ck0001683471-20230430
Teucrium Agricultural
Strategy No K-1 ETF (TILL)
Teucrium AiLA Long-Short
Agriculture Strategy ETF (OAIA)
Teucrium AiLA Long-Short
Base Metals Strategy ETF (OAIB)
Each
listed on NYSE Arca, Inc.
PROSPECTUS
August 31,
2023
These
securities have not been approved or disapproved by the U.S. Securities and
Exchange Commission (the “SEC”) or the U.S. Commodity Futures Trading Commission
(the “CFTC”), nor have the SEC or CFTC passed upon the adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
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TEUCRIUM
AGRICULTURAL STRATEGY NO K-1 ETF - FUND SUMMARY |
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TEUCRIUM
AiLA LONG-SHORT AGRICULTURE STRATEGY ETF - FUND SUMMARY |
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TEUCRIUM
AiLA LONG-SHORT BASE METALS STRATEGY ETF - FUND SUMMARY |
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ADDITIONAL
INFORMATION ABOUT THE INDEXES |
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ADDITIONAL
INFORMATION ABOUT THE FUNDS |
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PORTFOLIO
HOLDINGS INFORMATION |
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MANAGEMENT |
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Other
Service Providers |
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HOW
TO BUY AND SELL SHARES |
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DIVIDENDS,
DISTRIBUTIONS, AND TAXES |
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DISTRIBUTION
PLAN |
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PREMIUM/DISCOUNT
INFORMATION |
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ADDITIONAL
NOTICES |
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FINANCIAL
HIGHLIGHTS |
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TEUCRIUM
AGRICULTURAL STRATEGY NO K-1 ETF - FUND
SUMMARY |
Investment
Objective
The
Teucrium Agricultural Strategy No K-1 ETF (the “Agriculture Strategy No K-1 ETF”
or the “Fund”) seeks capital appreciation.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses1
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
1.49% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Acquired
Fund Fees and Expenses |
0.14% |
Total
Annual Fund Operating Expenses1,
2 |
1.63% |
Less
Fee Waiver3 |
(0.60)% |
Total
Annual Fund Operating Expenses after Fee Waiver1,
3 |
1.03% |
1
The
Annual Fund Operating Expense items shown in the table may not correlate to
those shown in the Fund’s financial highlights (and the Fund’s financial
statements) because the financial highlights include additional detail about the
operating expenses of the Subsidiary (as that term is defined herein). Such
expenses are waived by the Adviser and thus, not charged to or paid by the Fund.
Teucrium Investment Advisors, LLC (the “Adviser”), the Fund’s investment
adviser, has contractually agreed to waive the management fee it receives from
the Fund in an amount equal to the management fee paid to the Adviser by the
Subsidiary and to pay certain other expenses incurred by the Subsidiary. Thus,
the operating expenses of the Subsidiary are not charged to or paid by the Fund
and ultimately have no effect on the Fund’s expenses, as reflected in the Fund’s
Total Annual Fund Operating Expenses, shown in the table above, and Ratio of
expenses to average net assets after waivers, shown in the financial highlights.
2
Total Annual Operating
Expenses in this fee table may not correlate to the expense ratios in the Fund’s
financial highlights (and the Fund’s financial statements) because the financial
highlights include only the Fund’s direct operating expenses and do not include
Acquired Fund Fees and Expenses, which represent the Fund’s pro rata share of
the fees and expenses of the investment companies in which it
invests.
3
The
Adviser has contractually agreed to reduce the Fund’s management fee from 1.49%
to 0.89% of the Fund’s average daily net assets until at least August 31, 2024. This agreement may be
terminated only by, or with the consent of, the Fund’s Board of Trustees (the
“Board”).
Example
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
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1
Year |
$105 |
3
Years |
$328 |
5
Years |
$569 |
10
Years |
$1,259 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For the fiscal period May 16, 2022 (commencement of operations) through April
30, 2023, the Fund’s portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The Fund is an actively managed exchange-traded fund
(“ETF”) that seeks capital appreciation by investing primarily in agricultural
commodities futures contracts traded on the Chicago Board of Trade (“CBOT”) or
Intercontinental Exchange Inc. (“ICE”). The Fund’s portfolio holdings will
consist of four commodities futures holdings, one in each of the following
commodities: corn, wheat, soybeans, and sugar (each, a “Component Futures
Contract”). The portfolio will be rebalanced, generally on a monthly basis, in
order to maintain approximately a 25% allocation of the Fund’s assets to each
Component Futures Contract. Unlike many other commodity-based exchange-traded
products, the Fund will not issue its shareholders a Schedule K-1 for tax
reporting purposes, which can increase the complexity of a shareholder’s tax
reporting. Instead, the Fund is designed to be taxed as a conventional mutual
fund and will issue a Form 1099 to its shareholders for tax reporting purposes.
A consequence of the Fund’s tax status is that it generally is
limited
to obtaining its exposure to the Component Futures Contracts through the
Subsidiary, which is defined and described in the paragraphs that follow.
The
Fund will invest indirectly, via a wholly-owned subsidiary of the Fund organized
under the laws of the Cayman Islands (the “Subsidiary”), in commodity futures,
which are standardized futures contracts on commodities traded on the CBOT or
ICE. As the futures contracts approach expiration, they may be replaced by
similar contracts that have a later expiration. This process is referred to as
“rolling.” Futures holdings will not be rolled on a predetermined schedule.
Instead, prior to becoming the new spot month, holdings will be rolled within
the same commodity into a position on the futures curve that in the opinion of
the Adviser generates the most optimal yield under prevailing market conditions.
At times, commodities futures with a longer term to expiration may be priced
higher than commodities futures with a shorter term to expiration, which is
known as “contango.” The Adviser generally will attempt to minimize the negative
impact from rolling commodities futures that are in contango when possible as
doing so would result in the Fund selling the expiring contract at a lower price
and buying a longer-term contract at a higher price, producing a negative roll
yield. Conversely, commodities futures with a longer term to expiration may be
priced lower than commodities futures with a shorter term to expiration, known
as “backwardation.” Rolling commodities futures in backwardation generally
involves selling an expiring contract at a higher price and buying a longer-term
contract at a lower price, producing positive roll yield. However, there can be
no guarantee that such a strategy will produce the desired results.
The
Fund expects to gain exposure to commodities futures by investing in the
Subsidiary. The Adviser also serves as the investment adviser to the Subsidiary.
The Fund’s investment in the Subsidiary is intended to provide the Fund with
indirect exposure to commodities futures within the limits of current federal
income tax laws applicable to investment companies such as the Fund, which limit
the ability of investment companies to invest directly in commodities futures.
The Subsidiary has the same investment objective as the Fund, but it may invest
in commodities futures to a greater extent than the Fund. Except as otherwise
noted, for purposes of this Prospectus, references to the Fund’s investments
include the Fund’s indirect investments through the Subsidiary. Because the Fund
intends to elect to be treated as a regulated investment company (“RIC”) under
the Internal Revenue Code of 1986, as amended (the “Code”), the size of the
Fund’s investment in the Subsidiary generally will be limited to 25% of the
Fund’s total assets, tested at the end of each fiscal quarter.
Although
the Fund does not seek leveraged returns, investing in the Component Futures
Contracts may have a leveraging effect on the Fund. The Fund will invest in
cash, cash-like instruments and/or high-quality securities (collectively,
“Collateral”). The Collateral may consist of: (i) U.S. Government securities,
such as bills, notes and bonds issued by the U.S. Treasury; (ii) money market
funds; and/or (iii) corporate debt securities, such as commercial paper and
other short-term unsecured promissory notes issued by businesses that are rated
investment grade or determined by the Adviser to be of comparable quality. Such
Collateral is designed to provide liquidity, serve as margin or otherwise
collateralize the Fund’s investments in Component Futures Contracts and other
commodities-related investments. Cash and cash equivalents may include
short-term Treasury bills, money market funds, demand deposit account, and
commercial paper.
The
Adviser may determine to modify the extent of the Fund’s exposure to
agricultural commodities in response to extreme market conditions, as determined
in the sole discretion of the Adviser, and to avoid exceeding any position
limits applicable to agricultural commodities futures, including the Component
Futures Contracts, established by the CBOT, ICE, or the CFTC. These position
limits may hinder the Fund’s ability to enter into the desired amount of
Component Futures Contracts at times. Because of the anticipated size of the
Fund’s Component Futures Contracts holdings relative to the size of the futures
market, the Adviser does not anticipate that the CBOT or ICE position limits
will adversely affect the Fund’s ability to seek its target exposure until the
Fund’s assets under management grow significantly. Any determination to modify
the Fund’s exposure to agricultural commodities may cause the Fund to liquidate
its Component Futures Contracts holdings at disadvantageous times or prices,
potentially subjecting the Fund to substantial losses, and prevent the Fund from
achieving its investment objective. There can be no assurance that the Fund will
be able to achieve or maintain its targeted investment allocation to the
Component Futures Contracts.
The
Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”) and, therefore, may
invest a greater percentage of its assets in a particular issuer than a
diversified fund. The Fund will not concentrate its investments (i.e., hold more than 25% of its total assets) in any industry or group of
related industries. The Fund, however, may invest more than 25% of its total
assets in investments that provide exposure to agricultural
commodities.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk
that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following risks could affect the value
of your investment in the Fund:
•Active
Management Risk.
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s success or failure to implement strategies for the Fund. The Fund
invests in complex instruments (each described below), including futures
contracts. Such instruments may create enhanced risks for the Fund and the
Adviser’s ability to control the
Fund’s
level of risk will depend on the Adviser’s skill in managing such instruments.
In addition, the Adviser’s evaluations and assumptions regarding investments,
interest rates, inflation, and other factors may not successfully achieve the
Fund’s investment objective given actual market conditions.
•Agricultural
Commodities Risk.
The price and availability of agricultural commodities is influenced by economic
and industry conditions, including but not limited to supply and demand factors
such as: crop disease; weed control; water and fertilizer availability; various
planting, growing, or harvesting problems; severe weather conditions such as
drought, floods, heavy rains, frost, or natural disasters that are difficult to
anticipate and that cannot be controlled. The U.S. prices of certain
agricultural commodities such as soybeans and sugar are subject to risks
relating to the demand and distribution of such commodities in foreign
countries, such as: uncontrolled fires (including arson); challenges in doing
business with foreign companies; legal and regulatory restrictions;
transportation costs; interruptions in energy supply; currency exchange rate
fluctuations; and political and economic instability. Additionally, demand for
agricultural commodities is affected by changes in consumer tastes, national,
regional and local economic conditions, and demographic trends.
Agricultural
commodity production is subject to United States and foreign policies and
regulations that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives, acreage control, and import and export restrictions on agricultural
commodities and commodity products, can influence the planting of certain crops,
the location and size of crop production, the volume and types of imports and
exports, and industry profitability. Additionally, commodity production is
affected by laws and regulations relating to, but not limited to, the sourcing,
transporting, storing and processing of agricultural raw materials as well as
the transporting, storing and distributing of related agricultural products.
Agricultural commodity producers also may need to comply with various
environmental laws and regulations, such as those regulating the use of certain
pesticides, and local laws that regulate the production of genetically modified
crops. In addition, international trade disputes can adversely affect
agricultural commodity trade flows by limiting or disrupting trade between
countries or regions.
Seasonal
fluctuations in the price of agricultural commodities may cause risk to an
investor because of the possibility that Share prices will be depressed because
of the relevant harvest cycles. In the futures market, fluctuations are
typically reflected in contracts expiring in the harvest season (i.e.,
in the case of corn and soybeans, contracts expiring during the fall are
typically priced lower than contracts expiring in the winter and spring, while
in the case of wheat and sugar, contracts expiring during the spring and early
summer are typically priced lowest). Thus, seasonal fluctuations could result in
an investor incurring losses upon the sale of Shares, particularly if the
investor needs to sell Shares when a Component Futures Contract is, in whole or
part, expiring in the harvest season for the specified commodity.
◦Risks
Specific to Corn. Demand
for corn in the United States to produce ethanol has also been a significant
factor affecting the price of corn. In turn, demand for ethanol has tended to
increase when the price of gasoline has increased and has been significantly
affected by United States governmental policies designed to encourage the
production of ethanol. Additionally, demand for corn is affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. Finally, because corn is often used as an ingredient in
livestock feed, demand for corn is subject to risks associated with the outbreak
of livestock disease.
◦Risks
Specific to Wheat.
Demand for food products made from wheat flour is affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. More specifically, demand for such food products in the
United States is relatively unaffected by changes in wheat prices or disposable
income but is closely tied to tastes and preferences. For example, in recent
years the increase in the popularity of low-carbohydrate diets caused the
consumption of wheat flour to decrease rapidly. Export demand for wheat
fluctuates yearly, based largely on crop yields in the importing countries,
which can be impacted by various factors, including geopolitical events in such
countries, such as the ongoing conflict in Ukraine.
◦Risks
Specific to Soybeans.
The increased production of soybean crops in South America and the rising demand
for soybeans in emerging nations such as China and India have increased
competition in the soybean market. Like the conversion of corn into ethanol,
soybeans can be converted into biofuels such as biodiesel. Accordingly, the
soybean market has become increasingly affected by demand for biofuels and
related legislation. The supply of soybeans could be reduced by the spread of
soybean rust, a wind-borne fungal disease. Although soybean rust can be killed
with chemicals, chemical treatment increases production costs for farmers. In
addition, because processing soybean oil can create trans-fats, the demand for
soybean oil may decrease due to heightened governmental regulation of trans-fats
or trans-fatty acids. The U.S. Food and Drug Administration currently requires
food manufacturers to disclose levels of trans-fats contained in their products,
and various local governments have enacted or are considering restrictions on
the use of trans-fats in restaurants. Many major food processors have either
switched or indicated an intention to switch to oil products with lower levels
of trans-fats or trans-fatty acids.
◦Risks
Specific to Sugar.
The spread of consumerism and the rising affluence of emerging nations such as
China and India have created increased demand for sugar. An influx of people in
developing countries moving from rural to urban areas may create more disposable
income to be spent on sugar products and might also reduce sugar production in
rural areas on account
of
worker shortages, all of which could result in upward pressure on sugar prices.
In addition, global demand for sugar to produce ethanol has also been a
significant factor affecting the price of sugar. On the other hand, public
health concerns regarding obesity, heart disease and diabetes, particularly in
developed countries, may reduce demand for sugar. In light of the time it takes
to grow sugarcane and sugar beets and the cost of new facilities for processing
these crops, it may not be possible to increase supply quickly or in a
cost-effective manner in response to an increase in demand.
•Cash
Transaction Risk.
The Fund expects to effect all of its creations and redemptions for cash, rather
than in-kind securities. The Fund may be required to sell or unwind portfolio
investments to obtain the cash needed to distribute redemption proceeds. This
may cause the Fund to recognize a capital gain that it might not have recognized
if it had made a redemption in kind. As a result, the Fund may pay out higher
annual capital gain distributions than if the in-kind redemption process was
used. The use of cash creations and redemptions may also cause the Fund’s shares
to trade in the market at wider bid-ask spreads or greater premiums or discounts
to the Fund’s NAV. Further, effecting purchases and redemptions primarily in
cash may cause the Fund to incur certain costs, such as portfolio transaction
costs. These costs can decrease the Fund’s NAV if not offset by an authorized
participant transaction fee.
•Clearing
Broker Risk.
The failure or bankruptcy of the Fund’s and the Subsidiary’s clearing broker
could result in a substantial loss of Fund assets. Under current CFTC
regulations, a clearing broker maintains customers’ assets in a bulk segregated
account. If a clearing broker fails to do so, or is unable to satisfy a
substantial deficit in a customer account, its other customers may be subject to
risk of loss of their funds in the event of that clearing broker’s bankruptcy.
In that event, the clearing broker’s customers, such as the Fund and the
Subsidiary, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers.
•Collateral
Securities Risk.
Collateral may include obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities, including bills, notes and bonds issued by
the U.S. Treasury, money market funds and corporate debt securities, such as
commercial paper. Some securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may not be backed by the full faith
and credit of the United States, in which case the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event that the agency or instrumentality does
not meet its commitment. The U.S. government, its agencies and instrumentalities
do not guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate. Although the Fund may hold securities
that carry U.S. government guarantees, these guarantees do not extend to shares
of the Fund. The Fund’s investments in U.S. government securities will change in
value in response to interest rate changes and other factors, such as the
perception of an issuer’s creditworthiness. Money market funds are subject to
management fees and other expenses. Therefore, investments in money market funds
will cause the Fund to bear indirectly a proportional share of the fees and
costs of the money market funds in which it invests. At the same time, the Fund
will continue to pay its own management fees and expenses with respect to all of
its assets, including any portion invested in the shares of the money market
fund. It is possible to lose money by investing in money market funds. Corporate
debt securities such as commercial paper generally are short-term unsecured
promissory notes issued by businesses. Corporate debt may be rated
investment-grade or below investment-grade and may carry variable or floating
rates of interest. Corporate debt securities carry both credit risk and interest
rate risk. Credit risk is the risk that the Fund could lose money if the issuer
of a corporate debt security is unable to pay interest or repay principal when
it is due. Interest rate risk is the risk that interest rates rise and fall over
time. For example, the value of fixed-income securities generally decrease when
interest rates rise, which may cause the Fund’s value to decrease. Also,
investments in fixed-income securities with longer maturities fluctuate more in
response to interest rate changes. Some corporate debt securities that are rated
below investment-grade generally are considered speculative because they present
a greater risk of loss, including default, than higher quality debt securities.
•Commodity-Linked
Derivatives Tax Risk.
As a RIC, the Fund must derive at least 90% of its gross income each taxable
year from certain qualifying sources of income under the Code. The income of the
Fund from certain commodity-linked derivatives may be treated as non-qualifying
income for purposes of the Fund’s qualification as a RIC, in which case, the
Fund might fail to qualify as a RIC and be subject to federal income tax at the
Fund level. To the extent the Fund invests directly in commodity-linked
derivatives, the Fund will seek to restrict its income from such instruments
that do not generate qualifying income to a maximum of 10% of its gross income
(when combined with its other investments that produce non-qualifying income) to
comply with the qualifying income test necessary for the Fund to qualify as a
RIC under Subchapter M of the Code. However, the Fund may generate more
non-qualifying income than anticipated, may not be able to generate qualifying
income in a particular taxable year at levels sufficient to meet the qualifying
income test, or may not be able to accurately predict the non-qualifying income
from these investments.
The
extent to which the Fund invests in commodity-linked derivatives may be limited
by the qualifying income and asset diversification tests, which the Fund must
continue to satisfy to maintain its status as a RIC. If the Fund does not
qualify as a RIC for any taxable year and certain relief provisions are not
available, the Fund’s taxable income would be subject to tax at the Fund level
and to a further tax at the shareholder level when such income is distributed.
Failure to comply with the requirements for qualification as a RIC could have
significant negative tax consequences to Fund shareholders. Under certain
circumstances, the Fund may be able to cure a failure to meet the qualifying
income requirement, but in order to do so the Fund may incur significant
Fund-level
taxes, which would effectively reduce (and could eliminate) the Fund’s returns.
The tax treatment of certain commodity-linked derivatives may be affected by
future regulatory or legislative changes that could affect the character, timing
and/or amount of the Fund’s taxable income or gains and distributions.
•Commodity
Pool Regulatory Risk. The
Fund’s investment exposure to commodities futures will cause it to be deemed to
be a commodity pool, thereby subjecting the Fund to regulation under the
Commodity Exchange Act (“CEA”) and CFTC rules. The Adviser is registered as a
Commodity Trading Advisor (“CTA”) and a Commodity Pool Operator (“CPO”), and the
Fund will be operated in accordance with applicable CFTC rules, as well as the
regulatory scheme applicable to registered investment companies. Registration as
a CPO imposes additional compliance obligations on the Adviser and the Fund
related to additional laws, regulations, and enforcement policies, which could
increase compliance costs and may affect the operations and financial
performance of the Fund.
•Counterparty
Risk.
Investing in derivatives involves entering into contracts with third parties
(i.e.,
counterparties). The use of derivatives involves risks that are different from
those associated with ordinary portfolio securities transactions. The Fund will
be subject to credit risk (i.e.,
the risk that a counterparty is or is perceived to be unwilling or unable to
make timely payments or otherwise meet its contractual obligations) with respect
to the amount it expects to receive from counterparties to derivatives entered
into by the Fund. If a counterparty becomes bankrupt or fails to perform its
obligations, or if any collateral posted by the counterparty for the benefit of
the Fund is insufficient or there are delays in the Fund’s ability to access
such collateral, the value of an investment in the Fund may decline. The
counterparty to a listed futures contract is the derivatives clearing
organization for the listed future. The listed future is held through a futures
commission merchant (“FCM”) acting on behalf of the Fund. Consequently, the
counterparty risk on a listed futures contract is the creditworthiness of the
FCM and the exchange’s clearing corporation.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Derivatives
Risk.
The Fund’s derivative investments have risks, including the imperfect
correlation between the value of such instruments and the underlying assets or
index; the loss of principal, including the potential loss of amounts greater
than the initial amount invested in the derivative instrument; and illiquidity
of the derivative investments. The derivatives used by the Fund may give rise to
a form of leverage. Leverage magnifies the potential for gain and may result in
greater losses, which in some cases may cause the Fund to liquidate other
portfolio investments at inopportune times (e.g.,
at a loss to comply with limits on leverage and asset segregation requirements
imposed by the 1940 Act or when the Adviser otherwise would have preferred to
hold the investment) or to meet redemption requests. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns. To the extent the Fund invests in
such derivative instruments, the value of the Fund’s portfolio is likely to
experience greater volatility over short-term periods.
◦Futures
Contracts Risk. The
successful use of futures contracts draws upon the Adviser’s skill and
experience with respect to such instruments and is subject to special risk
considerations. The primary risks associated with the use of futures contracts,
which may adversely affect the Fund’s NAV and total return, are (a) the
imperfect correlation between the change in market value of the commodity future
and the price of commodity; (b) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures contract when
desired; (c) losses caused by unanticipated market movements, which are
potentially unlimited; (d) the Adviser’s inability to predict correctly the
direction of securities prices, interest rates, currency exchange rates and
other economic factors; (e) the possibility that the counterparty will default
in the performance of its obligations; and (f) if the Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements, and the Fund may have to sell securities at a time when it
maybe disadvantageous to do so.
◦Cost
of Futures Investment Risk.
When a commodities futures contract is nearing expiration, the Fund will
generally sell it and use the proceeds to buy a commodities futures contract
with a later expiration date. This practice is commonly referred to as
“rolling.” The costs associated with rolling commodities futures contract
typically are substantially higher than the costs associated with other futures
contracts and may have a significant adverse impact on the performance of the
Fund. In addition, the presence of contango in certain futures contracts at the
time of rolling would be expected to adversely affect the Fund. Similarly, the
presence of backwardation in certain futures contracts at the time of rolling
such contracts would be expected to positively affect the Fund. The futures
contracts markets have experienced, and are likely to experience again in the
future, extended periods in which contango or backwardation have affected
various types of futures contracts. These extended periods have caused in the
past, and may cause in the future, significant losses.
•Early
Close/Trading Halt Risk.
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments, and/or may incur substantial trading losses.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than the Shares.
•High
Portfolio Turnover Risk.
The Fund, through the Subsidiary, may frequently buy and sell futures contracts
and other assets as part of the Fund’s strategy to obtain exposure to
agricultural commodities. Higher portfolio turnover may result in the Fund
paying higher levels of transaction costs and generating greater tax liabilities
for shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect.
•Investment
Capacity Risk.
If the Fund’s ability to obtain exposure to commodities futures consistent with
its investment objective is disrupted for any reason, including limited
liquidity in the commodities futures market, a disruption to the commodities
futures, or as a result of margin requirements or position limits imposed by the
Fund’s FCMs, the CBOT, or the CFTC, the Fund would not be able to achieve its
investment objective and may experience significant losses.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk.
Liquidity risk exists when particular investments are difficult to purchase or
sell. This can reduce the Fund's returns because the Fund may be unable to
transact at advantageous times or prices.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a
greater percentage of its assets in the securities of a single issuer or a
lesser number of issuers than if it was a diversified fund. As a result, the
Fund may be more exposed to the risks associated with and developments affecting
an individual issuer or a lesser number of issuers than a fund that invests more
widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Subsidiary
Investment Risk. By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held by the Subsidiary are generally similar to those that are
permitted to be held by the Fund and are subject to the same risks that apply to
similar investments if held directly by the Fund. The Subsidiary is not
registered under the 1940 Act, and, unless otherwise noted in this Prospectus,
is not subject to all the investor protections of the 1940 Act. Changes in the
laws of the United States and/or the Cayman Islands could result in the
inability of the Fund and/or the Subsidiary to continue to operate as it does
currently and could adversely affect the Fund. For example, the Cayman Islands
does not currently impose any income, corporate or capital gains tax or
withholding tax on the Subsidiary. If Cayman Islands law changes such that the
Subsidiary must pay Cayman Islands taxes, Fund shareholders would likely suffer
decreased investment returns.
•Tax
Risk.
The Fund may gain most of its exposure to the commodities markets through its
investment in the Subsidiary, which may invest directly in commodity-linked
derivative instruments, including commodities futures and reverse repurchase
agreement. In order for the Fund to qualify as a RIC under Subchapter M of the
Code, the Fund must, among other requirements, derive at least 90% of its gross
income for each taxable year from sources generating “qualifying income” for
purposes of the “qualifying income test,” which is described in more detail in
the section titled “Federal Income Taxes” in the SAI. The Fund’s investment in
the Subsidiary is expected to provide the Fund with exposure to the commodities
markets within the limitations of the federal tax requirements of Subchapter M
of the Code for qualification as a RIC. The “Subpart F” income (defined in
Section 951 of the Code to include passive income, including from
commodity-linked derivatives) of the Fund attributable to its investment in the
Subsidiary is “qualifying income” to the Fund to the extent that such income is
derived with respect to the Fund’s business of investing in stock, securities or
currencies. The Fund expects its “Subpart F” income attributable to its
investment in the Subsidiary to be derived with respect to the Fund’s business
of investing in stock, securities or currencies and accordingly expects its
“Subpart F” income attributable to its investment in the Subsidiary to be
treated as “qualifying income.” The Fund generally will be required to include
in its own taxable income the “Subpart F” income of the Subsidiary for a tax
year, regardless of whether the Fund receives a distribution of the Subsidiary’s
income in that tax year, and this income would nevertheless be subject to the
distribution requirement for qualification as a RIC and would be taken into
account for purposes of the 4% excise tax. The Adviser will carefully monitor
the Fund’s investments in the Subsidiary to ensure that no more than 25% of the
Fund’s assets are invested in the Subsidiary to comply with the Fund’s asset
diversification test as described in more detail in the SAI.
If
the Fund did not qualify as a RIC for any taxable year and certain relief
provisions were not available, the Fund’s taxable income would be subject to tax
at the Fund level and to a further tax at the shareholder level when such income
is distributed. In such event, in order to re-qualify for taxation as a RIC, the
Fund might be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions. This would cause investors to incur
higher tax liabilities than they otherwise would have incurred and would have a
negative impact on Fund returns. In such event, the Board may determine to
reorganize or close the Fund or materially change the Fund’s investment
objective and strategies. In the event that the Fund fails to qualify as a RIC,
the Fund will promptly notify shareholders of the implications of that failure.
•Valuation
Risk.
The Fund or the Subsidiary may hold securities or other assets that may be
valued on the basis of factors other than market quotations. This may occur
because the asset or security does not trade on a centralized exchange, or in
times of market turmoil or reduced liquidity. There are multiple methods that
can be used to value a portfolio holding when market quotations are not readily
available. The value established for any portfolio holding at a point in time
might differ from what would be produced using a different methodology or if it
had been priced using market quotations. Portfolio holdings that are valued
using techniques other than market quotations, including “fair valued” assets or
securities, may be subject to greater fluctuation in their valuations from one
day to the next than if market quotations were used. In addition, there is no
assurance that the Fund or the Subsidiary could sell or close out a portfolio
position for the value established for it at any time, and it is possible that
the Fund or the Subsidiary would incur a loss because a portfolio position is
sold or closed out at a discount to the valuation established by the Fund or the
Subsidiary at that time. The ability to value investments may be impacted by
technological issues or errors by pricing services or other third-party service
providers.
•Volatility
Risk.
The value of certain of the Fund’s investments, including commodities futures,
is subject to market risk. Market risk is the risk that the value of the
investments to which the Fund is exposed will fall, which could occur due to
general market or economic conditions or other factors.
•Whipsaw
Markets Risk. The Fund may be subject to the forces of “whipsaw” markets (as
opposed to choppy or stable markets), in which significant price movements
develop but then repeatedly reverse. “Whipsaw” describes a situation where a
security’s price is moving in one direction but then quickly pivots to move in
the opposite direction. Such market conditions could cause substantial losses to
the Fund.
Performance
Performance information for the Fund is not included because
the Fund did not have a full calendar year of performance prior to the date of
this Prospectus. In the future, performance information for the
Fund will be presented in this section. Updated performance information is
available on the Fund’s website at www.teucrium.com.
Management
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Investment
Adviser: |
Teucrium
Investment Advisors, LLC |
Portfolio
Managers: |
Steve
Kahler and Springer Harris, each a Portfolio Manager of the Adviser, have
been portfolio managers of the Fund since its inception in
2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.teucrium.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income or capital gains
(or a combination), unless your investment is held in an individual retirement
account (“IRA”) or other tax-advantaged account. Distributions on investments
made through tax-deferred arrangements may be taxed later upon withdrawal of
assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
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TEUCRIUM
AiLA LONG-SHORT AGRICULTURE STRATEGY ETF - FUND
SUMMARY |
Investment
Objective
The
Teucrium AiLA Long-Short Agriculture Strategy ETF (the “Long-Short Agriculture
Strategy ETF” or the “Fund”) seeks to track the total return performance, before
fees and expenses, of the AiLA-S033 Market Neutral Absolute Return Index (the
“Index”).
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses1
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
1.49% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses2 |
0.00% |
Acquired
Fund Fees and Expenses |
0.14% |
Total
Annual Fund Operating Expenses1,
3 |
1.63% |
1
The
Annual Fund Operating Expense items shown in the table may not correlate to
those shown in the Fund’s financial highlights (and the Fund’s financial
statements) because the financial highlights include additional detail about the
operating expenses of the Subsidiary (as that term is defined herein). Such
expenses are waived by the Adviser and thus, not charged to or paid by the Fund.
Teucrium Investment Advisors, LLC (the “Adviser”), the Fund’s investment
adviser, has contractually agreed to waive the management fee it receives from
the Fund in an amount equal to the management fee paid to the Adviser by the
Subsidiary and to pay certain other expenses incurred by the Subsidiary. Thus,
the operating expenses of the Subsidiary are not charged to or paid by the Fund
and ultimately have no effect on the Fund’s expenses, as reflected in the Fund’s
Total Annual Fund Operating Expenses, shown in the table above, and Ratio of
expenses to average net assets after waivers, shown in the financial
highlights.
2
Estimated for the current
fiscal year.
3
Total Annual Operating Expenses in this fee table may not
correlate to the expense ratios in the Fund’s financial highlights (and the
Fund’s financial statements) because the financial highlights include only the
Fund’s direct operating expenses and do not include Acquired Fund Fees and
Expenses, which represent the Fund’s pro rata share of the fees and expenses of
the investment companies in which it invests.
Example
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For the fiscal period December 19, 2022 (commencement of operations) through
April 30, 2023, the Fund’s portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund seeks to track the total return performance, before fees and expenses, of
the Index, and is designed to track the performance of a portfolio of
agricultural commodities futures contracts designed to provide absolute returns
through the implementation of a long/short trading strategy used to seek to
achieve market neutral exposure to the global agriculture market.
AiLA-S033
Market Neutral Absolute Return Index
The
Index is based on a rules-based index methodology developed and maintained by
AiLA Indices, the Fund’s index provider (the “Index Provider”). The portfolio
tracked by the Index generally consists of between one and nine standardized
agricultural commodities futures contracts traded on either the Chicago Board of
Trade (“CBOT”) or Intercontinental Exchange Inc. (“ICE”) on the following
commodities: Corn, Soybeans, Soybean Meal, Soybean Oil and Wheat, each of which
is traded on CBOT, and Arabica Coffee, Cotton, NY Cocoa and #11 Sugar, each of
which is traded on ICE (collectively with the CBOT commodities futures
contracts,
“Component
Futures Contracts” and each, a “Component Futures Contract”). The Component
Futures Contracts are listed and traded on regulated national securities
exchanges, generally have significant average daily trading volume, and can be
converted into cash without significant adverse effect on the market pricing of
the underlying commodity.
The
Index Provider seeks to convert data, such as historical pricing of
inter-commodity spreads (the difference between two prices), specific to
Component Futures Contracts, into Alpha (i.e.,
performance that exceeds that of the market over time). A market neutral
strategy seeks to profit from both increasing and decreasing prices in one or
more markets. Absolute return refers to the amount the Index returned over a
specific period of time (versus relative return, which refers to the difference
between the absolute return and the performance of the market (or other similar
investments)).
The
inclusion and weight of the Component Futures Contracts in the Index is
determined by signals generated daily by a proprietary quantitative model, which
utilizes: (1) micro- and macro-features analysis of the underlying commodities
and the overall commodities market; and (2) a portfolio metrics analysis to
determine allocation. Examples of these various features and metrics are set
forth below in the description of the Index’s five-step methodology.
1.Raw
Data Input
– Micro- and macro-features were selected by the Index Provider during the
creation of the Index to add into the proprietary quantitative
model.
The
micro-features are specifically related to each commodity. These include but are
not limited to:
•Curve
structure data – relationship between near term and longer-term data futures
prices
•Prior
day closing price
•Recent
trading range
•Trader
positioning (CFTC Commitments of Traders Report data)
Macro-features
are categories of historic data sets stored in the database during the creation
of the Index in order to be available for analysis. These macro-features are
considered applicable to the commodities due to their correlation or their
interconnectedness to the pricing of such commodities.
These
features include but are not limited to:
•Market
indices
◦Stocks
◦Bonds
◦Commodities
◦Baltic-Dry
Index
•Economic
indicators
◦Foreign
exchange rates
◦Gross
domestic product (GDP)
◦Consumer
price index (CPI)
◦Unemployment
rates
2.Model
Training
– The raw data is processed and stored for training and validation of the
models.
•Training
Period: when data is used to train the model
•Testing
Period/Validation: when the model is validated
•Holdout
Period: when live results are recorded and there are no changes made to the
model or its parameters
3.Asset
Allocation
– entry and exit decisions based on proprietary allocation signal generation
Entry
Decision:
The decision to enter an allocation is based on a positive daily asset
allocation signal generated by either the long or the short asset allocation
model. This is determined by the model predicting a favorable risk/reward
opportunity for a long/short allocation. The model prediction is based on data
included in the micro/macro features listed above. The Index may be allocated up
to 100% short, up to 100% long, or up to 100% cash at any given time based on
the model prediction.
Exit
Decision:
The exit decision is made once the opportunity horizon is reached, such as if
the risk target has been met.
4.Index
Constructions
– risk target and allocation ranges
The
main assumptions are various parameters such as rebalancing caps to avoid
significant liquidity impacts. These parameters include:
•Risk
target: Volatility target of 10% annualized standard deviation
•Target
annual Sharpe ratio: Target Sharpe ratio of 1.00
•Maximum
allocation range: Set to 100% to seek to ensure there is no
leverage
5.Daily
Weighting
– generates daily signals for individual commodities futures
contracts
The
Component Futures Contracts are rebalanced and/or reconstituted each day on
which the CBOT and ICE are open. A rebalance and/or reconstitution is based on
the prior business day’s market closing allocation for application at the next
business day’s market close.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to seek to achieve its
investment objective, meaning it generally will invest in all of the components
of the Index in approximately the same proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the components in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, such as swaps, but which the Adviser believes will help the Fund track
the Index. For example, the Fund may invest in securities that are not
components of the Index to reflect various corporate actions and other changes
to the Index (such as reconstitutions, additions, and deletions). A swap is a
contract in which one party agrees to make periodic payments to another party
based on the change in market value of the assets underlying the contract, which
may include a specified security, basket of securities, or securities indices
during the specified period, in return for periodic payments based on a fixed or
variable interest rate or the total return from other underlying assets.
The
Fund expects to gain exposure to commodities by investing indirectly, via the
Subsidiary, in the Component Futures Contracts. As futures contracts approach
expiration, they may be replaced by similar contracts that have a later
expiration. This process is referred to as “rolling.” Futures holdings will not
be rolled on a predetermined schedule. Instead, prior to becoming the new spot
month, holdings will be rolled within the same commodity into a position on the
futures curve that in the opinion of the Adviser generates the most optimal
yield under prevailing market conditions. At times, commodities futures with a
longer term to expiration may be priced higher than commodities futures with a
shorter term to expiration, which is known as “contango.” The Adviser generally
will attempt to minimize the negative impact from rolling commodities futures
that are in contango when possible as doing so would result in the Fund selling
the expiring contract at a lower price and buying a longer-term contract at a
higher price, producing a negative roll yield. Conversely, commodities futures
with a longer term to expiration may be priced lower than commodities futures
with a shorter term to expiration, known as “backwardation.” Rolling commodities
futures in backwardation generally involves selling an expiring contract at a
higher price and buying a longer-term contract at a lower price, producing
positive roll yield. However, there can be no guarantee that such a strategy
will produce the desired results.
The
Subsidiary is wholly owned by the Fund and organized under the laws of the
Cayman Islands (the “Subsidiary”). The Adviser also serves as the investment
adviser to the Subsidiary. The Fund’s investment in the Subsidiary is intended
to provide the Fund with indirect exposure to commodities futures within the
limits of current federal income tax laws applicable to investment companies
such as the Fund, which limit the ability of investment companies to invest
directly in commodities futures. The Subsidiary has the same investment
objective as the Fund, but it may invest in commodities futures to a greater
extent than the Fund. Except as otherwise noted, for purposes of this
Prospectus, references to the Fund’s investments include the Fund’s indirect
investments through the Subsidiary. Because the Fund intends to elect to be
treated as a regulated investment company (“RIC”) under the Internal Revenue
Code of 1986, as amended (the “Code”), the size of the Fund’s investment in the
Subsidiary generally will be limited to 25% of the Fund’s total assets, tested
at the end of each fiscal quarter.
Although
the Fund does not seek leveraged returns, investing in the Component Futures
Contracts may have a leveraging effect on the Fund. The Fund will invest in
cash, cash-like instruments and/or high-quality debt securities (collectively,
“Collateral”). The Collateral may consist of: (i) U.S. Government securities,
such as bills, notes and bonds issued by the U.S. Treasury; (ii) money market
funds; and/or (iii) corporate debt securities, such as commercial paper and
other short-term unsecured promissory notes issued by businesses that are rated
investment grade or determined by the Adviser to be of comparable quality. Such
Collateral is intended to provide liquidity, serve as margin or otherwise
collateralize the Subsidiary’s investments in Component Futures Contracts and
other commodities-related investments.
In
the event the Index shorts a commodities futures contract, the Fund will likely
short a Component Futures Contract in the same agricultural commodity.
The
Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”) and, therefore, may
invest a greater percentage of its assets in a particular issuer than a
diversified fund. To the extent the Index is comprised of a concentrated
(i.e., holds more than 25% of its total assets)
percentage of constituents in a particular industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. Through its investments in the Component Futures Contracts,
the Fund will have significant exposure to one or more agricultural
sectors.
Principal Investment
Risks
The principal risks of investing in the Fund are summarized
below. The principal risks are presented in alphabetical order to
facilitate finding particular risks and comparing them with those of other
funds. Each risk summarized below is considered a “principal risk” of
investing
in the Fund, regardless of the order in which it appears. As with any investment, there is a risk
that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following risks could affect the value
of your investment in the Fund:
•Agricultural
Commodities Risk.
The price and availability of agricultural commodities is influenced by economic
and industry conditions, including but not limited to supply and demand factors
such as: crop disease; weed control; water and fertilizer availability; various
planting, growing, or harvesting problems; severe weather conditions such as
drought, floods, heavy rains, frost, or natural disasters that are difficult to
anticipate and that cannot be controlled. The U.S. prices of certain
agricultural commodities such as soybeans and sugar are subject to risks
relating to the demand and distribution of such commodities in foreign
countries, such as: uncontrolled fires (including arson); challenges in doing
business with foreign companies; legal and regulatory restrictions;
transportation costs; interruptions in energy supply; currency exchange rate
fluctuations; and political and economic instability. Additionally, demand for
agricultural commodities is affected by changes in consumer tastes, national,
regional and local economic conditions, and demographic trends.
Agricultural
commodity production is subject to United States and foreign policies and
regulations that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives, acreage control, and import and export restrictions on agricultural
commodities and commodity products, can influence the planting of certain crops,
the location and size of crop production, the volume and types of imports and
exports, and industry profitability. Additionally, commodity production is
affected by laws and regulations relating to, but not limited to, the sourcing,
transporting, storing and processing of agricultural raw materials as well as
the transporting, storing and distributing of related agricultural products.
Agricultural commodity producers also may need to comply with various
environmental laws and regulations, such as those regulating the use of certain
pesticides, and local laws that regulate the production of genetically modified
crops. In addition, international trade disputes can adversely affect
agricultural commodity trade flows by limiting or disrupting trade between
countries or regions.
Seasonal
fluctuations in the price of agricultural commodities may cause risk to an
investor because of the possibility that Share prices will be depressed because
of the relevant harvest cycles. In the futures market, fluctuations are
typically reflected in contracts expiring in the harvest season (i.e.,
in the case of corn and soybeans, contracts expiring during the fall are
typically priced lower than contracts expiring in the winter and spring, while
in the case of wheat and sugar, contracts expiring during the spring and early
summer are typically priced lowest). Thus, seasonal fluctuations could result in
an investor incurring losses upon the sale of Shares, particularly if the
investor needs to sell Shares when a Component Futures Contract is, in whole or
part, expiring in the harvest season for the specified commodity.
◦Risks
Specific to Cocoa, Coffee and Cotton.
Each of cocoa, coffee and cotton is an agricultural commodity and a soft
commodity. Consequently, in addition to factors affecting commodities generally
cocoa, coffee and cotton related investments may be subject to a number of
additional factors that might cause price volatility. These may include, among
others: weather conditions, including floods, drought and freezing conditions;
changes in government policies; planting decisions; and changes in demand for
agricultural products, and in particular coffee, both with end users and as
inputs into various industries.
◦Risks
Specific to Corn. Demand
for corn in the United States to produce ethanol has also been a significant
factor affecting the price of corn. In turn, demand for ethanol has tended to
increase when the price of gasoline has increased and has been significantly
affected by United States governmental policies designed to encourage the
production of ethanol. Additionally, demand for corn is affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. Finally, because corn is often used as an ingredient in
livestock feed, demand for corn is subject to risks associated with the outbreak
of livestock disease.
◦Risks
Specific to Wheat.
Demand for food products made from wheat flour is affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. More specifically, demand for such food products in the
United States is relatively unaffected by changes in wheat prices or disposable
income but is closely tied to tastes and preferences. For example, in recent
years the increase in the popularity of low-carbohydrate diets caused the
consumption of wheat flour to decrease rapidly. Export demand for wheat
fluctuates yearly, based largely on crop yields in the importing countries,
which can be impacted by various factors, including geopolitical events in such
countries, such as the ongoing conflict in Ukraine.
◦Risks
Specific to Soybeans.
The increased production of soybean crops in South America and the rising demand
for soybeans in emerging nations such as China and India have increased
competition in the soybean market. Like the conversion of corn into ethanol,
soybeans can be converted into biofuels such as biodiesel. Accordingly, the
soybean market has become increasingly affected by demand for biofuels and
related legislation. The supply of soybeans could be reduced by the spread of
soybean rust, a wind-borne fungal disease. Although soybean rust can be killed
with chemicals, chemical treatment increases production costs for farmers. In
addition, because processing soybean oil can create trans-fats, the demand for
soybean oil may decrease due to heightened governmental regulation of trans-fats
or trans-fatty acids. The U.S. Food and
Drug
Administration currently requires food manufacturers to disclose levels of
trans-fats contained in their products, and various local governments have
enacted or are considering restrictions on the use of trans-fats in restaurants.
Many major food processors have either switched or indicated an intention to
switch to oil products with lower levels of trans-fats or trans-fatty acids.
◦Risks
Specific to Sugar.
The spread of consumerism and the rising affluence of emerging nations such as
China and India have created increased demand for sugar. An influx of people in
developing countries moving from rural to urban areas may create more disposable
income to be spent on sugar products and might also reduce sugar production in
rural areas on account of worker shortages, all of which could result in upward
pressure on sugar prices. In addition, global demand for sugar to produce
ethanol has also been a significant factor affecting the price of sugar. On the
other hand, public health concerns regarding obesity, heart disease and
diabetes, particularly in developed countries, may reduce demand for sugar. In
light of the time it takes to grow sugarcane and sugar beets and the cost of new
facilities for processing these crops, it may not be possible to increase supply
quickly or in a cost-effective manner in response to an increase in demand. In
addition, sugar is a soft commodity with similar risks identified above for
cocoa, coffee, and cotton.
•Cash
Transaction Risk.
The Fund expects to effect all of its creations and redemptions for cash, rather
than in-kind securities. The Fund may be required to sell or unwind portfolio
investments to obtain the cash needed to distribute redemption proceeds. This
may cause the Fund to recognize a capital gain that it might not have recognized
if it had made a redemption in kind. As a result, the Fund may pay out higher
annual capital gain distributions than if the in-kind redemption process was
used. The use of cash creations and redemptions may also cause the Fund’s shares
to trade in the market at wider bid-ask spreads or greater premiums or discounts
to the Fund’s NAV. Further, effecting purchases and redemptions primarily in
cash may cause the Fund to incur certain costs, such as portfolio transaction
costs. These costs can decrease the Fund’s NAV if not offset by an authorized
participant transaction fee.
•Clearing
Broker Risk.
The failure or bankruptcy of the Fund’s and the Subsidiary’s clearing broker
could result in a substantial loss of Fund assets. Under current CFTC
regulations, a clearing broker maintains customers’ assets in a bulk segregated
account. If a clearing broker fails to do so, or is unable to satisfy a
substantial deficit in a customer account, its other customers may be subject to
risk of loss of their funds in the event of that clearing broker’s bankruptcy.
In that event, the clearing broker’s customers, such as the Fund and the
Subsidiary, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers.
•Collateral
Securities Risk.
Collateral may include obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities, including bills, notes and bonds issued by
the U.S. Treasury, money market funds and corporate debt securities, such as
commercial paper. Some securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may not be backed by the full faith
and credit of the United States, in which case the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event that the agency or instrumentality does
not meet its commitment. The U.S. government, its agencies and instrumentalities
do not guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate. Although the Fund may hold securities
that carry U.S. government guarantees, these guarantees do not extend to shares
of the Fund. The Fund’s investments in U.S. government securities will change in
value in response to interest rate changes and other factors, such as the
perception of an issuer’s creditworthiness. Money market funds are subject to
management fees and other expenses. Therefore, investments in money market funds
will cause the Fund to bear indirectly a proportional share of the fees and
costs of the money market funds in which it invests. At the same time, the Fund
will continue to pay its own management fees and expenses with respect to all of
its assets, including any portion invested in the shares of the money market
fund. It is possible to lose money by investing in money market funds. Corporate
debt securities such as commercial paper generally are short-term unsecured
promissory notes issued by businesses. Corporate debt may be rated
investment-grade or below investment-grade and may carry variable or floating
rates of interest. Corporate debt securities carry both credit risk and interest
rate risk. Credit risk is the risk that the Fund could lose money if the issuer
of a corporate debt security is unable to pay interest or repay principal when
it is due. Interest rate risk is the risk that interest rates rise and fall over
time. For example, the value of fixed-income securities generally decrease when
interest rates rise, which may cause the Fund’s value to decrease. Also,
investments in fixed-income securities with longer maturities fluctuate more in
response to interest rate changes. Some corporate debt securities that are rated
below investment-grade generally are considered speculative because they present
a greater risk of loss, including default, than higher quality debt securities.
•Commodity-Linked
Derivatives Tax Risk.
As a RIC, the Fund must derive at least 90% of its gross income each taxable
year from certain qualifying sources of income under the Code. The income of the
Fund from certain commodity-linked derivatives may be treated as non-qualifying
income for purposes of the Fund’s qualification as a RIC, in which case, the
Fund might fail to qualify as a RIC and be subject to federal income tax at the
Fund level. To the extent the Fund invests directly in commodity-linked
derivatives, the Fund will seek to restrict its income from such instruments
that do not generate qualifying income to a maximum of 10% of its gross income
(when combined with its other investments that produce non-qualifying income) to
comply with the qualifying income test necessary for the Fund to qualify as a
RIC under Subchapter M of the Code. However, the Fund may generate more
non-qualifying income than anticipated, may not be able to generate qualifying
income in a particular taxable
year
at levels sufficient to meet the qualifying income test, or may not be able to
accurately predict the non-qualifying income from these investments.
The
extent to which the Fund invests in commodity-linked derivatives may be limited
by the qualifying income and asset diversification tests, which the Fund must
continue to satisfy to maintain its status as a RIC. If the Fund does not
qualify as a RIC for any taxable year and certain relief provisions are not
available, the Fund’s taxable income would be subject to tax at the Fund level
and to a further tax at the shareholder level when such income is distributed.
Failure to comply with the requirements for qualification as a RIC could have
significant negative tax consequences to Fund shareholders. Under certain
circumstances, the Fund may be able to cure a failure to meet the qualifying
income requirement, but in order to do so the Fund may incur significant
Fund-level taxes, which would effectively reduce (and could eliminate) the
Fund’s returns. The tax treatment of certain commodity-linked derivatives may be
affected by future regulatory or legislative changes that could affect the
character, timing and/or amount of the Fund’s taxable income or gains and
distributions.
•Commodity
Pool Regulatory Risk. The
Fund’s investment exposure to commodities futures will cause it to be deemed to
be a commodity pool, thereby subjecting the Fund to regulation under the
Commodity Exchange Act (“CEA”) and CFTC rules. The Adviser is registered as a
Commodity Trading Advisor (“CTA”) and a Commodity Pool Operator (“CPO”), and the
Fund will be operated in accordance with applicable CFTC rules, as well as the
regulatory scheme applicable to registered investment companies. Registration as
a CPO imposes additional compliance obligations on the Adviser and the Fund
related to additional laws, regulations, and enforcement policies, which could
increase compliance costs and may affect the operations and financial
performance of the Fund.
•Counterparty
Risk.
Investing in derivatives involves entering into contracts with third parties
(i.e.,
counterparties). The use of derivatives involves risks that are different from
those associated with ordinary portfolio securities transactions. The Fund will
be subject to credit risk (i.e.,
the risk that a counterparty is or is perceived to be unwilling or unable to
make timely payments or otherwise meet its contractual obligations) with respect
to the amount it expects to receive from counterparties to derivatives entered
into by the Fund. If a counterparty becomes bankrupt or fails to perform its
obligations, or if any collateral posted by the counterparty for the benefit of
the Fund is insufficient or there are delays in the Fund’s ability to access
such collateral, the value of an investment in the Fund may decline. The
counterparty to a listed futures contract is the derivatives clearing
organization for the listed future. The listed future is held through a futures
commission merchant (“FCM”) acting on behalf of the Fund. Consequently, the
counterparty risk on a listed futures contract is the creditworthiness of the
FCM and the exchange’s clearing corporation.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Derivatives
Risk.
The Fund’s derivative investments have risks, including the imperfect
correlation between the value of such instruments and the underlying assets or
index; the loss of principal, including the potential loss of amounts greater
than the initial amount invested in the derivative instrument; and illiquidity
of the derivative investments. The derivatives used by the Fund may give rise to
a form of leverage. Leverage magnifies the potential for gain and may result in
greater losses, which in some cases may cause the Fund to liquidate other
portfolio investments at inopportune times (e.g.,
at a loss to comply with limits on leverage and asset segregation requirements
imposed by the 1940 Act or when the Adviser otherwise would have preferred to
hold the investment) or to meet redemption requests. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns. To the extent the Fund invests in
such derivative instruments, the value of the Fund’s portfolio is likely to
experience greater volatility over short-term periods.
◦Futures
Contracts Risk. The
successful use of futures contracts draws upon the Adviser’s skill and
experience with respect to such instruments and is subject to special risk
considerations. The primary risks associated with the use of futures contracts,
which may adversely affect the Fund’s NAV and total return, are (a) the
imperfect correlation between the change in market value of the commodity future
and the price of commodity; (b) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures contract when
desired; (c) losses caused by unanticipated market movements, which are
potentially unlimited; (d) the Adviser’s inability to predict correctly the
direction of securities prices, interest rates, currency exchange rates and
other economic factors; (e) the possibility that the counterparty will default
in the performance of its obligations; and (f) if the Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements, and the Fund may have to sell securities at a time when it
maybe disadvantageous to do so.
◦Cost
of Futures Investment Risk.
When a commodities futures contract is nearing expiration, the Fund will
generally sell it and use the proceeds to buy a commodities futures contract
with a later expiration date. This practice is commonly referred to as
“rolling.” The costs associated with rolling commodities futures contract
typically are substantially higher than the costs associated with other futures
contracts and may have a significant adverse impact on the performance of the
Fund. In addition, the presence of contango in certain futures contracts at the
time of rolling would be expected to adversely affect the Fund. Similarly, the
presence of backwardation in certain futures contracts at the time of rolling
such contracts would be expected to positively affect the Fund. The futures
contracts markets have experienced, and are likely to experience again in the
future, extended periods in which contango or backwardation have affected
various types of futures contracts. These extended periods have caused in the
past, and may cause in the future, significant losses.
◦Swap
Agreements Risk.
Swap agreements are contracts among the Fund and a counterparty to exchange the
return of the pre-determined underlying investment (such as the rate of return
of the underlying commodity). Swap agreements may be negotiated bilaterally and
traded over-the-counter (“OTC”) between two parties or, for certain standardized
swaps, must be exchange-traded through a futures commission merchant and/or
cleared through a clearinghouse that serves as a central counterparty. Risks
associated with the use of swap agreements are different from those associated
with ordinary portfolio securities transactions, due in part to the fact they
could be considered illiquid and many swaps trade on the OTC market. Swaps are
particularly subject to counterparty credit, correlation, valuation, liquidity
and leveraging risks. While exchange trading and central clearing are intended
to reduce counterparty credit risk and increase liquidity, they do not make swap
transactions risk-free. Additionally, applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on OTC swaps, which
may result in the Fund and its counterparties posting higher margin amounts for
OTC swaps, which could increase the cost of swap transactions to the Fund and
impose added operational complexity.
•Early
Close/Trading Halt Risk.
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments, and/or may incur substantial trading losses.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than the Shares.
•High
Portfolio Turnover Risk.
The Fund, through the Subsidiary, may frequently buy and sell futures contracts
and other assets as part of the Fund’s strategy to obtain exposure to
agricultural commodities. Higher portfolio turnover may result in the Fund
paying higher levels of transaction costs and generating greater tax liabilities
for shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect.
•Index
Risk.
Neither the Adviser nor the Index Provider is able to guarantee the continuous
availability or timeliness of the production of the Index. The calculation and
dissemination of the Index values may be delayed if the information technology
or other facilities of the Index Provider, data providers and/or relevant stock
exchange malfunction for any reason. A significant delay may cause trading in
shares of the Fund to be suspended. Errors in Index data, computation and/or the
construction in accordance with its methodology may occur from time to time and
may not be identified and corrected by the Index Provider or other applicable
party for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders.
•Investment
Capacity Risk.
If the Fund’s ability to obtain exposure to commodities futures consistent with
its investment objective is disrupted for any reason, including limited
liquidity in the commodities futures market, a disruption to the commodities
futures, or as a result of margin requirements or position limits imposed by the
Fund’s FCMs, the CBOT, ICE or the CFTC, the Fund would not be able to achieve
its investment objective and may experience significant losses.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk.
Liquidity risk exists when particular investments are difficult to purchase or
sell. This can reduce the Fund's returns because the Fund may be unable to
transact at advantageous times or prices.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Models
and Data Risk.
The composition of the Index is heavily dependent on proprietary quantitative
models as well as information and data supplied by third parties (“Models and
Data”).
When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to the inclusion or exclusion of securities from the
Index universe that would have been excluded or included had the Models and Data
been correct and complete. If the composition of the Index reflects such errors,
the Fund’s portfolio can be expected to also reflect the errors.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater
percentage of its assets in the securities of a single issuer or a lesser number
of issuers than if it was a diversified fund. As a result, the Fund may be more
exposed to the risks associated with and developments affecting an individual
issuer or a lesser number of issuers than a fund that invests more widely. This
may increase the Fund’s volatility and cause the performance of a relatively
small number of issuers to have a greater impact on the Fund’s
performance.
•Passive
Investment Risk.
The Fund is not actively managed and therefore the Adviser would not sell a
Component Futures Contract due to current or projected underperformance of that
Component Futures Contract, the underlying commodity or the commodities market
generally unless that Component Futures Contract is removed from the Index or
the selling of that Component Futures Contract is otherwise required upon a
rebalancing of the Index as addressed in the Index methodology.
•Short
Selling Risk.
In this case, short selling involves the sale of commodities. The short seller
profits if the commodity’s price declines. If a shorted commodity increases in
value, a higher price must be paid to cover the short sale, resulting in a loss.
The Fund may incur expenses related to short selling, including compensation,
interest or dividends, and transaction costs, whether the price of the shorted
commodity increases or decreases. The amount the Fund could lose on a short sale
is theoretically unlimited. Short selling also involves counterparty risk – the
risk associated with the third party ceasing operations or failing to sell the
commodity back.
•Subsidiary
Investment Risk. By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held by the Subsidiary are generally similar to those that are
permitted to be held by the Fund and are subject to the same risks that apply to
similar investments if held directly by the Fund. The Subsidiary is not
registered under the 1940 Act, and, unless otherwise noted in this Prospectus,
is not subject to all the investor protections of the 1940 Act. Changes in the
laws of the United States and/or the Cayman Islands could result in the
inability of the Fund and/or the Subsidiary to continue to operate as it does
currently and could adversely affect the Fund. For example, the Cayman Islands
does not currently impose any income, corporate or capital gains tax or
withholding tax on the Subsidiary. If Cayman Islands law changes such that the
Subsidiary must pay Cayman Islands taxes, Fund shareholders would likely suffer
decreased investment returns.
•Tax
Risk.
The Fund may gain most of its exposure to the commodities markets through its
investment in the Subsidiary, which may invest directly in commodity-linked
derivative instruments, including commodities futures and reverse repurchase
agreement. In order for the Fund to qualify as a RIC under Subchapter M of the
Code, the Fund must, among other requirements,
derive
at least 90% of its gross income for each taxable year from sources generating
“qualifying income” for purposes of the “qualifying income test,” which is
described in more detail in the section titled “Federal Income Taxes” in the
SAI. The Fund’s investment in the Subsidiary is expected to provide the Fund
with exposure to the commodities markets within the limitations of the federal
tax requirements of Subchapter M of the Code for qualification as a RIC. The
“Subpart F” income (defined in Section 951 of the Code to include passive
income, including from commodity-linked derivatives) of the Fund attributable to
its investment in the Subsidiary is “qualifying income” to the Fund to the
extent that such income is derived with respect to the Fund’s business of
investing in stock, securities or currencies. The Fund expects its “Subpart F”
income attributable to its investment in the Subsidiary to be derived with
respect to the Fund’s business of investing in stock, securities or currencies
and accordingly expects its “Subpart F” income attributable to its investment in
the Subsidiary to be treated as “qualifying income.” The Fund generally will be
required to include in its own taxable income the “Subpart F” income of the
Subsidiary for a tax year, regardless of whether the Fund receives a
distribution of the Subsidiary’s income in that tax year, and this income would
nevertheless be subject to the distribution requirement for qualification as a
RIC and would be taken into account for purposes of the 4% excise tax. The
Adviser will carefully monitor the Fund’s investments in the Subsidiary to
ensure that no more than 25% of the Fund’s assets are invested in the Subsidiary
to comply with the Fund’s asset diversification test as described in more detail
in the SAI.
If
the Fund does not qualify as a RIC for any taxable year and certain relief
provisions are not available, the Fund’s taxable income would be subject to tax
at the Fund level and to a further tax at the shareholder level when such income
is distributed. In such event, in order to re-qualify for taxation as a RIC, the
Fund might be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions. This would cause investors to incur
higher tax liabilities than they otherwise would have incurred and would have a
negative impact on Fund returns. In such event, the Fund’s Board of Trustees
(the “Board”) may determine to reorganize or close the Fund or materially change
the Fund’s investment objective and strategies. In the event that the Fund fails
to qualify as a RIC, the Fund will promptly notify shareholders of the
implications of that failure.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Valuation
Risk.
The Fund or the Subsidiary may hold securities or other assets that may be
valued on the basis of factors other than market quotations. This may occur
because the asset or security does not trade on a centralized exchange, or in
times of market turmoil or reduced liquidity. There are multiple methods that
can be used to value a portfolio holding when market quotations are not readily
available. The value established for any portfolio holding at a point in time
might differ from what would be produced using a different methodology or if it
had been priced using market quotations. Portfolio holdings that are valued
using techniques other than market quotations, including “fair valued” assets or
securities, may be subject to greater fluctuation in their valuations from one
day to the next than if market quotations were used. In addition, there is no
assurance that the Fund or the Subsidiary could sell or close out a portfolio
position for the value established for it at any time, and it is possible that
the Fund or the Subsidiary would incur a loss because a portfolio position is
sold or closed out at a discount to the valuation established by the Fund or the
Subsidiary at that time. The Adviser’s ability to value investments may be
impacted by technological issues or errors by pricing services or other
third-party service providers.
•Volatility
Risk.
The value of certain of the Fund’s investments, including commodities futures,
is subject to market risk. Market risk is the risk that the value of the
investments to which the Fund is exposed will fall, which could occur due to
general market or economic conditions or other factors.
•Whipsaw
Markets Risk. The Fund may be subject to the forces of “whipsaw” markets (as
opposed to choppy or stable markets), in which significant price movements
develop but then repeatedly reverse. “Whipsaw” describes a situation where a
security’s price is moving in one direction but then quickly pivots to move in
the opposite direction. Such market conditions could cause substantial losses to
the Fund.
Performance
Performance information for the Fund is not included because
the Fund did not have a full calendar year of performance prior to the date of
this Prospectus. In the future, performance information for the
Fund will be presented in this section. Updated performance information is
available on the Fund’s website at www.teucrium.com.
Management
|
|
|
|
| |
Investment
Adviser: |
Teucrium
Investment Advisors, LLC |
Portfolio
Managers: |
Steve
Kahler and Springer Harris, each a Portfolio Manager of the Adviser, have
been portfolio managers of the Fund since its inception in
2022 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.teucrium.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income or capital gains
(or a combination), unless your investment is held in an individual retirement
account (“IRA”) or other tax-advantaged account. Distributions on investments
made through tax-deferred arrangements may be taxed later upon withdrawal of
assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
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TEUCRIUM
AiLA LONG-SHORT BASE METALS STRATEGY ETF - FUND
SUMMARY |
Investment
Objective
The
Teucrium AiLA Long-Short Base Metals Strategy ETF (the “Long-Short Base Metals
Strategy ETF” or the “Fund”) seeks to track the total return performance, before
fees and expenses, of the AiLA-S022 Market Neutral Absolute Return Index (the
“Index”).
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses1
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
1.49% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses2 |
0.00% |
Acquired
Fund Fees and Expenses |
0.15% |
Total
Annual Fund Operating Expenses1,
3 |
1.64% |
1
The
Annual Fund Operating Expense items shown in the table may not correlate to
those shown in the Fund’s financial highlights (and the Fund’s financial
statements) because the financial highlights include additional detail about the
operating expenses of the Subsidiary (as that term is defined herein). Such
expenses are waived by the Adviser and thus, not charged to or paid by the Fund.
Teucrium Investment Advisors, LLC (the “Adviser”), the Fund’s investment
adviser, has contractually agreed to waive the management fee it receives from
the Fund in an amount equal to the management fee paid to the Adviser by the
Subsidiary and to pay certain other expenses incurred by the Subsidiary. Thus,
the operating expenses of the Subsidiary are not charged to or paid by the Fund
and ultimately have no effect on the Fund’s expenses, as reflected in the Fund’s
Total Annual Fund Operating Expenses, shown in the table above, and Ratio of
expenses to average net assets after waivers, shown in the financial
highlights.
2
Estimated for the current
fiscal year.
3
Total Annual Operating
Expenses in this fee table may not correlate to the expense ratios in the Fund’s
financial highlights (and the Fund’s financial statements) because the financial
highlights include only the Fund’s direct operating expenses and do not include
Acquired Fund Fees and Expenses, which represent the Fund’s pro rata share of
the fees and expenses of the exchange-traded funds in which it
invests.
Example
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For the fiscal period April 4, 2023 (commencement of operations) through April
30, 2023, the Fund’s portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund seeks to track the total return performance, before fees and expenses, of
the Index, and is designed to track the performance of a portfolio of base
metals commodities futures contracts designed to provide absolute returns
through the implementation of a long/short trading strategy used to seek to
achieve market neutral exposure to the global metals market.
AiLA-S022
Market Neutral Absolute Return Index
The
Index is based on a rules-based index methodology developed and maintained by
AiLA Indices, the Fund’s index provider (the “Index Provider”). The portfolio
tracked by the Index generally consists of between one and six standardized base
metals commodities futures contracts traded on either the Chicago Mercantile
Exchange (“CME”) or London Metal Exchange Inc. (“LME”) on the following
commodities: aluminum, copper, lead, and zinc, each of which is traded on either
CME and LME, and nickel and tin, each of which is traded on LME (“Component
Futures Contracts” and each, a “Component Futures Contract”). The Component
Futures
Contracts
are listed and traded on regulated national securities exchanges, generally have
significant average daily trading volume, and can be converted into cash without
significant adverse effect on the market pricing of the underlying commodity.
The
Index Provider seeks to convert data, such as historical pricing of
inter-commodity spreads (the difference between two prices), specific to
Component Futures Contracts, into Alpha (i.e.,
performance that exceeds that of the market over time). A market neutral
strategy seeks to profit from both increasing and decreasing prices in one or
more markets. Absolute return refers to the amount the Index returned over a
specific period of time (versus relative return, which refers to the difference
between the absolute return and the performance of the market (or other similar
investments)).
The
inclusion and weight of the Component Futures Contracts in the Index is
determined by signals generated daily by a proprietary quantitative model, which
utilizes: (1) micro- and macro-features analysis of the underlying commodities
and the overall commodities market; and (2) a portfolio metrics analysis to
determine allocation. Examples of these various features and metrics are set
forth below in the description of the Index’s five-step methodology.
1.Raw
Data Input
– Micro- and macro-features were selected by the Index Provider during the
creation of the Index to add into the proprietary quantitative
model.
The
micro-features are specifically related to each commodity. These include but are
not limited to:
•Curve
structure data – relationship between near term and longer-term data futures
prices
•Prior
day closing price
•Recent
trading range
•Trader
positioning (CFTC Commitments of Traders Report data)
Macro-features
are categories of historic data sets were stored in the database during the
creation of the Index in order to be available for analysis. These
macro-features are considered applicable to the commodities due to their
correlation or their interconnectedness to the pricing of such
commodities.
These
features include but are not limited to:
•Market
indices
◦Stocks
◦Bonds
◦Commodities
◦Baltic-Dry
Index
•Economic
indicators
◦Foreign
exchange rates
◦Gross
domestic product (GDP)
◦Consumer
price index (CPI)
◦Unemployment
rates
2.Model
Training
– The raw data is processed and stored for training and validation of the
models.
•Training
Period: when data is used to train the model
•Testing
Period/Validation: when the model is validated
•Holdout
Period: when live results are recorded and there are no changes made to the
model or its parameters
3.Asset
Allocation
– entry and exit decisions based on proprietary allocation signal generation
Entry
Decision:
The decision to enter an allocation is based on a positive daily asset
allocation signal generated by either the long or the short asset allocation
model. This is determined by the model predicting a favorable risk/reward
opportunity for a long/short allocation. The model prediction is based on data
included in the micro/macro features listed above. The Index may be allocated up
to 100% short, up to 100% long, or up to 100% cash at any given time based on
the model prediction.
Exit
Decision:
The exit decision is made once the opportunity horizon is reached, such as if
the risk target has been met.
4.Index
Constructions
– risk target and allocation ranges
The
main assumptions are various parameters such as rebalancing caps to avoid
significant liquidity impacts. These parameters include:
•Risk
target: Volatility target of 10% annualized standard deviation
•Target
annual Sharpe ratio: Target Sharpe ratio of 1.00
•Maximum
allocation range: Set to 100% to seek to ensure there is no
leverage
5.Daily
Weighting
– generates daily signals for individual commodities futures
contracts
The
Component Futures Contracts are rebalanced and/or reconstituted each day on
which the CME and LME are open. A rebalance and/or reconstitution is based on
the prior business day’s market closing allocation for application at the next
business day’s market close.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to seek to achieve its
investment objective, meaning it generally will invest in all of the components
of the Index in approximately the same proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the components in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, such as swaps, but which the Adviser believes will help the Fund track
the Index. For example, the Fund may invest in securities that are not
components of the Index to reflect various corporate actions and other changes
to the Index (such as reconstitutions, additions, and deletions). A swap is a
contract in which one party agrees to make periodic payments to another party
based on the change in market value of the assets underlying the contract, which
may include a specified security, basket of securities, or securities indices
during the specified period, in return for periodic payments based on a fixed or
variable interest rate or the total return from other underlying assets.
The
Fund expects to gain exposure to commodities by investing indirectly, via the
Subsidiary, in the Component Futures Contracts. As futures contracts approach
expiration, they may be replaced by similar contracts that have a later
expiration. This process is referred to as “rolling.” Futures holdings will not
be rolled on a predetermined schedule. Instead, prior to becoming the new spot
month, holdings will be rolled within the same commodity into a position on the
futures curve that in the opinion of the Adviser generates the most optimal
yield under prevailing market conditions. At times, commodities futures with a
longer term to expiration may be priced higher than commodities futures with a
shorter term to expiration, which is known as “contango.” The Adviser generally
will attempt to minimize the negative impact from rolling commodities futures
that are in contango when possible as doing so would result in the Fund selling
the expiring contract at a lower price and buying a longer-term contract at a
higher price, producing a negative roll yield. Conversely, commodities futures
with a longer term to expiration may be priced lower than commodities futures
with a shorter term to expiration, known as “backwardation.” Rolling commodities
futures in backwardation generally involves selling an expiring contract at a
higher price and buying a longer-term contract at a lower price, producing
positive roll yield. However, there can be no guarantee that such a strategy
will produce the desired results.
The
Subsidiary is wholly owned by the Fund and organized under the laws of the
Cayman Islands (the “Subsidiary”). The Adviser also serves as the investment
adviser to the Subsidiary. The Fund’s investment in the Subsidiary is intended
to provide the Fund with indirect exposure to commodities futures within the
limits of current federal income tax laws applicable to investment companies
such as the Fund, which limit the ability of investment companies to invest
directly in commodities futures. The Subsidiary has the same investment
objective as the Fund, but it may invest in commodities futures to a greater
extent than the Fund. Except as otherwise noted, for purposes of this
Prospectus, references to the Fund’s investments include the Fund’s indirect
investments through the Subsidiary. Because the Fund intends to elect to be
treated as a regulated investment company (“RIC”) under the Internal Revenue
Code of 1986, as amended (the “Code”), the size of the Fund’s investment in the
Subsidiary generally will be limited to 25% of the Fund’s total assets, tested
at the end of each fiscal quarter.
Although
the Fund does not seek leveraged returns, investing in the Component Futures
Contracts may have a leveraging effect on the Fund. The Fund will invest in
cash, cash-like instruments and/or high-quality debt securities (collectively,
“Collateral”). The Collateral may consist of: (i) U.S. Government securities,
such as bills, notes and bonds issued by the U.S. Treasury; (ii) money market
funds; and/or (iii) corporate debt securities, such as commercial paper and
other short-term unsecured promissory notes issued by businesses that are rated
investment grade or determined by the Adviser to be of comparable quality. Such
Collateral is intended to provide liquidity, serve as margin or otherwise
collateralize the Subsidiary’s investments in Component Futures Contracts and
other commodities-related investments.
In
the event the Index shorts a commodities futures contract, the Fund will likely
short a Component Futures Contract in the same base metals commodity.
The
Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”) and, therefore, may
invest a greater percentage of its assets in a particular issuer than a
diversified fund. To the extent the Index is comprised of a concentrated
(i.e., holds more than 25% of its total
assets) percentage of constituents in a particular industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. Through its investments in the Component Futures Contracts,
the Fund will have significant exposure to one or more base metals
sectors.
Principal Investment
Risks
The principal risks of investing in the Fund are
summarized below. The principal risks are presented in alphabetical order
to facilitate finding particular risks and comparing them with those of other
funds. Each risk summarized below is considered a “principal risk” of
investing
in the Fund, regardless of the order in which it appears. As with any investment, there
is a risk that you could lose all or a portion of your investment in the
Fund. Some or all of these risks may adversely affect the Fund’s
net asset value (“NAV”), trading price, yield, total return and/or ability to
meet its investment objective. The following risks could affect the value
of your investment in the Fund:
•Associated
Risks of Investing in Metals Commodities.
The Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of metals commodities. Competitive
pressures may have a significant effect on the financial condition of metals
companies. Also, such companies are highly dependent on the price of certain
metals. These prices may fluctuate substantially over short periods of time, so
the Fund’s Share price may be more volatile than other types of investments. The
prices of metals rise and fall in response to many factors, including: economic
cycles; changes in inflation or expectations about inflation in various
countries; interest rates; currency fluctuations; metal sales by governments,
central banks, or international agencies; investment speculation; resource
availability; fluctuations in industrial and commercial supply and demand; and
government regulation of the metals industry.
•Cash
Transaction Risk.
The Fund expects to effect all of its creations and redemptions for cash, rather
than in-kind securities. The Fund may be required to sell or unwind portfolio
investments to obtain the cash needed to distribute redemption proceeds. This
may cause the Fund to recognize a capital gain that it might not have recognized
if it had made a redemption in kind. As a result, the Fund may pay out higher
annual capital gain distributions than if the in-kind redemption process was
used. The use of cash creations and redemptions may also cause the Fund’s shares
to trade in the market at wider bid-ask spreads or greater premiums or discounts
to the Fund’s NAV. Further, effecting purchases and redemptions primarily in
cash may cause the Fund to incur certain costs, such as portfolio transaction
costs. These costs can decrease the Fund’s NAV if not offset by an authorized
participant transaction fee.
•Clearing
Broker Risk.
The failure or bankruptcy of the Fund’s and the Subsidiary’s clearing broker
could result in a substantial loss of Fund assets. Under current CFTC
regulations, a clearing broker maintains customers’ assets in a bulk segregated
account. If a clearing broker fails to do so, or is unable to satisfy a
substantial deficit in a customer account, its other customers may be subject to
risk of loss of their funds in the event of that clearing broker’s bankruptcy.
In that event, the clearing broker’s customers, such as the Fund and the
Subsidiary, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers.
•Collateral
Securities Risk.
Collateral may include obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities, including bills, notes and bonds issued by
the U.S. Treasury, money market funds and corporate debt securities, such as
commercial paper. Some securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may not be backed by the full faith
and credit of the United States, in which case the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event that the agency or instrumentality does
not meet its commitment. The U.S. government, its agencies and instrumentalities
do not guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate. Although the Fund may hold securities
that carry U.S. government guarantees, these guarantees do not extend to shares
of the Fund. The Fund’s investments in U.S. government securities will change in
value in response to interest rate changes and other factors, such as the
perception of an issuer’s creditworthiness. Money market funds are subject to
management fees and other expenses. Therefore, investments in money market funds
will cause the Fund to bear indirectly a proportional share of the fees and
costs of the money market funds in which it invests. At the same time, the Fund
will continue to pay its own management fees and expenses with respect to all of
its assets, including any portion invested in the shares of the money market
fund. It is possible to lose money by investing in money market funds. Corporate
debt securities such as commercial paper generally are short-term unsecured
promissory notes issued by businesses. Corporate debt may be rated
investment-grade or below investment-grade and may carry variable or floating
rates of interest. Corporate debt securities carry both credit risk and interest
rate risk. Credit risk is the risk that the Fund could lose money if the issuer
of a corporate debt security is unable to pay interest or repay principal when
it is due. Interest rate risk is the risk that interest rates rise and fall over
time. For example, the value of fixed-income securities generally decrease when
interest rates rise, which may cause the Fund’s value to decrease. Also,
investments in fixed-income securities with longer maturities fluctuate more in
response to interest rate changes. Some corporate debt securities that are rated
below investment-grade generally are considered speculative because they present
a greater risk of loss, including default, than higher quality debt
securities.
•Commodity-Linked
Derivatives Tax Risk.
As a RIC, the Fund must derive at least 90% of its gross income each taxable
year from certain qualifying sources of income under the Code. The income of the
Fund from certain commodity-linked derivatives may be treated as non-qualifying
income for purposes of the Fund’s qualification as a RIC, in which case, the
Fund might fail to qualify as a RIC and be subject to federal income tax at the
Fund level. To the extent the Fund invests directly in commodity-linked
derivatives, the Fund will seek to restrict its income from such instruments
that do not generate qualifying income to a maximum of 10% of its gross income
(when combined with its other investments that produce non-qualifying income) to
comply with the qualifying income test necessary for the Fund to qualify as a
RIC under Subchapter M of the Code. However, the Fund may generate more
non-qualifying income than anticipated, may not be able to generate qualifying
income in a particular taxable
year
at levels sufficient to meet the qualifying income test, or may not be able to
accurately predict the non-qualifying income from these investments.
The
extent to which the Fund invests in commodity-linked derivatives may be limited
by the qualifying income and asset diversification tests, which the Fund must
continue to satisfy to maintain its status as a RIC. If the Fund does not
qualify as a RIC for any taxable year and certain relief provisions are not
available, the Fund’s taxable income would be subject to tax at the Fund level
and to a further tax at the shareholder level when such income is distributed.
Failure to comply with the requirements for qualification as a RIC could have
significant negative tax consequences to Fund shareholders. Under certain
circumstances, the Fund may be able to cure a failure to meet the qualifying
income requirement, but in order to do so the Fund may incur significant
Fund-level taxes, which would effectively reduce (and could eliminate) the
Fund’s returns. The tax treatment of certain commodity-linked derivatives may be
affected by future regulatory or legislative changes that could affect the
character, timing and/or amount of the Fund’s taxable income or gains and
distributions.
•Commodity
Pool Regulatory Risk. The
Fund’s investment exposure to commodities futures will cause it to be deemed to
be a commodity pool, thereby subjecting the Fund to regulation under the
Commodity Exchange Act (“CEA”) and CFTC rules. The Adviser is registered as a
Commodity Trading Advisor (“CTA”) and a Commodity Pool Operator (“CPO”), and the
Fund will be operated in accordance with applicable CFTC rules, as well as the
regulatory scheme applicable to registered investment companies. Registration as
a CPO imposes additional compliance obligations on the Adviser and the Fund
related to additional laws, regulations, and enforcement policies, which could
increase compliance costs and may affect the operations and financial
performance of the Fund.
•Counterparty
Risk.
Investing in derivatives involves entering into contracts with third parties
(i.e.,
counterparties). The use of derivatives involves risks that are different from
those associated with ordinary portfolio securities transactions. The Fund will
be subject to credit risk (i.e.,
the risk that a counterparty is or is perceived to be unwilling or unable to
make timely payments or otherwise meet its contractual obligations) with respect
to the amount it expects to receive from counterparties to derivatives entered
into by the Fund. If a counterparty becomes bankrupt or fails to perform its
obligations, or if any collateral posted by the counterparty for the benefit of
the Fund is insufficient or there are delays in the Fund’s ability to access
such collateral, the value of an investment in the Fund may decline. The
counterparty to a listed futures contract is the derivatives clearing
organization for the listed future. The listed future is held through a futures
commission merchant (“FCM”) acting on behalf of the Fund. Consequently, the
counterparty risk on a listed futures contract is the creditworthiness of the
FCM and the exchange’s clearing corporation.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, or the Fund’s other
service providers, market makers, Authorized Participants (“APs”), the Fund’s
primary listing exchange, or the issuers of securities in which the Fund invests
have the ability to disrupt and negatively affect the Fund’s business
operations, including the ability to purchase and sell Shares, potentially
resulting in financial losses to the Fund and its shareholders.
•Derivatives
Risk.
The Fund’s derivative investments have risks, including the imperfect
correlation between the value of such instruments and the underlying assets or
index; the loss of principal, including the potential loss of amounts greater
than the initial amount invested in the derivative instrument; and illiquidity
of the derivative investments. The derivatives used by the Fund may give rise to
a form of leverage. Leverage magnifies the potential for gain and may result in
greater losses, which in some cases may cause the Fund to liquidate other
portfolio investments at inopportune times (e.g.,
at a loss to comply with limits on leverage and asset segregation requirements
imposed by the 1940 Act or when the Adviser otherwise would have preferred to
hold the investment) or to meet redemption requests. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns. To the extent the Fund invests in
such derivative instruments, the value of the Fund’s portfolio is likely to
experience greater volatility over short-term periods.
◦Futures
Contracts Risk. The
successful use of futures contracts draws upon the Adviser’s skill and
experience with respect to such instruments and is subject to special risk
considerations. The primary risks associated with the use of futures contracts,
which may adversely affect the Fund’s NAV and total return, are (a) the
imperfect correlation between the change in market value of the commodity future
and the price of commodity; (b) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures contract when
desired; (c) losses caused by unanticipated market movements, which are
potentially unlimited; (d) the Adviser’s inability to predict correctly the
direction of securities prices, interest rates, currency exchange rates and
other economic factors; (e) the possibility that the counterparty will default
in the performance of its obligations; and (f) if the Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements, and the Fund may have to sell securities at a time when it
maybe disadvantageous to do so.
◦Cost
of Futures Investment Risk.
When a commodities futures contract is nearing expiration, the Fund will
generally sell it and use the proceeds to buy a commodities futures contract
with a later expiration date. This practice is commonly referred to as
“rolling.” The costs associated with rolling commodities futures contract
typically are substantially higher than the costs associated with other futures
contracts and may have a significant adverse impact on the performance of the
Fund. In addition, the presence of contango in certain futures contracts at the
time of rolling would be expected to adversely affect the Fund. Similarly, the
presence of backwardation in certain futures contracts at the time of rolling
such contracts would be expected to positively affect the Fund. The futures
contracts markets have experienced, and are likely to experience again in the
future, extended periods in which contango or backwardation have affected
various types of futures contracts. These extended periods have caused in the
past, and may cause in the future, significant losses.
◦Swap
Agreements Risk.
Swap agreements are contracts among the Fund and a counterparty to exchange the
return of the pre-determined underlying investment (such as the rate of return
of the underlying commodity). Swap agreements may be negotiated bilaterally and
traded over-the-counter (“OTC”) between two parties or, for certain standardized
swaps, must be exchange-traded through a futures commission merchant and/or
cleared through a clearinghouse that serves as a central counterparty. Risks
associated with the use of swap agreements are different from those associated
with ordinary portfolio securities transactions, due in part to the fact they
could be considered illiquid and many swaps trade on the OTC market. Swaps are
particularly subject to counterparty credit, correlation, valuation, liquidity
and leveraging risks. While exchange trading and central clearing are intended
to reduce counterparty credit risk and increase liquidity, they do not make swap
transactions risk-free. Additionally, applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on OTC swaps, which
may result in the Fund and its counterparties posting higher margin amounts for
OTC swaps, which could increase the cost of swap transactions to the Fund and
impose added operational complexity.
•Early
Close/Trading Halt Risk.
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments, and/or may incur substantial trading losses.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than the Shares.
•High
Portfolio Turnover Risk.
The Fund, through the Subsidiary, may frequently buy and sell futures contracts
and other assets as part of the Fund’s strategy to obtain exposure to
agricultural commodities. Higher portfolio turnover may result in the Fund
paying higher levels of transaction costs and generating greater tax liabilities
for shareholders. Portfolio turnover risk may cause the Fund’s performance to be
less than you expect.
•Index
Risk.
Neither the Adviser nor the Index Provider is able to guarantee the continuous
availability or timeliness of the production of the Index. The calculation and
dissemination of the Index values may be delayed if the information technology
or other facilities of the Index Provider, data providers and/or relevant stock
exchange malfunction for any reason. A significant delay may cause trading in
shares of the Fund to be suspended. Errors in Index data, computation and/or the
construction in accordance with its methodology may occur from time to time and
may not be identified and corrected by the Index Provider or other applicable
party for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders.
•Investment
Capacity Risk.
If the Fund’s ability to obtain exposure to commodities futures consistent with
its investment objective is disrupted for any reason, including limited
liquidity in the commodities futures market, a disruption to the commodities
futures, or as a result of margin requirements or position limits imposed by the
Fund’s FCMs, the CME, or the CFTC, the Fund would not be able to achieve its
investment objective and may experience significant losses.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk.
Liquidity risk exists when particular investments are difficult to purchase or
sell. This can reduce the Fund's returns because the Fund may be unable to
transact at advantageous times or prices.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Models
and Data Risk.
The composition of the Index is heavily dependent on proprietary quantitative
models as well as information and data supplied by third parties (“Models and
Data”).
When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to securities being included in or excluded from the
Index that would have been excluded or included had the Models and Data been
correct and complete. If the composition of the Index reflects such errors, the
Fund’s portfolio can be expected to reflect the errors, too.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater
percentage of its assets in the securities of a single issuer or a lesser number
of issuers than if it was a diversified fund. As a result, the Fund may be more
exposed to the risks associated with and developments affecting an individual
issuer or a lesser number of issuers than a fund that invests more widely. This
may increase the Fund’s volatility and cause the performance of a relatively
small number of issuers to have a greater impact on the Fund’s
performance.
•Passive
Investment Risk.
The Fund is not actively managed and therefore the Adviser would not sell a
Component Futures Contract due to current or projected underperformance of that
Component Futures Contract, the underlying commodity or the commodities market
in generally unless that Component Futures Contract is removed from the Index or
the selling of that Component Futures Contract is otherwise required upon a
rebalancing of the Index as addressed in the Index methodology.
•Short
Selling Risk.
In this case, short selling involves the sale of commodities. The short seller
profits if the commodity’s price declines. If a shorted commodity increases in
value, a higher price must be paid to cover the short sale, resulting in a loss.
The Fund may incur expenses related to short selling, including compensation,
interest or dividends, and transaction costs, whether the price of the shorted
commodity increases or decreases. The amount the Fund could lose on a short sale
is theoretically unlimited. Short selling also involves counterparty risk – the
risk associated with the third party ceasing operations or failing to sell the
commodity back.
•Subsidiary
Investment Risk. By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held by the Subsidiary are generally similar to those that are
permitted to be held by the Fund and are subject to the same risks that apply to
similar investments if held directly by the Fund. The Subsidiary is not
registered under the 1940 Act, and, unless otherwise noted in this Prospectus,
is not subject to all the investor protections of the 1940 Act. Changes in the
laws of the United States and/or the Cayman Islands could result in the
inability of the Fund and/or the Subsidiary to continue to operate as it does
currently and could adversely affect the Fund. For example, the Cayman Islands
does not currently impose any income, corporate or capital gains tax or
withholding tax on the Subsidiary. If Cayman Islands law changes such that the
Subsidiary must pay Cayman Islands taxes, Fund shareholders would likely suffer
decreased investment returns.
•Tax
Risk.
The Fund may gain most of its exposure to the commodities markets through its
investment in the Subsidiary, which may invest directly in commodity-linked
derivative instruments, including commodities futures and reverse repurchase
agreement. In order for the Fund to qualify as a RIC under Subchapter M of the
Code, the Fund must, among other requirements,
derive
at least 90% of its gross income for each taxable year from sources generating
“qualifying income” for purposes of the “qualifying income test,” which is
described in more detail in the section titled “Federal Income Taxes” in the
SAI. The Fund’s investment in the Subsidiary is expected to provide the Fund
with exposure to the commodities markets within the limitations of the federal
tax requirements of Subchapter M of the Code for qualification as a RIC. The
“Subpart F” income (defined in Section 951 of the Code to include passive
income, including from commodity-linked derivatives) of the Fund attributable to
its investment in the Subsidiary is “qualifying income” to the Fund to the
extent that such income is derived with respect to the Fund’s business of
investing in stock, securities or currencies. The Fund expects its “Subpart F”
income attributable to its investment in the Subsidiary to be derived with
respect to the Fund’s business of investing in stock, securities or currencies
and accordingly expects its “Subpart F” income attributable to its investment in
the Subsidiary to be treated as “qualifying income.” The Fund generally will be
required to include in its own taxable income the “Subpart F” income of the
Subsidiary for a tax year, regardless of whether the Fund receives a
distribution of the Subsidiary’s income in that tax year, and this income would
nevertheless be subject to the distribution requirement for qualification as a
RIC and would be taken into account for purposes of the 4% excise tax. The
Adviser will carefully monitor the Fund’s investments in the Subsidiary to
ensure that no more than 25% of the Fund’s assets are invested in the Subsidiary
to comply with the Fund’s asset diversification test as described in more detail
in the SAI.
If
the Fund does not qualify as a RIC for any taxable year and certain relief
provisions are not available, the Fund’s taxable income would be subject to tax
at the Fund level and to a further tax at the shareholder level when such income
is distributed. In such event, in order to re-qualify for taxation as a RIC, the
Fund might be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions. This would cause investors to incur
higher tax liabilities than they otherwise would have incurred and would have a
negative impact on Fund returns. In such event, the Fund’s Board of Trustees
(the “Board”) may determine to reorganize or close the Fund or materially change
the Fund’s investment objective and strategies. In the event that the Fund fails
to qualify as a RIC, the Fund will promptly notify shareholders of the
implications of that failure.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Valuation
Risk.
The Fund or the Subsidiary may hold securities or other assets that may be
valued on the basis of factors other than market quotations. This may occur
because the asset or security does not trade on a centralized exchange, or in
times of market turmoil or reduced liquidity. There are multiple methods that
can be used to value a portfolio holding when market quotations are not readily
available. The value established for any portfolio holding at a point in time
might differ from what would be produced using a different methodology or if it
had been priced using market quotations. Portfolio holdings that are valued
using techniques other than market quotations, including “fair valued” assets or
securities, may be subject to greater fluctuation in their valuations from one
day to the next than if market quotations were used. In addition, there is no
assurance that the Fund or the Subsidiary could sell or close out a portfolio
position for the value established for it at any time, and it is possible that
the Fund or the Subsidiary would incur a loss because a portfolio position is
sold or closed out at a discount to the valuation established by the Fund or the
Subsidiary at that time. The Adviser’s ability to value investments may be
impacted by technological issues or errors by pricing services or other
third-party service providers.
•Volatility
Risk.
The value of certain of the Fund’s investments, including commodities futures,
is subject to market risk. Market risk is the risk that the value of the
investments to which the Fund is exposed will fall, which could occur due to
general market or economic conditions or other factors.
•Whipsaw
Markets Risk. The Fund may be subject to the forces of “whipsaw” markets (as
opposed to choppy or stable markets), in which significant price movements
develop but then repeatedly reverse. “Whipsaw” describes a situation where a
security’s price is moving in one direction but then quickly pivots to move in
the opposite direction. Such market conditions could cause substantial losses to
the Fund.
Performance
Performance information for the Fund is not included because
the Fund did not have a full calendar year of performance prior to the date of
this Prospectus. In the future, performance information for the
Fund will be presented in this section. Updated performance information is
available on the Fund’s website at www.teucrium.com.
Management
|
|
|
|
| |
Investment
Adviser: |
Teucrium
Investment Advisors, LLC |
Portfolio
Managers: |
Steve
Kahler and Springer Harris, each a Portfolio Manager of the Adviser, have
been portfolio managers of the Fund since its inception in
2023 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.teucrium.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income or capital gains
(or a combination), unless your investment is held in an individual retirement
account (“IRA”) or other tax-advantaged account. Distributions on investments
made through tax-deferred arrangements may be taxed later upon withdrawal of
assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE INDEXES
With
respect to the Long-Short Agriculture Strategy ETF and Long-Short Base Metals
Strategy ETF, AiLA Indices is the creator and Index Provider for each Fund’s
Index. As the Index Provider, it provides information to each Fund about its
Index’s constituents and does not provide investment advice with respect to the
desirability of investing in, purchasing, or selling securities or commodities.
The
asset allocation among the Component Futures Contracts in each of the Indexes is
based on an opportunity of return given a unit risk in a defined investment
period. The timing of this asset allocation is determined by a set of factors
defined as micro and macro features. Micro features are specific to the asset
such as corn or soybeans for the Long-Short Agriculture Strategy ETF and
aluminum or copper for the Long-Short Base Metals Strategy ETF and macro
features are generalized across different assets for each Fund. Depending on the
state of the world, these micro and macro features determine if it is a valid
time to invest. Once the selection decision is made, the quantum of allocation
is determined by the portfolio metrics such as target volatility, maximum
drawdown thresholds, Sharpe ratio, cash utilization, asset liquidity, term
structure, correlations, and rebalance frequencies. The Index Provider utilizes
quantitative analysis to reallocate the Component Futures Contracts to account
for practical constraints such as liquidity, CFTC position limits, exchange
accountability limits, and/or asset and sector caps.
The
Index Provider is an independent third party that is not affiliated with the
Funds, the Adviser, the Distributor (defined below), or any of their respective
affiliates. Each Index is calculated by an independent third-party calculation
agent that is not affiliated with the applicable Fund or the Adviser,
Distributor, Index Provider, or any of their affiliates. The Index calculation
agent calculates and disseminates each Index and does not provide investment
advice with respect to the desirability of investing in, purchasing, or selling
securities or commodities. Each Index was created for the purpose of being
licensed for use by the applicable Fund.
Each
Index is calculated as a gross total return index.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Investment
Objectives
Each
Fund’s investment objective may be changed by the Board of Listed Funds Trust
(the “Trust”) without shareholder approval upon written notice to shareholders.
Principal
Investment Risks
An
investment in a Fund entails risks. A Fund could lose money, or its performance
could trail that of other investment alternatives. The following provides
additional information about each Fund’s principal risks. It is important that
investors closely review and understand these risks before making an investment
in a Fund. Each risk applies to each Fund unless otherwise specified. Just as in
each Fund’s summary section, the principal risks below are presented in
alphabetical order to facilitate finding particular risks and comparing them
with those of other funds. Each risk summarized below is considered a “principal
risk” of investing in the applicable Fund, regardless of the order in which it
appears.
•Active
Management Risk (Agriculture
Strategy No K-1 ETF only).
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s success or failure to implement strategies for the Fund. The Fund
invests in complex instruments (each described below), including futures
contracts. Such instruments may create enhanced risks for the Fund, and the
Adviser’s ability to control the Fund’s level of risk will depend on the
Adviser’s skill in managing such instruments. In addition, the Adviser’s
evaluations and assumptions regarding investments, interest rates, inflation,
and other factors may not successfully achieve the Fund’s investment objective
given actual market conditions.
•Associated
Risks of Investing in Commodities.
◦Agricultural
Commodities Risk (Agriculture Strategy No K-1 ETF and Long-Short Agriculture
Strategy ETF only). The
price and availability of agricultural commodities is influenced by economic and
industry conditions, including but not limited to supply and demand factors such
as: crop disease; weed control; water and fertilizer availability; various
planting, growing, or harvesting problems; severe weather conditions such as
drought, floods, heavy rains, frost, or natural disasters that are difficult to
anticipate and that cannot be controlled. The U.S. prices of certain
agricultural commodities such as soybeans and sugar are subject to risks
relating to the production of such commodities in foreign countries, such as:
uncontrolled fires (including arson); challenges in doing business with foreign
companies; legal and regulatory restrictions; transportation costs;
interruptions in energy supply; currency exchange rate fluctuations; and
political and economic instability. Additionally, demand for agricultural
commodities is affected by changes in consumer tastes, national, regional and
local economic conditions, and demographic trends.
Agricultural
commodity production is subject to United States and foreign policies and
regulations that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives, acreage control, and import and export restrictions on agricultural
commodities and commodity products, can influence the planting of certain crops,
the location and size of crop production, the volume and types of imports and
exports, and industry profitability. Additionally, commodity production is
affected by laws and regulations relating to, but not limited to, the sourcing,
transporting, storing and processing of agricultural raw materials as well as
the transporting, storing and distributing
of
related agricultural products. Agricultural commodity producers also may need to
comply with various environmental laws and regulations, such as those regulating
the use of certain pesticides, and local laws that regulate the production of
genetically modified crops. In addition, international trade disputes can
adversely affect agricultural commodity trade flows by limiting or disrupting
trade between countries or regions.
Seasonal
fluctuations in the price of agricultural commodities may cause risk to an
investor because of the possibility that Share prices will be depressed because
of the relevant harvest cycles. In the futures market, fluctuations are
typically reflected in contracts expiring in the harvest season (i.e.,
in the case of corn and soybeans, contracts expiring during the fall are
typically priced lower than contracts expiring in the winter and spring, while
in the case of wheat and sugar, contracts expiring during the spring and early
summer are typically priced lowest). Thus, seasonal fluctuations could result in
an investor incurring losses upon the sale of Shares, particularly if the
investor needs to sell Shares when a Component Futures Contracts is, in whole or
part, expiring in the harvest season for the specified commodity.
▪Risks
Specific to Cocoa, Coffee and Cotton (Long-Short
Agriculture Strategy ETF only).
Each of cocoa, coffee and cotton is an agricultural commodity and a soft
commodity. Consequently, in addition to factors affecting commodities generally,
cocoa, coffee and cotton related investments may be subject to a number of
additional factors that might cause price volatility. These may include, among
others: weather conditions, including floods, drought and freezing conditions;
changes in government policies; planting decisions; and changes in demand for
agricultural products, and in particular coffee, both with end users and as
inputs into various industries.
▪Risks
Specific to Corn.
Demand for corn in the United States to produce ethanol has also been a
significant factor affecting the price of corn. In turn, demand for ethanol has
tended to increase when the price of gasoline has increased and has been
significantly affected by United States governmental policies designed to
encourage the production of ethanol. Additionally, demand for corn is affected
by changes in consumer tastes, national, regional and local economic conditions,
and demographic trends. Finally, because corn is often used as an ingredient in
livestock feed, demand for corn is subject to risks associated with the outbreak
of livestock disease.
▪Risks
Specific to Wheat.
Demand for food products made from wheat flour is affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. More specifically, demand for such food products in the
United States is relatively unaffected by changes in wheat prices or disposable
income but is closely tied to tastes and preferences. For example, an increase
in the popularity of low-carbohydrate diets could cause the consumption of wheat
flour to decrease rapidly. Export demand for wheat fluctuates yearly, based
largely on crop yields in the importing countries, which can be impacted by
various factors, including geopolitical events in such countries, such as the
ongoing conflict in Ukraine.
▪Risks
Specific to Soybeans.
The increased production of soybean crops in South America and the rising demand
for soybeans in emerging nations such as China and India have increased
competition in the soybean market. Like the conversion of corn into ethanol,
soybeans can be converted into biofuels such as biodiesel. Accordingly, the
soybean market has become increasingly affected by demand for biofuels and
related legislation. The supply of soybeans could be reduced by the spread of
soybean rust, a wind-borne fungal disease. Although soybean rust can be killed
with chemicals, chemical treatment increases production costs for farmers. In
addition, because processing soybean oil can create trans-fats, the demand for
soybean oil may decrease due to heightened governmental regulation of trans-fats
or trans-fatty acids. The U.S. Food and Drug Administration currently requires
food manufacturers to disclose levels of trans-fats contained in their products,
and various local governments have enacted or are considering restrictions on
the use of trans-fats in restaurants. Many major food processors have either
switched or indicated an intention to switch to oil products with lower levels
of trans-fats or trans-fatty acids.
▪Risks
Specific to Sugar.
The spread of consumerism and the rising affluence of emerging nations such as
China and India have created increased demand for sugar. An influx of people in
developing countries moving from rural to urban areas may create more disposable
income to be spent on sugar products and might also reduce sugar production in
rural areas on account of worker shortages, all of which could result in upward
pressure on sugar prices. On the other hand, public health concerns regarding
obesity, heart disease and diabetes, particularly in developed countries, may
reduce demand for sugar. In light of the time it takes to grow sugarcane and
sugar beets and the cost of new facilities for processing these crops, it may
not be possible to increase supply quickly or in a cost-effective manner in
response to an increase in demand. In addition, sugar is a soft commodity with
similar risks identified above for cocoa, coffee, and cotton.
◦Metals
Commodities Risk (Long-Short Base Metals Strategy ETF only).
The Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of the metals and mining industry.
Competitive pressures may have a significant effect on the financial condition
of companies in such industry. Also, such companies are highly dependent on the
price of certain metals. These prices may fluctuate substantially over short
periods of time, so the Fund’s Share price may be more volatile than other types
of investments. The prices of metals rise and fall in response to many factors,
including: economic cycles; changes in inflation or expectations about inflation
in various countries; interest
rates;
currency fluctuations; metal sales by governments, central banks, or
international agencies; investment speculation; resource availability;
fluctuations in industrial and commercial supply and demand; and government
regulation of the metals and materials industries.
•Cash
Transaction Risk.
Each Fund expects to effect all of its creations and redemptions for cash,
rather than in-kind securities. A Fund may be required to sell or unwind
portfolio investments to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize a capital gain that it might not
have recognized if it had made a redemption in-kind. As a result, a Fund may pay
out higher annual capital gain distributions than if the in-kind redemption
process was used. The use of cash creations and redemptions may also cause a
Fund’s shares to trade in the market at wider bid-ask spreads or greater
premiums or discounts to such Fund’s NAV. As a practical matter, only
institutions and large investors, such as market makers or other large broker
dealers, create or redeem shares directly through a Fund. Most investors will
buy and sell shares of a Fund on an exchange through a broker-dealer.
Furthermore, a Fund may not be able to execute cash transactions for creation
and redemption purposes at the same price used to determine such Fund’s NAV. To
the extent that the maximum additional charge for creation or redemption
transactions is insufficient to cover the execution shortfall, a Fund’s
performance could be negatively impacted.
•Clearing
Broker Risk.
The failure or bankruptcy of a Fund’s and its respective Subsidiary’s clearing
broker could result in a substantial loss of Fund assets. Under current CFTC
regulations, a clearing broker maintains customers’ assets in a bulk segregated
account. If a clearing broker fails to do so, or is unable to satisfy a
substantial deficit in a customer account, its other customers may be subject to
risk of loss of their funds in the event of that clearing broker’s bankruptcy.
In that event, the clearing broker’s customers, such as a Fund and its
respective Subsidiary, are entitled to recover, even in respect of property
specifically traceable to them, only a proportional share of all property
available for distribution to all of that clearing broker’s customers.
•Collateral
Securities Risk.
Collateral may include obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities, including bills, notes and bonds issued by
the U.S. Treasury, as well as money market funds and corporate debt securities.
U.S. government securities include securities that are issued or guaranteed by
the U.S. Treasury, by various agencies of the U.S. government, or by various
instrumentalities which have been established or sponsored by the U.S.
government. U.S. Treasury securities are backed by the “full faith and credit”
of the United States. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of those U.S. government
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the security for ultimate repayment, and may not be able to assert
a claim against the United States itself in the event that the agency or
instrumentality does not meet its commitment. The U.S. government, its agencies
and instrumentalities do not guarantee the market value of their securities, and
consequently, the value of such securities may fluctuate. A Fund’s investments
in U.S. government securities will change in value in response to interest rate
changes and other factors, such as the perception of an issuer’s
creditworthiness.
Money
market funds are subject to management fees and other expenses, and a Fund’s
investments in money market funds will cause it to bear proportionately the
costs incurred by the money market funds’ operations while simultaneously paying
its own management fees and expenses. An investment in a money market fund is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Money market funds may not have the value of their
investments remain at $1.00 per share; it is possible to lose money by investing
in a money market fund.
Corporate
debt securities such as commercial paper generally are short-term unsecured
promissory notes issued by businesses. Corporate debt securities carry both
credit risk and interest rate risk. Credit risk is the risk that the issuer of a
corporate debt security is unable to pay interest or repay principal when it is
due and the holder of the corporate debt security could lose money. Interest
rate risk is the risk that interest rates rise and fall over time. For example,
the value of fixed-income securities generally decrease when interest rates
rise, which may cause a Fund’s value to decrease. Also, investments in
fixed-income securities with longer maturities fluctuate more in response to
interest rate changes. Some corporate debt securities that are rated below
investment-grade generally are considered speculative because they present a
greater risk of loss, including default, than higher quality debt
securities.
•Commodity-Linked
Derivatives Tax Risk.
As a RIC, a Fund must derive at least 90% of its gross income for each taxable
year from sources treated as qualifying income under the Code. The income of a
Fund from certain commodity-linked derivatives may be treated as non-qualifying
income for purposes of such Fund’s qualification as a RIC, in which case the
applicable Fund might fail to qualify as a RIC and be subject to federal income
tax at the Fund level. To the extent a Fund invests directly in commodity-linked
derivatives, such Fund will seek to restrict its income from such instruments
that do not generate qualifying income to a maximum of 10% of its gross income
(when combined with its other investments that produce non-qualifying income) to
comply with the qualifying income test necessary for the applicable Fund to
qualify as a RIC under Subchapter M of the Code. However, a Fund may generate
more non-qualifying income than anticipated, may not be able to generate
qualifying income in a particular taxable year at levels sufficient to meet the
qualifying income test, or may not be able to accurately predict the
non-qualifying income from these investments.
The
extent to which a Fund invests in commodity-linked derivatives may be limited by
the qualifying income and asset diversification tests, which such Fund must
continue to satisfy to maintain its status as a RIC. If a Fund does not qualify
as a RIC
for
any taxable year and certain relief provisions are not available, such Fund’s
taxable income would be subject to tax at the Fund level and to a further tax at
the shareholder level when such income is distributed. Failure to comply with
the requirements for qualification as a RIC could have significant negative tax
consequences to the applicable Fund shareholders. Under certain circumstances, a
Fund may be able to cure a failure to meet the qualifying income requirement,
but in order to do so such Fund may incur significant Fund-level taxes, which
would effectively reduce (and could eliminate) the applicable Fund’s returns.
The tax treatment of certain commodity-linked derivatives may be affected by
future regulatory or legislative changes that could affect the character, timing
and/or amount of a Fund’s taxable income or gains and distributions.
•Commodity
Pool Regulatory Risk.
A Fund’s investment exposure to commodities futures will cause it to be deemed
to be a commodity pool, thereby subjecting such Fund to regulation under the CEA
and CFTC rules. The Adviser is registered as a CPO, and each Fund will be
operated in accordance with applicable CFTC rules, as well as the regulatory
scheme applicable to registered investment companies. Registration as a CPO
imposes additional compliance obligations on the Adviser and a Fund related to
additional laws, regulations, and enforcement policies, which could increase
compliance costs and may affect the operations and financial performance of such
Fund. However, a Fund’s status as a commodity pool and the Adviser’s
registration as a CPO are not expected to materially adversely affect a Fund’s
ability to achieve its respective investment objective. The CFTC has not passed
on the adequacy of this Prospectus.
•Counterparty
Risk.
Investing in derivatives involves entering into contracts with third parties
(i.e.,
counterparties). The use of derivatives involves risks that are different from
those associated with ordinary portfolio securities transactions. A Fund will be
subject to credit risk (i.e.,
the risk that a counterparty is or is perceived to be unwilling or unable to
make timely payments or otherwise meet its contractual obligations) with respect
to the amount it expects to receive from counterparties to derivatives entered
into by such Fund. If a counterparty becomes bankrupt or fails to perform its
obligations, or if any collateral posted by the counterparty for the benefit of
a Fund is insufficient or there are delays in a Fund’s ability to access such
collateral, the value of an investment in such Fund may decline. The
counterparty to a listed futures contract is the derivatives clearing
organization for the listed future. The listed future is held through an FCM
acting on behalf of a Fund. A Fund also seeks to mitigate risks by generally
requiring that the counterparties agree to post collateral for the benefit of
such Fund, marked to market daily, in an amount approximately equal to what the
counterparty owes such Fund, subject to certain minimum thresholds. To the
extent any such collateral is insufficient or there are delays in accessing the
collateral, a Fund will be exposed to the risks described above, including
possible delays in recovering amounts as a result of bankruptcy proceedings.
Consequently, the counterparty risk on a listed futures contract is the
creditworthiness of the FCM and the exchange’s clearing corporation.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as a Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause a Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of a Fund, the Adviser, or the Fund’s other
service providers, market makers, APs, a Fund’s primary listing exchange, or the
issuers of securities in which a Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell Shares, potentially resulting in financial losses to the Fund
and its shareholders. For instance, cyber-attacks or technical malfunctions may
interfere with the processing of shareholder or other transactions, affect a
Fund’s ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Shares, and other data integral to the
functioning of a Fund inaccessible or inaccurate or incomplete. A Fund also may
incur substantial costs for cybersecurity risk management to prevent cyber
incidents in the future. A Fund and its respective shareholders could be
negatively impacted as a result.
•Derivatives
Risk.
A Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; and illiquidity of the
derivative investments. The derivatives used by a Fund may give rise to a form
of leverage. Leverage magnifies the potential for gain and may result in greater
losses, which in some cases may cause a Fund to liquidate other portfolio
investments at inopportune times (e.g.,
at a loss to comply with limits on leverage and asset segregation requirements
imposed by the 1940 Act or when the Adviser otherwise would have preferred to
hold the investment) or to meet redemption requests. Certain of a Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in such Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact such Fund’s after-tax returns. To the extent a Fund invests in
such derivative instruments, the value of such Fund’s portfolio is likely to
experience greater volatility over short-term periods.
◦Futures
Contracts Risk. The
successful use of futures contracts draws upon the Adviser’s skill and
experience with respect to such instruments and is subject to special risk
considerations. The primary risks associated with the use of futures contracts,
which may adversely affect a Fund’s NAV and total return, are: (a) the imperfect
correlation between the change in market value of the Component Futures
Contracts and the price of underlying asset; (b) possible lack of a liquid
market for a futures contract and the resulting inability to close a forward or
futures contract when desired; (c) losses caused by unanticipated market
movements, which are potentially unlimited; (d) the Adviser’s inability to
predict correctly the direction of securities prices, interest rates, currency
exchange rates and other economic factors; (e) the possibility that the
counterparty will default in the performance of its obligations; and (f) if a
Fund has insufficient cash, it may have to sell securities from its portfolio to
meet daily variation margin requirements, and such Fund may have to sell
securities at a time when it maybe disadvantageous to do so.
Investment
in exchange-traded futures contracts may expose a Fund to the risks of a
clearing broker (or a FCM). Under current regulations, a clearing broker or FCM
maintains customers’ assets in a bulk segregated account. There is a risk that
Fund assets deposited with the clearing broker to serve as margin may be used to
satisfy the broker’s own obligations or the losses of the broker’s other
clients. In the event of default, a Fund could experience lengthy delays in
recovering some or all of its assets and may not see any recovery at all.
Because futures contracts project price levels in the future, market
circumstances may cause a discrepancy between the price of a futures contract
and the movement in the underlying asset. In the event of adverse price
movements, a Fund may be required to post additional “variation margin” to
satisfy the necessary collateral requirements of the FCM. In addition, to comply
with federal securities rules, a Fund must segregate liquid assets or take other
appropriate measures to “cover” the Subsidiary’s open positions in futures
contracts. A Subsidiary intends to invest in cash-settled futures contracts,
which require that a registered investment company set aside liquid assets in an
amount equal to its daily marked-to-market net obligations under the contract
(i.e.,
its daily net liability, minus any posted margin and variation margin).
◦Cost
of Futures Investment Risk.
When a commodities futures contract is nearing expiration, a Fund will generally
sell it and use the proceeds to buy a commodities futures contract with a later
expiration date. This is commonly referred to as “rolling.” The price of
commodities futures contracts further from expiration may be higher (a condition
known as “contango”) or lower (a condition known as “backwardation”), which can
affect a Fund’s performance. The futures contracts markets have experienced, and
are likely to experience again in the future, extended periods in which contango
or backwardation have affected various types of futures contracts. These
extended periods have caused in the past, and may cause in the future,
significant losses. In addition, the costs associated with rolling commodities
futures contracts typically are substantially higher than the costs associated
with other futures contracts and may have a significant adverse impact on the
performance of a Fund. Because of the frequency with which a Fund expects to
roll commodities futures contracts, the effects of such contango or
backwardation may be greater than would be the case if such Fund experienced
lower portfolio turnover.
◦Swap
Agreements Risk (Long-Short Agriculture Strategy ETF and Long-Short Base Metals
Strategy ETF only).
Swap agreements are contracts for periods ranging from one day to more than one
year and may be negotiated bilaterally and traded OTC between two parties or,
for certain standardized swaps, must be exchange-traded through a futures
commission merchant or swap execution facility and/or cleared through a
clearinghouse that serves as a central counterparty. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. A Fund may enter into swap agreements, including, but not limited
to total return swaps, index swaps, interest rate swaps, municipal market data
rate locks, and credit default swaps. A Fund may utilize swap agreements in an
attempt to gain exposure to certain securities without purchasing those
securities to speculate on the movement of such securities or to hedge a
position. Risks associated with the use of swap agreements are different from
those associated with ordinary portfolio securities transactions, largely due to
the fact they could be considered illiquid and many swaps currently trade on the
OTC market. Swaps are particularly subject to counterparty credit, correlation,
valuation, liquidity and leveraging risks and could result in substantial losses
to a Fund.
As
noted above, certain standardized swaps are subject to mandatory exchange
trading and central clearing. While exchange trading and central clearing are
intended to reduce counterparty credit risk and increase liquidity, they do not
make swap transactions risk-free. Additionally, the Commodity Futures Trading
Commission (the “CFTC”) and other applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on OTC swaps, which
may result in a Fund and its counterparties posting higher margin amounts for
OTC swaps, which could increase the cost of swap transactions to a Fund and
impose added operational complexity. The Dodd-Frank Act and related regulatory
developments require the clearing and exchange-trading of many OTC derivative
instruments that the CFTC and the SEC have defined as “swaps.” Mandatory
exchange-trading and clearing are occurring on a phased-in basis based on the
type of market participant and CFTC approval of contracts for central clearing.
The Adviser will continue to monitor developments in this area, particularly to
the extent regulatory changes affect a Fund’s ability to enter into swap
agreements.
•Early
Close/Trading Halt Risk.
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in a Fund being unable to buy or sell
certain
securities or financial instruments. In such circumstances, a Fund may be unable
to rebalance its portfolio, may be unable to accurately price its investments,
and/or may incur substantial trading losses.
•ETF
Risks.
Each Fund is an ETF and, as a result of its structure, is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
A Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount to NAV and
possibly face delisting if either: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors also will incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in a Fund, asset swings in a Fund and/or increased market volatility may cause
increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate a Fund’s NAV, there may be times when the market price of Shares is
more than the NAV intra-day (premium) or less than the NAV intra-day (discount)
due to supply and demand of Shares or during periods of market volatility. This
risk is heightened in times of market volatility or periods of steep market
declines and periods when there is limited trading activity for Shares in the
secondary market, in which case such premiums or discounts may be significant.
The market price of Shares during the trading day, like the price of any
exchange-traded security, includes a “bid/ask” spread charged by the exchange
specialist, market makers or other participants that trade Shares. In times of
severe market disruption, the bid/ask spread can increase significantly. At
those times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. The Adviser
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage opportunities.
Because securities held by a Fund may trade on foreign exchanges that are closed
when such Fund’s primary listing exchange is open, such Fund is likely to
experience premiums or discounts greater than those of ETFs that invest in and
hold only securities and other investments that are listed and trade in the U.S.
◦Trading
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of a Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares.
•High
Portfolio Turnover Risk.
A Fund, through its respective Subsidiary, may frequently buy and sell futures
contracts and other assets as part of such Fund’s strategy to obtain exposure to
agricultural commodities. Higher portfolio turnover may result in a Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders. Portfolio turnover risk may cause a Fund’s performance to be less
than you expect.
•Index
Risk (Long-Short
Agriculture Strategy ETF and Long-Short Base Metals Strategy ETF
only).
Neither the Adviser nor the Index Provider is able to guarantee the continuous
availability or timeliness of the production of either Index. The calculation
and dissemination of an Index’s values may be delayed if the information
technology or other facilities of the Index Provider, data providers and/or
relevant stock exchange malfunction for any reason. A significant delay may
cause trading in shares of a Fund to be suspended. Errors in Index data,
computation and/or the construction in accordance with its methodology may occur
from time to time and may not be identified and corrected by the Index Provider
or other applicable party for a period of time or at all, which may have an
adverse impact on an affected Fund and its shareholders.
•Investment
Capacity Risk.
If a Fund’s ability to obtain exposure to Component Futures Contracts consistent
with its investment objective is disrupted for any reason, including limited
liquidity in the agricultural commodities futures market, a disruption to the
agricultural commodities futures, or as a result of margin requirements or
position limits imposed by a Fund’s FCMs, the CBOT, ICE, the CME, or the CFTC,
such Fund would not be able to achieve its investment objective and may
experience significant losses.
•Limited
Operating History Risk. Each
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Liquidity
Risk.
Liquidity
risk exists when particular investments are difficult to purchase or sell. To
the extent a Fund invests in illiquid securities or securities that become less
liquid, such investments may have a negative effect on the returns of such Fund
because the Fund may be unable to sell the illiquid securities at an
advantageous time or price. To the extent that a Fund’s principal investment
strategies involve investing in securities with substantial market and/or credit
risk, such Fund will tend to have the greatest exposure to liquidity risk.
Liquid investments may become illiquid after purchase by a Fund, particularly
during periods of market turmoil. Illiquid investments may be harder to value,
especially in changing markets, and if such Fund is forced to sell these
investments to meet redemption requests or for other cash needs, the applicable
Fund may suffer a loss. There can be no assurance that a security that is deemed
to be liquid when purchased will continue to be liquid for as long as it is held
by a Fund.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. A Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the performance of the Fund and its
investments. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on a Fund.
The
respiratory illness COVID-19 has spread globally for over three years, resulting
in a global pandemic and major disruption to economies and markets around the
world, including the United States. During this time, financial markets have
experienced extreme volatility and severe losses, and trading in many
instruments has been disrupted or suspended. Liquidity for many instruments has
been greatly reduced for periods of time. Some sectors of the economy and
individual issuers have experienced particularly large losses. Governments and
central banks, including the Federal Reserve in the U.S., have taken
extraordinary and unprecedented actions to support local and global economies
and the financial markets. The impact of these measures, and whether they will
be effective to mitigate the economic and market disruption, will not be known
for some time. However, the rapid COVID-19 vaccination rollout in the United
States and certain other developed countries, coupled with the passage of
stimulus programs in the U.S. and abroad, have resulted in the re-opening of
businesses, the elimination or reduction of quarantine and masking requirements,
increased consumer demand, and the resumption of in-person schooling, travel and
events. As a result, many global economies, including the U.S. economy, have
either re-opened fully or decreased significantly the number of public safety
measures in place that are designed to mitigate virus transmission. Despite
these positive trends, the prevalence of new COVID-19 variants or other
unforeseen circumstances may result in the continued spread of the virus
throughout unvaccinated populations or a resurgence in infections among
vaccinated individuals. As a result, it remains unclear if recent positive
trends will continue in developed markets and whether such trends will spread
world-wide to countries with limited access to effective vaccines that are still
experiencing rising COVID-19 hospitalizations and deaths.
•Models
and Data Risk (Long-Short
Agriculture Strategy ETF and Long-Short Base Metals Strategy ETF
only).
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Indexes and the Funds to potential risks. Some of
the models used to construct each Index are predictive in nature. The use of
predictive models has inherent risks. For example, such models may incorrectly
forecast future behavior, leading to potential losses. In addition, in
unforeseen or certain low-probability scenarios (often involving a market
disruption of some kind), such models may produce unexpected results, which can
result in losses for a Fund. Furthermore, because predictive models are usually
constructed based on historical data supplied by third parties, the success of
relying on such models may depend heavily on the accuracy and reliability of the
supplied historical data.
•Non-Diversification
Risk.
Because each Fund is “non-diversified,” it may invest a greater percentage of
its assets in the securities of a single issuer or a lesser number of issuers
than if it was a diversified fund. As a result, a Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
a Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on such Fund’s performance.
•Passive
Investment Risk (Long-Short
Agriculture Strategy ETF and Long-Short Base Metals Strategy ETF
only).
Each Fund is not actively managed and the Adviser would not sell Component
Futures Contracts due to current or projected underperformance of that Component
Futures Contract, the underlying commodity, or the commodities market generally
unless that Component Futures Contract is removed from the Index or the selling
of that Component Futures Contract is otherwise required upon a rebalancing of
the Index as addressed in the Index methodology.
•Short
Selling Risk (Long-Short
Agriculture Strategy ETF and Long-Short Base Metals Strategy ETF
only).
In this case, short selling involves the sale of commodities. The short seller
profits if the commodity’s price declines. If a shorted commodity increases in
value, a higher price must be paid to cover the short sale, resulting in a loss.
The Fund may incur expenses related to short selling, including compensation,
interest or dividends, and transaction costs, whether the price of the shorted
commodity increases or decreases. The amount the Fund could lose on a short sale
is theoretically unlimited. Short selling also involves counterparty risk – the
risk associated with the third party ceasing operations or failing to sell the
commodity back.
•Subsidiary
Investment Risk.
By investing in a Subsidiary, the respective Fund is indirectly exposed to the
risks associated with such Subsidiary’s investments. The derivatives and other
investments held by a Subsidiary are generally similar to those that are
permitted to be held by the respective Fund and are subject to the same risks
that apply to similar investments if held directly by such Fund. A Subsidiary is
not registered under the 1940 Act, and, unless otherwise noted in this
Prospectus, is not subject to all the investor protections of the 1940 Act.
Changes in the laws of the United States and/or the Cayman Islands could result
in the inability of a Fund and/or its respective Subsidiary to continue to
operate as it does currently and could adversely affect such Fund. For example,
the Cayman Islands does not currently impose any income, corporate or capital
gains tax or withholding tax on a Subsidiary. If Cayman Islands law changes such
that a Subsidiary must pay Cayman Islands taxes, the applicable Fund
shareholders would likely suffer decreased investment returns.
•Tax
Risk.
A Fund may gain most of its exposure to the commodities markets through its
investment in its respective Subsidiary, which invests directly in
commodity-linked derivative instruments, including commodities futures and
reverse repurchase agreements. In order for a Fund to qualify as a RIC under
Subchapter M of the Code, such Fund must, among other requirements, derive at
least 90% of its gross income for each taxable year from sources generating
“qualifying income” for purposes of the “qualifying income test,” which is
described in more detail in the section titled “Federal Income Taxes” in the
SAI. A Fund’s investment in its respective Subsidiary is expected to provide
such Fund with exposure to the commodities markets within the limitations of the
federal tax requirements of Subchapter M of the Code for qualification as a RIC.
The “Subpart F” income (defined in Section 951 of the Code to include passive
income, including from commodity-linked derivatives) of a Fund attributable to
its investment in its respective Subsidiary is “qualifying income” to such Fund
to the extent that such income is derived with respect to the applicable Fund’s
business of investing in stock, securities or currencies. A Fund expects its
“Subpart F” income attributable to its investment in its respective Subsidiary
to be derived with respect to the Fund’s business of investing in stock,
securities or currencies and accordingly expects its “Subpart F” income
attributable to its investment in its respective Subsidiary to be treated as
“qualifying income.” A Fund generally will be required to include in its own
taxable income and the “Subpart F” income of its respective Subsidiary for a tax
year, regardless of whether such Fund receives a distribution of its respective
Subsidiary’s income in that tax year, and this income would nevertheless be
subject to the distribution requirement for qualification as a regulated
investment company and would be taken into account for purposes of the 4% excise
tax. The Adviser will carefully monitor a Fund’s investments in its respective
Subsidiary to ensure that no more than 25% of such Fund’s assets are invested in
its respective Subsidiary to comply with the applicable Fund’s asset
diversification test as described in more detail in the SAI.
To
the extent a Fund invests in commodities and certain commodity-linked derivative
instruments directly such Fund will seek to restrict its income from such
instruments that do not generate qualifying income to a maximum of 10% of their
gross income (when combined with its other investments that produce
non-qualifying income) to comply with the qualifying income test necessary for
such Fund to qualify as a RIC under Subchapter M of the Code. However, a Fund
may generate more non-qualifying income than anticipated, may not be able to
generate qualifying income in a particular taxable year at levels sufficient to
meet the qualifying income test, or may not be able to accurately predict the
non-qualifying income from these investments.
The
extent to which a Fund directly or indirectly invests in commodities or
commodity-linked derivatives may be limited by the qualifying income and asset
diversification tests, which such Fund must continue to satisfy to maintain its
status as a RIC.
If
a Fund does not qualify as a RIC for any taxable year and certain relief
provisions are not available, such Fund’s taxable income would be subject to tax
at the Fund level and to a further tax at the shareholder level when such income
is distributed. In such event, in order to re-qualify for taxation as a RIC, a
Fund might be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions. This would cause investors to incur
higher tax liabilities than they otherwise would have incurred and would have a
negative impact on Fund returns. In such event, the Board may determine to
reorganize or close a Fund or materially change such Fund’s investment objective
and strategies. In the event that a Fund fails to qualify as a RIC, such Fund
will promptly notify shareholders of the implications of that failure.
•Tracking
Error Risk (Long-Short
Agriculture Strategy ETF and Long-Short Base Metals Strategy ETF
only).
As with all index funds, the performance of a Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs
operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
a Fund may not be fully invested in the securities of its Index at all times or
may hold securities not included in the Index. The use of sampling techniques
may affect a Fund’s ability to achieve close correlation with its Index. A Fund
may use a representative sampling strategy to achieve its investment objective
if the Adviser believes it is in the best interest of the Fund, which generally
can be expected to produce a greater non-correlation risk.
•Valuation
Risk.
A Fund or its respective Subsidiary may hold securities or other assets that may
be valued on the basis of factors other than market quotations. This may occur
because the asset or security does not trade on a centralized exchange, or in
times of market turmoil or reduced liquidity. There are multiple methods that
can be used to value a portfolio holding when market quotations are not readily
available. The value established for any portfolio holding at a point in time
might differ from what would be produced using a different methodology or if it
had been priced using market quotations. Portfolio holdings that are valued
using techniques other than market quotations, including “fair valued” assets or
securities, may be subject to greater fluctuation in their valuations from one
day to the next than if market quotations were used. The fair value of a Fund’s
Component Futures Contracts may be determined by reference, in whole or in part,
to the cash market in relevant commodities. These circumstances may be more
likely to occur with respect to Component Futures Contracts than with respect to
futures on more traditional assets.
In
addition, there is no assurance that a Fund or its respective Subsidiary could
sell or close out a portfolio position for the value established for it at any
time, and it is possible that a Fund or its respective Subsidiary would incur a
loss because a portfolio position is sold or closed out at a discount to the
valuation established by such Fund or Subsidiary at that time. The Adviser’s
ability to value investments may be impacted by technological issues or errors
by pricing services or other third-party service providers.
•Volatility
Risk.
The value of certain of a Fund’s investments, including agricultural
commodity-related investments, is subject to market risk. Market risk is the
risk that the value of the investments to which a Fund is exposed will fall,
which could occur due to general market or economic conditions or other factors.
•Whipsaw
Markets Risk.
A Fund may be subject to the forces of “whipsaw” markets (as opposed to choppy
or stable markets), in which significant price movements develop but then
repeatedly reverse. “Whipsaw” describes a situation where a security’s price is
moving in one direction but then quickly pivots to move in the opposite
direction. There are two types of whipsaw patterns. The first involves an upward
movement in a price, which is then followed by a drastic downward move causing
the price to fall relative to its original position. The second type occurs when
a share price drops in value for a short time and then suddenly surges upward to
a positive gain relative to the original position. Such market conditions could
cause substantial losses to a Fund.
Temporary
Defensive Positions
To
respond to adverse market, economic, political, or other conditions, a Fund may
invest up to 100% of its assets in a temporary defensive manner by holding all
or a substantial portion of its assets in cash, cash equivalents, or other high
quality short-term investments. Temporary defensive investments generally may
include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, and other money
market instruments. A Fund also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, a Fund may be unable to achieve its
investment objective.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at www.teucrium.com. A
complete description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (the “SAI”).
MANAGEMENT
Investment
Adviser
Teucrium
Investment Advisors, LLC, located at Three Main Street, Suite 215, Burlington,
Vermont 05401, serves as the investment adviser for the Funds. The Adviser,
subject to the general supervision and oversight of the Board, provides an
investment management program for the Funds and manages the day-to-day
investment of the Funds’ assets. The Adviser also arranges for transfer agency,
custody, fund administration, distribution and all other services necessary for
the Funds to operate. The Adviser is an SEC-registered investment adviser wholly
owned by Teucrium Trading, LLC.
The
Adviser continuously reviews, supervises, and administers each Fund’s investment
program. The Board supervises the Adviser and establishes policies that the
Adviser must follow in its day-to-day management activities. For the services it
provides to the Funds, the Adviser is entitled to a unified management fee,
which is calculated daily and paid monthly, at an annual rate based on each
Fund’s average daily net assets as set forth in the table below.
|
|
|
|
| |
Fund |
Management
Fee |
Teucrium
Agricultural Strategy No K-1 ETF |
1.49%* |
Teucrium
AiLA Long-Short Agriculture Strategy ETF |
1.49% |
Teucrium
AiLA Long-Short Base Metals Strategy ETF |
1.49% |
*
The Adviser has contractually agreed to reduce the Agriculture Strategy No K-1
ETF’s management fee from 1.49% to 0.89% of its average daily net assets for
successive one-year periods, currently until at least August 31, 2024. This
agreement may be terminated only by, or with the consent of, the
Board.
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Funds,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Funds except the fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution fees and expenses paid by the Trust
under any distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act.
A
discussion of the basis for the Board’s approval of the Agriculture Strategy No
K-1 ETF’s Advisory Agreement is available in the Fund’s Semi-Annual
Report to Shareholders
for the period ended October 31, 2022. A discussion of the basis for the Board’s
approval of the Long-Short Agriculture Strategy ETF and Long-Short Base Metals
Strategy ETF’s Advisory Agreement is available in the Fund’s Annual
Report to Shareholders
for the period ended April 30, 2023.
Management
of the Subsidiaries
The
Adviser also serves as the investment adviser and has overall responsibility for
the general management and administration of each Subsidiary, pursuant to
separate investment advisory agreements between the Adviser and each Subsidiary.
Under the agreements, the Adviser provides each Subsidiary with the same type of
management, under essentially the same terms, as it provides its respective
Fund, including that the Adviser has agreed to pay all expenses of each
Subsidiary except for the management fee paid to the Adviser pursuant to its
investment management agreement with each Subsidiary, interest charges on any
borrowings, taxes, brokerage commissions and other expenses incurred in placing
orders for the purchase and sale of securities and other investment instruments,
acquired fund fees and expenses, accrued deferred tax liability, and
extraordinary expenses. The Adviser has contractually agreed to waive the
management fee it receives from each Fund in an amount equal to the management
fee paid to the Adviser by the respective Subsidiary. The agreement may be
terminated by the Adviser at the conclusion of any one-year term or by the Board
at any time, and when the Adviser ceases to serve as such. Each Subsidiary has
also entered into separate contracts for the provision of custody, transfer
agency, and accounting services with the same service providers that provide
those services to the Funds.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the
day-to-day management of each Fund’s portfolio.
Mr.
Kahler joined Teucrium Trading, LLC, the parent company of the Adviser, in
November 2011. He is responsible for overseeing all trading and investment
decisions for the Teucrium Funds. From April 2006 until November 2011, Mr.
Kahler worked for Cargill Inc., an international producer and marketer of food,
agricultural, financial and industrial products and services, in the Energy
Division as Senior Petroleum Trader. Mr. Kahler graduated from the University of
Minnesota with a Bachelors of Agricultural Business Administration.
Mr.
Harris joined Teucrium Trading, LLC, the parent company of the Adviser, in April
2011. He has primary responsibilities for the Trade Operations for the Teucrium
Funds. Prior to 2011, Mr. Harris was an Account Executive with Emergent
Social Media Team at Weber Shandwick, a global public relations firm. He
graduated cum laude with a B.A. in Business Management.
The
SAI provides additional information about the Portfolio Managers’ compensation
structure, other accounts managed by the Portfolio Managers and the Portfolio
Managers’ ownership of Shares.
Other
Service Providers
Foreside
Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC
(doing business as ACA Group) (the “Distributor”), serves as the principal
underwriter and distributor of each Fund’s Shares. The Distributor’s principal
address is Three Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor
will not distribute shares in less than whole Creation Units, and it does not
maintain a secondary market in the Shares. The Distributor is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by a Fund and is not affiliated with the Adviser or any of its
affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator, transfer agent and index receipt agent for the
Funds.
U.S.
Bank National Association, located at 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Funds.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Funds’ independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Funds.
HOW
TO BUY AND SELL SHARES
Each
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from a Fund, and only APs may tender their Shares for redemption
directly to a Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Funds’
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (the “DTC”) or its nominee is the record owner of
all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly from the Funds, are an essential part of the ETF process and
help keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and lead to the realization of capital gains. The Funds’ fair valuation of their
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and their ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Funds in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions.
Determination
of Net Asset Value
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV for a Fund is calculated by dividing the
applicable Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. If such
information is not available for an investment held by a Fund or is determined
to be unreliable, the investment will be valued by the Adviser at fair value
pursuant to procedures established by the Adviser and approved by the Board (as
described below).
Applicable
federal tax requirements generally limit the degree to which a Fund may invest
in its respective Subsidiary to an amount not exceeding 25% of its total assets.
A Subsidiary prices its portfolio investments pursuant to the same pricing and
valuation methodologies and procedures employed for its respective Fund. A
Subsidiary offers to redeem all or a portion of its shares at the current NAV
per share every day its respective Fund is open for business. The value of
shares of a Subsidiary will fluctuate with the value of such Subsidiary’s
portfolio investments.
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
investments whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) an investment
has been de-listed or has had its trading halted or suspended; (ii) an
investment’s primary pricing source is unable or unwilling to provide a price;
(iii) an investment’s primary trading market is closed during regular market
hours; or (iv) an investment’s value is materially affected by events occurring
after the close of the investment’s primary trading market. Generally, when fair
valuing an investment held by a Fund, the Adviser will take into account all
reasonably available information that may be relevant to a particular valuation
including, but not limited to, fundamental analytical data regarding the issuer,
information relating to the issuer’s business, recent trades or offers of the
investment, general and/or specific market conditions and the specific facts
giving rise to the need to fair value the investment. Fair value determinations
are made in good faith and in accordance with the fair value methodologies
established by the Adviser. Due to the subjective and variable nature of
determining the fair value of a security or other investment, there can be no
assurance that the Adviser’s determined fair value will match or closely
correlate to any market quotation that subsequently becomes available or the
price quoted or published by other sources. In addition, a Fund may not be able
to obtain the fair value assigned to an investment if the Fund were to sell such
investment at or near the time its fair value is determined.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act and the rules thereunder limit investments by
registered investment companies in the securities of other investment companies.
Registered investment companies are permitted to invest in a Fund beyond the
limits set forth in section 12(d)(1), subject to certain terms and conditions,
including that such investment companies enter into an agreement with such
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
Each
Fund expects to pay out dividends in cash, if any, and distribute any net
realized capital gains to its shareholders at least annually. Each Fund will
declare and pay capital gain distributions in cash, if any. Distributions in
cash may be reinvested automatically in additional whole Shares only if the
broker through whom you purchased Shares makes such option available. Your
broker is responsible for distributing the income and capital gain distributions
to you.
Taxes
The
following discussion is a summary of certain important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund intends to qualify each year for treatment as a RIC. If it meets certain
minimum distribution requirements, a RIC is not subject to tax at the fund level
on income and gains from investments that are timely distributed to
shareholders. However, a Fund’s failure to qualify as a RIC or to meet minimum
distribution requirements would result (if certain relief provisions were not
available) in fund-level taxation and, consequently, a reduction in income
available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when a Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for
non-
corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that a Fund receives in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. Corporate shareholders may be entitled
to a dividends received deduction for the portion of dividends they receive from
a Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations. For such dividends to be taxed as
qualified dividend income to a non-corporate shareholder, a Fund must satisfy
certain holding period requirements with respect to the underlying stock and the
non-corporate shareholder must satisfy holding period requirements with respect
to his or her ownership of such Fund’s Shares. Holding periods may be suspended
for these purposes for stock that is hedged. Each Fund’s investment strategy may
significantly limit its ability to distribute dividends eligible to be treated
as qualified dividend income or entitled to the dividends received
deduction.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. A Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
a Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
A
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding. Backup
withholding is not an additional tax and any amounts withheld may be credited
against the shareholder’s ultimate U.S. tax liability.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale or exchange of Shares generally is treated as a long-term
capital gain or loss if Shares have been held for more than one year and as a
short-term capital gain or loss if Shares have been held for one year or less.
However, any capital loss on a sale of Shares held for six months or less is
treated as long-term capital loss to the extent of Capital Gain Dividends paid
with respect to such Shares. Any loss realized on a sale will be disallowed to
the extent Shares are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be
limited.
The
cost basis of Shares acquired by purchase will generally be based on the amount
paid for the Shares and then may be subsequently adjusted for other applicable
transactions as required by the Code. The difference between the selling price
and the cost basis of Shares generally determines the amount of the capital gain
or loss realized on the sale or exchange of Shares. Contact the broker through
whom you purchased your Shares to obtain information with respect to the
available cost basis reporting methods and elections for your
account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at
the
time of the exchange and the exchanging AP’s aggregate basis in the securities
delivered plus the amount of any cash paid for the Creation Units. An AP who
exchanges Creation Units for securities will generally recognize a gain or loss
equal to the difference between the exchanging AP’s basis in the Creation Units
and the aggregate U.S. dollar market value of the securities received, plus any
cash received for such Creation Units. The Internal Revenue Service may assert,
however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. APs exchanging
securities should consult their own tax advisor with respect to whether the wash
sales rule applies and when a loss might be deductible.
A
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of the Subsidiaries
There
is, at present, no direct taxation in the Cayman Islands and interest, dividends
and gains payable to a Subsidiary will be received free of all Cayman Islands
taxes. Each Subsidiary is registered as an “exempted company” pursuant to the
Companies Law (as amended). Each Subsidiary expects to obtain an undertaking
from the Governor in Cabinet of the Cayman Islands to the effect that, for a
period of twenty years from the date of the undertaking, no law that thereafter
is enacted in the Cayman Islands imposing any tax or duty to be levied on
profits, income or on gains or appreciation, or any tax in the nature of estate
duty or inheritance tax, will apply to any property comprised in or any income
arising under such Subsidiary, or to the shareholders thereof, in respect of any
such property or income.
Investments
in Complex Securities
A
Fund may gain most of its exposure to the commodities markets through its
investment in its respective Subsidiary, which invests directly in
commodity-linked derivative instruments. A Fund’s investment in its respective
Subsidiary is expected to provide such Fund with exposure to the commodities
markets within the limitations of the federal tax requirements of Subchapter M
of the Code for qualification as a RIC. The “Subpart F” income (defined in
Section 951 of the Code to include passive income, including from
commodity-linked derivatives) of a Fund attributable to its investment in its
respective Subsidiary is “qualifying income” to such Fund to the extent that
such income is derived with respect to such Fund’s business of investing in
stock, securities or currencies. A Fund expects its “Subpart F” income
attributable to its investment in its respective Subsidiary to be derived with
respect to such Fund’s business of investing in stock, securities or currencies
and accordingly expects its “Subpart F” income attributable to its investment in
its respective Subsidiary to be treated as “qualifying income.” The Adviser will
carefully monitor a Fund’s investments in its respective Subsidiary to ensure
that no more than 25% of such Fund’s assets are invested in its respective
Subsidiary.
Certain
of a Fund’s investments, such as investments in commodity-linked derivatives,
when made directly, may not produce qualifying income to such Fund. To the
extent a Fund invests in commodity-linked derivatives, such Fund will seek to
restrict its income from such instruments that do not generate qualifying income
to a maximum of 10% of its gross income (when combined with its other
investments that produce non-qualifying income).
If
a Fund fails to qualify as a RIC and to avail itself of certain relief
provisions, it would be subject to tax at the regular corporate rate without any
deduction for distributions to shareholders, and its distributions would
generally be taxable as dividends. Please see the SAI for a more detailed
discussion, including the availability of certain relief provisions for certain
failures by a Fund to qualify as a RIC.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Taxes
The
Funds invest in foreign securities. Interest and other income received by a Fund
with respect to foreign securities may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If as of the close of a
taxable year more than 50% of the value of a Fund’s assets consists of certain
foreign stock or securities, each such Fund will be eligible to elect to “pass
through” to investors the amount of foreign income and similar taxes (including
withholding taxes) paid by such Fund during that taxable year. This means that
investors would be considered to have received as additional income their
respective shares of such foreign taxes, but may be entitled to either a
corresponding tax deduction in calculating taxable income, or, subject to
certain limitations, a credit in calculating federal income tax. If a Fund does
not so elect, each such Fund will be entitled to claim a deduction for certain
foreign taxes incurred by such Fund. A Fund (or a financial
intermediary,
such as a broker, through which a shareholder owns Shares) will notify you if it
makes such an election and provide you with the information necessary to reflect
foreign taxes paid on your income tax return.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often each Fund’s Shares traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV is available on the Funds’ website at
www.teucrium.com.
ADDITIONAL
NOTICES
The
Shares are not sponsored, endorsed, or promoted by the Exchange. The Exchange is
not responsible for, nor has it participated in the determination of, the
timing, prices, or quantities of the Shares to be issued, nor in the
determination or calculation of the equation by which Shares are redeemable. The
Exchange has no obligation or liability to owners of the Fund’s Shares in
connection with the administration, marketing, or trading of the
Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Funds make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in a Fund particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights table below shows the financial performance information for
each Fund’s five most recent fiscal years (or the life of a Fund, if shorter).
Certain information reflects financial results for a single share of a Fund. The
total returns in the table represent the rate that you would have earned or lost
on an investment in a Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of the Funds, whose report, along with each
Fund’s financial statements, is included in the Funds’ Annual
Report,
which is available upon request.
Teucrium
Agricultural Strategy No K-1 ETF
Consolidated
Financial Highlights
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
|
|
| |
|
|
|
Period
Ended April 30, 2023(1) |
|
Net
Asset Value, Beginning of Period
|
|
| $ |
40.00 |
| |
|
|
|
| |
Income
(Loss) from investment operations: |
|
|
| |
Net
investment income (loss)(2) |
|
| 0.85 |
| |
Net
realized and unrealized gain (loss) |
|
| (5.79) |
|
(7) |
Total
from investment operations |
|
| (4.94) |
| |
|
|
|
| |
Less
distributions paid: |
|
|
| |
From
net investment income |
|
| (0.26) |
| |
Total
distributions paid |
|
| (0.26) |
| |
|
|
|
| |
Net
Asset Value, End of Period
|
|
| $ |
34.80 |
| |
|
|
|
| |
Total
return, at NAV(3)(5) |
|
| -12.37 |
% |
|
Total
return, at Market(4)(5) |
|
| -12.40 |
% |
|
|
|
|
| |
Supplemental
Data and Ratios: |
|
|
| |
Net
assets, end of period (000’s) |
|
| $ |
86,118 |
| |
|
|
|
| |
Ratio
of expenses to average net assets before waivers(6)(8) |
|
| 1.58 |
% |
|
Ratio
of expenses to average net assets after waivers(6)(8) |
|
| 0.94 |
% |
|
|
|
|
| |
Ratio
of net investment income (loss) to average net assets after
waivers(6)(8) |
|
| 2.56 |
% |
|
Portfolio
turnover rate(5) |
|
| 0 |
% |
|
(1)
The Fund commenced operations on May 16, 2022.
(2)
Per share net investment income (loss) was calculated using average shares
outstanding.
(3)
Net asset value total return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, if any, and
redemption on the last day of the period at net asset value. This percentage is
not an indication of the performance of a shareholder’s investment in the Fund
based on market value due to the differences between the market price of the
shares and the net asset value per share of the Fund.
(4)
Market value total return is calculated assuming an initial investment made at
market value at the beginning of the period, reinvestment of all dividends and
distributions at market value during the period, if any, and redemption on the
last day of the period at market value. Market value is determined by the
composite closing price. Composite closing security price is defined as the last
reported sale price on the NYSE Arca. The composite closing price is the last
reported sale, regardless of volume, and not an average price, and may have
occurred on a date prior to the close of the reporting period. Market value may
be greater or less than net asset value, depending on the Fund’s closing price
on the NYSE Arca.
(5)
Not annualized for periods less than one year.
(6)
Annualized for periods less than one year.
(7)
Realized and unrealized gains and losses per share in this caption are balancing
amounts necessary to reconcile the change in net asset value per share for the
period, and may not reconcile with the aggregate gains and losses in the
Consolidated Statement of Operations due to share transactions for the
period.
(8)
Expenses waived or reimbursed reflect reductions to total expenses, as discussed
in the notes to the financial statements. These amounts would increase the net
investment loss ratio or decrease the net investment income ratio, as
applicable, had such reductions not occurred.
Teucrium
AiLA Long-Short Agriculture Strategy ETF
Consolidated
Financial Highlights
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
|
|
| |
|
|
|
Period
Ended April 30, 2023(1) |
|
Net
Asset Value, Beginning of Period
|
|
| $ |
25.00 |
| |
|
|
|
| |
Income
(Loss) from investment operations: |
|
|
| |
Net
investment income (loss)(2) |
|
| 0.25 |
| |
Net
realized and unrealized gain (loss) |
|
| (3.22) |
| |
Total
from investment operations |
|
| (2.97) |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Net
Asset Value, End of Period
|
|
| $ |
22.03 |
| |
|
|
|
| |
Total
return, at NAV(3)(5) |
|
| -11.88 |
% |
|
Total
return, at Market(4)(5) |
|
| -11.98 |
% |
|
|
|
|
| |
Supplemental
Data and Ratios: |
|
|
| |
Net
assets, end of period (000’s) |
|
| $ |
6,609 |
| |
|
|
|
| |
Ratio
of expenses to average net assets before waivers(6)(7) |
|
| 1.55 |
% |
|
Ratio
of expenses to average net assets after waivers(6)(7) |
|
| 1.49 |
% |
|
|
|
|
| |
Ratio
of net investment income (loss) to average net assets after
waivers(6)(7) |
|
| 2.83 |
% |
|
Portfolio
turnover rate(5) |
|
| 0 |
% |
|
(1)
The Fund commenced operations on December 19, 2022.
(2)
Per share net investment income (loss) was calculated using average shares
outstanding.
(3)
Net asset value total return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, if any, and
redemption on the last day of the period at net asset value. This percentage is
not an indication of the performance of a shareholder’s investment in the Fund
based on market value due to the differences between the market price of the
shares and the net asset value per share of the Fund.
(4)
Market value total return is calculated assuming an initial investment made at
market value at the beginning of the period, reinvestment of all dividends and
distributions at market value during the period, if any, and redemption on the
last day of the period at market value. Market value is determined by the
composite closing price. Composite closing security price is defined as the last
reported sale price on the NYSE Arca. The composite closing price is the last
reported sale, regardless of volume, and not an average price, and may have
occurred on a date prior to the close of the reporting period. Market value may
be greater or less than net asset value, depending on the Fund’s closing price
on the NYSE Arca.
(5)
Not annualized for periods less than one year.
(6)
Annualized for periods less than one year.
(7)
Expenses waived or reimbursed reflect reductions to total expenses, as discussed
in the notes to the financial statements. These amounts would increase the net
investment loss ratio or decrease the net investment income ratio, as
applicable, had such reductions not occurred.
Teucrium
AiLA Long-Short Base Metals Strategy ETF
Consolidated
Financial Highlights
For
a Share Outstanding Throughout the Period
|
|
|
|
|
|
|
|
|
| |
|
|
|
Period
Ended April 30, 2023(1) |
|
Net
Asset Value, Beginning of Period
|
|
| $ |
25.00 |
| |
|
|
|
| |
Income
(Loss) from investment operations: |
|
|
| |
Net
investment income (loss)(2) |
|
| 0.06 |
| |
Net
realized and unrealized gain (loss) |
|
| 0.30 |
| |
Total
from investment operations |
|
| 0.36 |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Net
Asset Value, End of Period
|
|
| $ |
25.36 |
| |
|
|
|
| |
Total
return, at NAV(3)(5) |
|
| 1.45 |
% |
|
Total
return, at Market(4)(5) |
|
| 1.50 |
% |
|
|
|
|
| |
Supplemental
Data and Ratios: |
|
|
| |
Net
assets, end of period (000’s) |
|
| $ |
5,073 |
| |
|
|
|
| |
Ratio
of expenses to average net assets before waivers(6)(7) |
|
| 1.55 |
% |
|
Ratio
of expenses to average net assets after waivers(6)(7) |
|
| 1.49 |
% |
|
|
|
|
| |
Ratio
of net investment income (loss) to average net assets after
waivers(6)(7) |
|
| 3.31 |
% |
|
Portfolio
turnover rate(5) |
|
| 0 |
% |
|
(1)
The Fund commenced operations on April 4, 2023.
(2)
Per share net investment income (loss) was calculated using average shares
outstanding.
(3)
Net asset value total return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, if any, and
redemption on the last day of the period at net asset value. This percentage is
not an indication of the performance of a shareholder’s investment in the Fund
based on market value due to the differences between the market price of the
shares and the net asset value per share of the Fund.
(4)
Market value total return is calculated assuming an initial investment made at
market value at the beginning of the period, reinvestment of all dividends and
distributions at market value during the period, if any, and redemption on the
last day of the period at market value. Market value is determined by the
composite closing price. Composite closing security price is defined as the last
reported sale price on the NYSE Arca. The composite closing price is the last
reported sale, regardless of volume, and not an average price, and may have
occurred on a date prior to the close of the reporting period. Market value may
be greater or less than net asset value, depending on the Fund’s closing price
on the NYSE Arca.
(5)
Not annualized for periods less than one year.
(6)
Annualized for periods less than one year.
(7)
Expenses waived or reimbursed reflect reductions to total expenses, as discussed
in the notes to the financial statements. These amounts would increase the net
investment loss ratio or decrease the net investment income ratio, as
applicable, had such reductions not occurred.
Teucrium
Agricultural Strategy No K-1 ETF
Teucrium
AiLA Long-Short Agriculture Strategy ETF
Teucrium
AiLA Long-Short Base Metals Strategy ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Teucrium
Investment Advisors, LLC
Three
Main Street, Suite 215
Burlington,
Vermont 05401 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Transfer
Agent, Index Receipt Agent, and Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank, N.A.
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of each Fund and
certain other additional information. The SAI is on file with the SEC and is
incorporated herein by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports:
Additional information about each Fund’s investments is available in the Funds’
annual and semi-annual reports to shareholders. In the Annual
Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Fund’s performance.
You
can obtain free copies of these documents, request other information, or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or calling
1-800-617-0004.
Shareholder
reports and other information about the Funds are also available:
• Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
• Free
of charge from the Funds’ website at www.teucrium.com; or
(SEC
Investment Company Act File No. 811-23226)