO SPIKES FUTURES CONTRACTS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE LEVERAGED FUND USES LEVERAGE AND IS RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN THE LEVERAGED FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY INVESTMENT RESULTS AND THE IMPACT OF COMPOUNDING ON SUCH FUND’S PERFORMANCE.

 

THE RETURN OF THE LEVERAGED FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE LEVERAGED FUND’S STATED MULTIPLE TIMES THE RETURN OF THE INDEX FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.

 

THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.

 

THE FUNDS GENERALLY ARE INTENDED TO BE USED ONLY FOR SHORT-TERM TIME HORIZONS. SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS, AS FREQUENTLY AS DAILY.

 

An investor should only consider an investment in a Fund if he or she understands the consequences of seeking exposure to SPIKES futures contracts. The Funds are benchmarked to the T3 SPIKE Front 2 Futures Index; the Funds are not benchmarked to the SPIKES Index. The T3 SPIKE Front 2 Futures Index and the SPIKES Index are two separate indices and can be expected to perform very differently.

 

The SPIKES Index is a non-investable index that measures the implied volatility of the SPDR S&P 500 ETF (“SPY”). For these purposes, “implied volatility” is a measure of the expected volatility (i.e., the rate and magnitude of variations in performance) of SPY over the next 30 days. The SPIKES Index does not represent the actual volatility of SPY. The SPIKES Index is calculated based on the prices of a constantly changing portfolio of SPY put and call options. The T3 SPIKE Front 2 Futures Index, the Index used by each Fund, consists of short-term SPIKES futures contracts. As such, the performance of the T3 SPIKE Front 2 Futures Index can be expected to be very different from the actual volatility of SPY or the performance of the SPIKES Index, or the performance of one-and-a-half times (1.5x) of the actual volatility of SPY or the performance of the SPIKES Index. Nonetheless, the SPIKES Index and the Funds would be expected to underperform in less volatile markets than in more volatile markets. If the Index declines by more than 50% on a given trading day, the Leveraged Fund’s investors would lose all of their money. This would be the case with any such single day movements in the Index, even if the Index maintains a level greater than zero at all times.

 

Unlike certain other asset classes that, in general, have historically increased in price over long periods of time, the volatility of SPY as measured by the SPIKES Index is expected to continue to revert to a long-term average level over time. This means that the potential upside of an investment in a Fund may be limited. In addition, gains, if any, may be subject to significant and unexpected reversals. The Funds generally are intended to be used only for short-term investment horizons. Investors holding Shares of the Funds beyond short-term periods have an increased risk of losing all or a substantial portion of their investment.

 

The Matching Fund seeks investment results, before fees and expenses, that match (1x) the performance of the Index. The Leveraged Fund seeks daily investment results, before fees and expenses, that correspond to one-and-a-half times (1.5x) the performance of the Index for a single day, not for any other period. The return of the Leveraged Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Leveraged Fund’s stated multiple times the return of the Index for the same period. These differences can be significant. Daily compounding of the investment returns of the Leveraged Fund can dramatically and adversely affect its longer-term performance, especially during periods of high volatility. Volatility has a negative impact on Fund performance and the volatility of the Index may be at least as important to the returns of the Matching Fund and the Leveraged Fund as the return of the Index. The Leveraged Fund uses leverage and should produce returns for a single day that are more volatile than that of the Index. For example, the return for a single day of the Leveraged Fund with its 1.5x multiple should be approximately one-and-a-half times as volatile for a single day as the return of a fund with an objective of matching the same Index.

 

The offering of each Fund’s shares is registered with the SEC in accordance with the Securities Act of 1933. The offering is intended to be a continuous offering and is not expected to terminate until all of the registered shares have been sold or three years from the date of the original offering, whichever is earlier, although the offering may be temporarily suspended if and when no suitable investments for a Fund are available or practicable. The Funds are not mutual funds registered under the Investment Company Act of 1940, as amended, and are not subject to regulation under such act. See “The Funds are not registered investment companies so shareholders do not have the protections of the Investment Company Act of 1940, as amended” on page 25.

 

NEITHER THE 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 Funds are commodity pools and the Sponsor is a commodity pool operator subject to regulation by the CFTC and the National Futures Association (“NFA”) under the Commodity Exchange Act, as amended. The Sponsor is registered with the CFTC as a commodity pool operator and commodity trading advisor and is a member of the NFA.

 

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.

 

The date of this prospectus is June 9, 2022

 

 

 

 

COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT

 

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

 

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THESE POOLS BEGINNING AT PAGE 52 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 2.

 

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THESE COMMODITY POOLS. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THESE COMMODITY POOLS, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 4.

 

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, IN CERTAIN INSTANCES, 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.

 

 

 

 

Table of Contents

 

Prospectus Summary 1
Important Information About the Funds 1
Overview 2
Breakeven Point 2
The Funds’ Investment Objective and Strategy 2
Risk Factors Involved with an Investment in the Funds 4
A Note on SPIKES Futures Contracts 4
Risks Specific to the Leveraged Fund 5
Risks Applicable to All Funds 16
Forward-Looking Statements 32
Breakeven Analysis 33
Additional Information About the FundS, the Index, the FundS’ Investment ObjectiveS and Investments 34
Description of the Funds’ Index 34
The Funds’ Investment Objectives and Strategies 37
Principal Investment Strategies 38
Management’s Discussion 41
Margin Requirements and Marking-to-Market Futures Positions 41
The Funds’ Operations 42
The Sponsor and its Management and Trading Principals 42
Commodity Trading Advisor 43
T3 Index 49
The Funds’ Service Providers 49
Administrator, Custodian, Fund Accountant, and Transfer Agent 49
Delaware Trustee 49
Distributor 50
Futures Commission Merchant 50
Legal Counsel 51
Fees and Expenses 51
Conflicts of Interest 53
Management; Voting by Shareholders 57
Meetings 57
Executive Compensation 57
Liability and Indemnification 57
Termination Events 58
Provisions of Law 59
Books and Records 59
Statements, Filings, and Reports 60
Emerging Growth Company Status 60
Fiscal Year 60
Governing Law; Consent to Delaware Jurisdiction 61
Legal Matters 61
U.S. Federal Income Tax Considerations 62
Other Tax Considerations 70
Investment by ERISA Accounts 70
Form of Shares 73
Calculating NAV 74
Inter-Series Limitation on Liability 75
Creation and Redemption of Shares 75
Plan of Distribution 81
Use of Proceeds 82
Information You Should Know 83
Summary of Promotional and Sales Material 84
Where You Can Find More Information 84
Privacy Policy 84
Availability of Certain Information 84
APPENDIX A A-1

 

i

 

 

Prospectus Summary

 

This is only a summary of the prospectus and, while it contains material information about each of the ConvexityShares 1x SPIKES Futures ETF (the “Matching Fund”) and the ConvexityShares Daily 1.5x SPIKES Futures ETF (the “Leveraged Fund” and, together with the Matching Fund, the “Funds”) and their shares, it does not contain or summarize all of the information about the Funds 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 “Risk Factors Involved with an Investment in the Funds” beginning on page 4, before making an investment decision about the shares. For a glossary of defined terms, see Appendix A.

 

Important Information About the Funds

 

THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS, INCLUDING RISKS RELATING TO INVESTING IN SPIKES FUTURES CONTRACTS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE LEVERAGED FUND USES LEVERAGE AND IS RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN THE LEVERAGED FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY INVESTMENT RESULTS AND THE IMPACT OF COMPOUNDING ON LEVERAGED FUND PERFORMANCE.

 

THE RETURN OF THE LEVERAGED FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE LEVERAGED FUND’S STATED MULTIPLE TIMES THE RETURN OF THE INDEX FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.

 

THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.

 

SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS, AS FREQUENTLY AS DAILY.

 

An investor should only consider an investment in a Fund if he or she understands the consequences of seeking exposure to SPIKES futures contracts. The Funds are benchmarked to the T3 SPIKE Front 2 Futures Index (the “Index”); the Funds are not benchmarked to the SPIKES Index. The T3 SPIKE Front 2 Futures Index and the SPIKES Index are two separate indices and can be expected to perform very differently. The SPIKES Index is a non-investable index that measures the expected 30-day volatility (i.e., the rate and magnitude of variations in performance) in the SPDR S&P 500 ETF (“SPY”). SPY is the largest exchange traded fund in the world and tracks the S&P 500 Index, the most watched stock index in the United States. The SPIKES Index does not represent the actual volatility of SPY. The SPIKES Index is built using the popular variance swap methodology and uses live option prices to calculate volatility.

 

The Index consists of short-term SPIKES futures contracts. As such, the performance of the Index can be expected to be very different from the actual volatility of SPY or the performance of the SPIKES Index. As a result, the performance of the Funds also can be expected to be very different from the actual volatility of SPY or the performance of the SPIKES Index, or the performance of one-and-a-half times (1.5x) of the actual volatility of SPY or the performance of the SPIKES Index. Nonetheless, the SPIKES Index and the Funds would be expected to underperform in less volatile markets than in more volatile markets. If the Index declines by more than 50% on a given trading day, the Leveraged Fund’s investors would lose all of their money. This would be the case with any such single day movements in the Index, even if the Index maintains a level greater than zero at all times.

 

1

 

 

Unlike certain other asset classes that, in general, have historically increased in price over long periods of time, the volatility of SPY as measured by the SPIKES Index has historically reverted to a long-term average level over time. This means that the potential upside of an investment in a Fund may be limited. In addition, gains, if any, may be subject to significant and unexpected reversals. Investors holding Shares of the Funds beyond short-term periods have an increased risk of losing all or a substantial portion of their investment. The Funds generally are intended to be used only for short-term investment horizons. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily.

 

The Matching Fund seeks investment results, before fees and expenses, that match (1x) the performance of the Index. The Leveraged Fund seeks daily investment results, before fees and expenses, that correspond to one-and-a-half times (1.5x) the performance of the Index for a single day, not for any other period. The return of the Leveraged Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Fund’s stated multiple times the return of the Index for the same period. These differences can be significant. Daily compounding of the Leveraged Fund’s investment returns can dramatically and adversely affect its longer-term performance, especially during periods of high volatility. Volatility has a negative impact on a Fund’s performance and may be at least as important to the Fund’s return for a period as the return of the Fund’s underlying Index. The Leveraged Fund uses leverage and should produce returns for a single day that are more volatile than that of the Index. For example, the return for a single day of the Leveraged Fund with its 1.5x multiple should be approximately one-and-a-half times as volatile for a single day as the return of a fund with an objective of matching the same Index.

 

Overview

 

The Funds are series of ConvexityShares Trust (the “Trust”), a Delaware statutory trust formed on April 12, 2021. The Trust is a series trust formed pursuant to the Delaware Statutory Trust Act, and the Trust is currently organized into two series. The Funds are managed and controlled by ConvexityShares, LLC (the “Sponsor”), a Delaware limited liability company. The Sponsor is registered with the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator (“CPO”) and Commodity Trading Advisor (“CTA”) and is a member of the National Futures Association (“NFA”). Currently, the Sponsor employs Teucrium Trading, LLC (“Teucrium” or the “Sub-Adviser”) as a commodity trading advisor to each Fund.

 

The principal office of the Sponsor, Trust and Funds is located at 7 Roszel Road, Suite 1A, Princeton, NJ 08540. The telephone number for each is (609) 897-7300.

 

Each Fund will provide on its website at www.convexityshares.com daily disclosure, prior to market opening, of the Funds’ portfolio holdings. This website disclosure of the portfolio composition of the Funds will occur at the same time as the disclosure by the Funds of the portfolio compositions to Authorized Participants so that all market participants are provided portfolio composition information at the same time.

 

On October 4, 2021, Gary Gensler, Chair of the Securities and Exchange Commission, issued a statement on complex exchange-traded products whereby he directed the staff of the Securities and Exchange Commission to study the potential risks of complex financial products that are listed on exchanges and present recommendations of the Commission’s consideration on potential rulemaking proposals to address those risks. While it is difficult to know what form such rulemaking proposals might take or what substantive content they main contain, there is a possibility that any such future regulatory changes could have a material impact on the ability of the Funds to continue to offer and sell Shares in the Funds. The effect of any future regulatory change on the Funds is impossible to predict, but could be substantial and adverse. See “Regulatory changes or actions, including the implementation of new legislation, may alter the operations and profitability of a Fund,” on page 19.

 

Breakeven Point

 

In order for a hypothetical investment in shares to break even over the next 12 months, assuming a selling price of $25.00, the investment would have to generate a 1.08% return or $0.27 and a 0.84% return or $0.21 for the Leveraged Fund and the Matching Fund, respectively.

 

The Funds’ Investment Objective and Strategy

 

The Funds are benchmarked to the T3 SPIKE Front 2 Futures Index (the “Index”), an investable index of SPIKES futures contracts. The Funds are not benchmarked to the SPIKES Index. The SPIKES Index is a non-investable index that measures the implied volatility of the SPDR S&P 500 ETF (“SPY”). The market’s current expectation of the possible rate and magnitude of movements in an index is commonly referred to as the “implied volatility” of the index. For these purposes, “implied volatility” is a measure of the expected volatility of SPY over the next 30 days. The SPIKES Index does not represent the actual or the realized volatility of SPY. The SPIKES Index is calculated based on the prices of a constantly changing portfolio of SPY put and call options. The Index consists of short-term SPIKES futures contracts.

 

The Index is owned and maintained by T3 Index and is calculated and published by Solactive AG. T3 Index is affiliated with the Sponsor. SPIKES futures contracts comprising the Index are traded on the Minneapolis Grain Exchange, LLC (“MGEX”) via the CME GLOBEX® platform.

 

T3 Index is an affiliated person of the Sponsor, which poses the appearance of a conflict of interest. A potential conflict could arise between an affiliated person of T3 Index or the Sponsor and the Funds if that entity attempted to use information regarding changes to and composition of the Index to the detriment of a Fund or to “front-run” a Fund. T3 Index has implemented and will maintain a fire wall regarding access to information concerning the composition and/or changes to the Index. In addition, T3 Index has implemented and will maintain procedures that are designed to prevent the use and dissemination of material, non-public information regarding the Index.

 

2

 

 

THE PERFORMANCE OF THE INDEX AND THE FUNDS CAN BE EXPECTED TO BE VERY DIFFERENT FROM THE ACTUAL VOLATILITY OF SPY OR THE PERFORMANCE OF THE SPIKES INDEX ONE-AND-A-HALF TIMES (1.5X) OF THE ACTUAL VOLATILITY OF SPY OR THE PERFORMANCE OF THE SPIKES INDEX.

 

All Funds

 

Each of the Funds intends to invest primarily in SPIKES futures contracts to gain the appropriate exposure to the Index in the manner and to the extent described herein. The value of SPIKES futures contracts is derived from the value of the SPIKEs Index. Under certain circumstances, the Funds may also invest in futures contracts and swap contracts (“VIX Related Positions” and, together with SPIKES futures contracts, “Financial Instruments”) on the Cboe Volatility Index (“VIX”), an index that tracks volatility and would be expected to perform in a substantially similar manner as the SPIKES Index. The Sponsor or Sub-Adviser determines the type, quantity and mix of Financial Instruments that the Sponsor or Sub-Adviser believes, in combination, should provide the desired exposure to the Index.

 

When establishing positions in SPIKES futures contracts, the Funds are required to deposit initial margin with a value of approximately 0.65%% of the notional value of each position at the time it is established. These margin requirements are established and subject to change from time to time by the relevant exchanges, clearing houses or the Funds’ futures commission merchant (“FCM”). On a daily basis, a Fund is obligated to pay, or entitled to receive, variation margin in an amount equal to the change in the daily settlement level of its SPIKES futures contract positions. Any assets not required to be posted as margin with the FCM are held at the Funds’ custodian in cash or cash equivalents.

 

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market conditions with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to the Index consistent with its investment objective, even during periods in which the Index is flat or moving in a manner which causes the value of a Fund to decline.

 

The Sponsor has the power to change a Fund’s investment objective, benchmark or investment strategy, and may liquidate a Fund, at any time, without shareholder approval, subject to applicable regulatory requirements.

 

The Matching Fund

 

The Matching Fund seeks investment results, before fees and expenses, that over time, match (1x) the performance of the Index. The Sponsor or Sub-Adviser determines the type, quantity and mix of investments that the Sponsor or Sub-Adviser believes, in combination, should provide exposure to the Index to seek returns equal to the return of the Index.

 

The Leveraged Fund

 

The Leveraged Fund seeks daily investment results, before fees and expenses, that correspond to one-and-a-half times (1.5x) the performance of the Index for a single day, not for any other period. A “single day” is measured from the time the Fund calculates its NAV to the time of the Fund’s next NAV calculation. The NAV calculation time for the Funds typically is 4:00 p.m. (Eastern Time).

 

The Leveraged Fund seeks to engage in daily rebalancing to position its portfolio so that its exposure to the Index is consistent with its daily investment objective. The Sponsor or Sub-Adviser determines the type, quantity and mix of investments that the Sponsor or Sub-Adviser believes, in combination, should provide daily leveraged exposure to the Index to seek daily returns equal to 150% of the daily return of the Index. The impact of changes to the value of the Index throughout each day will affect whether the Leveraged Fund’s portfolio needs to be rebalanced. For example, if the level of the Index has risen on a given day, net assets of the Leveraged Fund should rise. As a result, long exposure will need to be increased. Conversely, if the level of the Index has fallen on a given day, net assets of the Leveraged Fund should fall. As a result, long exposure will need to be decreased. The time and manner in which the Leveraged Fund rebalances its portfolio may vary from day to day depending upon market conditions and other circumstances at the discretion of the Sponsor.

 

3

 

 

DAILY REBALANCING AND THE COMPOUNDING OF EACH DAY’S RETURN OVER TIME MEANS THAT THE RETURN OF THE LEVERAGED FUND FOR A PERIOD LONGER THAN A SINGLE DAY WILL BE THE RESULT OF EACH DAY’S RETURNS COMPOUNDED OVER THE PERIOD, WHICH WILL VERY LIKELY DIFFER FROM ONE-AND-A-HALF TIMES (1.5X) THE RETURN OF THE INDEX FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT. THE LEVERAGED FUND WILL LOSE MONEY IF THE INDEX’S PERFORMANCE IS FLAT OVER TIME, AND THE FUND CAN LOSE MONEY REGARDLESS OF THE PERFORMANCE OF THE INDEX, AS A RESULT OF DAILY REBALANCING, THE INDEX’S VOLATILITY, COMPOUNDING AND OTHER FACTORS.

 

Risk Factors Involved with an Investment in the Funds

 

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.

 

An investment in the Funds involves risks. You could lose all or part of your investment in a Fund, and a Fund’s performance could trail that of other investments. The Funds are subject to the principal risks noted below which may adversely affect the Fund’s NAV, trading price, yield, total return and ability to meet its investment objective.

 

The Funds may be highly volatile and generally are intended for short-term investment purposes only.

 

Investing in the Funds involves significant risks not applicable to other types of investments. You could potentially lose the full principal value of your investment within a single day. Before you decide to purchase any Shares, you should consider carefully the risks described below together with all of the other information included in this Prospectus, as well as information found in documents incorporated by reference in this Prospectus.

 

These risk factors may be amended, supplemented or superseded from time to time by risk factors contained in any periodic report, prospectus supplement, post-effective amendment or in other reports filed with the SEC in the future.

 

A Note on SPIKES Futures Contracts

 

SPIKES futures contracts were initially launched for trading by MGEX, via the CME GLOBEX® platform, on November 18, 2019. Trading was subsequently halted on November 29, 2019 while certain regulatory matters were resolved with the SEC. On November 24, 2020, the SEC issued an order (the MGEX Order”) to MGEX providing a conditional exemption for the SPIKES futures contracts from the definition of “security future” in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except with respect to certain enumerated applications of the term. The MGEX Order allows SPIKES futures contracts to trade as a futures contract on MGEX, a designated contract market and derivatives clearing organization that is subject to the jurisdiction of the CFTC, and the SPIKES futures contracts were re-launched on December 14, 2020 for trading by MGEX.

 

On January 22, 2021, the Cboe Futures Exchange, LLC petitioned the United States Court of Appeals for the District of Columbia Circuit to hold that the MGEX Order was unlawful because it was “arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law” (the “Cboe Petition”). MGEX has intervened in this case as an interested party.

 

In the event that the MGEX Order is deemed unlawful, the SPIKES futures contracts could be deemed to be “securities” under the Investment Company Act of 1940, as amended (the “1940 Act”), and, thus, the Funds could fall within the definition of an “investment company” under the 1940 Act. The Sponsor understands that MGEX intends to vigorously oppose the Cboe Petition.

 

4

 

 

Neither Fund is an “investment company” subject to the 1940 Act. Accordingly, investors do not have the protections afforded by that statute. See “The Funds are not registered investment companies so shareholders do not have the protections of the Investment Company Act of 1940, as amended” on page 25. If the Funds are deemed “investment companies” under the 1940 Act, the Funds would liquidate as soon as reasonably practicable. In addition, the provisions of the securities laws, including the Exchange Act and the 1940 Act, could affect the liquidity of the SPIKES futures contracts, impair the Funds’ agreements and contractual arrangements and otherwise materially adversely affect the Funds’ business, financial condition and results of operations, in which case the liquidation value of the Shares would be uncertain.

 

Risks Specific to the Leveraged Fund

 

In addition to the risks described elsewhere in this “Risk Factors Involved With An Investment In the Funds” section, the following risks apply to the Leveraged Fund.

 

The use of leveraged positions increases risk and could result in the total loss of an investor’s investment within a single day.

 

The Leveraged Fund utilizes leverage in seeking to achieve its investment objective and will lose more money in market environments adverse to its investment objective than funds that do not employ leverage. The more the Leveraged Fund invests in leveraged positions, the more this leverage will magnify any losses on those investments. The Leveraged Fund’s investments in these positions generally requires a small investment relative to the amount of investment exposure assumed. As a result, such investments may give rise to losses that exceed the amount invested in those instruments. The use of leveraged positions increases risk and could result in the total loss of an investor’s investment within a single day.

 

For example, because the Leveraged Fund includes a one-and-a-half times (1.5x) multiplier, a single-day movement in the Index approaching -50% at any point in the day could result in the total loss or almost total loss of an investor’s investment if that movement is contrary to the investment objective of the Leveraged Fund, even if the Index subsequently moves in an opposite direction, eliminating all or a portion of the movement. This would be the case with downward single-day or intraday movements in the Index, even if the Index maintains a level greater than zero at all times. It is not possible to predict when sudden large changes in the daily movement of a benchmark may occur.

 

The use of leveraged positions may result in the sum of the Leveraged Fund’s investment exposures significantly exceeding the amount of assets invested in the Leveraged Fund.

 

Leverage creates exposure to potential gains and losses in excess of the initial amount invested. Borrowing and the use of derivatives may result in leverage and may make the Leveraged Fund more volatile. When the Leveraged Fund uses leverage the sum of the Leveraged Fund’s investment exposures may significantly exceed the amount of assets invested in the Leveraged Fund, although these exposures may vary over time. Relatively small market movements may result in large changes in the value of a leveraged investment. The Leveraged Fund will cover transactions that may give rise to such risk, to the extent required by applicable law. The use of leverage may cause the Leveraged Fund to liquidate portfolio positions to satisfy its obligations or to meet segregation requirements when it may not be advantageous to do so. The use of leverage by the Leveraged Fund can substantially increase the adverse impact to which the Leveraged Fund’s investment portfolio may be subject.

 

5

 

 

Due to the compounding of daily returns, the Leveraged Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from the Leveraged Fund’s stated multiple times the return of the Index for such period

 

The Leveraged Fund has an investment objective to seek daily investment results, before fees and expenses, that correspond to 150% (1.5x) of the performance of the Index for a single day. The Leveraged Fund seeks investment results for a single day only, as measured from NAV calculation time to NAV calculation time, and not for any other period (see “Creation and Redemption of Shares” for the typical NAV calculation time of the Funds). The return of the Leveraged Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from 150% (1.5x) of the return of the Index for the same period. Compounding is the cumulative effect of applying investment gains and losses and income to the principal amount invested over time. Gains or losses experienced over a given period will increase or reduce the principal amount invested from which the subsequent period’s returns are calculated. The effects of compounding will likely cause the performance of the Leveraged Fund to differ from the Leveraged Fund’s stated multiple times the return of the Index for the same period. The effect of compounding becomes more pronounced as index volatility and holding period increase. The impact of compounding will impact each shareholder differently depending on the period of time an investment in the Leveraged Fund is held and the volatility of the index during the holding period of an investment in the Leveraged Fund.

 

The Leveraged Fund will lose money if the Index’s performance is flat over time, and the Leveraged Fund can lose money regardless of the performance of the Index, as a result of daily rebalancing, the Index’s volatility, compounding and other factors. Longer holding periods, higher index volatility and greater leverage each affect the impact of compounding on the Leveraged Fund’s returns. Daily compounding of the Leveraged Fund’s investment returns can dramatically and adversely affect performance, especially during periods of high volatility. Volatility has a negative impact on Leveraged Fund performance and the volatility of the Index may be at least as important to the Leveraged Fund’s return for a period as the return of the Index.

 

The Leveraged Fund uses leverage and should produce daily returns that are more volatile than that of the Index. For example, the return for a single day of the Leveraged Fund with its 1.5x multiple should be approximately one-and-a-half times as volatile for a single day as the return of a fund with an objective of matching the performance of the Index

 

The Leveraged Fund is not appropriate for all investors and presents significant risks not applicable to other types of funds. The Leveraged Fund uses leverage and is riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in the Leveraged Fund if he or she understands the consequences of seeking leveraged results for a single day. Shareholders who invest in the Leveraged Fund should actively manage and monitor their investments, as frequently as daily.

 

The hypothetical examples below illustrate how daily geared fund returns can behave for periods longer than a single day. Each involves a hypothetical fund XYZ that seeks one-and-a-half times (1.5x) the daily performance of index XYZ, before fees and expenses. On each day, fund XYZ performs in line with its objective (one-and-a-half times (1.5x) the index’s daily performance before fees and expenses). Notice that, in the first example (showing an overall index loss for the period), over the entire seven-day period, the fund’s total return is more than one-and-a-half times the loss of the period return of the index. For the seven-day period, index XYZ lost 3.26% while fund XYZ lost -5.08% (versus -4.89% (or 1.5 x -3.26%)).

 

    Index XYZ     Fund XYZ  
    Level     Daily
Performance
    Daily
Performance
    Net Asset
Value
 
Start     100.00                     $ 100.00  
Day 1     97.00       -3.00 %     -4.50 %   $ 95.50  
Day 2     99.91       3.00 %     4.50 %   $ 99.80  
Day 3     96.91       -3.00 %     -4.50 %   $ 95.31  
Day 4     99.82       3.00 %     4.50 %   $ 99.60  
Day 5     96.83       -3.00 %     -4.50 %   $ 95.11  
Day 6     99.73       3.00 %     4.50 %   $ 99.39  
Day 7     96.74       -3.00 %     -4.50 %   $ 94.92  
Total Return             -3.26 %     -5.08 %        

 

Similarly, in another example (showing an overall index gain for the period), over the entire seven-day period, the fund’s total return is less than one-and-a-half times (1.5x) that of the period return of the index. For the seven-day period, index XYZ gained 2.72% while fund XYZ gained 3.87% (versus 4.08% (or 1.5 x 2.72%)).

 

6

 

 

    Index XYZ     Fund XYZ  
    Level     Daily
Performance
    Daily
Performance
    Net Asset
Value
 
Start     100.00                     $ 100.00  
Day 1     103.00       3.00 %     4.50 %   $ 104.50  
Day 2     99.91       -3.00 %     -4.50 %   $ 99.80  
Day 3     102.91       3.00 %     4.50 %   $ 104.29  
Day 4     99.82       -3.00 %     -4.50 %   $ 99.60  
Day 5     102.81       3.00 %     4.50 %   $ 104.08  
Day 6     99.73       -3.00 %     -4.50 %   $ 99.39  
Day 7     102.72       3.00 %     4.50 %   $ 103.87  
Total Return             2.72 %     3.87 %        

 

These effects are caused by compounding, which exists in all investments, but has a more significant impact in geared funds. In general, during periods of higher Index volatility, compounding will cause the Leveraged Fund’s returns for periods longer than a single day to be less than one-and-a-half times (1.5x) the return of the Index. This effect becomes more pronounced as volatility increases. Conversely, in periods of lower Index volatility (particularly when combined with higher index returns), the Leveraged Fund’s returns over longer periods can be greater than one-and-a-half times (1.5x) the return of the Index. Actual results for a particular period are also dependent on the magnitude of the Index return in addition to the Index volatility.

 

The graphs that follow illustrate this point. Each of the graphs shows a simulated hypothetical one-year performance of an index compared with the performance of a geared fund that perfectly achieves its geared daily investment objective. The graphs demonstrate that, for periods greater than a single day, a geared fund is likely to underperform or overperform (but not match) the index performance times the multiple stated as the daily fund objective. Investors should understand the consequences of holding daily rebalanced funds for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the index return times the fund multiple can occur over periods as short as two days (each day as measured from NAV to NAV) and may also occur in periods of a single day or even intra-day. To isolate the impact of daily leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (1.5x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses greater than zero percent were included, the fund’s performance would also be different than shown. Each of the graphs also assumes a volatility rate of 70%. An index’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY INDEX OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

7

 

 

 

 

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., begins and ends the year at 0%), but the Leveraged Fund (1.5x) is down.

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY INDEX OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

 

 

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is down over the year, but the Leveraged Fund (1.5x) is down less than one-and-a-half times the index.

 

8

 

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY INDEX OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

 

 

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is up over the year, but the Leveraged Fund (1.5x) is up less than one-and-a-half times the index.

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY INDEX OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

Historical average volatility does not predict future volatility, which may be higher or lower than historical averages.

 

Fund performance for periods greater than a single day can be estimated given any set of assumptions for the following factors: a) benchmark volatility; b) benchmark performance; c) period of time; d) financing rates associated with leveraged exposure; and e) other Fund expenses. The tables below illustrate the impact of two factors that affect a geared fund’s performance, index volatility and index return. Index volatility is a statistical measure of the magnitude of fluctuations in the returns of an index and is calculated as the standard deviation of the natural logarithms of one plus the index return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252). The table shows estimated fund returns for a number of combinations of index volatility and index return over a one-year period. To isolate the impact of daily leveraged exposure, the graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (1.5x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, the fund’s performance would be different than shown. The first table below shows an example in which a geared fund has an investment objective to correspond (before fees and expenses) to one-and-a-half times (1.5x) the daily performance of an index. The geared fund could incorrectly be expected to achieve a 20% return on a yearly basis if the index return was 10%, absent the effects of compounding. However, as the table shows, with an index volatility of 40%, such a fund would return 3.2%. In the charts below, shaded areas represent those scenarios where a geared fund with the investment objective described will outperform (i.e., return more than) the index performance times the stated multiple in the fund’s investment objective; conversely, areas not shaded represent those scenarios where the fund will underperform (i.e., return less than) the index performance times the multiple stated as the daily fund objective.

 

9

 

 

Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to One-and-a-Half Times (1.5x) the Performance of an Index For a Single Day.

 

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY INDEX OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

One Year Index   One and A Half Times (1.5x) One Year Index     Index Volatility  
Performance   Performance     0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%     75%  
  -60 %     -90 %     -74.7 %     -74.8 %     -74.8 %     -75.0 %     -75.1 %     -75.3 %     -75.6 %     -75.9 %     -76.2 %     -76.6 %     -77.0 %     -77.5 %     -77.9 %     -78.5 %     -79.0 %     -79.6 %
  -55 %     -83 %     -69.8 %     -69.9 %     -70.0 %     -70.1 %     -70.3 %     -70.6 %     -70.9 %     -71.2 %     -71.6 %     -72.1 %     -72.6 %     -73.1 %     -73.7 %     -74.3 %     -74.9 %     -75.6 %
  -50 %     -75 %     -64.7 %     -64.7 %     -64.8 %     -65.0 %     -65.2 %     -65.5 %     -65.9 %     -66.3 %     -66.7 %     -67.3 %     -67.8 %     -68.5 %     -69.2 %     -69.9 %     -70.6 %     -71.4 %
  -45 %     -68 %     -59.2 %     -59.3 %     -59.4 %     -59.6 %     -59.9 %     -60.2 %     -60.6 %     -61.1 %     -61.6 %     -62.2 %     -62.9 %     -63.6 %     -64.4 %     -65.2 %     -66.1 %     -67.0 %
  -40 %     -60 %     -53.5 %     -53.6 %     -53.7 %     -53.9 %     -54.2 %     -54.6 %     -55.1 %     -55.6 %     -56.3 %     -56.9 %     -57.7 %     -58.5 %     -59.4 %     -60.4 %     -61.4 %     -62.4 %
  -35 %     -53 %     -47.6 %     -47.7 %     -47.8 %     -48.1 %     -48.4 %     -48.8 %     -49.4 %     -50.0 %     -50.7 %     -51.5 %     -52.3 %     -53.2 %     -54.2 %     -55.3 %     -56.4 %     -57.6 %
  -30 %     -45 %     -41.4 %     -41.5 %     -41.7 %     -41.9 %     -42.3 %     -42.8 %     -43.4 %     -44.1 %     -44.9 %     -45.7 %     -46.7 %     -47.7 %     -48.8 %     -50.0 %     -51.3 %     -52.6 %
  -25 %     -38 %     -35.1 %     -35.1 %     -35.3 %     -35.6 %     -36.0 %     -36.6 %     -37.2 %     -38.0 %     -38.8 %     -39.8 %     -40.9 %     -42.0 %     -43.3 %     -44.6 %     -46.0 %     -47.4 %
  -20 %     -30 %     -28.5 %     -28.5 %     -28.7 %     -29.1 %     -29.5 %     -30.1 %     -30.8 %     -31.7 %     -32.6 %     -33.7 %     -34.9 %     -36.1 %     -37.5 %     -38.9 %     -40.5 %     -42.1 %
  -15 %     -23 %     -21.6 %     -21.7 %     -21.9 %     -22.3 %     -22.8 %     -23.5 %     -24.2 %     -25.2 %     -26.2 %     -27.4 %     -28.7 %     -30.0 %     -31.5 %     -33.1 %     -34.8 %     -36.5 %
  -10 %     -15 %     -14.6 %     -14.7 %     -14.9 %     -15.3 %     -15.9 %     -16.6 %     -17.4 %     -18.5 %     -19.6 %     -20.9 %     -22.2 %     -23.8 %     -25.4 %     -27.1 %     -28.9 %     -30.9 %
  -5 %     -8 %     -7.4 %     -7.5 %     -7.8 %     -8.2 %     -8.8 %     -9.6 %     -10.5 %     -11.6 %     -12.8 %     -14.2 %     -15.7 %     -17.3 %     -19.1 %     -21.0 %     -22.9 %     -25.0 %
  0 %     0 %     0.0 %     -0.1 %     -0.4 %     -0.8 %     -1.5 %     -2.3 %     -3.3 %     -4.5 %     -5.8 %     -7.3 %     -8.9 %     -10.7 %     -12.6 %     -14.6 %     -16.8 %     -19.0 %
  5 %     8 %     7.6 %     7.5 %     7.2 %     6.7 %     6.0 %     5.1 %     4.0 %     2.8 %     1.3 %     -0.3 %     -2.0 %     -3.9 %     -5.9 %     -8.2 %     -10.4 %     -12.9 %
  10 %     15 %     15.4 %     15.3 %     14.9 %     14.4 %     13.7 %     12.7 %     11.5 %     10.2 %     8.7 %     7.0 %     5.1 %     3.0 %     0.8 %     -1.5 %     -3.9 %     -6.5 %
  15 %     23 %     23.3 %     23.2 %     22.9 %     22.3 %     21.5 %     20.5 %     19.2 %     17.8 %     16.2 %     14.3 %     12.3 %     10.1 %     7.8 %     5.3 %     2.7 %     -0.1 %
  20 %     30 %     31.4 %     31.3 %     31.0 %     30.3 %     29.5 %     28.4 %     27.1 %     25.6 %     23.8 %     21.9 %     19.7 %     17.4 %     14.9 %     12.2 %     9.5 %     6.5 %
  25 %     38 %     39.7 %     39.6 %     39.2 %     38.6 %     37.7 %     36.5 %     35.1 %     33.5 %     31.6 %     29.6 %     27.3 %     24.8 %     22.2 %     19.4 %     16.3 %     13.3 %
  30 %     45 %     48.2 %     48.1 %     47.6 %     47.0 %     46.0 %     44.8 %     43.3 %     41.6 %     39.6 %     37.4 %     35.0 %     32.4 %     29.6 %     26.6 %     23.4 %     20.1 %
  35 %     53 %     56.8 %     56.7 %     56.2 %     55.5 %     54.5 %     53.2 %     51.7 %     49.8 %     47.7 %     45.4 %     42.9 %     40.1 %     37.1 %     34.0 %     30.6 %     27.1 %
  40 %     60 %     65.6 %     65.5 %     65.0 %     64.2 %     63.2 %     61.8 %     60.2 %     58.2 %     56.0 %     53.6 %     50.9 %     48.0 %     44.8 %     41.5 %     37.9 %     34.3 %
  45 %     68 %     74.6 %     74.4 %     73.9 %     73.1 %     72.0 %     70.5 %     68.8 %     66.8 %     64.4 %     61.9 %     59.0 %     55.9 %     52.6 %     49.1 %     45.4 %     41.5 %
  50 %     75 %     83.7 %     83.5 %     83.0 %     82.1 %     80.9 %     79.4 %     77.6 %     75.5 %     73.0 %     70.3 %     67.3 %     64.1 %     60.6 %     56.9 %     53.0 %     48.9 %
  55 %     83 %     92.9 %     92.7 %     92.2 %     91.3 %     90.1 %     88.5 %     86.6 %     84.3 %     81.8 %     78.9 %     75.8 %     72.4 %     68.7 %     64.8 %     60.7 %     56.4 %
  60 %     90 %     102.3 %     102.1 %     101.6 %     100.6 %     99.3 %     97.7 %     95.6 %     93.3 %     90.6 %     87.6 %     84.3 %     80.8 %     76.9 %     72.8 %     68.5 %     64.0 %

 

The foregoing table is intended to isolate the effect of index volatility and index performance on the return of leveraged funds. The Leveraged Fund’s actual returns may be greater or less than the returns shown above.

 

10

 

 

Correlation Risks Specific to the Leveraged Fund.

 

In order to achieve a high degree of correlation with the Index, the Leveraged Fund seeks to rebalance its portfolio daily to keep exposure consistent with its investment objective. Being materially under or overexposed to the Index may prevent the Leveraged Fund from achieving a high degree of correlation with the Index. Market disruptions or closures, large movements of assets into or out of the Leveraged Fund, regulatory restrictions, market volatility, accountability levels, position limits, and daily price fluctuation limits set by the exchanges and other factors will adversely affect the Leveraged Fund’s ability to adjust exposure to requisite levels. The target amount of portfolio exposure may be impacted by changes to the value of the Index each day. Other things being equal, more significant movement in the value of its benchmark, up or down, will require more significant adjustments to the Leveraged Fund’s portfolio. Because of this, it is unlikely that the Leveraged Fund will be perfectly exposed (i.e., 1.5x) at the end of each day, and the likelihood of being materially under- or over-exposed is higher on days when the index levels are volatile at or near the close of the trading day. These risks are particularly acute due to the high degree of volatility in SPIKES futures contracts.

 

The Leveraged Fund seeks to rebalance its portfolio on a daily basis. The time and manner in which the Leveraged Fund rebalances its portfolio may vary from day to day at the discretion of the Sponsor depending upon market conditions and other circumstances. Unlike other funds that do not rebalance their portfolios as frequently, the Leveraged Fund may be subject to increased trading costs associated with daily portfolio rebalancings. The effects of these trading costs have been estimated and included in the Breakeven Table. See “Breakeven Analysis” below.

 

For general correlation risks applicable to each Fund, please see the risk factor herein entitled “Correlation and Performance Risks.”

 

Changes to the Index and the Daily Rebalancing of the Leveraged Fund May Impact Trading in the Underlying Futures Contracts

 

Changes to the Index and daily rebalancing may cause the Leveraged Fund to adjust its portfolio positions. This trading activity will contribute to the trading volume of the underlying futures contracts and may adversely affect the market price of such underlying futures contracts.

 

Intraday Price/Performance Risk.

 

The intraday performance of Shares traded in the secondary market generally will be different from the performance of the Leveraged Fund when measured from one NAV calculation-time to the next. When Shares are bought intraday, the performance of such Shares relative to its index until the Leveraged Fund’s next NAV calculation time likely will be greater than or less than the Leveraged Fund’s stated daily multiple times the performance of its index. These differences can be significant.

 

Risks Applicable to Investing in SPIKES Futures Contracts

 

The futures contracts in which the Funds invest can be highly volatile and a Fund may experience sudden and large losses when buying, selling or holding such instruments; you can lose all or a portion of your investment within a single day.

 

Investments linked to equity market volatility, including SPIKES futures contracts, can be highly volatile and may experience sudden, large and unexpected losses. The Index could have large single-day or intraday moves, up or down, that could cause investors to lose all or a substantial portion of their investment in a short period of time. SPIKES futures contracts (or other Financial Instruments in which the Funds may invest) are unlike traditional futures contracts and are not based on a tradable reference asset. The SPIKES Index is not directly investable, and the settlement price of a SPIKES futures contract is based on the calculation that determines the level of the SPIKES Index. As a result, the behavior of a SPIKES futures contract (or other Financial Instruments in which the Funds may invest) may be different from a traditional futures contract whose settlement price is based on a specific tradable asset and may differ from an investor’s expectations. The market for SPIKES futures contracts (or other Financial Instruments in which the Funds may invest) may fluctuate widely based on a variety of factors including changes in overall market movements, political and economic events and policies, wars, acts of terrorism, natural disasters, changes in interest rates or inflation rates. High volatility may have an adverse impact on the performance of a Fund. The Leveraged Fund’s leverage factor (1.5x) increases the potential for loss on an investment in this Fund. An investor in any of the Funds could potentially lose the full principal of his or her investment within a single day.

 

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For example, in 2018, volatility spiked and it was reported that VIX similarly spiked. It was reported that, on February 2, 2018, the first- and second-month VIX futures contracts closed at approximately 15-16. Following an approximately 4% decline in equity markets on February 5, 2018, they increased to approximately 28-33, and investment products that were benchmarked to indexes of futures contracts on VIX (“VIX Futures Indexes”) declined significantly. On particular product that sought inverse investment returns to a VIX Futures Index lost approximately 96% of the product’s net asset value in a single day.

 

Daily rebalancing of the futures contracts underlying the Index may impact trading in the underlying futures contracts.

 

The daily rebalancing of the futures contracts underlying the Index may impact trading in such futures contracts. For example, such trading may cause Futures Commission Merchants (“FCMs”) to adjust their hedges. The trading activity associated with such transactions will contribute to the existing trading volume of the underlying futures contracts and may adversely affect the market price of such underlying futures contracts and in turn the level of the Index.

 

The Funds generally are intended to be used as trading tools for short-term investment horizons and investors holding shares of a Fund over longer-term periods may be subject to increased risk of loss.

 

The Funds generally are intended to be used only for short-term investment horizons. An investor in a Fund can lose all or a substantial portion of his or her investment within a single day. The longer an investor’s holding period in a Fund, the greater the potential for loss.

 

The Funds are benchmarked to the Index. They are not benchmarked to the SPIKES Index; the performance of each Fund should be expected to vary from the performance of the SPIKES Index. As a result, the Index and the Funds should be expected to perform very differently from the SPIKES Index over all periods of time.

 

The performance of the Index is based on the value of the SPIKES short-term futures contracts (“SPIKES futures contracts”) that comprise the Index. While there is a relationship between the performance of the Index and future levels of the SPIKES Index, the performance of the Index is not directly linked to the performance of the SPIKES Index, to the realized volatility of SPY or to the options that underlie the calculation of the SPIKES Index. As a result, the Index and the Funds should be expected to perform very differently from the SPIKES Index over all periods of time. In many cases, the Index (and thus the Funds) will underperform the SPIKES Index. Further, the performance of the Index and the Funds should not be expected to represent the realized volatility of the S&P500® or any multiple thereof.

 

The SPIKES Index seeks to measure the market’s current expectation of 30-day volatility of the SPDR S&P 500 ETF (“SPY”), as reflected by the prices of near-term SPY options. The market’s current expectation of the possible rate and magnitude of movements in an index is commonly referred to as the “implied volatility” of the index. Because SPY options derive value from the possibility that the SPY may experience movement before such options expire, the prices of near-term SPY options are used to calculate the implied volatility of the SPY.

 

Unlike many indexes, the SPIKES Index is not an investable index. It is not practical to invest in the SPIKES Index as it is comprised of a constantly changing portfolio of options on SPY. Rather, the SPIKES Index is designed to serve as a market volatility forecast. The Funds are not benchmarked to the performance of the SPIKES Index or the realized volatility of the SPY and, in fact, can be expected to perform very differently from the SPIKES Index and the realized volatility of the SPY over all periods of time.

 

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The prices of futures contracts based on a non-investable index such as the SPIKES Index may behave differently from the prices of futures contracts whose settlement price is based on a tradeable asset.

 

As noted, the Funds are benchmarked against an underlying index of SPIKES short-term futures contracts. The value of a SPIKES futures contract is based on the expected value of the SPIKES Index at a future point in time, specifically the expiration date of the SPIKES futures contract. Therefore, a SPIKES futures contract represents the forward implied volatility of the SPIKES Index, and therefore the forward implied volatility of the SPY, over the 30-day period following the expiration of such contract. As a result, a change in the SPIKES Index today will not necessarily result in a corresponding movement in the price of SPIKES futures contracts since the price of the SPIKES futures contracts is based on expectations of the performance of the SPIKES Index at a future point in time. For example, a SPIKES futures contract purchased in March that expires in May, in effect, is a forward contract on what the level of the SPIKES Index, as a measure of 30-day implied volatility of the SPY, will be on the May expiration date. The forward volatility reading of the SPIKES Index may not correlate directly to the current volatility reading of the SPIKES Index because the implied volatility of SPY at a future expiration date may be different from the current implied volatility of SPY. As a result, the Index and a Fund should be expected to perform very differently from the SPIKES Index over all periods of time.

 

The inability of Authorized Participants and market makers to hedge their exposure to SPIKES futures contracts may adversely affect the liquidity of Shares and the value of an investment in the Shares.

 

Authorized Participants and market makers will generally want to hedge their exposure in connection with Creation Unit creation and redemption orders. To the extent Authorized Participants and market makers are unable to hedge their exposure due to market conditions (e.g., insufficient SPIKES futures contracts liquidity in the market, inability to locate an appropriate hedge counterparty, etc.), such conditions may make it difficult to create or redeem Creation Units or cause them to not create or redeem Creation Units. In addition, the hedging mechanisms employed by Authorized Participants and market makers to hedge their exposure to SPIKES futures contracts may not function as intended, which may make it more difficult for them to enter into such transactions. Such events could negatively impact the market prices of the Funds and the spread at which the Funds trade on the open market. The market for exchange-traded SPIKES futures contracts has limited trading history and operational experience and may be less liquid, more volatile and more vulnerable to economic, market and industry changes than more established futures markets. The liquidity of the market will depend on, among other things, the adoption of SPIKES futures contracts and the commercial and speculative interest in the market for the ability to hedge against the price of the SPIKES Index with exchange-traded SPIKES futures contracts.

 

Possible illiquid markets may exacerbate losses or increase the variability between the Funds’ NAVs and their market prices.

 

SPIKES futures contracts are a new asset with a very limited trading history. Therefore, the markets for SPIKES futures contracts may be less liquid and more volatile than other markets for more established products.

 

SPIKES futures contracts were initially launched for trading by MGEX, via the CME GLOBEX® platform, on November 18, 2019. Trading was subsequently halted on November 29, 2019 while certain regulatory matters were resolved with the SEC. The SPIKES futures contracts were re-launched on December 14, 2020 for trading by MGEX.

 

The limited trading history of SPIKES futures contracts and the trading suspension may affect the market acceptance of SPIKES futures contracts. Therefore, 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 the SPIKES futures market. A market disruption can also make it more difficult to liquidate a position or find a suitable counterparty at a reasonable cost.

 

Market illiquidity may cause losses for the Funds. The large size of the positions that the Funds may acquire will increase the risk of illiquidity by both making the positions more difficult to liquidate and increasing the losses incurred while trying to do so should the Funds need to liquidate its SPIKES futures contracts, or making it more difficult for Authorized Participants to acquire or liquidate SPIKES futures contracts as part of the creation and/or redemption of Shares of the Funds.

 

13

 

 

The process of rolling futures positions may negatively impact the value of a Fund’s performance.

 

Each Fund invests in or has exposure to SPIKES futures contracts and is subject to risks related to “rolling” such futures contracts, which is the process by which the Fund closes out a futures position prior to its expiration month and purchases an identical futures contract with a later expiration date. The Funds do not intend to hold futures contracts through expiration, but instead intend to “roll” their respective positions as they approach expiration. The contractual obligations of a buyer or seller holding a futures contract to expiration may be satisfied by settling in cash as designated in the contract specifications. As explained further below, the price of futures contracts further from expiration may be higher (a condition known as “contango”) or lower (a condition known as “backwardation”), which can impact a Fund’s returns.

 

When the market for these futures contracts is such that the prices are higher in the more distant delivery months than in the nearer delivery months, the sale during the course of the “rolling process” of the more nearby futures contract would take place at a price that is lower than the price of the more distant futures contract. This pattern of higher prices for longer expiration futures contracts is often referred to as “contango.” Alternatively, when the market for these contracts is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the “rolling process” of the more nearby futures contract would take place at a price that is higher than the price of the more distant futures contract. This pattern of higher prices for shorter expiration futures contracts is referred to as “backwardation.” The presence of contango in the relevant futures contracts at the time of rolling would be expected to adversely affect a Fund. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to positively affect a Fund with long positions.

 

The SPIKES futures contracts are expected to experience extended periods of contango or backwardation. These periods may cause significant and sustained losses. Additionally, because of the frequency with which a Fund may roll futures contracts, the impact of such contango or backwardation on Fund performance may be greater than it would have been if the Fund rolled futures contracts less frequently.

 

Although the Funds intend to be fully invested in SPIKES futures contracts or other Financial Instruments, the Sponsor may not be able to invest a Fund’s assets in futures contracts having an aggregate notional amount exactly equal to the expiring position or the targeted allocation. For example, as standardized contracts, SPIKES Futures Contracts are denominated in specific dollar amounts, and a Fund’s NAV and the proceeds from the sale of a Creation Unit are unlikely to be an exact multiple of the amounts of those contracts.

 

When the U.S. equity market is calm, the SPIKE Index declines and the SPIKES futures term structure is likely to be in contango. That is, near-term SPIKES futures contracts will likely trade higher than the SPIKES Index and medium and long-term futures will trade higher than the near-term contracts. On the other hand, when the market is volatile, the SPIKES Index will move higher. The value of SPIKES futures contracts will increase less than the SPIKES Index because the market expects volatility to return to the long-term mean over time. As a result, the SPIKES futures term structure becomes backwardated, with near-term contracts trading below the SPIKES Index level and further-out contracts lower still. Since the launch of the SPIKES futures contracts, the SPIKES futures markets have primarily experienced contango, but there have also been times of backwardation. 

 

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The value of the Shares of a Fund relates directly to the value of, and realized gain or loss from, the Financial Instruments and other assets held by the Fund. Fluctuations in the price of these Financial Instruments or assets could materially adversely affect an investment in the Shares.

 

Several factors may affect the price and/or liquidity of SPIKES futures contracts and other assets, if any, owned by a Fund, including, but not limited to:

 

Prevailing market prices and forward volatility levels of the U.S. stock markets, SPY, the equity securities included in SPY’s portfolio and prevailing market prices of options on SPY, the SPIKES Index, options on the SPIKES Index, the relevant SPIKES futures contracts, or any other financial instruments related to SPY and the SPIKES Index or SPIKES futures contracts;

 

Interest rates and investors’ expectations concerning interest rates;

 

Economic, financial, political, regulatory, geographical, judicial and other events that affect the level of the Index or the market price or forward volatility of the U.S. stock markets, the equity securities included in SPY’s portfolio, SPY, the SPIKES Index or the relevant futures or option contracts on the SPIKES Index;

 

Supply and demand as well as hedging activities in the listed and over-the-counter (“OTC”) equity derivatives markets;

 

The level of margin requirements;

 

The position limits imposed by futures exchanges and any position or risk limits imposed by Futures Commission Merchants (“FCMs”);

 

Disruptions in trading of Financial Instruments;

 

Disruptions in trading of SPY, futures contracts on SPY or options on SPY; and

 

The level of contango or backwardation in the SPIKES futures contracts market.

 

Each of these factors could have a negative impact on the value of a Fund. These factors interrelate in complex ways, and the effect of one factor on the market value of a Fund may offset or enhance the effect of another factor.

 

The value of the Shares of a Fund relates directly to the value of, and realized gain or loss from, the Financial Instruments and other assets held by the Fund. Several factors may affect the price and/or liquidity of futures or swap contracts and other assets, if any, owned by a Fund, including, but not limited to, the risks specific to SPIKES futures contracts, above, and the following additional risks:

 

Supply and demand of the Financial Instruments, which may be influenced by forward selling by commodities producers and purchases made by the commodities producers’ to unwind their hedge positions, as well as production and cost levels in the relevant major markets of the Financial Instruments and their underlying assets;

 

Global or regional political, economic, or financial events and situations;

 

Acts of God;

 

Weather and other environmental conditions; and

 

Investment and trading activities of mutual funds, hedge funds and other market participants.

 

Each of these factors could have a negative impact on the value of a Fund. These factors interrelate in complex ways, and the effect of one factor on the market value of a Fund may offset or enhance the effect of another factor.

 

15

 

 

Risks Applicable to All Funds

 

Each Fund seeks to achieve its investment objective even during periods when the performance of the Index is flat or when the Index is moving in a manner that may cause the value of the Fund to decline.

 

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market considerations with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to the Index consistent with its investment objective. This is the case even during periods in which the Index is flat or moving in a manner which causes the value of a Fund to decline. A Fund can lose money regardless of the performance of the Index, due to the effects of daily rebalancing, volatility, compounding and other factors.

 

Correlation and Performance Risks

 

While the Funds seek to meet their investment objectives, there is no guarantee they will do so. Factors that may affect a Fund’s ability to meet its investment objective include: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective, including the Sponsor’s ability to enter into new futures positions and swap contracts to replace exposure that has been reduced or terminated by a future commission merchant or counterparty to the Fund; (2) an imperfect correlation between the performance of the Financial Instruments held by a Fund and the performance of the Index; (3) bid-ask spreads on such Financial Instruments; (4) fees, expenses, transaction costs, financing costs and margin requirements associated with the use of Financial Instruments and commission costs; (5) holding or trading Financial Instruments in a market that has become illiquid or disrupted; (6) a Fund’s Share price being rounded to the nearest cent and/or valuation methodologies; (7) changes to the Index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; (10) accounting standards; (11) differences caused by a Fund obtaining exposure to only a representative sample of the components of the Index, overweighting or underweighting certain components of the Index or obtaining exposure to assets that are not included in the Index; (12) large movements of assets into and/or out of a Fund; and (13) events such as natural disasters or epidemics that can be highly disruptive to economies, markets, and companies including, but not limited to, the Sponsor and third party service providers.

 

Being materially under- or over-exposed to the Index may prevent such Funds from achieving a high degree of correlation with the Index. Market disruptions or closures, large movements of assets into or out of a Fund, regulatory restrictions, or market volatility and other factors will adversely affect such Fund’s ability to maintain a high degree of correlation.

 

Additional factors may impact a Fund’s ability to achieve a high correlation to the Index, see “Correlation Risks Specific to the Leveraged Fund” herein.

 

An investment in the Fund is subject to the risks of an investment in futures contracts.

 

An investment in the Fund is subject to the risks of an investment in futures contracts, which are complex instruments that are often subject to a high degree of price variability. Accordingly, an investment in the Fund should be monitored, as frequently as daily, and may not be suitable for all investors.

 

Possible illiquid markets may cause or exacerbate losses.

 

Financial Instruments cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Market disruptions or volatility can also make it difficult to liquidate a position or find a swap counterparty at a reasonable cost.

 

Market illiquidity may cause losses for the Funds. The large size of the positions which the Funds may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due to the fact that each Fund will typically invest in Financial Instruments related to a single benchmark, which in many cases is highly concentrated. Limits imposed by counterparties, exchanges or other regulatory organizations, such as accountability levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity with respect to some Financial Instruments.

 

16

 

 

It may not be possible to gain exposure to the Index using exchange-traded Financial Instruments in the future.

 

The Funds intend to utilize exchange-traded Financial Instruments. It may not be possible to gain exposure to the Index with these Financial Instruments in the future. If these Financial Instruments cease to be traded on regulated exchanges, they may be replaced with Financial Instruments traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such Financial Instruments, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the provisions of, and the protections afforded by, the Commodity Exchange Act, as amended (the “CEA”), or other applicable statutes and related regulations that govern trading on regulated U.S. futures exchanges, or similar statutes and regulations that govern trading on regulated U.K. futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in an index, may be subject to certain risks not presented by U.S. or U.K. exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.

 

Fees are charged regardless of a Fund’s returns and may result in depletion of assets.

 

The Funds are subject to the fees and expenses described herein which are payable irrespective of a Fund’s returns, as well as the effects of commissions, trading spreads, and embedded financing, borrowing costs and fees associated with swaps, futures contracts, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality, short-term fixed-income or similar securities. These fees and expenses have a negative impact on Fund returns.

 

The Index may underperform other asset classes and may underperform other indices or benchmarks based upon SPIKES futures contracts, which can have an adverse impact on the value of a Fund’s shares.

 

The Funds are linked to an Index maintained by a third-party provider unaffiliated with the Funds or the Sponsor. There can be no guarantee or assurance that the methodology used by the third-party provider to create the Index will result in a Fund achieving high, or even positive, returns. Further, there can be no guarantee that the methodology underlying the Index or the daily calculation of the Index will be free from error. It is also possible that third parties may attempt to manipulate the value of the Index or the SPIKES Index. The Index may underperform other asset classes and may underperform other indices or benchmarks based upon the SPIKES futures contracts. Each of these factors could have a negative impact on the performance of a Fund.

 

The Funds may be subject to counterparty risks.

 

Each Fund may use derivatives such as futures contracts and swap agreements (collectively referred to herein as “derivatives”) in the manner described herein as a means to achieve their respective investment objectives. The use of derivatives by a Fund exposes the Fund to counterparty risks.

 

Margin requirements for futures contracts and position limits imposed by exchanges and FCMs may limit a Fund’s ability to achieve sufficient exposure and prevent a Fund from achieving its investment objective.

 

The term “margin” refers to the minimum amount a Fund must deposit and maintain with its FCM in order to establish an open position in futures contracts. The minimum amount of margin required in connection with a particular futures contract is set by the clearinghouse that clears such contract and is subject to change at any time during the term of the contract. Futures contracts are customarily bought and sold on margins that represent a percentage of the aggregate purchase or sales price of the contract. “Initial” or “original” margin is the minimum amount of funds that must be deposited by each of the Funds with its FCM to initiate a futures position or to maintain an open position in a futures contract. “Maintenance” margin is the amount (generally less than initial margin) to which a Fund’s account may decline before the Fund must provide additional margin. A margin deposit is like a performance bond in that it helps assure a Fund’s performance of the futures contract that the Fund purchases or sells. Futures contracts are customarily bought and sold on margin that represents a very small percentage (ranging upward from less than 2%) of the purchase or sales price of the contract being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investments. An FCM may not accept lower, and generally require higher, amounts of margin from its clients than the minimum margin requirements established by the clearinghouses as a matter of policy to afford further protection for themselves.

 

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An FCM may compute margin requirements multiple times per day and must do so at least once per day. When a Fund has an open futures contract position, it is subject to daily variation margin calls by an FCM that could be substantial in the event of adverse price movements. Because futures contracts require only a small initial investment in the form of a deposit or initial margin, they involve a high degree of leverage. A Fund with open positions is subject to maintenance or variation margin on its open positions. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the FCM. If the margin call is not met within a reasonable time, the FCM may close out a Fund’s position which may impair the Fund from achieving its investment objective or result in reduced returns to the Fund’s investors. If a Fund has insufficient cash to meet daily variation margin requirements, it may need to sell Financial Instruments at a time when such sales are disadvantageous. Futures markets are highly volatile in general, and may become more volatile during periods of general market and/or economic volatility, and the use of or exposure to futures contracts may increase volatility of a Fund’s NAV.

 

SPIKES futures contracts in particular are expected to be subject to periods of sudden and extreme volatility. As a result, margin requirements for SPIKES futures contracts are higher than the margin requirement for most other types of futures contracts. In addition, the FCMs utilized by the Funds may impose margin requirements in addition to those imposed by the clearinghouse. Margin requirements are subject to change on any given day, and may be raised in the future on a single day or on multiple or successive days by either or both of the clearinghouse and the FCMs. High margin requirements could prevent a Fund from obtaining sufficient exposure to futures contracts and may adversely affect a Fund’s ability to achieve its investment objective. An FCM’s failure to return required margin to a Fund on a timely basis may cause the Fund to delay redemption settlement dates and/or restrict, postpone or limit the right of redemption.

 

Futures contracts are subject to liquidity risk. Certain of the FCMs utilized by the Funds have imposed their own “position limits”, or risk limits, on the Funds. Any such risk limits restrict the amount of exposure to futures contracts that a Fund can obtain through such FCMs. As a result, a Fund may need to transact through a number of FCMs to achieve its investment objective. If enough FCMs are not willing to transact with a Fund, or if the risk limits imposed by such FCMs do not provide sufficient exposure, the Fund may not be able to achieve its investment objective.

 

Margin requirements for uncleared swaps may limit a Fund’s ability to achieve sufficient exposure and prevent a Fund from achieving its investment objective.

 

The CFTC and banking regulators, as well as regulators outside the United States, have adopted collateral requirements applicable to swaps that are traded bilaterally and not cleared by a clearinghouse (“uncleared swaps”). Although a Fund is not directly subject to uncleared swap margin requirements, the Fund will become subject to these requirements by virtue of its counterparty’s status if such counterparty is registered as a swap dealer. Thus, when a Fund’s counterparty is subject to uncleared swap margin requirements, uncleared swaps between the Fund and that counterparty are subject to daily marked-to-market, or variation margin, requirements, and collateral is required to be exchanged between the Fund and the counterparty to account for any changes in the value of such swaps. The rules require registered swap dealers to collect from, and post to, a Fund variation margin (and initial margin, if the Fund exceeds a specified exposure threshold) for uncleared swap transactions.

 

The uncleared swap margin rules impose a number of requirements on counterparties to an uncleared swap that are registered swap dealers, including requirements related to the timing of margin transfers, the types of collateral that may be posted, the valuations of such collateral, and the calculation of margin requirements. The rules also require that a Fund post uncleared margin collateral to an independent bank custodian. These rules may result in significant operational burdens and costs to the Funds when they engage in uncleared swaps and may impair the Funds’ ability to achieve their investment objective or result in reduced returns to the Funds’ investors.

 

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In addition to the variation margin requirements to which a Fund is subject when its uncleared swap counterparty is a registered swap dealer, regulators have adopted initial margin requirements applicable to uncleared swaps where at least one party is a registered swap dealer. The initial margin rules require parties to an uncleared swap to post, to a custodian that is independent from the swap counterparties, collateral (in addition to any variation margin) in an amount that is either (i) specified in a schedule in the rules or (ii) calculated by the swap dealer counterparty in accordance with a model that has been approved by the swap dealer’s regulator. Initial margin requirements are subject to a phased-in compliance period and, currently, these rules do not apply to any of the Funds. However, it is possible that in the future, these rules could apply to the Funds. In the event that the initial margin for uncleared swap rules apply to the Funds in the future, the rules would impose significant costs on a Fund’s ability to engage in uncleared swaps and may impair the Fund from achieving its investment objective or result in reduced returns to the Fund’s investors.

 

Natural Disaster/Epidemic Risk.

 

Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis and other severe weather-related phenomena generally, and widespread disease, including pandemics and epidemics (for example, the novel coronavirus COVID-19), have been and can be highly disruptive to economies and markets and have recently led, and may continue to lead, to increased market volatility and significant market losses. Such natural disaster and health crises could exacerbate political, social, and economic risks previously mentioned, and result in significant breakdowns, delays, shutdowns, social isolation, and other disruptions to important global, local and regional supply chains affected, with potential corresponding results on the operating performance of the Funds and their investments. A climate of uncertainty and panic, including the contagion of infectious viruses or diseases, may adversely affect global, regional, and local economies and reduce the availability of potential investment opportunities, and increases the difficulty of performing due diligence and modeling market conditions, potentially reducing the accuracy of financial projections. Under these circumstances, the Funds may have difficulty achieving their investment objectives which may adversely impact performance. Further, such events can be highly disruptive to economies and markets, significantly disrupt the operations of individual companies (including, but not limited to, the Funds’ Sponsor and third party service providers), sectors, industries, markets, securities and commodity exchanges, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Funds’ investments. These factors can cause substantial market volatility, exchange trading suspensions and closures and can impact the ability of the Funds to complete redemptions and otherwise affect Fund performance and Fund trading in the secondary market. A widespread crisis may also affect the global economy in ways that cannot necessarily be foreseen at the current time. How long such events will last and whether they will continue or recur cannot be predicted. Impacts from these events could have significant impact on a Fund’s performance, resulting in losses to your investment.

 

Risk that Current Assumptions and Expectations Could Become Outdated As a Result of Global Economic Shocks

 

The onset of the novel coronavirus (COVID-19) has caused significant shocks to global financial markets and economies, with many governments taking extreme actions to slow and contain the spread of COVID-19. These actions have had, and likely will continue to have, a severe economic impact on global economies as economic activity in some instances has essentially ceased. Financial markets across the globe are experiencing severe distress at least equal to what was experienced during the global financial crisis in 2008. In March 2020, U.S. equity markets entered a bear market in the fastest such move in the history of U.S. financial markets. Contemporaneous with the onset of the COVID-19 pandemic in the US, oil experienced shocks to supply and demand, impacting the price and volatility of oil. The global economic shocks being experienced as of the date hereof may cause the underlying assumptions and expectations of the Funds to become outdated quickly or inaccurate, resulting in significant losses.

 

Regulatory changes or actions, including the implementation of new legislation, may alter the operations and profitability of a Fund.

 

On October 4, 2021, Gary Gensler, Chair of the SEC, issued a statement on complex exchange-traded products whereby he directed the staff of the Securities and Exchange Commission to study the potential risks of complex financial products that are listed on exchanges and present recommendations of the Commission’s consideration on potential rulemaking proposals to address those risks. While it is difficult to know what form such rulemaking proposals might take or what substantive content they main contain, there is a possibility that any such future regulatory changes could have a material impact on the ability of the Funds to continue to offer and sell Shares in the Funds. The effect of any future regulatory change on the Fund is impossible to predict, but could be substantial and adverse.

 

The U.S. derivatives markets and market participants have been subject to comprehensive regulation, not only by the CFTC but also by self-regulatory organizations, including the NFA and the exchanges on which the derivatives contracts are traded and/or cleared. As with any regulated activity, changes in regulations may have unexpected results. For example, changes in the amount or quality of the collateral that traders in derivatives contracts are required to provide to secure their open positions, or in the limits on number or size of positions that a trader may have open at a given time, may adversely affect the ability of a Fund to enter into certain transactions that could otherwise present lucrative opportunities. Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the United States. There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in a Fund or the ability of the Fund to continue to implement its investment strategy.

 

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In addition, the SEC, 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 or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of swaps, forwards and futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Fund is impossible to predict, but could be substantial and adverse.

 

In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has made and will continue to make sweeping changes to the way in which the U.S. financial system is supervised and regulated. Title VII of the Dodd-Frank Act sets forth a legislative framework for OTC derivatives, including certain Financial Instruments, such as swaps, in which a Fund may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and, pursuant to regulations that have been and will continue to be adopted by the regulators, requires the clearing and exchange trading of many types of OTC derivatives transactions.

 

Pursuant to regulations adopted by the CFTC, swap dealers are required to be registered and are subject to various regulatory requirements, including, but not limited to, margin, recordkeeping, reporting and various business conduct requirements, as well as proposed minimum financial capital requirements.

 

Pursuant to the Dodd-Frank Act, regulations adopted by the CFTC and the federal banking regulators that are now in effect require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with a Fund. These requirements may increase the amount of collateral a Fund is required to provide and the costs associated with providing it.

 

OTC swap agreements submitted for clearing are subject to minimum initial and variation margin requirements set by the relevant clearing house, as well as margin requirements mandated by the CFTC, SEC and/or federal banking regulators. Swap dealers also typically demand the unilateral ability to increase a Fund’s collateral requirements for cleared swap agreements beyond any regulatory and clearing house minimums. Such requirements may make it more difficult and costly for investment funds, such as a Fund, to enter into customized transactions. They may also render certain strategies in which a Fund might otherwise engage impossible or so costly that they will no longer be economical to implement. If a Fund decides to execute swap agreements through such exchanges or execution facilities, the Fund would be subject to the rules of the exchange or execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or execution facility.

 

With respect to cleared OTC derivatives, a Fund will not face a clearing house directly but rather will do so through a swap dealer that is registered with the CFTC or SEC and that acts as a clearing member. A Fund may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member. This risk could arise due to a default by the clearing member on its obligations to the clearing house triggered by a customer’s failure to meet its obligations to the clearing member.

 

Swap dealers also are required to post margin to the clearing houses through which they clear their customers’ trades instead of using such margin in their operations, as was widely permitted before Dodd-Frank. This has increased and will continue to increase the swap dealers’ costs, and these increased costs are generally passed through to other market participants such as a Fund in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing account maintenance fees.

 

While certain regulations have been promulgated and are already in effect, the full impact of the Dodd-Frank Act on a Fund remains uncertain. The legislation and the related regulations that have been and may be promulgated in the future may negatively impact a Fund’s ability to meet its investment objective either through limits on its investments or requirements imposed on it or any of its counterparties. In particular, new requirements, including capital requirements and mandatory clearing of OTC derivatives transactions, which may increase derivative counterparties’ costs and are expected to generally be passed through to other market participants in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing house account maintenance fees, may increase the cost of a Fund’s investments and the cost of doing business, which could adversely affect investors.

 

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Counterparty Credit Risk

 

The Funds will be subject to the credit risk of the counterparties to derivatives. In the case of cleared derivatives, the Funds will have credit risk to the clearinghouse in a similar manner as the Funds would for futures contracts. In the case of uncleared derivatives, the Funds will be subject to the credit risk of the counterparty to the transaction – typically a single bank or financial institution. As a result, a Fund is subject to increased credit risk with respect to the amount it expects to receive from counterparties to uncleared derivatives entered into as part of that Fund’s principal investment strategy. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties or other reasons, a Fund could suffer significant losses on these contracts and the value of an investor’s investment in a Fund may decline.

 

The Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agrees to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds. However, there are no limitations on the percentage of assets each Fund may invest in swap agreements or forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions only with major, global financial institutions.

 

OTC derivatives of the type that may be utilized by the Funds are generally less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty. These agreements contain various conditions, events of default, termination events, covenants and representations. The triggering of certain events or the default on certain terms of the agreement could allow a party to terminate a transaction under the agreement and request immediate payment in an amount equal to the net positions owed to the party under the agreement. For example, if the level of the Funds’ benchmark has a dramatic intraday move that would cause a material decline in a Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for a Fund to enter into another swap or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent a Fund from achieving its investment objective, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day.

 

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In addition, cleared derivatives benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. To the extent that a Fund enters into cleared swap transactions, the Fund will deposit collateral with an FCM in cleared swaps customer accounts, which are required by CFTC regulations to be separate from the FCM’s proprietary collateral. Cleared swap customer collateral is subject to regulations that closely parallel the regulations governing customer segregated funds for futures transactions (described above) but provide certain additional protections to cleared swaps collateral in the event of a clearing broker or clearing broker customer default. For example, in the event of a default of both the clearing broker and a customer of the clearing broker, a clearinghouse is only permitted to access the cleared swaps collateral in the legally separate (but operationally comingled) account of the defaulting cleared swap customer of the clearing broker, as opposed to the treatment of customer segregated funds, under which the clearinghouse may access all of the commingled customer segregated funds of a defaulting clearing broker. In the event of an FCM’s bankruptcy, the Funds could be limited to recovering either a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts or the Funds may not recover any assets at all, even though certain property specifically traceable to the Funds was held by the FCM. In the event of a bankruptcy or insolvency of any exchange or a clearinghouse, the Funds could experience a loss of the funds deposited through an FCM as margin with the exchange or clearinghouse, a loss of any unrealized profits on its open positions on the exchange, and the loss of unrealized profits on its closed positions on the exchange.

 

Uncleared derivatives entered into directly between two counterparties do not necessarily benefit from such protections, particularly if entered into with an entity that is not registered as a “swap dealer” with the CFTC. This exposes a Fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Funds to suffer a loss.

 

Each counterparty and/or any of its affiliates may be an Authorized Participant or shareholder of a Fund, subject to applicable law.

 

The counterparty risk for cleared derivatives transactions is generally lower than for uncleared OTC derivatives. Once a transaction is cleared, the clearinghouse is substituted and is a Fund’s counterparty on the derivative. The clearinghouse guarantees the performance of the other side of the derivative. Nevertheless, some risk remains, as there is no assurance that the clearinghouse, or its members, will satisfy their obligations to a Fund.

 

The Funds may change their investment objectives, Index and strategies, and may be liquidated, at any time.

 

The Sponsor has the authority to change a Fund’s investment objective, Index or investment strategy at any time without shareholder approval. Although such changes may be subject to applicable regulatory approvals, the Sponsor may determine to operate a Fund in accordance with its new investment objective, Index or strategy while those approvals are pending. The Sponsor also has the authority to liquidate a Fund at any time without shareholder approval. Changes in a Fund’s investment objective, Index or strategy, as well as any liquidation of a Fund, may occur without shareholder approval and with limited advance notice to shareholders and may expose shareholders to losses on their investments in the Fund.

 

A Fund may change its investment objective, Index or strategies and may liquidate at a time that is disadvantageous to shareholders.

 

A change to the investment objective, Index or strategies or the liquidation of a Fund could occur at a time that is disadvantageous to shareholders. When a Fund’s assets are sold as part of the Fund’s liquidation, the resulting proceeds distributed to shareholders may be less than those that may be realized in a sale outside of a liquidation context.

 

The Funds use investment techniques that may be considered aggressive.

 

Some investment techniques of the Funds, such as their use of Financial Instruments, may be considered aggressive. Risks associated with Financial Instruments include potentially dramatic price changes (losses) in the value of the instruments and imperfect correlations between the price of the contract and the underlying Reference Asset. The use of Financial Instruments may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed.

 

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Historical correlation trends between the Index and other asset classes may not continue or may reverse, limiting or eliminating any potential diversification or other benefit from owning a Fund.

 

To the extent that an investor purchases a Fund seeking diversification benefits based on the historic correlation (whether positive or negative) between the Fund or the Index and other asset classes, such historic correlation may not continue or may reverse itself. In this circumstance, the diversification or other benefits sought may be limited or non-existent. The diversification or other benefits sought by an investor in a Fund may also become limited or cease to exist if the Sponsor determines to change the Fund’s benchmark or otherwise modify the Fund’s investment objective or strategy.

 

The lack of active trading markets for the Shares may result in losses upon the sale or disposition of such Shares.

 

Although the Shares are publicly listed and traded on the Exchange, there can be no guarantee that an active trading market for the Shares will develop or be maintained. If investors need to sell their Shares at a time when an active market for such Shares does not exist, the price investors receive for their Shares, assuming that investors are able to sell them at all, likely will be lower than the price that investors would receive if an active market did exist.

 

Investors may be adversely affected by redemption or creation orders that are subject to postponement, suspension or rejection under certain circumstances.

 

A Fund may, in its discretion, suspend the right of creation or redemption or may postpone the redemption or purchase settlement date, for (1) any period during which the Exchange or any other exchange, marketplace or trading center, deemed to affect the normal operations of any of the Funds, is closed, or when trading is restricted or suspended on such exchanges in any of the Funds’ futures contracts, (2) any period during which an emergency exists as a result of which the fulfillment of a purchase order or the redemption distribution is not reasonably practicable, or (3) such other period as the Sponsor determines to be necessary for the protection of the shareholders of the Funds. In addition, a Fund will reject a redemption order if the order is not in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order might be unlawful. Any such postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely affect the value of the Authorized Participant’s redemption proceeds if the NAV of a Fund declines during the period of delay. The Funds disclaim any liability for any loss or damage that may result from any such suspension or postponement. Suspension of creation privileges may adversely impact how the Shares are traded and arbitraged on the secondary market, which could cause them to trade at levels materially different (premiums and discounts) from the fair value of their underlying holdings.

 

The market price at which investors buy or sell shares may be significantly more or less than NAV.

 

The market price at which investors buy or sell shares may be significantly less or more than NAV. Each Fund’s per share NAV will change throughout the day as fluctuations occur in the market value of the Fund’s portfolio assets. The public trading price at which an investor buys or sells shares during the day from their broker may be different from the NAV of the shares. Price differences may relate primarily to supply and demand forces at work in the secondary trading market for a Fund’s shares that are closely related to, but not identical to, the same forces influencing the prices of the SPIKES futures contracts, cash and cash equivalents that constitute the Fund’s assets.

 

The NAV of a Fund’s shares may also be influenced by non-concurrent trading hours between the NYSE Arca and the market for SPIKES futures contracts. While a Fund’s shares trade on the NYSE Arca from 9:30 a.m. to 4:00 p.m. E.T., the trading hours for the SPIKES futures contracts do not coincide during all of this time. As a result, trading spreads and the resulting premium or discount on the shares may widen and, therefore, increase the difference between the price of the shares and the NAV of the shares.

 

Investors may be adversely affected by an overstatement or understatement of a Fund’s NAV due to the valuation method employed or errors in the NAV calculation.

 

Under normal circumstances, the NAV of a Fund reflects the value of the Financial Instruments held by the Fund, as of the time the NAV is calculated. The NAV of the Funds includes, in part, any unrealized profits or losses on open Financial Instrument positions. In certain circumstances (e.g., if the Sponsor believes market quotations do not accurately reflect fair value of an investment, or a trading halt closes an exchange or market early), the Sponsor may, in its sole discretion, choose to determine a fair value price as the basis for determining the market value of such position for such day. The fair value of an investment determined by the Sponsor may be different from other value determinations of the same investment. Such fair value prices generally would be determined based on available inputs about the current value of the underlying Reference Assets and would be based on principles that the Sponsor deems fair and equitable. Errors in calculation of a Fund’s NAV also may cause that Fund’s NAV to be overstated or understated and may affect the performance of the Fund and the value of an investment in the Shares.

 

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The discontinuance of LIBOR could cause or contribute to market volatility and could affect the market value and/or liquidity of the Funds’ investments.

 

Shareholders should be aware that (i) relevant regulatory announcements about the phase out of LIBOR, (ii) the possibility of changes being made to the basis on which LIBOR is calculated and published (or its ceasing to be published), (iii) uncertainty as to whether or how any alternative reference rate may replace LIBOR, (iv) the ability of the Funds’ third-party service providers and/or counterparties to support and process the Funds’ investments based on an alternative reference rate, and (v) any other actions taken by the ICE Benchmark Administration, the Financial Conduct Authority (the “FCA”) or any other entity with respect to LIBOR or its replacement (if any), could cause or contribute to market volatility and could negatively affect the market value, availability and/or liquidity of the Funds’ investments. The unavailability or replacement of LIBOR may affect the valuation of certain Fund investments. Any pricing adjustments to a Fund’s investments resulting from a substitute reference rate may also adversely affect the Fund’s performance and/or NAV. However, it is not possible at this time to predict or ascertain what precise impact these will have on the Funds.

 

The number of underlying components included in the Index may impact volatility, which could adversely affect an investment in the Shares.

 

The Index for the Funds is concentrated solely in SPIKES futures contracts. Investors should be aware that other volatility indexes may be more diversified in terms of both the number and variety of instruments included or in terms of the volatility exposure offered. Investors should be aware that other benchmarks are more diversified in terms of both the number and variety of investments included. Concentration in fewer underlying components may result in a greater degree of volatility in an index and the NAV of the fund which tracks that index under specific market conditions and over time.

 

Competing claims of intellectual property rights may adversely affect the Funds and an investment in the Shares.

 

The Sponsor believes that it has properly licensed or obtained the appropriate consent of all necessary parties with respect to intellectual property rights. However, other third parties could allege ownership as to such rights and may bring legal action asserting their claims. The expenses in litigating, negotiating, cross-licensing or otherwise settling such claims may adversely affect the Funds. Additionally, as a result of such action, a Fund could potentially change its investment objective, strategies or benchmark. Each of these factors could have a negative impact on the performance of the Funds.

 

The liquidity of the Shares may also be affected by the withdrawal of Authorized Participants, which could adversely affect the market price of the Shares.

 

In the event that one or more Authorized Participants which have had substantial transactions in the Shares withdraw from participation, the liquidity of the Shares will likely decrease, which could adversely affect the market price of the Shares and result in investors incurring a loss on their investment.

 

Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the Shares.

 

Only Authorized Participants may create or redeem Creation Units. All other investors that desire to purchase or sell Shares must do so through the Exchange or in other markets, if any, in which the Shares may be traded. Shares may trade at a premium or discount to NAV per Share.

 

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The Exchange may halt trading in a Fund’s shares, which would adversely impact an investor’s ability to sell shares.

 

Each Fund’s shares are listed for trading on the NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”). Trading in shares of a Fund may be halted by the Exchange due to market conditions or, in light of the applicable Exchange rules and procedures. In addition, trading in shares is subject to trading halts caused by market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified decline or rise in a market index (e.g., the Dow Jones Industrial Average) or in the price of a Fund’s shares. There can be no assurance that the requirements necessary to maintain the listing of the shares of a Fund will continue to be met or will remain unchanged. NYSE Arca listing rules require a minimum of 50,000 shares to be outstanding for continued listing and will be each Fund’s minimum.

 

The Funds are not registered investment companies so shareholders do not have the protections of the 1940 Act.

 

Neither Fund is an investment company subject to the 1940 Act. Accordingly, investors do not have the protections afforded by that statute. The 1940 Act is designed to protect investors by preventing: insiders from managing investment companies to their benefit and to the detriment of public investors; the issuance of securities having inequitable or discriminatory provisions; the management of investment companies by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of investment companies without the consent of investors; and investment companies from engaging in excessive leveraging. To accomplish these ends, the 1940 Act requires the safekeeping and proper valuation of fund assets, restricts greatly transactions with affiliates, limits leveraging, and imposes governance requirements as a check on fund management.

 

The value of the Shares will be adversely affected if the Funds are required to indemnify Wilmington Trust, National Association (the “Trustee”) and/or the Sponsor

 

Under the Trust’s Declaration of Trust and Trust Agreement (the “Trust Agreement”), the Trustee and the Sponsor each has the right to be indemnified for any liability or expense incurred without gross negligence or willful misconduct. That means the Sponsor may require the assets of a Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any such sale would decrease the value of an investment in an impacted Fund.

 

Although the Shares are limited liability investments, certain circumstances, such as the bankruptcy of a Fund, could increase a shareholder’s liability.

 

The Shares are limited liability investments; investors may not lose more than the amount that they invest plus any gains or income recognized on their investment. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of a Fund any distribution they received at a time when such Fund was in fact insolvent or in violation of the Trust Agreement.

 

The insolvency of an FCM or clearinghouse or the failure of an FCM or clearinghouse to properly segregate Fund assets held as margin on futures transactions may result in losses to the Funds.

 

The CEA requires FCMs to segregate client assets received as margin on futures transactions from their own proprietary assets. However, if an FCM fails to properly segregate Fund assets deposited as margin, these assets might not be fully protected in the event of the FCM’s bankruptcy. In such event, a Fund may not be able to recover any assets held by the FCM, or may recover only a limited portion of such assets.

 

Furthermore, customer funds held at a clearinghouse in connection with any futures contracts are permitted to be held in a commingled omnibus account that does not identify the name of the clearing member’s individual customers. A clearinghouse may use assets held in such accounts to satisfy payment obligations of a defaulting customer of the FCM to the clearinghouse. As a result, in the event of a default of one or more of the FCM’s other clients together with the bankruptcy or insolvency of the FCM, a Fund may not be able to recover the assets deposited by the FCM on behalf of the Fund with the clearinghouse.

 

In the event of a bankruptcy or insolvency of any exchange or a clearinghouse, a Fund could experience a loss of the funds deposited through its FCM as margin with the exchange or clearinghouse, a loss of any profits on its open positions on the exchange, and the loss of unrealized profits on its closed positions on the exchange.

 

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A court could potentially conclude that the assets and liabilities of a Fund are not segregated from those of another series of the Trust and may thereby potentially expose assets in a Fund to the liabilities of another series of the Trust.

 

Each series of the Trust is a separate series of a Delaware statutory trust and not itself a separate legal entity. Section 3804(a) of the Delaware Statutory Trust Act, as amended (the “DSTA”), provides that if certain provisions are 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 (directly or indirectly, including through a nominee or otherwise) and 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, contracted for or otherwise existing with respect to 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, and none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the statutory trust generally or any other series thereof shall be enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted Section 3804(a) of the DSTA or provided any guidance as to what is required for compliance. The Sponsor maintains separate and distinct records for each series and accounts for them separately, but it is possible a court could conclude that the methods used did not satisfy Section 3804(a) of the DSTA and thus potentially expose assets of a Fund to the liabilities of another series of the Trust.

 

There may be circumstances that could prevent or make it impractical for a Fund to operate in a manner consistent with its investment objective and principal investment strategies.

 

There may be circumstances outside the control of the Sponsor and/or a Fund that could prevent or make it impractical to re-position such Fund’s portfolio investments, to process purchase or redemption orders, or to otherwise operate a Fund in a manner consistent with its investment objective and principal investment strategies. Examples of such circumstances include: market disruptions; significant market volatility, particularly late in a trading day; natural disasters; public service disruptions or utility problems such as those caused by fires, floods, extreme weather conditions, and power outages resulting in telephone, telecopy, and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the aforementioned parties, as well as the Depository Trust Company (“DTC”), the National Securities Clearing Corporation (“NSCC”), or any other participant in the trading or operation of a Fund; and similar extraordinary events.

 

While the Sponsor has implemented and tested a business continuity plan and a disaster recovery plan designed to address circumstances such as those described above, these and other circumstances may prevent a Fund from being operated in a manner consistent with its investment objective and/or principal investment strategies.

 

Due to the increased use of technologies, intentional and unintentional cyber attacks pose operational and information security risks.

 

With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Funds and their service providers are susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches of a Fund’s third-party service provider (including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and systems to prevent such cyber attacks, there are inherent limitations in such plans and risk management systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems of the Funds’ service providers, market makers, Authorized Participants or issuers of securities in which each Fund invests.

 

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Investors cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Funds.

 

Investors cannot be assured that the Sponsor will be able to continue to service the Funds for any length of time. If the Sponsor discontinues its activities on behalf of the Funds, the Funds may be adversely affected, as there may be no entity servicing the Funds for a period of time. 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 and/or to render advice to the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.

 

The Sponsor is leanly staffed and relies heavily on key personnel to manage the Funds and other funds.

 

In managing and directing the day-to-day activities and affairs of the Funds, the Sponsor relies heavily on the services of its Chief Executive Officer and Chief Compliance Officer, John Zhu, its Chief Financial Officer, Melinda Ho, and on its other principals, Joseph W. Ferraro III and Simon Ho. If any of the group were to leave or be unable to carry out his present responsibilities, it may have an adverse effect on the management of the Funds.

 

Shareholders’ tax liability may exceed cash distributions on the Shares.

 

Shareholders of each Fund may be subject to U.S. federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Each Fund does not currently expect to make distributions with respect to capital gains or ordinary income. Accordingly, shareholders of a Fund will not receive cash distributions equal to their share of the Fund’s taxable income or the tax liability that results from such income. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, you are generally still considered a shareholder through the end of that month.

 

The U.S. Internal Revenue Service (the “IRS”) could adjust or reallocate items of income, gain, deduction, loss and credit with respect to the Shares if the IRS does not accept the assumptions or conventions utilized by the Funds.

 

U.S. federal income tax rules applicable to partnerships, which each Fund is anticipated to be treated as under the Internal Revenue Code of 1986, as amended (the “Code”), are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. The Funds apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to shareholders in a manner that reflects the shareholders’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Regulations (as defined below). It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the Code or the Treasury regulations promulgated thereunder (the “Regulations”) and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to investors.

 

Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns.

 

The partner information tax returns on Schedule K-1, which the Funds will distribute to shareholders, will contain information regarding the income items and expense items of the Funds. If you have not received Schedule K-1s from other investments, you may find that preparing your tax return may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your return.

 

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Shareholders of each Fund may recognize significant amounts of ordinary income and short-term capital gain.

 

Due to the investment strategy of the Funds, the Funds may realize and pass through to shareholders significant amounts of ordinary income and short-term capital gains as opposed to long-term capital gains, which generally are taxed at a preferential rate. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, the Fund will generally still consider you a shareholder through the end of that month.

 

A Fund may be liable for U.S. federal income tax on any “imputed underpayment” of tax resulting from an adjustment as a result of an IRS audit. The amount of the imputed underpayment generally includes increases in allocations of items of income or gains to any shareholder and decreases in allocations of items of deduction, loss, or credit to any shareholder without any offset for any corresponding reductions in allocations of items of income or gain to any shareholder or increases in allocations of items of deduction, loss, or credit to any shareholder. If a Fund is required to pay any U.S. federal income taxes on any imputed underpayment, the resulting tax liability would reduce the net assets of the Fund and would likely have an adverse impact on the value of the Shares. Under certain circumstances, a Fund may be eligible to make an election to cause the shareholders to take into account the amount of any imputed underpayment, including any interest and penalties. However, there can be no assurance that such election will be made or effective. If the election is made, a 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 (“Adjustment Statements”). Those shareholders would be required to take the adjustment into account in the taxable year in which the Adjustment Statements are issued.

 

A Fund could be treated as a corporation for federal income tax purposes, which may substantially reduce the value of Shares.

 

Each Fund has obtained an opinion of counsel that, under current U.S. federal income tax laws, the Fund will be treated as a trust 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, which includes dividends, interest, capital gains from the sale or other disposition of stocks and debt instruments and, in the case of a partnership a principal activity of which is the buying and selling of commodities or certain positions with respect to commodities, income and gains derived from certain swap agreements or regulated futures or forward contracts with respect to commodities (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 each Fund will satisfy the “qualifying income” requirement for all of its taxable years, that result cannot be assured. Neither Fund has requested and will not request any ruling from the IRS with respect to its classification as a trust not taxable as a corporation for federal income tax purposes. If the IRS were to successfully assert that a 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, such 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 a Fund as a corporation could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of the shares.

 

Changes in U.S. federal income tax law could affect an investment in the Shares.

 

Recently enacted legislation commonly known as the “Tax Cuts and Jobs Act” has made significant changes to U.S. federal income tax rules. As of the date of this registration statement, the long-term impact of the Tax Cuts and Jobs Act, including on the Shares, is unclear. Prospective investors are urged to consult their tax advisors regarding the effect of the Tax Cuts and Jobs Act prior to investing in the Shares.

 

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PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE SHARES OF A FUND; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.

 

Regulatory and exchange daily price limits, position limits and accountability levels may restrict the creation of Creation Units and the operation of the Trust.

 

Many U.S. futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Derivatives contract prices could move to a limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of or entry into derivatives positions and potentially subjecting a Fund to substantial losses or periods in which the Fund does not create additional Creation Units.

 

In addition, the CFTC, U.S. futures exchanges and certain non-U.S. exchanges have established limits referred to as “speculative position limits” or “accountability levels” on the maximum net long or short futures positions that any person may hold or control in futures contracts traded on U.S. and certain non-U.S. exchanges.

 

In connection with these limits, the Dodd-Frank Act has required the CFTC to adopt regulations establishing speculative position limits applicable to regulated futures and OTC derivatives and impose aggregate speculative position limits across regulated U.S. futures, OTC positions and certain futures contracts traded on non-U.S. exchanges. In December 2016, the CFTC adopted final regulations requiring that all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates would be aggregated for position limit purposes. The CFTC has sought to amend its position limits rules for several years and on January 30, 2020, the CFTC re-proposed rules on position limits with respect to the 25 physical delivery commodity futures and options contracts, as well as to swaps that are economically equivalent to such contracts and futures and options thereon that are directly or indirectly linked to the price of such contracts or to the same commodity underlying such contracts (e.g., cash-settled look-a-like futures).

 

Although it is unclear how future position limit rules will apply to the Funds, the Sponsor and the Funds are subject to current position and accountability limits established by the CFTC and exchanges. Accordingly, the Sponsor and the Funds may be required to reduce the size of outstanding positions or be restricted from entering into new positions that would otherwise be taken for a Fund or restricted from trading in certain markets on behalf of a Fund to comply with those limits or any futures limits established by the CFTC and the relevant exchanges. Modification of trades made by the Trust, if required, could adversely affect the Trust’s operations and profitability and limit the Trust’s ability to reinvest income in additional contracts, create additional Creation Units, or add to existing positions in the desired amount.

 

In addition, the Sponsor may be required to liquidate certain open positions in order to ensure compliance with the speculative position limits at unfavorable prices, which may result in substantial losses for the relevant Funds. There also can be no assurance that the Sponsor will liquidate positions held on behalf of all the Sponsor’s accounts, including any proprietary accounts, in a proportionate manner. In the event the Sponsor chooses to liquidate a disproportionate number of positions held on behalf of any of the Funds at unfavorable prices, such Funds may incur substantial losses and the value of the Shares may be adversely affected.

 

Exchanges may establish accountability levels applicable to futures contracts instead of position limits. An exchange may order a person who holds or controls a position in excess of a position accountability level not to further increase its position, to comply with any prospective limit that exceeds the size of the position owned or controlled, or to reduce any open position that exceeds the position accountability level if the exchange determines that such action is necessary to maintain an orderly market. Position accountability levels could adversely affect each of the Fund’s ability to establish and maintain positions in commodity futures contracts to which such levels apply, if the Funds were to trade in such contracts. Such an outcome could adversely affect each of the Fund’s ability to pursue its investment objective.

 

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A person is generally required by CFTC or exchange rules, as applicable, to aggregate all positions in accounts as to which the person has 10% or greater ownership or control. However, CFTC and exchange rules provide certain exemptions from this requirement. For example, a person is not required to aggregate positions in multiple accounts that it owns or controls if that person is able to satisfy the requirements of an exemption from aggregation of those accounts, including, where available, the independent account controller exemption. Any failure to comply with the independent account controller exemption or another exemption from the aggregation requirement could obligate the Sponsor to aggregate positions in multiple accounts under its control, which could include the Funds and other commodity pools or accounts under the Sponsor’s control. In such a scenario, the Funds may not be able to obtain exposure to one or more Financial Instruments necessary to pursue their investment objectives, or they may be required to liquidate existing futures contract positions in order to comply with a limit. Such an outcome could adversely affect each of the Fund’s ability to pursue its investment objective or achieve favorable performance.

 

The Funds are currently subject to position limits and accountability levels and may be subject to new and more restrictive position limits in the future. If the Funds reached a position limit or accountability level or became subject to a daily limit, their ability to issue new Creation Units or reinvest income in additional futures contracts may be limited to the extent these restrictions limit its ability to establish new futures positions, add to existing positions, or otherwise transact in futures. Limiting the size of the Funds, or restricting the Funds’ futures trading, under these requirements could adversely affect the Funds’ ability to pursue their investment objectives.

 

The position accountability levels for SPIKES futures contracts are as follows:

 

a) Ownership or control at any time of more than 50,000 contracts net long or net short in all SPIKES futures contracts combined;

 

b) Ownership or control of more than 30,000 contracts net long or net short in the expiring SPIKES futures contract, effective at the start of hours of trading for the Friday prior to the final settlement date of the expiring SPIKES futures contracts; or

 

c) Ownership or control of more than 10,000 contracts net long or net short in the expiring SPIKES futures contract, effective at the start of the hours of trading for the business day immediately preceding the final settlement date of the expiring SPIKES futures contracts.

 

The accountability levels for the SPIKES futures contracts on U.S.-based futures exchanges, such as the MGEX, are not a fixed ceiling, but rather a threshold above which the MGEX may exercise greater scrutiny and control over an investor’s positions. If the Funds exceed these accountability levels for investments in the SPIKES futures contracts, the MGEX will monitor such exposure and may ask for further information on their activities, including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of the Funds. If deemed necessary by the MGEX, a Fund could be ordered to reduce its aggregate net futures contracts back to the accountability level. Given the size of the SPIKES futures market, it is likely that the Funds will exceed the above accountability levels that may apply at any time. It is unlikely that a Fund will run up against position limits on contracts held in the last few days of trading in the near month contract to expire because each Fund’s investment strategy is to close out its positions and “roll” from the near month contract to expire to the next month contract as they approach expiration.

 

Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. The Trust or Sponsor may apply to the CFTC or to the relevant exchanges for relief from certain position limits. If the Trust or Sponsor is unable to obtain such relief, a Fund’s ability to issue new Creation Units, or the Fund’s ability to reinvest income in additional futures contracts, may be limited to the extent these activities cause the Trust to exceed applicable position limits. Limiting the size of a Fund may affect the correlation between the price of the Shares, as traded on an exchange, and the net asset value of the Fund. Accordingly, the inability to create additional Creation Units or add to existing positions in the desired amount could result in Shares trading at a premium or discount to NAV.

 

Neither Fund has limited the size of its offering and both Funds have committed to utilizing substantially all of its proceeds to purchase SPIKES futures contracts and other Financial Instruments. If the Funds encounter accountability levels, position limits, or price fluctuation limits for SPIKES futures contracts on the MGEX, they may then, if permitted under applicable regulatory requirements, seek to achieve their investment objectives by investing primarily in VIX Related Positions. In addition, if the Funds exceed accountability levels on MGEX and are required by such exchanges to reduce their holdings, such reduction could prevent a Fund from achieving its investment objective.

 

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Regulatory changes or actions may alter the operations and profitability of the Funds.

 

The regulation of commodity interest transactions and markets, including under the Dodd-Frank Act, is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. In particular, the Dodd-Frank Act has expanded the regulation of markets, market participants and financial instruments. The regulatory regime under the Dodd-Frank Act has imposed additional compliance and legal burdens on participants in the markets for futures and other commodity interests. For example, under the Dodd-Frank Act new capital and risk requirements have been imposed on market intermediaries. Those requirements may cause the cost of trading to increase for market participants, like the Funds, that must interact with those intermediaries to carry out their trading activities. These increased costs can detract from the Funds’ performance.

 

Each Fund’s performance could be adversely affected if the FCM reduces its internal risk limits for that Fund.

 

Further, CFTC rules require clearing member FCMs to establish risk-based limits on position and order size. As a result, the Trust’s FCMs may be required to reduce their internal limits on the size of the positions they will execute or clear for a Fund, and the Fund’s ability to transact in futures contracts could be reduced. Under these circumstances, the Trust may seek to use additional FCMs, which may increase the costs for a Fund, make the Fund’s trading less efficient or more prone to error, or adversely affect the value of the Shares.

 

The Funds and the Sponsor are subject to extensive legal and regulatory requirements.

 

The Funds are subject to a comprehensive scheme of regulation under the federal commodity futures trading and securities laws, as well as futures exchange rules and the rules and listing standards for their Shares. Each Fund and the Sponsor could each be subject to sanctions for a failure to comply with those requirements, which could adversely affect the Fund’s financial performance and its ability to pursue its investment objectives. Each Fund is subject to significant disclosure, internal control, governance, and financial reporting requirements because its Shares are publicly traded.

 

For example, the Funds are responsible for establishing and maintaining internal controls over financial reporting. Under this requirement, the Funds must adopt, implement and maintain an internal control system designed to provide reasonable assurance to its management regarding the preparation and fair presentation of published financial statements. The Funds are also required to adopt, implement, and maintain disclosure controls and procedures that are designed to ensure information required to be disclosed by the Funds in reports that they file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC. There is a risk that the Funds’ internal controls over financial reporting and disclosure controls and procedures could fail to operate as designed or otherwise fail to satisfy SEC requirements. Such a failure could result in the reporting or disclosure of incorrect information or a failure to report information on a timely basis. Such a failure could be to the disadvantage of shareholders and could expose the Funds to penalties or otherwise adversely affect each of the Fund’s status under the federal securities laws and SEC regulations. Any internal control system, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective may provide only reasonable assurance with respect to financial statement preparation and presentation and other disclosure matters.

 

In addition, the SEC, CFTC, and exchanges are empowered to intervene in their respective markets in response to extreme market conditions. Those interventions could adversely affect the Funds’ ability to pursue their investment objectives and could lead to losses for the Funds and their shareholders. There also is no assurance that the SEC, CFTC, and exchanges will intervene in time of extreme market conditions. Any lack of intervention by such regulators or exchanges also could have an impact on Fund performance and limit a Fund’s ability to achieve its investment objective.

 

The sole owners and Managing Members of the Sponsor have incentives to use the Funds to prop up, or provide liquidity that would otherwise be unavailable to, the market for SPIKES futures contracts.

 

Miami International Holdings, Inc. (“MIH”), the parent of MIAX Futures, LLC (“MIAX Futures”), a Managing Member of the Sponsor, or its affiliates owns MGEX, where the Funds’ transactions in SPIKES futures contracts may be executed and/or cleared. As a result, MIH may receive financial or other benefits related to its ownership interest when SPIKES futures contracts are executed. Similarly, T3i Us Holdings Inc. (“T3 Holdings”), a Managing Member of the Sponsor, or its affiliates, including T3 Index, creates and maintains the SPIKES Index and is contractually entitled to revenue from the trading of financial instruments based on the SPIKES Index, including SPIKES futures contracts. Therefore, both MIAX Futures and T3 Index have an incentive to use the Funds to prop up, or provide liquidity that would otherwise be unavailable to, the market for SPIKES futures contracts. See “Conflicts of Interest” on page 53.

 

T3 Index is an affiliate of the Sponsor, which poses the appearance of a conflict of interest.

 

T3 Index is an affiliated person of the Sponsor, which poses the appearance of a conflict of interest because T3 Index owns and maintains the Index. For example, a potential conflict could arise between an affiliated person of T3 Index or the Sponsor and the Funds if that entity attempted to use information regarding changes to and composition of the Index to the detriment of a Fund. Additionally, potential conflicts could arise with respect to the personal trading activity of personnel of the affiliated person who may have access to, or knowledge of, pending changes to the Index's composition methodology or the constituents in the Index prior to the time that information is publicly disseminated. If shared, such knowledge could facilitate “front-running” (which describes an instance in which other persons trade ahead of a Fund). Although the Sponsor and T3 Index have taken steps designed to ensure that these potential conflicts are mitigated (e.g., via the adoption of policies and procedures that are designed to minimize potential conflicts of interest and the implementation of informational barriers designed to minimize the potential for the misuse of information about the Index), there can be no assurance that such measures will be successful.

 

As a shareholder of the Funds, 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 Funds). The Funds are 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).

 

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Shareholders have only very limited voting rights. Shareholders do not participate in the management of the Funds and do not control the Sponsor, so they do not have any influence over basic matters that affect the Funds.

 

Shareholders have very limited voting rights with respect to the Funds’ affairs. Shareholders are not 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 and all persons dealing with the Trust will be entitled to act in reliance on any vote or consent which is deemed cast or granted pursuant to the negative consent provisions in the Trust Agreement and will be fully indemnified by the Trust in so doing. This may make it easier for the Sponsor to obtain shareholder approval of actions that require a shareholder vote under the Trust Agreement.

 

The Sponsor and all persons dealing with the Trust will be entitled to act in reliance on any vote or consent which is deemed cast or granted pursuant to the negative consent provisions in the Trust Agreement (as described below) and will be fully indemnified by the Trust in so doing. The negative consent provisions in the Trust Agreement provide that if the vote or consent of any Shareholder is solicited by the Sponsor, the solicitation shall be effected by notice to each shareholder given in the manner provided in the Trust Agreement, and the vote or consent of each shareholder so solicited shall be deemed conclusively to have been cast or granted as requested in the notice of solicitation, unless the shareholder expresses written objection to the vote or consent within the time period and in the manner provided for in the notice or in the Trust Agreement. Any action taken or omitted in reliance on this deemed vote or consent of one or more shareholders will not be void or voidable by reason of timely communication made by or on behalf of all or any of these shareholders in any manner other than as expressly provided in the Trust Agreement. This may make it easier for the Sponsor to obtain the consent of the shareholders for actions that require a shareholder vote under the Trust Agreement, which includes the appointment of a liquidating trustee under the circumstances set forth in the Trust Agreement.

 

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 futures markets and indexes that track such movements, a Fund’s operations, the Sponsor’s plans and references to a 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 deemed 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. 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, a Fund’s operations or the value of its shares.

 

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Breakeven Analysis

 

The breakeven analyses below indicate the approximate dollar returns and percentage required for the redemption value of a hypothetical initial investment in a single share of the Funds to equal the amount invested twelve months after the investment was made. For purposes of these breakeven analyses, an initial selling price of $25.00 per share which will be the selling price of the shares sold in the initial Creation Unit was assumed. This breakeven analysis refers to the redemption of Units by Authorized Participants and is not related to any gains an individual investor would have to achieve in order to break even. The breakeven analyses are approximations only.

 

    ConvexityShares
Daily 1.5x SPIKES
Futures ETF
    ConvexityShares
1x SPIKES
Futures ETF
 
Assumed initial selling price per share   $          25.00     $          25.00  
                 
Sponsor Fee(1)   $ 0.20     $ 0.16  
                 
Creation Unit Fee(2)   $ 0.00     $ 0.00  
                 
Brokerage Commissions and Fees(3)   $ 0.07     $ 0.05  
                 
Other Fund Fees and Expenses(4)   $ 0.00     $ 0.00  
                 
Interest Income(5)   $ 0.00     $ 0.00  
                 
Amount of trading income required for the Fund’s NAV to break even   $ 0.27     $ 0.21  
                 
Percentage of initial selling price per share(6)     1.08 %     0.84 %

 

(1) The Leveraged Fund and the Matching Fund are obligated to pay the Sponsor a Sponsor Fee, payable monthly, equal to 0.79% and 0.65%, respectively, of the Fund’s average daily net assets. From the Sponsor Fee, the Sponsor has contractually agreed to pay all of the routine operational, administrative and other ordinary expenses of each Fund. These fees and expenses are not included in the Breakeven Table. The Funds are responsible for brokerage fees, interest expense, and certain non-recurring or extraordinary fees and expenses.

 

(2) Authorized Participants are generally required to pay variable creation and redemption transaction fees of up to 0.05% of the value of each order they place. These variable transaction fees offset brokerage commissions incurred by the Funds and are reflected in “Brokerage Commissions and Fees.” Please see “Creation and Redemption of Shares—Creation and Redemption Transaction Fee.” The Funds do not intend to impose these variable creation/redemption transaction fees during the Funds’ first year of operation.

 

(3) This amount is based on estimated brokerage fees for the Fund calculated on an annualized basis.

 

(4) From the Sponsor Fee, the Sponsor has contractually agreed to pay all of the routine operational, administrative and other ordinary expenses of the Funds, excluding brokerage fees, interest expenses, and certain non-recurring or extraordinary fees and expenses. The routine operational, administrative and other ordinary expenses of the Funds are discussed below in the section titled “Fees and Expenses.”

 

(5) Due to current market conditions, interest income is assumed to be zero.

 

(6) Investors may pay brokerage commissions in connection with purchases of the Shares. Brokerage commissions have not been included in the Breakeven Table because they are borne by investors rather than a Fund and will generally vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges.

 

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Additional Information About the FundS, the Index,the FundS’ Investment ObjectiveS and Investments

 

The Funds are commodity pools that issue common shares of beneficial interest that may be purchased and sold on NYSE Arca. The Funds are series of the Trust, a Delaware statutory trust formed on April 12, 2021 pursuant to the Delaware Statutory Trust Act. The Funds are currently the only two series of the Trust. Each Fund operates as a separate commodity pool. Additional series of the Trust may be created in the future. The Trust and the Funds operate pursuant to the Trust Agreement. The Funds are managed and controlled by the Sponsor. The Sponsor is registered with the CFTC as a CPO and is a member of the NFA. Teucrium is registered with the CFTC as a CTA and will act as such for the Funds.

 

Description of the Funds’ Index

 

T3 SPIKE Front 2 Futures Index

 

The Funds seek to offer exposure to forward equity market volatility by obtaining exposure to the components of the Index. The Index is an investable index that measures the daily performance of a theoretical portfolio of first- and second-month futures contracts on the SPIKES Index. The Index is intended to reflect the returns that are potentially available through an unleveraged investment in the SPIKES futures contracts comprising the Index, by measuring its daily performance from the weighted average price of SPIKES futures contracts.

 

The Index employs rules for selecting the SPIKES futures contracts comprising the Index and a formula to calculate a level for the Index from the prices of these SPIKES futures contracts (these rules and the formula may be changed from time to time, and without notice, by T3 Index). Currently, the SPIKES futures contracts comprising the Index represent the prices of two near-term SPIKES futures contracts, replicating a position that rolls the nearest month SPIKES futures contracts to the next month SPIKES futures contracts at or close to the daily settlement price via a Trade-At-Settlement (“TAS”) program or similar mechanism towards the end of each business day in equal fractional amounts over the course of the near-term expiration cycle. This results in a constant weighted average maturity of one month.

 

The level of the Index will be published by Bloomberg Finance L.P. and Reuters in real time and at the close of trading on each Index business day under the ticker symbol: SPKF.

 

The performance of the Index is influenced by the performance of SPY (and options thereon) and the performance of the SPIKES Index. A description of SPIKES futures contracts, the SPIKES Index and SPY follows.

 

SPIKES Futures Contracts

 

The Index is comprised of SPIKES futures contracts. SPIKES futures contracts were launched for trading by MGEX, via the CME GLOBEX® platform, on December 14, 2020. SPIKES futures contracts allow investors to invest based on their view of the forward implied market volatility of SPY. Investors that believe the forward implied market volatility of SPY will increase may buy SPIKES futures contracts. Conversely, investors that believe that the forward implied market volatility of SPY will decline may sell SPIKES futures contracts.

 

While the SPIKES Index represents a measure of the expected 30-day volatility of SPY, the prices of SPIKES futures contracts are based on the current expectation of the expected 30-day volatility of SPY on the expiration date of the futures contract. Since the SPIKES Index and SPIKES futures contracts are two distinctly different measures, the SPIKES Index and SPIKES futures contracts generally behave quite differently.

 

An important consequence of the spot/forward relationship between the SPIKES Index and SPIKES futures contracts (and therefore between the SPIKES Index and the Funds) that investors should understand is that the price of a SPIKES futures contract can be lower, equal to or higher than the SPIKES Index, depending on whether the market expects volatility to be lower, equal to or higher in the 30-day forward period covered by the SPIKES futures contract than in the 30-day spot period covered by the SPIKES Index. Therefore, the performance of SPIKES futures contracts should be expected to be very different than the performance of the SPIKES Index as there is no direct relationship between the two measures. As a result, since the performance of the Funds is linked to the performance of the SPIKES futures contracts included in the Index, the Funds should be expected to perform very differently from the SPIKES Index.

 

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Generally, the regular trading session for SPIKES futures contracts is from 9:30 a.m. Eastern Time (“E.T.”) to 4:15 p.m. E.T. Extended trading sessions also continue from 5:00 p.m. E.T. to 9:30 a.m. E.T. the next day and from 4:30 p.m. E.T. to 5:00 p.m. E.T.

 

SPIKES futures contracts were initially launched for trading by MGEX, via the CME GLOBEX® platform, on November 18, 2019. Trading was subsequently halted on November 29, 2019 while certain regulatory matters were resolved with the SEC. The SPIKES futures contracts were re-launched on December 14, 2020 for trading by MGEX. Please see “Possible illiquid markets may exacerbate losses or increase the variability between the Funds’ NAVs and their market prices”, above, for a discussion of the potential consequences of this suspension of trading.

 

SPIKES Volatility Index (the “SPIKES Index”)

 

The SPIKES Index is an index designed to measure the implied volatility of SPY over 30 days in the future. The SPIKES Index is calculated based on the prices of certain put and call options on SPY. The SPIKES Index is reflective of the premium paid by investors for certain options linked to the level of the S&P 500.

 

During periods of rising investor uncertainty, including periods of market instability, the implied level of volatility of SPY typically increases and, consequently, the prices of options linked to SPY typically increase (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the SPIKES Index to increase.

 

During periods of declining investor uncertainty, the implied level of volatility of SPY typically decreases and, consequently, the prices of options linked to SPY typically decrease (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the SPIKES Index to decrease.

 

Volatility, and the level of the SPIKES Index, can increase (or decrease) without warning. The SPIKES Index was developed by T3 Index and is calculated, maintained and published by MIAX via the Options Price Reporting Authority. T3 Index may change the methodology used to determine the SPIKES Index and has no obligation to continue to publish, and may discontinue the publication of, the SPIKES Index. The SPIKES Index is reported by Bloomberg Finance L.P. and Reuters under the ticker symbol “SPIKE.”

 

SPDR S&P 500 ETF Trust (“SPY”)

 

SPDR S&P 500 ETF Trust is a unit investment trust that holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the S&P 500 Composite Price Index (“S&P 500”). Shares of the SPDR S&P 500 ETF Trust trade on the NYSE under the symbol “SPY.”

 

The S&P 500 is an index that measures large-cap U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 500 U.S. operating companies and real estate investment trusts selected by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as domicile, investible weight factor, liquidity, market capitalization and financial viability. Changes to index composition are made on an as-needed basis. There is no scheduled reconstitution. Rather, changes in response to corporate actions and market developments can be made at any time. S&P publishes the S&P 500. The daily calculation of the current value of the S&P 500 is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average initial market value of the common stocks of 500 similar companies at the time of the inception of the S&P 500. The 500 companies are not the 500 largest publicly traded companies and not all 500 companies are listed on the Exchange. Constituent selection is at the discretion of the Index Committee and is based on the eligibility criteria. The indices have a fixed constituent company count of 500, 400, and 600, respectively. Sector balance, as measured by a comparison of each GICS sector’s weight in an index with its weight in the S&P Total Market Index, in the relevant market capitalization range, is also considered in the selection of companies for the indices. S&P may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 to achieve the objectives stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the company’s common stock is widely held and the market value and trading activity of the common stock of that company.

 

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Related Positions

 

As noted above, the Funds may seek to achieve their investment objectives by investing primarily in VIX Related Positions. VIX is an alternate measure of market volatility, as opposed to the SPIKES Index, but it measures the implied volatility of the S&P 500, instead of SPY. VIX is expected to perform substantially identically to the SPIKES Index. Correlation between daily closes and daily index returns of the SPIKES Index and the VIX are expected to be 99.9%. Historically, variances between the value of VIX and the SPIKES Index have been attributable to errors in index calculation or, at the end of each quarter, the impact of quarterly dividends that have accumulated in SPY and may slightly affect the value of the SPIKES Index without materially affecting the value of the SPIKES futures contracts.

 

VIX Futures Contracts

 

VIX futures contracts were first launched for trading by the CBOE in 2004. VIX futures contracts allow investors to invest based on their view of the forward implied market volatility of the S&P 500. Investors that believe the forward implied market volatility of the S&P 500 will increase may buy VIX futures contracts. Conversely, investors that believe that the forward implied market volatility of the S&P 500 will decline may sell VIX futures contracts.

 

While the VIX represents a measure of the current expected volatility of the S&P 500 over the next 30 days, the prices of VIX futures contracts are based on the current expectation of the expected 30-day volatility of the S&P 500 on the expiration date of the futures contract. Since the VIX and VIX futures contracts are two distinctly different measures, the VIX and VIX futures contracts generally behave quite differently.

 

An important consequence of the spot/forward relationship between the VIX and VIX futures contracts (and therefore between the VIX and the Funds) that investors should understand is that the price of a VIX futures contract can be lower, equal to or higher than the VIX, depending on whether the market expects volatility to be lower, equal to or higher in the 30-day forward period covered by the VIX futures contract than in the 30-day spot period covered by the VIX. Therefore, the performance of VIX futures contracts should be expected to be very different than the performance of the VIX as there is no direct relationship between the two measures.

 

The VIX

 

The VIX is an index designed to measure the implied volatility of the S&P 500 over 30 days in the future. The VIX is calculated based on the prices of certain put and call options on the S&P 500. The VIX is reflective of the premium paid by investors for certain options linked to the level of the S&P 500.

 

During periods of rising investor uncertainty, including periods of market instability, the implied level of volatility of the S&P 500 typically increases and, consequently, the prices of options linked to the S&P 500 typically increase (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX to increase.

 

During periods of declining investor uncertainty, the implied level of volatility of the S&P 500 typically decreases and, consequently, the prices of options linked to the S&P 500 typically decrease (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX to decrease.

 

Volatility, and the level of the VIX, can increase (or decrease) without warning. The VIX was developed by the CBOE and is calculated, maintained and published by the CBOE. The CBOE may change the methodology used to determine the VIX and has no obligation to continue to publish, and may discontinue the publication of, the VIX. The VIX is reported by Bloomberg Finance L.P. under the ticker symbol “VIX.”

 

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The S&P 500

 

The S&P 500 is an index that measures large-cap U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 500 U.S. operating companies and real estate investment trusts selected by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. S&P publishes the S&P 500. The daily calculation of the current value of the S&P 500 is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average initial market value of the common stocks of 500 similar companies at the time of the inception of the S&P 500. The 500 companies are not the 500 largest publicly traded companies and not all 500 companies are listed on the Exchange. S&P chooses companies for inclusion in the S&P 500 with the objective of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 to achieve the objectives stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the company’s common stock is widely held and the market value and trading activity of the common stock of that company.

 

The Funds’ Investment Objectives and Strategies

 

Investment Objective of the “Matching Fund”

 

The Matching Fund seeks investment results, before fees and expenses, that over time, match (1x) the performance of the Index. If the Matching Fund is successful in meeting its objective, its value, before fees and expenses, should gain approximately as much on a percentage basis as the level of the Index when the Index rises. Conversely, its value, before fees and expenses, should lose approximately as much on a percentage basis as the level of the Index when the Index declines. The Matching Fund acquires exposure through SPIKES futures contracts.

 

Investment Objective of the “Leveraged Fund”

 

The Leveraged Fund seeks daily investment results, before fees and expenses, that correspond to one-and-a-half times (1.5x) the performance of the Index for a single day. The Leveraged Fund does not seek to achieve its stated objective over a period greater than a single day. A “single day” is measured from the time the Leveraged Fund calculates its NAV to the time of the Leveraged Fund’s next NAV calculation.

 

If the Leveraged Fund is successful in meeting its objective, its value on a given day, before fees and expenses, should gain approximately one-and-a-half times as much on a percentage basis as the level of the Index when the Index rises. Conversely, its value on a given day, before fees and expenses, should lose approximately one-and-a-half times as much on a percentage basis as the level of the Index when the Index declines. The Leveraged Fund acquires long exposure through any one of or combinations of Financial Instruments, such that the Leveraged Fund typically has exposure intended to approximate one-and-a-half times (1.5x) the Index at the time of its NAV calculation.

 

There can be no assurance that a Fund will achieve its investment objective or avoid substantial losses. The Leveraged Fund does not seek to achieve its stated investment objective over a period of time greater than a single day because mathematical compounding prevents the Leveraged Fund from achieving such results. Results for the Leveraged Fund over periods of time greater than a single day should not be expected to be a simple one-and-a-half times (1.5x) of the period return of the Index. Fund returns will likely differ in amount and possibly even direction from the Leveraged Fund’s stated multiple times the return of the Index over time. These differences can be significant. The Leveraged Fund will lose money if the Index’s performance is flat over time, and the Leveraged Fund can lose money regardless of the performance of the Index, as a result of rebalancing, the Index’s volatility, compounding and other factors. Daily compounding of the Leveraged Fund’s investment returns can dramatically and adversely affect its longer-term performance, especially during periods of high volatility. Volatility has a negative impact on Fund performance and may be at least as important to a Fund’s return for a period as the return of the Index.

 

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The Funds are benchmarked to the Index, which is comprised of SPIKES futures contracts and seeks to offer exposure to market volatility through publicly traded futures markets. The Funds are not benchmarked to the SPIKES Index, which is calculated based on the prices of put and call options on SPY. The SPIKES Index is a theoretical calculation and cannot be traded on a spot basis. As such, the Funds can be expected to perform very differently from the SPIKES Index (in the case of the Matching Fund) one-and-a-half times (1.5x) of the SPIKES Index (in the case of the Leveraged Fund).

 

Principal Investment Strategies

 

In seeking to achieve the Funds’ investment objectives, the Sponsor or the Sub-Adviser determines the type, quantity and mix of investment positions that the Sponsor or the Sub-Adviser believes, in combination, should produce returns consistent with the Funds’ objectives. Except as described in the third paragraph of this section, the Sponsor and the Sub-Adviser currently have no intention for either Fund to invest in swap agreements.

 

Each Fund intends to meet its investment objective by taking positions in SPIKES futures contracts. Each Fund takes long positions in SPIKES futures contracts in seeking to meet its investment objective.

 

In the event accountability rules, price limits, position limits, margin limits or other exposure limits are reached with respect to SPIKES futures contracts, or if the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) or in situations where the Sponsor or Sub-Adviser deems it impractical or inadvisable to buy or sell SPIKES futures contracts (such as during periods of market volatility or illiquidity, or when trading in SPY is halted), the Sponsor or the Sub-Adviser may cause a Fund to obtain exposure to the Index by investing primarily in VIX Related Positions, which the Sponsor expects to consist primarily of VIX futures contracts. However, in the event accountability rules, price limits, position limits, margin limits or other exposure limits are reached with respect to VIX futures contracts, or if the market for a specific futures contract experiences emergencies or disruptions or in situations where the Sponsor or Sub-Adviser deems it impractical or inadvisable to buy or sell VIX futures contracts, the Sponsor or the Sub-Adviser may cause a Fund to obtain exposure to the Index by investing in VIX swap agreements. Each Fund expects to invest in swap agreements in the future only if such Fund’s accountability rules, price limits, position limits, margin limits or other exposure limits are reached with respect to both SPIKES and VIX futures contracts, or if the market for a specific futures contract experiences emergencies or disruptions where the Sponsor or Sub-Adviser deems it impractical or inadvisable to buy or sell both SPIKES and VIX futures contracts.

 

Each Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds) as collateral for Financial Instruments and pending investment in Financial Instruments.

 

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market conditions with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to the Index consistent with its investment objective without regard to market conditions, trends or direction.

 

Each Fund seeks to position its portfolio so that its exposure to the Index is consistent with its investment objective. The time and manner in which a Fund rebalances its portfolio may vary from day to day depending upon market conditions and other circumstances at the discretion of the Sponsor or the Sub-Adviser. The impact of the Index’s movements each day will affect whether the Leveraged Fund’s portfolio needs to be rebalanced and the amount of such rebalance. For example, the Leveraged Fund’s long exposure will need to be increased on days when the Index rises and decreased on days when the Index falls.

 

The compounding of each day’s return over time means that the return of the Leveraged Fund for a period longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ in amount and possibly even direction from one-and-a-half times (1.5x) the return of the Index for the same period. These differences can be significant. The Leveraged Fund will lose money if the Index’s performance is flat over time, and the Leveraged Fund can lose money regardless of the performance of the Index, as a result of daily rebalancing, the Index’s volatility and compounding.

 

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The amount of exposure each Fund has to a specific combination of Financial Instruments may differ with each particular Fund and may be changed without shareholder approval. The amount of a Fund’s exposure should be expected to change from time to time at the discretion of the Sponsor based on market conditions and other factors. In addition, the Sponsor has the power to change the Funds’ investment objectives, benchmark or investment strategy at any time, without shareholder approval, subject to applicable regulatory requirements.

 

Futures Contracts and Options

 

A futures contract is a standardized contract traded on, or subject to the rules of, an exchange that calls for the future delivery of a specified quantity and type of a particular underlying asset at a specified time and place or alternatively may call for cash settlement. Futures contracts are traded on a wide variety of underlying assets, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators and statistical measures. The notional size and calendar term futures contracts on a particular underlying asset are identical and are not subject to any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller. Each Fund generally deposits cash and/or securities with an FCM for its open positions in futures contracts, which may, in turn, transfer such deposits to the clearinghouse to protect the clearinghouse against non-payment by the Fund. The clearinghouse becomes substituted for each counterparty to a futures contract, and, in effect, guarantees performance. In addition, the FCM may require the Funds to deposit collateral in excess of the clearinghouse’s margin requirements for the FCM’s own protection.

 

Certain futures contracts, including stock index contracts, SPIKES futures contracts, VIX futures contracts and certain commodity futures contracts settle in cash. The cash settlement amount reflects the difference between the contract purchase/sale price and the contract settlement price. The cash settlement mechanism avoids the potential for either counterparty to be required to deliver the underlying asset. For other futures contracts, the contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying asset 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.

 

Futures contracts involve, to varying degrees, elements of market risk and exposure to loss in excess of the amounts of variation margin, which are the amounts of cash that the Funds agree to pay to or receive from FCMs equal to the daily fluctuation in the value of a futures contract. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the level of the underlying benchmark and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal but some counterparty risk to the Funds since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, effectively guarantees futures contracts against default. Many futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified times during the trading day. Futures contracts prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund may be required to make daily cash payments of variation margin.

 

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific (or strike) price within a specified period of time, regardless of the market price of that instrument.

 

There are two types of options: calls and puts. A call option conveys to the option buyer the right to purchase a particular instrument at a stated price at any time during the life of the option. A put option conveys to the option buyer the right to sell a particular instrument at a stated price at any time during the life of the option.

 

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Swap Agreements

 

Swaps are contracts that have traditionally been entered into primarily by institutional investors in OTC markets for a specified period ranging from a day to many years. Certain types of swaps may be cleared, and certain types are, in fact, required to be cleared. The types of swaps that may be cleared are generally limited to only swaps where the most liquidity exists and a clearinghouse is willing to clear the trade on standardized terms. Swaps with customized terms or those for which significant market liquidity does not exist are generally not able to be cleared. The swap agreements in which a Fund may invest may be cleared or non-cleared.

 

In a standard swap transaction, the parties agree to exchange the returns on, among other things, a particular predetermined security, commodity, interest rate, or index for a fixed or floating rate of return (the “interest rate leg,” which will also include the cost of borrowing for short swaps) in respect of a predetermined notional amount. The notional amount of the swap reflects the basis upon which the returns are exchanged, i.e., the returns are calculated by multiplying the reference rates or prices, as applicable, by the specified notional amount.

 

In the case of indexes on which futures contracts are based, such as those used by the Funds, the reference interest rate typically is zero, although a financing spread or fee is generally still applied. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to the notional amount and the benchmark returns to which the swap is linked. Swaps are usually closed out on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date specified in the agreement, with the parties receiving or paying, as the case may be, only the net amount of the two payments. Thus, while the notional amount reflects the amount on which a Fund’s total investment exposure under the swap is based (i.e., the entire face amount or principal of a swap), the net amount is a Fund’s current obligations (or rights) under the swap. That is the amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement on any given termination date.

 

Swaps may also expose the Funds to liquidity risk. Although a Fund has the ability to terminate a swap at any time, doing so may subject the Fund to certain early termination charges. In addition, there may not be a liquid market within which to dispose of an outstanding swap even if a permitted disposal might avoid an early termination charge. Uncleared swaps generally are not assignable except by agreement between the parties to the swap, and generally no party or purchaser has any obligation to permit such assignments.

 

Swaps involve, to varying degrees, elements of market risk and exposure to loss in excess of the amount which would be reflected on a Fund’s Statement of Financial Condition. In addition to market risk and other risks, the use of swaps also comes with counterparty credit risk – i.e., the inability of a counterparty to a swap to perform its obligations. Each Fund that invests in swaps bears the risk of loss of the net amount, if any, expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty. Each such Fund enters or intends to enter into swaps only with major, global financial institutions. However, there are no limitations on the percentage of its assets a Fund may invest in swaps with a particular counterparty.

 

Each Fund that invests in swaps may use various techniques to minimize counterparty credit risk. Each Fund that invests in swaps generally enters into arrangements with its counterparties whereby both sides exchange collateral on a mark-to-market basis. In addition, such Fund may post “initial margin” or “independent amount” to counterparties in swaps. Such collateral serves as protection for the counterparty in the event of a failure by a Fund and is in addition to any mark-to-market collateral that (i.e., the Fund may post initial margin to the counterparty even where the counterparty would owe money to the Fund if the swap were to be terminated). The amount of initial margin posted by a Fund may vary depending on the risk profile of the swap. The collateral, whether for mark-to-market or for initial margin, generally consists of cash and/or securities.

 

Each Fund must identify on its books (often referred to as “asset segregation”) liquid assets, or engage in other appropriate measures, to “cover” open positions with respect to certain kinds of derivative instruments. A Fund may cover open positions by identifying on its books liquid assets equal to the full notional amount of the instrument while the positions are open. Because any swaps held by the Funds are required to cash settle, a Fund may identify liquid assets in an amount equal to the Fund’s daily marked-to-market net obligations (i.e., the Fund’s daily net liability) under the instrument, if any, rather than its full notional amount.

 

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Collateral posted by a Fund to a counterparty in connection with uncleared derivatives transactions is generally held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Fund. In the event of a default by a Fund where the counterparty is owed money in the uncleared swap transaction, such counterparty will seek withdrawal of this collateral from the segregated account.

 

Collateral posted by the counterparty to a Fund is typically held for the benefit of the Fund in a segregated tri-party account at a third-party custodian. In the event of a default by the counterparty where a Fund is owed money in the uncleared swap transaction, such Fund will seek withdrawal of this collateral from the segregated account. A Fund may incur certain costs exercising its right with respect to the collateral.

 

Notwithstanding the use of collateral arrangements, to the extent any collateral provided to a Fund is insufficient or there are delays in accessing the collateral, such Fund will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings.

 

THESE POOLS HAVE NOT COMMENCED TRADING AND DO NOT HAVE ANY PERFORMANCE HISTORY.

 

Management’s Discussion

 

Each Fund is newly formed and has not commenced operations. Prior to the inception of operations the Funds do not have any financial information with which to assess the Funds’ financial condition.

 

Margin Requirements and Marking-to-Market Futures Positions

 

“Initial margin” is an amount of funds that must be deposited by a commodity 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.  An FCM generally will have the discretion to set margin requirements and/or position limits that would be in addition to any margin requirements and/or position limits required by applicable law or set by the clearinghouse that clears, or the exchange that offers for trading, the futures contracts in which a Fund transacts. As a result, a Fund’s ability to engage in futures contracts or maintain open positions in such contracts will be dependent on the willingness of its FCMs to continue to accept or maintain such contracts on terms that are economically appropriate for the Fund’s investment strategy. Brokerage firms, such as the Funds’ 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.

 

When a Fund has an open futures contract position, it is subject to daily variation margin calls by an FCM that could be substantial in the event of adverse price movements. If a Fund has insufficient cash to meet daily variation margin requirements, it may need to sell Financial Instruments at a time when such sales are disadvantageous. Futures markets are highly volatile and the use of or exposure to futures contracts may increase volatility of a Fund’s NAV.

 

Margin posted by a Fund to an FCM typically will be held by relevant exchange’s clearinghouse (in the case of clearinghouse-required margin) or the FCM (in the case of “house” margin requirements of the FCM). In the event that a Fund fails to comply with its obligations under a Futures Account Agreement (including, for example, failing to deliver the margin required by an FCM on a timely basis), the Futures Account Agreement typically will provide the FCM with broad discretion to take remedial action against the Fund. Among other things, the FCM typically will have the right, upon the occurrence of such a failure by a Fund, to terminate any or all futures contracts in the Fund’s account with that FCM, to sell the collateral posted as margin by the Fund, to close out any open positions of the Fund in whole or in part, and to cancel any or all pending transactions with the Fund. Futures Account Agreements typically provide that a Fund will remain liable for paying to the relevant FCM, on demand, the amount of any deficiency in such Fund’s account with that FCM.

 

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The Futures Account Agreement between a Fund and an FCM generally requires the Fund to indemnify and hold harmless the FCM, its directors, officers, employees, agents and affiliates (collectively, “indemnified persons”) from and against all claims, damages, losses and costs (including reasonable attorneys’ fees) incurred by the indemnified persons, in connection with: (1) any failure by the Fund to perform its obligations under the Futures Account Agreement and the FCM’s exercise of its rights and remedies thereunder; (2) any failure by a Fund to comply with applicable law; (3) any action reasonably taken by the indemnified persons pursuant to the Futures Account Agreement to comply with applicable law; and (4) any actions taken by the FCM in reliance on instructions, notices and other communications that the FCM and its relevant personnel, as applicable, reasonably believes to originate from a person authorized to act on behalf of the Fund.

 

To the extent that the Funds trade in futures contracts on U.S. exchanges, the assets deposited by the Funds with the FCMs as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments—principally U.S. government obligations.

 

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 a Fund’s futures positions have declined in value, the Fund may be required to post “variation margin” to cover this decline.  Alternatively, if a Fund’s futures positions have increased in value, this increase will be credited to the Fund’s account.

 

The Funds’ Operations

 

The Sponsor and its Management and Trading Principals

 

The Sponsor is a two-member limited liability company that was formed in the state of Delaware on December 3, 2021. The Sponsor maintains its main business office at 7 Roszel Road, Suite 1A, Princeton, NJ 08540. The Sponsor is registered as a commodity pool operator with the Commodity Futures Trading Commission (“CFTC”). The Sponsor is a member of the National Futures Association (“NFA”). The Sponsor registered as a CPO with the CFTC and became a member of the NFA on July 30, 2021. The Sponsor became a commodity trading advisor on July 30, 2021. The Sponsor was approved by the NFA as a Swap Firm on April 7, 2022. The Matching Fund and Leveraged Fund are obligated to pay the Sponsor Fee, calculated daily and paid monthly, equal to 0.65% and 0.79%, respectively. Committed to community impact, the Sponsor donates 5% of its annual profits to the Australian Wildlife Conservancy, or such other non-profit and charitable organizations as may be selected by the Sponsor.

 

Ownership or “membership” interests in the Sponsor are owned by persons referred to as “members.” T3 Holdings and MIAX Futures are the members of the Sponsor. MIAX Futures and T3 Holdings own 51% and 49%, respectively, of the membership interests of the Sponsor. MIAX Futures is wholly-owned by MIH, which is the parent holding company of Miami International Securities Exchange, LLC (MIAX®), MIAX PEARL, LLC (MIAX PEARL®) and MIAX Emerald, LLC (MIAX Emerald™), three fully electronic options trading exchanges, MIAX PEARL Equities, a fully electronic equities exchange, and MGEX. MIH is also the sole owner of the Bermuda Stock Exchange. T3 Holdings and T3i Pty Ltd are each wholly-owned subsidiaries of Triple Three Partners Pty Ltd and, thus, the Sponsor may be considered to be an affiliate of T3 Index.

 

In general, under the Sponsor’s Limited Liability Company Agreement, the Sponsor (and as a result the Trust and the Funds) is managed by the members.  In particular, the members have appointed officers to manage 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 and Acts as the Sponsor’s principal accounting officer. The Chief Financial Officer acts as the Sponsor’s principal financial officer. Furthermore, certain fundamental actions regarding the Sponsor, such as entering into a management agreement or other services agreement with respect to the Funds, the addition or substitution of members or managers, hiring any employees, raising additional capital or dissolving or winding up the Sponsor, may not be taken without the consent of both members.  The Sponsor has no board of directors, and the Trust has no board of directors or officers. Neither the Trust nor the Funds have executive officers. Pursuant to the terms of the Trust Agreement, the Funds’ affairs are managed by the Sponsor.

 

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The following are Principals, as that term is defined in CFTC Rule 3.1, for the Sponsor: John Zhu, Melinda Ho, Simon Ho, Joseph W. Ferraro III, T3 Holdings and MIAX Futures. T3 Holdings and MIAX Futures are Principals because of their membership interests in the Sponsor. Messrs. Zhu, Ho and Ferraro, as well as Ms. Ho are principals due to their positions.

 

John Zhu (Age: 37). Chief Executive Officer and Chief Compliance Officer of the Sponsor, a registered swap associated person of the Sponsor since April 7, 2022, a registered associated person of the Sponsor since July 30, 2021, and a listed principal of the Sponsor since June 23, 2021. Since July 2012, he has worked at Triple Three Partners Pty Ltd. (financial services firm), where he served as Chief Investment Officer (since January 2017), Senior Portfolio Manager (July 2015 – December 2016), Portfolio Manager and Head of Research (April 2013 – June 2015) and Quantitative Analyst (July 2012 – March 2013).

 

Melinda Ho (Age: 48). Chief Financial Officer and Secretary of the Sponsor, and a listed principal of the Sponsor since July 30, 2021. Ms. Ho’s responsibilities include oversight of the financial matters of the Sponsor. Since January 2014, Melinda Ho has been the Chief Financial Officer of T3i Pty Ltd (index provider). Since March 2009, she has worked at Triple Three Partners Pty Ltd. (financial services firm), where she serves as the Chief Financial Officer and oversees financial matters.

 

Simon Ho (Age: 48).  President of the Sponsor and a listed principal of the Sponsor since July 6, 2021. Since January 2014, Mr. Ho has been the Chief Executive Officer and sole owner of T3i Pty Ltd (index provider) and since December 2020 he has been the Founder and President and Chief Executive Officer of T3 Holdings (financial services firm). Since March 2009 he has been the Founder and Executive Director of Triple Three Partners Pty Ltd. (financial services firm). He has general oversight responsibilities for all of these businesses.

 

Joseph W. Ferraro III (Age: 49). A listed principal of the Sponsor since June 28, 2021 (overseeing legal matters for registered commodity pool operator). Since March 2021, Mr. Ferraro has been the President of MIAX Futures (overseeing legal matters and oversight responsibilities of business).  In addition, since September 2016, Mr. Ferraro has been the Senior Vice President and Deputy General Counsel of MIH (overseeing legal matters). From August 2012 to August 2016, Mr. Ferraro was General Counsel and Secretary, and a member of the Board of Directors, of Longitude, LLC (computer technology company) and from August 2000 to August 2016, he was Deputy General Counsel and Assistant Secretary of ISE Holdings (electronic options exchanges).

 

NEITHER THIS POOL OPERATOR NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS.

 

Commodity Trading Advisor

 

The Sponsor has selected Teucrium to manage each Fund’s commodity futures investment strategy. Teucrium is a Delaware limited liability company. The principal office of the Sponsor and the Trust are located at Three Main Street, Suite 215, Burlington, Vermont 05401. The Sponsor registered as a CPO with the CFTC and became a member of the NFA on November 10, 2009. The Sponsor registered as a Commodity Trading Advisor (“CTA”) with the CFTC effective September 8, 2017. Teucrium manages approximately $956 million in assets as of April 30, 2022 in portfolios with a variety of investment objectives. Teucrium Investment Advisors, LLC, a wholly owned subsidiary of Teucrium Trading, LLC, is a Delaware limited liability company, which was formed on January 4, 2022. Teucrium Investment Advisors, LLC is a U.S. SEC registered investment advisor.

 

The Sub-Adviser, under authority delegated by the Sponsor, is responsible for reallocating assets within the portfolios with a view to achieving each Fund’s investment objective. In its capacity as a commodity trading advisor, the Sub-Adviser is an organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts.

 

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Principals and Ownership of Teucrium

 

Ownership or “membership” interests in Teucrium are owned by persons referred to as “members.” Teucrium 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%, and Mr. Miller owns 8.52% of the Sponsor’s Class A membership interests.

 

In general, under the Teucrium Amended and Restated Limited Liability Company Operating Agreement, as amended from time to time, Teucrium is managed by the officers of Teucrium Trading, LLC. The Chief Executive Officer of Teucrium 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 Funds. The Chief Financial Officer, Chief Accounting Officer and Chief Compliance Officer act as Teucrium’s principal financial and accounting officer. Furthermore, certain fundamental actions regarding Teucrium, 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). Teucrium has no board of directors, and the Teucrium Commodity Trust has no board of directors or officers. The three Class A members of Teucrium are Sal Gilbertie, Dale Riker and Carl N. Miller III.

 

Messrs. Gilbertie, Riker, Kahler and Ms. Mullen-Rusin are individual “principals,” as that term is defined in CFTC Rule 3.1, of Teucrium. These individuals are principals due to their positions and/or due to their ownership interests in Teucrium. GFI Group LLC is a principal under CFTC Rules due to its ownership of certain non-voting securities of Teucrium . NMSIC Classic LLC is a principal under CFTC Rules due to its greater than 10% capital contribution to Teucrium.

 

Sal Gilbertie (Age: 62). President of the Sponsor since its inception, Chief Investment Officer since September 2011, and Chief Executive Officer and Secretary since September 17, 2018. He 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 listed as the Branch Manager for this location. Mr. Gilbertie is an officer of Teucrium Investment Advisors, LLC, a wholly owned subsidiary of Teucrium Trading, LLC effective January 21, 2022. 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.

 

Cory Mullen-Rusin (Age: 34). Chief Financial Officer, Chief Accounting Officer and Chief Compliance Officer of the Sponsor since September 17, 2018. Ms. Mullen-Rusin has primary responsibility for the financial management, compliance and reporting of the Sponsor; is in charge of its books of account and accounting records, and its accounting procedures. She maintains her main business office at Three Main Street, Suite 215, Burlington, Vermont 05401. Ms. Mullen-Rusin was approved by the NFA as a Principal of the Sponsor on October 8, 2018. Ms. Mullen-Rusin began working for the Sponsor in September 2011 and worked directly with the former CFO at Teucrium for seven years. Her responsibilities included aspects of financial planning, financial operations, and financial reporting for the Trust and the Sponsor. Additionally, Ms. Mullen-Rusin assisted in developing, instituting, and monitoring the effectiveness of processes and procedures to comply with all regulatory agency requirements. Ms. Mullen-Rusin is an officer of Teucrium Investment Advisors, LLC, a wholly owned subsidiary of Teucrium Trading, LLC effective January 21, 2022. Ms. Mullen-Rusin graduated from Boston College with a Bachelor of Arts and Science in Communications in 2009, where she was a four-year scholarship player on the NCAA Division I Women’s Basketball team. In 2017, she earned a Master of Business Administration from Nichols College.

 

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Steve Kahler (Age: 54). Chief Operating Officer of Teucrium. He began working for the Sponsor in November 2011 as Managing Director in the trading division. He became the Chief Operating Officer on May 24, 2012 and served in that capacity through September 6, 2018, at which time he resigned. Mr. Kahler was unemployed from September 7, 2018 until October 10, 2018, when he was reappointed as Chief Operating Officer. Mr. Kahler is primarily responsible for making trading and investment decisions for the Funds, and for directing each Fund’s trades for execution. Mr. Kahler was listed as a Principal of the Sponsor from May 16, 2012 to September 7, 2018 and again was listed as a Principal on October 16, 2018. Mr. Kahler was registered as an Associated Person of the Sponsor from November 25, 2011 to September 7, 2018 and re-registered as an Associated Person on October 16, 2018. Mr. Kahler was listed as a Branch Manager of the Sponsor on March 16, 2012 to September 7, 2018 and was listed again from October 5, 2018 to September 29, 2021. Mr. Kahler is an officer of Teucrium Investment Advisors, LLC, a wholly owned subsidiary of Teucrium Trading, LLC effective January 21, 2022. Prior to his employment with the Sponsor, Mr. Kahler worked for Cargill Inc., an international producer and marketer of food, agricultural, financial and industrial products and services, from April 2006 until November 2011 in the Energy Division as Senior Petroleum Trader. In October 2006 and while employed at Cargill Inc., Mr. Kahler was approved as an Associated Person of Cargill Commodity Services Inc., a commodity trading affiliate of Cargill Inc. from September 13, 2006 to November 9, 2011. Mr. Kahler graduated from the University of Minnesota with a Bachelors of Agricultural Business Administration.

 

Portfolio Managers

 

Steve Kahler. Mr. Kahler is primarily responsible for making trading and investment decisions for the Funds, and for directing each Fund’s trades for execution.

 

Charles “Springer” Harris. Portfolio Manager & Managing Director of Operations. Mr. Harris served as the Vermont Branch Manager from July 2012 - November 2019 and as FINRA Supervising Principal from 2014 - 2021. He began working for the Sponsor on April 1, 2011. Mr. Harris works directly under the COO assisting in Trading and Operations. He has primary responsibilities for the Trade Operations for the Funds. He maintains his office at Three Main Street, Suite 215 Burlington, VT 05401. Prior to his employment with the Sponsor, Mr. Harris was a member of the Emergent Social Media Team at Weber Shandwick, one of the world's leading global public relations firms with offices in major media, business and government capitals around the world. Mr. Harris graduated Cum Laude with a B.A. in Business Management. At Washington College, Mr. Harris served as a four-year member and two-year captain of the Men’s Rowing Team earning top Conference Academic Honors Mr. Harris has also held various positions with the Maryland General Assembly and the City of Burlington Vermont. Springer holds the Series 3, and 30.

 

Teucrium’s Trading Program

 

As of the date of this Prospectus, the Funds are the only investment vehicles managed by Teucrium using the respective investment strategy of each Fund. In addition, Teucrium serves as the sponsor and CPO for the Teucrium Commodity Trust and the funds that are a series of that trust (the “Teucrium Funds”), and acts as the Teucrium Fund’s CPO. As of the date of this Prospectus, the following constituted the series of the Teucrium Funds:

 

Teucrium Corn Fund: The investment objective of the fund is to have the daily changes in the NAV of the fund’s shares reflect the daily changes in the corn market for future delivery as measured by the Teucrium Corn Index.

 

Teucrium Wheat Fund: The investment objective of the fund is to have the daily changes in the NAV of the fund’s shares reflect the daily changes in the wheat market for future delivery as measured by the Teucrium Wheat Index.

 

Teucrium Soybean Fund: The investment objective of the fund is to have the daily changes in the NAV of the fund’s shares reflect the daily changes in the soybean market for future delivery as measured by the Teucrium Soybean Index.

 

Teucrium Sugar Fund: The investment objective of the fund is to have the daily changes in the NAV of the fund’s shares reflect the daily changes in the sugar market for future delivery as measured by the Teucrium Sugar Index.

 

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Teucrium Agricultural Fund: The Fund seeks to provide daily investment results that reflect the combined daily performance of four other commodity pools that are series of the Trust and sponsored by the Sponsor: the Teucrium Corn Fund, Teucrium Wheat Fund, Teucrium Soybean Fund, and Teucrium Sugar Fund.

 

In accordance with applicable requirements of the CFTC and the NFA, certain performance information for each Teucrium Fund is set forth below.

 

PERFORMANCE OF TEUCRIUM’S STRATEGIES

 

Name of Commodity Pool: Teucrium Sugar Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: September 19, 2011

Units of beneficial interest issued (from inception until April 30, 2022): 10,225,000

Aggregate gross sale price for units issued: $90,664,552

NAV per Share as of April 30, 2022: $9.59

Pool NAV as of April 30, 2022: $34,752,412

Worst monthly percentage drawdown*: March 2020 (23.51)%

Worst peak to valley drawdown*: September 2011 – April 2020 (78.60)%

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Teucrium Sugar Fund   Rates of Return*  
Month   2017     2018     2019     2020     2021     2022  
January     6.86       (8.58 )     6.36       3.83       2.81       (3.86 )
February     (5.34 )     (1.56 )     0.13       (1.68 )     7.93       (0.89 )
March     (10.14 )     (5.90 )     (3.05 )     (23.51 )     (5.73 )     9.43  
April     (5.17 )     (7.48 )     (1.78 )     (2.76 )     13.55       (0.34)  
May     (6.89 )     4.95       (1.95 )     1.25       3.01          
June     (7.40 )     (5.34 )     1.00       5.83       3.17          
July     7.57       (9.84 )     (1.70 )     4.77       1.25          
August     (3.09 )     (1.89 )     (7.08 )     0.89       12.51          
September     (6.17 )     (1.63 )     2.58       0.90       (0.97 )        
October     3.08       15.99       (0.87 )     0.16       (2.31 )        
November     0.82       (2.34 )     2.09       4.00       (3.42 )        
December     (0.10 )     (5.86 )     4.56       5.64       2.22          
Annual Rate of Return     (24.52 )     (27.78 )     (0.48 )     (4.51 )     37.31       3.91 **

 

Name of Commodity Pool: Teucrium Corn Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: June 9, 2010

Units of beneficial interest issued (from inception until April 30, 2022): 42,950,000

Aggregate gross sale price for units issued: $946,362,422

NAV per Share as of April 30, 2022: $29.97

Pool NAV as of April 30, 2022: $308,724,364

Worst monthly percentage drawdown*: June 2018 (8.82)%

Worst peak to valley drawdown*: August 2012 – July 2020 (76.94)%

 

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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Teucrium Corn Fund   Rates of Return*  
Month   2017     2018     2019     2020     2021     2022  
January     2.24       2.51       0.50       (2.64 )     8.71       4.63  
February     1.56       2.74       (3.09 )     (4.44 )     1.72       8.39  
March     (2.36 )     1.98       (3.00 )     (6.11 )     2.47       11.02   
April     (1.37 )     0.94       (1.12 )     (6.81 )     17.62       10.31   
May     1.23       (0.77 )     11.03       0.43       (2.07 )        
June     0.58       (8.82 )     (1.86 )     2.37       5.72          
July     (1.36 )     3.41       (3.14 )     (5.48 )     (6.07 )        
August     (6.00 )     (4.71 )     (6.86 )     7.39       (0.56 )        
September     (0.56 )     (2.16 )     2.87       4.43       1.04          
October     (2.27 )     1.83       (0.42 )     1.84       5.38          
November     (1.28 )     0.37       (4.34 )     5.48       (1.04 )        
December     (1.35 )     (0.49 )     2.21       10.02       2.63          
Annual Rate of Return     (10.76 )     (3.82 )     (8.00 )     4.83       38.88       38.90 **

 

Name of Commodity Pool: Teucrium Wheat Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: September 19, 2011

Units of beneficial interest issued (from inception until April 30, 2022): 89,525,000

Aggregate gross sale price for units issued: $850,483,327

NAV per Share as of April 30, 2022: $10.52

Pool NAV as of April 30, 2022: $500,917,612

Worst monthly percentage drawdown*: August 2017 (11.52)%

Worst peak to valley drawdown*: September 2011 – April 2019 (80.30)%

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Teucrium Wheat Fund   Rates of Return*  
Month   2017     2018     2019     2020     2021     2022  
January     2.90       5.68       1.51       (1.87 )     2.18       (0.91 )
February     2.26       5.85       (11.26 )     (4.81 )     0.33       19.78  
March     (4.41 )     (7.61 )     (1.12 )     5.87       (5.08 )     12.24   
April     (1.73 )     8.40       (6.98 )     (6.75 )     18.28       7.02   
May     (0.29 )     2.53       14.00       (1.01 )     (6.94 )        
June     15.46       (7.41 )     2.31       (5.49 )     2.31          
July     (7.02 )     8.95       (7.47 )     7.11       2.75          
August     (11.52 )     (4.18 )     (6.38 )     2.51       2.12          
September     1.86       (6.17 )     6.57       3.39       (0.20 )        
October     (6.09 )     (1.92 )     2.21       1.82       6.55          
November     (1.30 )     (1.14 )     4.23       (1.74 )     0.69          
December     (1.64 )     (1.65 )     3.12       7.65       (2.66 )        
Annual Rate of Return     (13.06 )     (0.67 )     (1.91 )     5.48       19.84       42.56 **

 

Name of Commodity Pool: Teucrium Agricultural Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: March 28, 2012

Units of beneficial interest issued (from inception until April 30, 2022): 1,625,000

Aggregate gross sale price for units issued: $54,829,498

NAV per Share as of April 30, 2022: $34.38

Pool NAV as of April 30, 2022: $34,810,335

Worst monthly percentage drawdown*: June 2018 (8.65)%

Worst peak to valley drawdown*: July 2012 – April 2020 (70.07)%

 

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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Teucrium Agricultural Fund   Rates of Return*  
Month   2017     2018     2019     2020     2021     2022  
January     3.34       0.57       2.61       (2.19 )     4.18       2.22  
February     (0.29 )     2.67       (3.98 )     (2.75 )     3.46       8.52  
March     (5.97 )     (2.98 )     (2.60 )     (7.41 )     (1.53 )     8.33   
April     (2.16 )     0.09       (3.59 )     (4.63 )     13.71       5.93   
May     (2.32 )     1.32       6.17       0.03       (1.02 )        
June     2.91       (8.65 )     0.85       1.21       3.26          
July     1.00       1.47       (3.94 )     1.99       (1.21 )        
August     (6.47 )     (4.48 )     (5.42 )     4.23       2.70          
September     (0.72 )     (2.20 )     3.86       3.50       (0.60 )        
October     (1.27 )     3.65       0.59       1.39       2.16          
November     (0.47 )     0.34       (0.87 )     4.29       (1.70 )        
December     (1.60 )     (2.31 )     4.05       8.28       2.37          
Annual Rate of Return     (13.60 )     (10.64 )     (3.02 )     7.14       27.85       27.29 **

 

Name of Commodity Pool: Teucrium Soybean Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: September 19, 2011

Units of beneficial interest issued (from inception until April 30, 2022): 14,950,000

Aggregate gross sale price for units issued: $260,276,769

NAV per Share as of April 30, 2022: $28.55

Pool NAV as of April 30, 2022: $77,098,303

Worst monthly percentage drawdown*: June 2018 (13.03)%

Worst peak to valley drawdown*: August 2012 – May 2020 (52.02)%

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

Teucrium Soybean Fund   Rates of Return*  
Month   2017     2018     2019     2020     2021     2022  
January     1.68       3.31       2.16       (7.92 )     3.63       9.30  
February     0.52       3.69       (1.75 )     0.00       4.15       7.40  
March     (7.13 )     (0.42 )     (2.89 )     (4.07 )     2.59       0.11   
April     (0.28 )     (0.63 )     (4.56 )     (2.08 )     6.16       6.70   
May     (3.05 )     (1.43 )     2.46       (0.50 )     2.17          
June     3.37       (13.03 )     1.81       2.52       1.61          
July     4.70       4.38       (3.35 )     1.67       (2.81 )        
August     (3.27 )     (7.03 )     (1.36 )     5.94       (2.57 )        
September     (2.02 )     0.57       3.45       5.32       (2.38 )        
October     2.73       (1.01 )     1.48       1.81       (0.99 )        
November     0.11       4.47       (5.36 )     9.72       (2.80 )        
December     (3.36 )     (1.04 )     6.42       9.98       7.59          
Annual Rate of Return     (6.45 )     (9.24 )     (2.16 )     22.98       16.82       25.40 **

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.

 

** Not annualized

 

Draw-down: Losses experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

 

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Worst Monthly Percentage Draw-down: The largest single month loss sustained since inception of trading.

 

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the Fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV that is not equaled or exceeded by a subsequent month-end per share NAV.

 

T3 Index

 

Triple Three Partners Pty Ltd is the owner, creator, and licensor of indices including the SPIKES Index. Triple Three Partners Pty Ltd, licenses its indices to its affiliated company, T3i Pty Ltd. Triple Three Partners Pty Ltd is an Australian registered proprietary company formed on March 3, 2009. T3i Pty Ltd is an Australian registered proprietary company formed on September, 17 2013. It maintains its main business office at Suite 504, 165 Philip St., Sydney, NSW 2000. The firm maintains a website at https://t3index.com/. The firm specializes in volatility and option benchmarking and is dedicated to developing investible, proprietary indices that track related strategies across a range of asset classes. Because of Triple Three Partners Pty Ltd’s ownership interest in the Sponsor, T3 Index is considered to be an affiliate of the Sponsor.

  

The Funds’ Service Providers

 

Administrator, Custodian, Fund Accountant, and Transfer Agent

 

U.S. Bank, a national banking association, with its principal office in Milwaukee, Wisconsin, provides custody and fund accounting to the Trust and Funds. Its affiliate, U.S. Bancorp Fund Services, is the transfer agent (“Transfer Agent”) for Fund shares and administrator for the Funds (“Administrator”). It performs certain administrative and accounting services for the Funds and prepares certain SEC, NFA and CFTC reports on behalf of the Funds. (U.S. Bank and U.S. Bancorp Fund Services are referred to collectively hereinafter as “U.S. Bank”).

 

For the first year of services, the Funds have agreed to pay U.S. Bank 0.05% of assets under management (“AUM”), with a $45,000 minimum annual fee payable for each Fund for its administrative, accounting and transfer agent services and 0.0075% of AUM, with a minimum of $3,000 for each Fund for custody services.

 

Delaware Trustee

 

Wilmington Trust, N.A.  (the “Trustee”) serves as the Trust’s corporate trustee as required under the Delaware Statutory Trust Act (“DSTA”). The Trustee receives for its services an annual fee of $4,000 per Fund.

 

The Trustee is the sole trustee of the Trust. The rights and duties of the Trustee and the Sponsor with respect to the offering of the shares and Fund management and the shareholders are governed by the provisions of the DSTA and by 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 DSTA. The Trustee does not owe any other duties to the Trust, the Sponsor or the shareholders of the Funds. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Sponsor.

 

The Trustee is permitted to resign upon at least sixty (60) days’ notice to the Trust, provided, that any such resignation will not be effective until a successor Trustee is appointed by the Sponsor. The Sponsor has the discretion to replace the Trustee.

 

Only the assets of the Trust and the Sponsor are 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. The Trustee’s liability in connection with the issuance and sale of the shares is limited solely to the express obligations of the Trustee set forth in the Trust Agreement.

 

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Under the Trust Agreement, the Sponsor has exclusive management and control of all aspects of the Trust’s business. The Trustee has no duty or liability to supervise the performance of the Sponsor, nor will the Trustee have any liability for the acts or omissions of the Sponsor. The shareholders have no voice in the day to day management of the business and operations of the Funds and the Trust, other than certain limited voting rights as set forth in the Trust Agreement. In the course of its management of the business and affairs of the Funds and the Trust, the Sponsor may, in its sole and absolute discretion, appoint an affiliate or affiliates of the Sponsor as additional sponsors and retain such persons, including affiliates of the Sponsor, as it deems necessary to effectuate and carry out the purposes, business and objectives of the Trust.

 

Because the Trustee has no authority over the Trust’s operations, the Trustee itself is not registered in any capacity with the CFTC.

 

Distributor

 

Foreside Fund Services, LLC serves as the Distributor for the Funds and assists the Sponsor and the Administrator with functions and duties relating to distribution and marketing, which include the following: taking creation and redemption orders, and consulting with the marketing staff of the Sponsor and its affiliates with respect to compliance matters in connection with marketing efforts. The role of the Distributor and the fee it receives from the Funds is further discussed in the section titled “Plan of Distribution,” below. The Distributor’s principal business address is Three Canal Plaza, Suite 100, Portland, ME 04101. The Distributor is a broker-dealer registered with FINRA.

 

Futures Commission Merchant

 

The Funds intend to use ADM Investor Services, Inc. (“ADMIS”) as their FCM. ADMIS serves as a clearing broker to the Trust and the Funds and as such arranges for the execution and clearing of the Funds’ futures transactions. The FCM acts as clearing broker for many other funds and individuals. A variety of executing brokers may execute futures transactions on behalf of the Funds. The executing brokers will give up all such transactions to an FCM.

 

Investors should be advised that the FCM is not affiliated with or acts as a supervisor of the Funds or the Funds’ commodity pool operators, commodity trading advisors, investment managers, trustees, general partners, administrators, transfer agents, registrars or organizers, as applicable. Additionally, the FCM is not acting as an underwriter or sponsor of the offering of any Shares or interests in the Funds or has passed upon the merits of participating in this offering.

 

The FCM has not passed upon the adequacy of this Prospectus or on the accuracy of the information contained herein. Additionally, the FCM does not provide any commodity trading advice regarding the Funds’ trading activities. Investors should not rely upon the FCM in deciding whether to invest in the Funds or retain their interests in the Funds. Investors should also note that the Funds may select additional clearing brokers or replace the FCM as the Funds’ clearing brokers.

 

Litigation and Regulatory Disclosure Relating to FCMs

 

ADM Investor Services, Inc. (“ADMIS”) is a registered futures commission merchant and is a member of the National Futures Association. Its main office is located at 141 W. Jackson Blvd., Suite 2100A, Chicago, IL 60604. In the normal course of its business, ADMIS is involved in various legal actions incidental to its commodities business. None of these actions are expected either individually or in aggregate to have a material adverse impact on ADMIS.

 

Neither ADMIS nor any of its principals have been the subject of any material administrative, civil or criminal actions within the past five years, except for the following matters.

 

In a CFTC Order entered on July 12, 2019 the CFTC found that between December 1, 2014 and September 24, 2017 ADMIS failed to diligently supervise the handling by its employees and agents of commodity interest accounts as well as the activities of its employees and agents relating to its business as an FCM in violation of CFTC Regulation 166.3. The order imposed a civil monetary penalty of $250,000.

 

On January 28, 2020, a Commodity Exchange Business Conduct Committee Panel (“Panel”) found that between 2012 and 2018, ADMIS learned that one of its brokerage firm clients automatically offset omnibus account positions in futures contracts using the FIFO method and was misreporting its open positions. As a result, inaccurate open interest data was published to the market. The Panel found that ADMIS failed to require the client to provide accurate and timely owner and control information and continued to report inaccurate information regarding the ownership and control of the positions through May 2018 in violation of Exchange Rules 432.Q., 432.X., and 561.C. Additionally, on multiple occasions continuing through May 2018, ADMIS provided the Exchange with inaccurate audit trail data provided by the client. The Panel found that ADMIS violated Exchange Rule 536.B.2.

 

Finally, the Panel found that ADMIS failed to take effective measures to ensure the accuracy of its client’s purchase and sales data reporting and its responses to the Exchange, and failed to properly supervise employees. The Panel therefore found that ADMIS violated Exchange Rule 432.W. In accordance with an offer of settlement the Panel ordered ADMIS to pay a fine of $650,000.

 

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Margin Levels Expected to be Held at the FCMs

 

While the portfolio composition may vary over time, it is not expected that, as of any daily rebalance, the Matching Fund will have futures exposure greater than one times (1x) the Fund’s assets or that the Leveraged Fund will have futures exposure greater than one-and-a-half times (1.5x) the Fund’s assets (although this is possible in some circumstances, such as during periods of market volatility or in situations where margin requirements are high). It currently is anticipated that each Fund could have as much as 100% of its assets held in segregated accounts as collateral for its transactions in futures contracts and other Financial Instruments.

 

The Funds receive the income on any securities or other property of the Funds transferred to the FCM to fulfill requirements for margin to be held by the FCM in respect of commodity interests, and receive a negotiated portion of any income derived by the FCM in respect of any cash transferred to the FCM and held for this purpose.

 

Legal Counsel

 

Sullivan & Worcester LLP serves as legal counsel to the Funds and the Trust.

 

Fees and Expenses

 

See “Breakeven Analysis” for breakeven related information.

 

Sponsor Fee

 

Each pays the Sponsor a Sponsor Fee, monthly in arrears, in the following amounts:

 

Fund   Sponsor Fee
ConvexityShares Daily 1.5x SPIKES Futures ETF   0.79% per annum of the daily NAV of the Fund
ConvexityShares 1x SPIKES Futures ETF   0.65% per annum of the daily NAV of the Fund

 

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The Sponsor Fee is paid in consideration of the Sponsor’s services related to the management of the Funds’ business and affairs, including the provision of commodity futures trading advisory services.

 

Brokerage Commissions and Fees

 

The Funds pay to the FCM all brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with its trading activities. The Sponsor estimates the brokerage commissions and fees will be approximately 0.20% of the Matching Fund’s NAV in any year, and 0.28% of the Leveraged Fund’s NAV in any year, although the actual amount of brokerage commissions and fees in any year or any part of any year may be greater.

 

Routine Operational, Administrative and Other Ordinary Expenses

 

The Sponsor pays all routine operational, administrative and other ordinary expenses of the Fund. These expenses include the following, and are described in detail in the sections titled “The Funds’ Service Providers” and “Plan of Distribution,” as applicable.

 

Professional Fees Professional fees include legal, auditing and tax-preparation related costs
   
Distribution and Marketing Fees Marketing fees consist of primarily, but not entirely, of fees paid to the Distributor and other costs related to the trading activities of a Fund
   
Custodian and Administrator Fees and Expenses Custodian and Administrator fees consist of fees to U.S. Bank for the Funds’ administrative, accounting, transfer agent and custodian activities
   
General and Administrative Fees General and Administrative fees include, but are not limited to, insurance and printing costs, as well as various compliance and reporting costs

 

The Fund does not reimburse the Sponsor for the routine operational, administrative and other ordinary expenses of the Fund. The Sponsor aggregates the routine operational, administrative and other ordinary expenses related to the Funds, and allocates the costs associated to each Fund. The expenses may vary, but the Sponsor retains the obligation to pay those expenses in lieu of the Funds.

 

Non-Recurring Fees and Expenses

 

The Funds pay all of their non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are fees and expenses which are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Funds. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.

 

Selling Commission

 

Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges. The price at which an Authorized Participant sells a Share may be higher or lower than the price paid by such Authorized Participant in connection with the creation of such Share in a Creation Unit.

 

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Conflicts of Interest

 

Sponsor and Sub-Adviser

 

There are present and potential future conflicts of interest in the Funds’ structure and operation you should consider before you purchase shares. The Sponsor and Teucrium will use this notice of conflicts as a defense against any claim or other proceeding made. If the Sponsor or Teucrium is not able to resolve these conflicts of interest adequately, it may impact the Funds’ ability to achieve their investment objectives. The Funds, the Sponsor and Teucrium may have inherent conflicts to the extent the Sponsor or Teucrium attempts to maintain the Funds’ asset size in order to preserve its fee income.

 

MIH, the parent of MIAX Futures, a Managing Member of the Sponsor, or its affiliates owns MGEX, where the Funds’ transactions in SPIKES futures contracts may be executed and/or cleared. As a result, MIH may receive financial or other benefits related to its ownerships interest when SPIKES futures contracts are executed. MIH, in its capacity as a Managing Member of the Sponsor, would, therefore, have an incentive to cause the Funds to execute trades in SPIKES futures contracts due to the fees generated from the trades being executed on MGEX. Transactions by the Funds may account for a material amount of overall SPIKES futures volume, and MIH may have an incentive to use the Funds to prop up, or provide liquidity that would otherwise be unavailable to, the market for SPIKES futures or other Financial Instruments.

 

Similarly, T3 Holdings, a Managing Member of the Sponsor, or its affiliates, including T3 Index, creates and maintains the SPIKES Index and is contractually entitled to revenue from the trading of Financial Instruments based on the SPIKES Index. Therefore, T3 Holdings, in its capacity as a Managing Member of the Sponsor, has an incentive to cause the Funds to pursue investment objectives that are benchmarked to the Index, which consists of SPIKES futures contracts, due to the fees generated from the Funds’ trading in SPIKES futures contracts and other Financial Instruments based on the SPIKES Index, or in order to prop up, or provide liquidity that would otherwise be unavailable to, the market for SPIKES futures or other Financial Instruments.

 

Because T3 Index and T3 Holdings are both wholly-owned by Triple Three Partners Pty Ltd, T3 Index is an affiliated person of the Sponsor, which poses the appearance of a conflict of interest. For example, a potential conflict could arise between an affiliated person of T3 Index or the Sponsor and the Funds if that entity attempted to use information regarding changes to and composition of the Index to the detriment of a Fund. Additionally, potential conflicts could arise with respect to the personal trading activity of personnel of the affiliated person who may have access to, or knowledge of, pending changes to the Index’s composition methodology or the constituents in the Index prior to the time that information is publicly disseminated. If shared, such knowledge could facilitate “front-running” (which describes an instance in which other persons trade ahead of a Fund). T3 Index has implemented and will maintain a fire wall regarding access to information concerning the composition and/or changes to the Index. In addition, T3 Index has implemented and will maintain procedures that are designed to prevent the use and dissemination of material, non-public information regarding the Index.

 

The Sponsor’s and Teucrium’s officers, directors and employees, do not devote their time exclusively to the Funds. Notwithstanding obligations and expectations related to the management of the Sponsor or to Teucrium, these persons are, or may in the future be, directors, officers or employees of other entities, including MIH and T3 Index or an affiliate, which may compete with the Funds for their services. They may manage assets of other entities through the Sponsor or otherwise. They could have a conflict between their responsibilities to the Funds and to those other entities.

 

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The Sponsor, Teucrium, their affiliates and principals may trade for their own accounts. Consequently, non-customer and proprietary trades may be executed and cleared through any FCM or prime broker utilized by clients. It is possible that the Sponsor or Teucrium, including their officers and employees may buy or sell investment positions or other instruments that the Sponsor or Teucrium has recommended to, or purchased for, its clients and may engage in transactions for their own accounts in a manner that is inconsistent with the Sponsor’s or Teucrium’s recommendations to a client. Personal transactions by the Sponsor or Teucrium, including their officers and employees, may raise potential conflicts of interest when such persons trade in an investment position that is owned by, or considered for purchase or sale for, a client, including conflicts that would arise if such proprietary accounts were to trade ahead of client accounts, place trades that are opposite to the trades of client accounts (such as the Funds), or receive preferential treatment in terms of allocation of resources or of investment opportunities, notwithstanding the adoption of procedures and policies relating to proprietary trading. Shareholders will not be permitted to inspect the trading records of the Sponsor or its principals or any written policies of the Sponsor related to such trading.

 

The Sponsor has sole current authority to manage the investments and operations of the Funds, and this may allow it to act in a way that furthers its own interests which may create a conflict with your best interests. Security holders have limited voting control, which will limit their ability to influence matters such as amendment of the Trust Agreement, change in a Fund’s basic investment policy, dissolution of a Fund, or the sale or distribution of a Fund’s assets.

 

The Sponsor serves as the sponsor to the Funds, and may in the future serve as the sponsor or investment adviser to other commodity pools. The Sponsor may have a conflict to the extent that its trading decisions for a Fund may be influenced by the effect they would have on the other pools it manages.

 

The previous risk factors and conflicts of interest are complete as of the date of this prospectus; however, additional risks and conflicts may occur which are not presently foreseen by the Sponsor. You may not construe this prospectus as legal or tax advice. Before making an investment in one of these Funds, you should read this entire prospectus, including the Trust Agreement which can be found on the Funds’ website at www.convexityshares.com. You should also consult with your personal legal, tax, and other professional advisors.

 

FCMs

 

An FCM or its affiliates may own stock in, or have some other form of ownership interest in, one or more U.S. or foreign exchanges or swap execution facilities (each, a “Trading Facility”) or CFTC-registered derivatives clearinghouses (each, a “Clearinghouse”) where the Funds’ transactions in futures, options on futures, swaps (as defined in the CEA), forwards or other commodity derivatives (“Contracts”) may be executed and/or cleared. As a result, an FCM or its affiliates may receive financial or other benefits related to its ownership interest when Contracts are executed on a given Trading Facility or cleared through a given Clearinghouse, and the FCM would, in such circumstances, have an incentive to cause Contracts to be executed on that Trading Facility or cleared by that Clearinghouse. In addition, employees and officers of an FCM or its affiliates may also serve on the board of directors or on one or more committees of a Trading Facility or Clearinghouse.

 

In addition, Trading Facilities and Clearinghouses may from time to time have in place other arrangements that provide their members or participants with volume, market-making or other discounts or credits, may call for members or participants to pre-pay fees based on volume thresholds, or may provide other incentive or arrangements that are intended to encourage market participants to trade on or direct trades to that Trading Facility or Clearinghouse. An FCM or its affiliates may participate in and obtain financial benefits from such incentive programs.

 

When providing execution services to the Funds (either in conjunction with clearing services or in an execution-only capacity), an FCM may direct orders to affiliated or unaffiliated market-makers, other executing firms, individual brokers or brokerage groups for execution. When such affiliated or unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Likewise, where permitted by law and the rules of the applicable Trading Facility, an FCM may solicit a counterparty to trade opposite your order or enter into transactions for its own account or the account of other counterparties that may, at times, be adverse to your interests in a Contract. In such circumstances, that counterparty may make payments and/or pay a commission to the FCM in connection with that transaction. The results of the Funds’ transactions may differ from the results achieved by the FCM for its own account, its affiliates, or for other customers.

 

In addition, where permitted by applicable law (including, where applicable, the rules of the applicable Trading Facility), an FCM, its directors, officers, employees and affiliates may act on the other side of a Fund’s order or transaction by the purchase or sale for an account, or the execution of a transaction with a counterparty, in which the FCM or a person affiliated with the FCM has a direct or indirect interest, or may effect any such order with a counterparty that provides the FCM or its affiliates with discounts related to fees for Contracts or other products. In cases where an FCM has offered a Fund a discounted commission or clearing fee for Contracts executed through the FCM as agent or with the FCM or its affiliate acting as counterparty, the FCM or its affiliates may be doing so because of the enhanced profit potential resulting from acting as executing broker or counterparty.

 

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An FCM or its affiliates may act as, among other things, an investor, research provider, placement agent, underwriter, distributor, remarketing agent, structurer, securitizer, lender, investment manager, investment adviser, commodity trading advisor, municipal advisor, market maker, trader, prime broker or clearing broker. In those and other capacities, an FCM, its directors, officers, employees and affiliates may take or hold positions in, or advise other customers and counterparties concerning, or publish research or express a view with respect to, a Contract or with a related financial instrument that may not be consistent with, or may be contrary to, the Funds’ interests . Unless otherwise disclosed in writing, an FCM is not necessarily acting in the Funds’ best interest and are not assessing the suitability for the Funds of any Contract or related financial instrument. Acting in one or more of the capacities noted above may give an FCM or its affiliates access to information relating to markets, investments and products. An FCM and its affiliates are under no duty to make any such information available to the Sponsor, except to the extent the FCM has agreed in writing or as may be required under applicable law.

 

Ownership or Beneficial Interest in the Funds

 

As of the date of this prospectus, neither the Sponsor nor any of its principals owns any shares of the Funds.

 

As of the date of this prospectus, neither Teucrium nor any of its principals owned any shares of the Funds.

 

Related Party Transactions

 

The Sponsor, who may be deemed “related person” of the Fund under Item 404 of Regulation S-K adopted by the SEC, contributed $1,000 to each Fund on February 14, 2022, in exchange for 40 shares of the respective Fund, representing an initial contribution of capital to the pool. On March 23, 2022, the Sponsor redeemed the 40 Sponsor units of each Fund.

 

In addition, the Sponsor is entitled to receive compensation from the Fund for certain services it provides to the Fund. The compensation the Sponsor is entitled to receive from the Fund includes the Sponsor Fee. See “Additional Information About the Funds, the Index, the Funds’ Investment Objectives and Investments” in this prospectus for a description of the services provided by the Sponsor and “Additional Information About the Funds, the Index, the Funds’ Investment Objectives and Investments – The Fund’s Operations – The Sponsor and its Management and Trading Principals” in this prospectus for a description of the compensation payable to the Sponsor.

 

In addition, MIAX Futures, the direct, 51% owner of the Sponsor, as well as the 100% owner of MGEX, is compensated for each transaction of SPIKES futures contracts, including for transaction conducted by the Funds. MIAX Futures is receives an exchange fee of $0.25 per SPIKES futures contract traded.

 

Interests of Named Experts and Counsel

 

The Sponsor employed Sullivan & Worcester to assist in preparing this prospectus. Neither the law firm nor any other expert hired by the Funds to give advice on the preparation of this offering document has been hired on a contingent fee basis. Nor does any such party have any present or future expectation of interest in the Sponsor, Distributor, Authorized Participants, Custodian, Administrator or other service providers to the Funds.

 

Fiduciary and Regulatory Duties of the Sponsor

 

The general fiduciary duties which would otherwise be imposed on the Sponsor (which would make its operation of the Trust as described herein impracticable due to the strict prohibition imposed by such duties on, for example, conflicts of interest on behalf of a fiduciary in its dealings with its beneficiaries), are replaced by the terms of the Trust Agreement (to which terms all shareholders, by subscribing to the shares, are deemed to consent).

 

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Additionally, under the terms of the Trust Agreement, the Sponsor is required to:

 

(i) Devote such of its time to the business and affairs of the Trust as it shall, in its discretion exercised in good faith, determine to be necessary to conduct the business and affairs of the Trust for the benefit of the Trust;

 

(ii) 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;

 

(iii) Retain independent public accountants to audit the accounts of the Trust;

 

(iv) Employ attorneys to represent the Trust;

 

(v) Select the Trust’s Trustee, Administrator, Transfer Agent, Custodian and Commodity Broker, and any other service provider;

 

(vi) 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;

 

(vii) Have fiduciary responsibility for the safekeeping and use of the Trust, whether or not in the Sponsor’s immediate possession or control, and the Sponsor will not employ or permit others to employ such funds or in any manner except for the benefit of the Trust, including, among other things, the utilization of any portion of the Trust Estate as compensating balances for the exclusive benefit of the Sponsor. The Sponsor shall at all times act with integrity and good faith and exercise due diligence in all activities relating to the conduct of the business of the Trust and in resolving conflicts of interest;

 

(viii) Interact with the Depository, which is the Depository Trust Company (the “DTC”), as required;

 

(ix) Delegate those of its duties hereunder as it shall determine from time to time to the Administrator or Distributor, as applicable;

 

(x) Perform such other services as the Sponsor believes that the Trust may from time to time require; and

 

(xi) In its sole discretion, cause the Trust to do one or more of the following: to make, refrain from making, or once having made, to revoke, the election referred to in Section 754 of the Code, and any similar election provided by state or local law, or any similar provision enacted in lieu thereof.

 

The Sponsor shall have no liability to the Trust or to any shareholder for any loss suffered by the Trust which arises out of any action or inaction of the Sponsor if the Sponsor, in good faith, determined that such course of conduct was in the best interest of the Trust and such course of conduct did not constitute fraud, gross negligence, bad faith, or willful misconduct of the Sponsor. Subject to the foregoing, the Sponsor shall not be personally liable for the return or repayment of all or any portion of the capital or profits of any shareholder or assignee thereof. The Sponsor shall not be liable for the conduct or misconduct of any Administrator engaged to provide administrative services to the Trust or other delegate selected by the Sponsor with reasonable care.

 

Under Delaware law, a beneficial owner of a statutory trust (such as a shareholder of a Fund) may, under certain circumstances, institute legal action on behalf of himself and all other similarly situated beneficial owners (a “class action”) to recover damages for violations of fiduciary duties, or on behalf of a statutory trust (a “derivative action”) to recover damages from a third party where there has been a failure or refusal to institute proceedings to recover such damages. In addition, beneficial owners may have the right, subject to certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from the Sponsor where the losses result from a violation by the Sponsor of the anti-fraud provisions of the federal securities laws.

 

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Under certain circumstances, shareholders also have the right to institute a reparations proceeding before the CFTC against the Sponsor (a registered commodity pool operator), an FCM, as well as those of their respective employees who are required to be registered under the Commodity Exchange Act, and the rules and regulations promulgated thereunder. Private rights of action are conferred by the Commodity Exchange Act. Investors in futures and in commodity pools may, therefore, invoke the protections provided thereunder.

 

The foregoing summary describing in general terms the remedies available to shareholders under federal law is based on statutes, rules and decisions as of the date of this prospectus. As this is a rapidly developing and changing area of the law, shareholders who believe that they may have a legal cause of action against any of the foregoing parties should consult their own counsel as to their evaluation of the status of the applicable law at such time.

 

Management; Voting by Shareholders

 

The shareholders of a Fund take no part in the management or control, and have no voice in the Trust’s operations or business.

 

The Sponsor has the right unilaterally to amend the Trust Agreement as it applies to the Trust provided that the shareholders have the right to vote only if expressly required under Delaware or federal law or rules or regulations of the NYSE Arca, or if submitted to the shareholders by the Sponsor in its sole discretion. No amendment affecting the Trustee shall be binding upon or effective against the Trustee unless consented to by the Trustee in the form of an instruction letter.

 

Meetings

 

Meetings of the Trust’s shareholders may be called by the Sponsor and may be called by it upon the written request of shareholders holding at least 50% of the outstanding shares of the Trust or a Fund, as applicable. The Sponsor shall deposit in the United States mail or electronically transmit written notice to all shareholders of a 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 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. Shareholders may vote in person or by proxy at any such meeting.

 

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, a 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. The Trust Agreement provides that shareholders are deemed to have consented to any proposals recommended by the Sponsor in the shareholder notice unless such shareholders timely object to the proposals. Therefore, a lack of a response by a shareholder will have the same effect as if that shareholder had provided affirmative written consent for the proposed action. The Sponsor and all parties dealing with the Trust may act in reliance on such deemed activity.

 

Executive Compensation

 

The Funds have no employees, officers or directors and are managed by the Sponsor. None of the directors or officers of the Sponsor receive compensation from the Funds. The Sponsor receives the Sponsor Fee, paid monthly in arrears. The Sponsor fee is equal to 0.65% and 0.79% of the Fund’s average daily net assets for the Matching Fund and Leveraged Fund, respectively.

 

Liability and Indemnification

 

The Sponsor will be indemnified by the Trust 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 fraud, gross negligence, bad faith, willful misconduct, or a material breach of the Trust Agreement on the part of the Sponsor and (ii) any such indemnification will only be recoverable from the Trust. All rights to indemnification permitted herein 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 Code by or against the Sponsor.

 

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Notwithstanding the provisions above, the Sponsor and any broker-dealer for the Trust will 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 will not incur the cost of that portion of any insurance which insures any party against any liability, the indemnification of which is herein prohibited.

 

Expenses incurred in defending a threatened or pending civil, administrative or criminal action suit or proceeding against the Sponsor will 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 third party who is not a shareholder or the legal action is initiated by a shareholder and a court of competent jurisdiction specifically approves such advance; 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 under this Section.

 

Termination Events

 

The Trust will dissolve at any time upon the happening of any of the following events:

 

The filing of a certificate of dissolution or revocation of the Sponsor’s charter (and the expiration of 90 days after the date of notice to the Sponsor of revocation without a reinstatement of its charter) or upon written notice by the Sponsor of its withdrawal as Sponsor, unless (i) at the time there is at least one remaining Sponsor and that remaining Sponsor carries on the business of the Trust or (ii) within 90 days of such event of withdrawal all the remaining shareholders agree in writing to continue the business of the Trust and to select, effective as of the date of such event, one or more successor Sponsors. If the Trust is terminated as the result of an event of withdrawal and a failure of all remaining shareholders to continue the business of the Trust and to appoint a successor Sponsor as provided above within 120 days of such event of withdrawal, shareholders holding shares representing at least a majority (over 50%) of the net asset value (not including shares held by the Sponsor and its affiliates) may elect to continue the business of the Trust by forming a new statutory trust, or reconstituted trust, on the same terms and provisions as set forth in the Trust Agreement. Any such election must also provide for the election of a Sponsor to the reconstituted trust. If such an election is made, all shareholders of the Trust shall be bound thereby and continue as shareholders of the reconstituted trust.

 

The occurrence of any event which would make unlawful the continued existence of the Trust.

 

In the event of the suspension, revocation or termination of the Sponsor’s registration as a commodity pool operator, or membership as a commodity pool operator with the NFA (if, in either case, such registration is required at such time unless at the time there is at least one remaining Sponsor whose registration or membership has not been suspended, revoked or terminated).

 

The Trust becomes insolvent or bankrupt.

 

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The shareholders holding shares representing at least seventy-five percent (75%) of the net asset value (which excludes the shares of the Sponsor) vote to dissolve a Fund, notice of which is sent to the Sponsor not less than ninety (90) business days prior to the effective date of termination.

 

The determination of the Sponsor that the aggregate net assets of a Fund in relation to the operating expenses of the Trust make it unreasonable or imprudent to continue the business of the Trust.

 

The Trust is required to be registered as an investment company under the Investment Company Act of 1940.

 

DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.

 

Provisions of Law

 

According to applicable law, indemnification of the Sponsor is payable only if the Sponsor has determined, in good faith, that the act, omission or conduct that gave rise to the claim for indemnification was in the best interest of the Trust and a Fund and the act, omission or activity that was the basis for such loss, liability, damage, cost or expense was not the result of negligence or misconduct and such liability or loss was not the result of negligence or misconduct by the Sponsor, and such indemnification or agreement to hold harmless is recoverable only out of the assets of a Fund.

 

Provisions of Federal and State Securities Laws

 

This offering is made pursuant to federal and state securities laws. The SEC and state securities agencies take the position that indemnification of the Sponsor that arises out of an alleged violation of such laws is prohibited unless certain conditions are met.

 

These conditions require that no indemnification of the Sponsor or any underwriter for a 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. These agencies are the SEC and the securities administrator of the State or States in which the plaintiffs claim they were offered or sold interests.

 

Provisions of the 1933 Act and NASAA Guidelines

 

Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to the Sponsor or its directors, officers, or persons controlling the Trust and a Fund, the Sponsor has been informed that SEC and the various State administrators believe that such indemnification is against public policy as expressed in the 1933 Act and the North American Securities Administrators Association, Inc. (“NASAA”) commodity pool guidelines and is therefore unenforceable.

 

Books and Records

 

The Sponsor will maintain the books and records of the Funds at its office or at the offices of the Administrator at 777 E. Wisconsin Ave, Milwaukee, Wisconsin 53202, or such office, including of an administrative agent, as it may subsequently designate upon notice. The books and records of the Funds may be made available for inspection and copying (upon payment of reasonable reproduction costs) by Shareholders of the Funds or their representatives for any purposes reasonably related to a Shareholder’s interest as a beneficial owner of the Funds upon reasonable advance notice during regular business hours. The books and records of each Fund will be maintained and preserved for a period of not less than six years.

 

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Statements, Filings, and Reports

 

The Trust will furnish to DTC Participants (as defined below) for distribution to shareholders annual reports (as of the end of each fiscal year) for the Funds 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 Funds’ website (www.convexityshares.com). These monthly reports will contain certain unaudited financial information regarding the Funds, including a 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 Funds 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 Funds’ website at www.convexityshares.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 Funds’ 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 Funds, as it is advised by its counsel or accountants are from time to time required by any applicable statute, rule or regulation.

 

Emerging Growth Company Status

 

Each Fund is an “emerging growth company” as defined under the JOBS Act. Each Fund will remain an “emerging growth company” for up to five years, or until the earliest of:

 

the last day of the first fiscal year in which its total annual gross revenues exceed $1 billion;

 

the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under Exchange Act, which would occur if the market value of its shares that are held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, or

 

the date on which it has issued more than $1 billion in non-convertible debt during the preceding three year period.

 

As an “emerging growth company,” the Funds may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act as long as it is a “non-accelerated filer,” which includes issuers that had a public float of less than $75 million as of the last business day of their most recently completed second fiscal quarter, issuers that have not been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 calendar months and issuers that have not filed at least one annual report pursuant thereto.

 

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Under this provision, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

Fiscal Year

 

The fiscal year of the Funds is January 1 to December 31. The Sponsor may select an alternate fiscal year.

 

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Governing Law; Consent to Delaware Jurisdiction

 

The rights of the Sponsor, the Funds, DTC (as registered owner of the Funds’ global certificate for shares) and the shareholders, are governed by the laws of the State of Delaware. The Sponsor, the Funds, DTC, and by accepting shares, each DTC Participant and each shareholder, consent to the jurisdiction of the courts of the State of Delaware and any federal courts located in Delaware. Such consent is not required for any person to assert a claim of Delaware jurisdiction over the Sponsor or the Funds.

 

Legal Matters

 

Litigation and Claims

 

Within the past 5 years of the date of this prospectus, there have been no material administrative, civil or criminal actions against the Sponsor or underwriter, or any principal or affiliate of either of them. This includes any actions pending, on appeal, concluded, threatened, or otherwise known to them.

 

Teucrium and its Principals

 

On November 30, 2020, certain officers and members of Teucrium Trading, LLC (the “Sponsor”), along with the Advisor, filed a Verified Complaint (as amended through the Amended Verified Complaint filed on February 18, 2021) (the “Gilbertie complaint”) in the Delaware Court of Chancery, C.A. No. 2020-1018-AGB. The Gilbertie complaint asserts various claims against Dale Riker, the Advisor’s former Chief Executive Officer and Barbara Riker, the Advisor’s former Chief Financial Officer and Chief Compliance Officer. Sal Gilbertie v. Dale Riker, et al., C.A. No. 2020-1018-AGB (Del. Ch.) (the “Gilbertie case”)

 

Among other things, the Gilbertie complaint responded to and addressed certain allegations that Mr. Riker had made in a draft complaint that he threatened to file (and subsequently did file) in New York Supreme Court. See Dale Riker v. Sal Gilbertie, et al., No. 656794-2020 (N.Y. Sup. Ct.). On April 22, 2021, the Supreme Court of the State of New York, New York County dismissed Mr. Riker’s case without prejudice to the case being refiled after the conclusion of the Gilbertie case in Delaware Chancery Court. See Dale Riker, et al. v. Teucrium Trading, LLC et al, Decision + Order on Motions, No. 6567943-2020 (N.Y. Sup. Ct) (Apr. 22, 2021).

 

The Gilbertie complaint asserts claims for a declaration concerning the effects of the final order and judgment in an earlier books and records action; for a declaration concerning Mr. Riker’s allegation that Mr. Gilbertie had entered into an agreement to purchase Mr. Riker’s equity in the Company; for an order compelling the return of property from Mr. Riker; for a declaration concerning Mr. Riker’s allegations that the Advisor and certain of the plaintiffs had improperly removed him as an officer and caused purportedly false financial information to be published; for breach of Ms. Riker’s separation agreement with the Advisor; for tortious interference by Mr. Riker with Ms. Riker’s separation agreement; for a declaration concerning the releases that had been provided to Ms. Riker through her separation agreement; for breach of the Company’s Operating Agreement by Mr. Riker; and for breach of fiduciary duty by Mr. Riker.

 

On June 29, 2021, Dale Riker, individually and derivatively on behalf of the Company, filed a new suit in the Court of Chancery of the State of Delaware against the Advisor’s officers and certain of the Company’s Class A Members. See Dale Riker v. Salvatore Gilbertie et al., C.A. No. 2021-0561-LWW. (the “Riker case”). On September 7, 2021, Dale Riker and Barbara Riker filed their answers to the Gilbertie complaint. As a result of the Court having ordered the consolidation of the Gilbertie case and Riker case, the claims in the Riker case were re-filed as counterclaims in the Gilbertie case, which accompanied the Rikers’ answers. The now-consolidated Gilbertie case and the Riker case is captioned Sal Gilbertie, Cory Mullen-Rusin, Steve Kahler, Carl Miller III, and Teucrium Trading LLC v. Dale Riker and Barbara Riker, C.A. No. 2020-1018-LWW.

 

Through their counterclaims, the Rikers assert direct and derivative claims for breach of fiduciary duty, breach of contract, declaratory relief, specific performance, unjust enrichment, fraud, and conspiracy to commit fraud. The Sponsor intends to pursue its claims and defend vigorously against the Rikers’ counterclaims in Delaware.

 

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Except as described above, within the past 10 years of the date of this disclosure document, there have been no material administrative, civil or criminal actions against the Advisor, 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

 

Sullivan & Worcester LLP is counsel to advise the Funds, 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. Sullivan & Worcester LLP has also provided the Sponsor with its opinion with respect to federal income tax matters addressed herein.

 

Experts

 

Cohen & Company, Ltd., an independent registered public accounting firm, has audited the financial statements of the Funds.

 

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 in the Funds, and the U.S. federal income tax treatment of the Funds, as of the date hereof. This discussion is applicable to a beneficial owner of shares who purchases shares in the offering to which this prospectus relates, including a beneficial owner who purchases shares from an Authorized Participant. Except where noted otherwise, it deals only with shares held as capital assets and does not deal with special situations, such as those of dealers in securities or currencies, financial institutions, tax-exempt entities, 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, traders in securities or commodities that elect to use a mark-to-market method of accounting, 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, as amended, and regulations (“Treasury Regulations”), rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below.

 

Persons considering the purchase, ownership or disposition of shares should consult their own tax advisors concerning the United States federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. As used herein, a “U.S. shareholder” of a share means a beneficial owner of a share that is, for United States federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation or partnership 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 (X) that 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) that 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 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, you should consult your own tax advisor regarding the tax consequences.

 

The Sponsor, on behalf of the Funds, has received the opinion of Sullivan & Worcester LLP, counsel to the Funds, that the material U.S. federal income tax consequences to the Funds and to U.S. shareholders and Non-U.S. shareholders will be as described below. In rendering its opinion, Sullivan & Worcester LLP has relied on the facts described in this prospectus as well as certain factual representations made by the Funds and the Sponsor. The opinion of Sullivan & Worcester LLP is not binding on the IRS, and as a result, the IRS may not agree with the tax positions taken by the Funds. If challenged by the IRS, the Funds’ tax positions might not be sustained by the courts. No ruling has been requested from the IRS with respect to any matter affecting the Funds or prospective investors.

 

EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO HOW U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS APPLY TO YOU AND AS TO HOW THE APPLICABLE STATE, LOCAL OR FOREIGN TAXES APPLY TO YOU.

 

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Tax Status of the Funds

 

The Funds are each organized and operated as a series of a statutory trust in accordance with the provisions of the Trust Agreement and Delaware law. As a series of a statutory trust, the Funds will be taxable as a partnership unless they elect to be taxable as a corporation under current tax law. The Funds do not intend to elect to be taxable as a corporation. Even if the Funds don’t elect to be taxed as a corporation, under the Code, an entity classified as a partnership that is deemed to be a “publicly traded partnership” is generally taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded partnership whose gross income for each taxable year of its existence consists of at least 90% “qualifying income” (“qualifying income exception”). For this purpose, section 7704 defines “qualifying income” 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 addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, “qualifying income” includes income and gains from such commodities and futures, forwards and options with respect to commodities. The Funds and the Sponsor have represented the following :

 

At least 90% of each Fund’s gross income for each taxable year will constitute “qualifying income” within the meaning of Code section 7704 (as described above);

 

each Fund is organized and operated in accordance with its governing agreements and applicable law;

 

the Funds have not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes.

 

Based in part on these representations, Sullivan & Worcester LLP is of the opinion that each Fund classifies as a partnership for federal income tax purposes and that it is not taxable as a corporation for such purposes.

 

If a 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, 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 that Fund’s income or loss on their returns.

 

In addition, distributions to shareholders would be treated as dividends to the extent of a Fund’s current and accumulated earnings and profits. To the extent a distribution exceeded a Fund’s earnings and profits, the distribution would be treated as a return of capital to the extent of a shareholder’s basis in its shares, and thereafter as gain from the sale of shares. Accordingly, if a 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 Funds are classified as a partnership for federal income tax purposes and that they are not taxable as a corporation.

 

U.S. Shareholders

 

Tax Consequences of Ownership of Shares

 

Taxation of Each Fund’s Income. No U.S. federal income tax is paid by a Fund on its income. Instead, a Fund files annual information 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 and deduction of the Fund. These items must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from a Fund during the taxable year. Consequently, a shareholder may be allocated income or gain by a Fund but receive no cash distribution with which to pay its tax liability resulting from the allocation, 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 in any year in which a Fund realizes net income and/or gain a U.S. shareholder will be required to pay taxes on its allocable share of such income or gain from sources other than Fund distributions. In addition, individuals with 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.

 

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Allocations of Each Fund’s Profit and Loss. 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.

 

In general, a Fund applies a monthly closing-of-the-books convention in determining allocations of economic profit or loss to shareholders. Income, gain, loss and deduction are determined on a monthly “mark-to-market” basis, taking into account our accrued income and deductions and realized and unrealized gains and losses for the month. These items are allocated among the holders of shares in proportion to the number of shares owned by them as of the close of business on the last business day of the month. Items of taxable income, deduction, gain, loss and credit recognized by a Fund for federal income tax purposes for any taxable year are allocated among holders in a manner that equitably reflects the allocation of economic profit or loss. In particular, a Fund will allocate net income or net loss to shareholders who hold shares for brief periods in an amount equal to appreciation or deprecation recognized by the shareholder on the shareholder’s shares to the extent possible. The allocation is intended to eliminate disparities between a partner’s basis in its partnership interest and its share of the tax bases