Teucrium Sugar Fund
Teucrium Sugar Fund
(the “Fund” or “Us” or “We” or “CANE”) is designed to provide investors with a
cost-effective means to gain price exposure to the sugar market for future
delivery. The Fund issues shares (“Shares”) that trade on the NYSE Arca stock
exchange (“NYSE Arca”) under the symbol “CANE” and that can be purchased and
sold by investors through their broker-dealer. The Fund’s investment objective
is for changes in the Shares’ NAV to reflect the daily changes of the price of
sugar for future delivery, as measured by the Fund’s Benchmark (as defined
below). Under normal market conditions, the Fund invests in sugar futures
contracts and cash and cash equivalents. The sponsor to the Fund is Teucrium
Trading, LLC (the “Sponsor”), which receives a management fee. The principal
office address and telephone number of both the Fund and the Sponsor is Three
Main Street, Suite 215, Burlington, Vermont 05401 and (802) 540-0019.
While most investors
will purchase and sell Shares through their broker-dealer, the Fund continuously
offers creation baskets consisting of 25,000 Shares (“Creation Baskets”) at
their net asset value (“NAV”) to certain parties who have entered into an
agreement with the Sponsor (“Authorized Purchasers”). Authorized Purchasers, in
turn, may sell such Shares, which are listed on NYSE Arca, to the public at
per-Share offering prices that are expected to reflect, among other factors, the
trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time
the Authorized Purchaser purchased the Creation Baskets and the NAV at the time
of the offer of the Shares to the public, the supply of and demand for Shares at
the time of sale, and the liquidity of the markets for sugar futures contracts
in which the Fund invests. A list of the Fund’s Authorized Purchasers as of the
date of this Prospectus can be found under “Plan of Distribution – Distributor and Authorized Purchasers,” on
page 45. The prices of Shares offered by Authorized Purchasers are expected to
fall between the Fund’s NAV and the trading price of the Shares on the NYSE Arca
at the time of sale. The Fund’s Shares may trade in the secondary market on the
NYSE Arca at prices that are lower or higher than their NAV per
Share.
This is a best
efforts offering; the distributor, Foreside Fund Services, LLC (the
“Distributor”), is not required to sell any specific number or dollar amount of
Shares but will use its best efforts to sell Shares. An Authorized
Purchaser is under no obligation to purchase Shares. This is intended to
be a continuous offering that will terminate on April 7, 2025 unless suspended
or terminated at any earlier time for certain reasons specified in this
prospectus or unless extended as permitted under the rules of the Securities Act
of 1933. See “Prospectus Summary – The Shares” and “Creation and
Redemption of Shares – Rejection of Purchase Orders” below.
Investing in the Fund involves
significant risks. See “What Are the Risk Factors Involved with an
Investment in the Fund?” beginning on page 9. The Fund is not a mutual
fund registered under the Investment Company Act of 1940 and is not subject to
regulation under such Act.
NEITHER THE SECURITIES AND EXCHANGE
COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE SECURITIES OFFERED IN THIS PROSPECTUS OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Teucrium Sugar Fund
is a commodity pool and Teucrium Trading, LLC is a commodity pool operator
subject to regulation by the Commodity Futures Trading Commission and the
National Futures Association under the Commodity Exchange Act
(“CEA”).
THE COMMODITY FUTURES TRADING
COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS
THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE
DOCUMENT.
This prospectus is in two parts: a
disclosure document and a statement of additional information. These parts are
bound together, and both contain important information.
Thank you for
your interest in the Teucrium Sugar Fund.
The date of this
prospectus is April 7, 2022.
COMMODITY FUTURES TRADING
COMMISSION
RISK DISCLOSURE
STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER
YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY
POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST
TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH
TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION,
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE
SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE
FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE
CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF
THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 40 AND A STATEMENT
OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT
OF YOUR INITIAL INVESTMENT, AT PAGE 6.
THIS BRIEF STATEMENT CANNOT DISCLOSE
ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS
COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS
COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT,
INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT,
AT PAGE 4.
YOU SHOULD ALSO BE AWARE THAT THIS
COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS.
TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS
FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH
OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS.
FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE
ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED
STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE
EFFECTED.
SWAPS TRANSACTIONS, LIKE OTHER
FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC
RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE
TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY
CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL
RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS
IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF
REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR
LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF
AN UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS
ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS.
THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY,
TERMINATE, OR OFFSET THE POOL'S OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS
ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION
DATE.
TEUCRIUM SUGAR
FUND
TABLE OF CONTENTS
|
|
|
PAGE |
PART ONE
DISCLOSURE DOCUMENT |
1 |
PROSPECTUS SUMMARY |
3 |
Principal Offices of the Fund
and the Sponsor |
3 |
Breakeven
Point |
3 |
Operation of the
Fund |
3 |
Principal Investment Risks of
an Investment in the Fund |
4 |
Determination
of NAV |
5 |
Defined
Terms |
5 |
Breakeven
Analysis |
6 |
The
Offering |
7 |
WHAT ARE THE RISK FACTORS
INVOLVED WITH AN INVESTMENT IN THE FUND? |
9 |
Risks Associated with Investing
Directly or Indirectly in Sugar |
9 |
The Funds Operating
Risks |
13 |
Risk of Leverage and
Volatility |
22 |
Over the counter Contract
Risk |
22 |
Risk of Trading in
International Markets |
23 |
Tax Risk |
24 |
THE
OFFERING |
26 |
The Fund in
General |
26 |
The
Sponsor |
26 |
Prior
Performance of the Fund |
30 |
The
Trustee |
32 |
Operation of the
Fund |
32 |
Futures
Contracts |
35 |
Over the counter
Derivatives |
37 |
The Funds Investments in Cash
and Cash Equivalents |
37 |
Other Trading Policies of the
Fund |
38 |
Benchmark
Performance |
39 |
The Sugar
Market |
39 |
The Funds Service
Providers |
40 |
Form of
Shares |
44 |
Transfer of
Shares |
44 |
Inter-Series Limitation on
Liability |
45 |
Plan of
Distribution |
45 |
Calculating
NAV |
46 |
Creation and Redemption of
Shares |
47 |
Secondary Market
Transactions |
50 |
Use of
Proceeds |
50 |
The Trust
Agreement |
51 |
The Sponsor Has Conflicts of
Interest |
53 |
Interests of Named Experts and
Counsel |
54 |
Provisions of Federal and State
Securities Laws |
54 |
Books and
Records |
54 |
Statements, Filings, and
Reports to Shareholders |
54 |
Fiscal
Year |
55 |
Governing
Law |
55 |
Security
Ownership of Principal Shareholders and Management |
55 |
Legal
Matters |
56 |
Privacy
Policy |
57 |
U.S. Federal Income Tax
Considerations |
58 |
Investment by ERISA
Accounts |
65 |
INCORPORATION BY REFERENCE OF
CERTAIN INFORMATION |
68 |
INFORMATION YOU SHOULD
KNOW |
69 |
WHERE YOU CAN FIND MORE
INFORMATION |
70 |
STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS |
71 |
APPENDIX A - Glossary of Defined
Terms |
72 |
|
|
PART TWO
STATEMENT OF ADDITIONAL INFORMATION |
74 |
This is only a summary of the
prospectus and, while it contains material information about the Fund and its
Shares, it does not contain or summarize all of the information about the Fund
and the Shares contained in this prospectus that is material and/or which may be
important to you. You should read this entire prospectus, including “What Are
the Risk Factors Involved with an Investment in the Fund?” beginning on page 9,
before making an investment decision about the Shares. In addition, this
prospectus includes a statement of additional information that follows and is
bound together with the primary disclosure document. Both the primary
disclosure document and the statement of additional information contain
important information.
Principal Offices of the Fund and the
Sponsor
The Fund is a series
of Teucrium Commodity Trust (the “Trust”). The principal offices of the Sponsor,
the Trust and the Fund are located at Three Main Street, Suite 215, Burlington,
Vermont 05401. The telephone number is (802) 540-0019.
The amount of trading
income required for the redemption value of a Share at the end of one year to
equal the selling price of the Share, assuming a selling price of $8.79 (the NAV
per Share as of February 28, 2022), is $0.10 or 1.14% of the selling
price. For more information, see “Breakeven Analysis”
below.
Operation of the
Fund
The Fund is a
commodity pool that issues Shares that may be purchased and sold on NYSE Arca.
The investment objective of the Fund is to have the daily changes in the Shares’
NAV reflect the daily changes of the price of sugar for future delivery, as
measured by a benchmark (the “Benchmark”) as described below. The Benchmark for
the Fund is the Teucrium Sugar Index (“TCANE”). Under normal market conditions,
the Fund invests in sugar futures contracts and cash and cash equivalents. The
Fund is organized as a series of the Trust, a Delaware statutory trust organized
on September 11, 2009. The Trust and the Fund operate pursuant to the Trust’s
Fifth Amended and Restated Declaration of Trust and Trust Agreement (the “Trust
Agreement”), dated April 26, 2019. The Trust Agreement may be found on the SEC’s
EDGAR filing database at https://www.sec.gov/Archives/edgar/data/1471824/000165495419004852/ex31.htm.
The Fund was formed and is managed and controlled by the Sponsor, a limited
liability company formed in Delaware on July 28, 2009. The Sponsor is registered
as a commodity pool operator (“CPO”) and a commodity trading adviser (“CTA”)
with the Commodity Futures Trading Commission (“CFTC”) and is a member of the
National Futures Association (“NFA”).
The investment objective of the Fund is to have the daily
changes in the NAV of the Fund’s Shares reflect the daily changes in the sugar
market for future delivery as measured by the Benchmark. The Benchmark is a
weighted average of the closing settlement prices for three futures contracts
for No. 11 Sugar (“Sugar Futures Contracts”) that are traded on the ICE Futures
US (“ICE Futures”). The three Sugar No. 11 Futures Contracts that at any
given time make up the Benchmark are referred to herein as the “Benchmark
Component Futures Contracts.”
The Fund seeks to
achieve its investment objective by investing in Benchmark Component Futures
Contracts. Under normal market conditions, the Fund expects that 100% of the
Fund’s assets will be invested in Benchmark Component Futures Contracts and in
cash and cash equivalents. The Fund reserves the right to invest in swap
agreements, forward contracts and options, a brief description of which may be
found in “Appendix A – “Glossary of Defined Terms.”
Consistent with
applicable provisions of the Trust Agreement and Delaware law, the Fund has
broad authority to make changes to the Fund’s operations. Consistent with this
authority, the Fund, in its sole discretion and without shareholder approval or
advance notice, may change its investment objective, Benchmark, or investment
strategies. The Fund has no current intention to make any such change, and any
change is subject to applicable regulatory requirements, including, but not
limited to, any requirement to amend applicable listing rules of the
NYSE.
The reasons for and
circumstances that may trigger any such changes may vary widely and cannot be
predicted. However, by way of example, the Fund may change the term structure or
underlying components of the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of sugar for future delivery if, due to market
conditions, a potential or actual imposition of position limits by the CFTC or
futures exchange rules, or the imposition of risk mitigation measures by a
futures commission merchant restricts the ability of the Fund to invest in the
current Benchmark Futures Contracts. The Fund would file a current report on
Form 8-K and a prospectus supplement to describe any such change and the
effective date of the change. Shareholders may modify their holdings of the
Fund’s shares in response to any change by purchasing or selling Fund shares
through their broker-dealer.
The Fund invests in
Benchmark Component Futures Contracts to the fullest extent possible without
being leveraged or unable to satisfy its expected current or potential margin or
collateral obligations with respect to its investments in Benchmark Component
Futures Contracts. After fulfilling such margin and collateral
requirements, the Fund invests the remainder of its proceeds from the sale of
baskets in short term financial instruments of the type commonly known as “cash
and cash equivalents.” Cash and cash equivalents may include short-term Treasury
bills, money market funds, demand deposit accounts, and commercial
paper.
The Sponsor employs a
“neutral” investment strategy intended to track the changes in the Benchmark
regardless of whether the Benchmark goes up or goes down. The Fund’s “neutral”
investment strategy is designed to permit investors generally to purchase and
sell the Fund’s Shares for the purpose of investing indirectly in the sugar
market in a cost-effective manner. The Sponsor endeavors to place the Fund’s
trades in Benchmark Component Futures Contracts and otherwise manage the Fund’s
investments so that the Fund’s average daily tracking error against the
Benchmark will be less than 10 percent over any period of 30 trading days.
However, the Fund incurs certain expenses in connection with its operations,
which cause imperfect correlation between changes in the Fund’s NAV and changes
in the Benchmark because the Benchmark does not reflect expenses or income. As a
result, investors may incur a partial or complete loss of their investment even
when the performance of the Benchmark is positive.
Investors may
purchase and sell Shares through their broker-dealers. However, the Fund creates
and redeems Shares only in blocks called “Creation Baskets” and “Redemption
Baskets,” respectively, and only Authorized Purchasers may purchase or redeem
Creation Baskets or Redemption Baskets. An Authorized Purchaser is under no
obligation to create or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public Shares of any baskets it does create. Baskets
are generally created when there is a demand for Shares, including, but not
limited to, when the market price per share is at (or perceived to be at) a
premium to the NAV per Share. Similarly, baskets are generally redeemed when the
market price per share is at (or perceived to be at) a discount to the NAV per
Share. Retail investors seeking to purchase or sell Shares on any day are
expected to effect such transactions in the secondary market, on the NYSE Arca,
at the market price per share, rather than in connection with the creation or
redemption of baskets.
The Sponsor believes
that by investing in Benchmark Component Futures Contracts, the Fund’s net asset
value (“NAV”) will closely track the Benchmark. The Sponsor also believes that
because of market arbitrage opportunities, the market price at which investors
will purchase and sell Shares through their broker-dealer will closely track the
Fund’s NAV. The Sponsor believes that the net effect of these relationships is
that the Fund’s market price on the NYSE Arca at which investors purchase and
sell Shares will closely track the sugar market for future delivery, as measured
by the Benchmark.
The Sponsor maintains
a public website on behalf of the Fund, www.teucrium.com, which contains
information about the Trust, the Fund, and the Shares.
Note to Secondary Market Investors: Except when aggregated in Redemption Baskets, Shares
are not individually redeemable. Shares can be directly purchased from the Fund
only in Creation Baskets, and only by Authorized Purchasers. Each Creation
Basket consists of 25,000 Shares and therefore requires a significant financial
commitment to purchase. Accordingly, investors who do not have such resources or
who are not Authorized Purchasers should be aware that some of the information
contained in this prospectus, including information about purchases and
redemptions of Shares directly with the Fund, is only relevant to Authorized
Purchasers. There is no guarantee that Shares will trade at prices that are at
or near the per-Share NAV. When buying or selling Shares on the secondary market
through a broker, most investors incur customary brokerage commissions and
charges.
As
noted, the Fund invests in Sugar Futures Contracts, including those traded on
the ICE Futures. The Fund expressly disclaims any association with the ICE
Futures or endorsement of the Fund by such exchange and acknowledges that “ICE
Futures” and “ICE Futures US” are registered trademarks of such
exchanges.
Principal Investment Risks of an
Investment in the Fund
An investment in the
Fund involves a degree of risk and you could incur a partial or total loss of
your investment in the Fund. Some of the risks you may face are summarized
below. A more extensive discussion of these risks appears beginning on page
9.
●
Unlike mutual funds,
commodity pools and other investment pools that manage their investments so as
to realize income and gains for distribution to their investors, the Fund
generally does not distribute dividends to holders of Fund Shares
(“Shareholders”). You should not invest in the Fund if you will need cash
distributions from the Fund to pay taxes on your share of income and gains of
the Fund, if any, or for other purposes.
●
Investors may choose
to use the Fund as a means of investing indirectly in sugar, and there are risks
involved in this investment strategy. The risks and hazards that are inherent in
sugar production may cause the price of sugar to fluctuate
widely.
●
Only an Authorized
Purchaser may engage in creation or redemption transactions with the Fund. The
Fund has a limited number of institutions that act as Authorized Purchasers. To
the extent that these institutions exit the business or are unable or unwilling
to proceed with creation and/or redemption orders with respect to the Fund, Fund
Shares may, particularly in times of market stress, trade at a discount to the
NAV per Share and possibly face trading halts and/or
delisting.
●
The price
relationship between the near month Sugar Futures Contract to expire and the
Benchmark Component Futures Contracts will vary and may impact both the Fund’s
total return over time and the degree to which such total return tracks the
total return of sugar price indices. In some cases, the near month contract’s
price is lower than later expiring contracts’ prices (a situation known as
“contango” in the futures markets). In the event of a prolonged period of
contango, and absent the impact of rising or falling sugar prices, this could
have a significant negative impact on the Fund’s NAV and total return, and you
could incur a partial or total loss of your investment in the
Fund.
●
You will have no
rights to participate in the management of the Fund and will have to rely on the
duties and judgment of the Sponsor to manage the
Fund.
●
The Fund pays fees
and expenses that are incurred regardless of whether it is
profitable.
●
The Fund seeks to
have the changes in its Shares’ NAV track changes in the Benchmark, rather than
profit from speculative trading of Sugar Futures Contracts or from the use of
leverage (i.e., the Sponsor manages the Fund so that the aggregate value of the
Fund’s exposure to losses from its investments in Benchmark Component Futures
Contracts at any time will not exceed the value of the Fund’s assets). There is
no assurance that the Sponsor will successfully implement this investment
strategy, and if the Fund becomes leveraged, you could lose all or substantially
all of your investment if the Fund’s trading positions suddenly turn
unprofitable.
●
In addition to
Benchmark Component Futures Contracts, the Fund reserves the right to invest in
other sugar interests. To the extent that these other sugar interests are
contracts individually negotiated between their parties, they may not be as
liquid as Benchmark Component Futures Contracts and will expose the Fund to
credit risk that its counterparty may not be able to satisfy its obligations to
the Fund.
●
The regulation of
commodity interest transactions in the United States has historically been
comprehensive and is a rapidly changing area of law and is subject to ongoing
modification by governmental and judicial action. Future U.S. or foreign
regulatory changes may alter the nature of an investment in the Fund, or the
ability of the Fund to continue to implement its investment
strategy.
●
Failures or breaches
of the electronic systems of the Fund, the Sponsor, or third parties or other
events such as the recent COVID-19 pandemic have the ability to cause
disruptions and negatively impact the Fund’s business operations, potentially
resulting in financial losses to the Fund and its
shareholders.
●
War and other geopolitical events in eastern Europe,
including but not limited to Russia and Ukraine, may cause volatility in
commodity prices including energy and grain prices, due to the region’s
importance to these markets, potential impacts to global transportation and
shipping, and other supply chain disruptions. These events are unpredictable and
may lead to extended periods of price
volatility.
●
The Fund currently has two futures commission merchants
("FCMs") through which it buys and sells futures contracts. The recent
volatility in the sugar futures market may lead one or both of the Fund's FCMs
to impose risk mitigation procedures that could limit the Fund's investment in
sugar futures contracts beyond the accountability and position limits imposed by
futures contract exchanges as discussed herein. One of the FCMs has
imposed a financial ceiling on initial margin that could change and become more
or less restrictive on the Fund’s activities depending upon a variety of
conditions beyond the Sponsor’s control. If the Fund’s other current FCM
were to impose position limits, or if any other FCM with which the Fund
establishes a relationship in the future were to impose position limits, the
Fund's ability to meet its investment objective could be negatively
impacted. The Fund continues to monitor and manage its existing
relationships with its FCMs and will continue to seek additional relationships
with FCMs as needed.
●
The occurrence of a severe weather event, natural
disaster, terrorist attack, geopolitical events, outbreak or public health
emergency as declared by the World Health Organization, the continuation or
expansion of war or other hostilities, or a prolonged government shutdown may
have significant adverse effects on the Fund and its investments and alter
current assumptions and expectations. For example, in late February 2022, Russia
invaded Ukraine, significantly amplifying already existing geopolitical tensions
among Russia and other countries in the region and in the west. The responses of
countries and political bodies to Russia’s actions, the larger overarching
tensions, and Ukraine’s military response and the potential for wider conflict
may increase financial market volatility generally, have severe adverse effects
on regional and global economic markets, and cause volatility in the price of
agricultural products, including agricultural futures, and the share price of
the Fund.
●
The price per pound of sugar in the United States is
primarily a function of both U.S. and global production and demand as well as
expansive protectionist policies implemented by the US Government. Long term
impacts from sanctions, shipping disruptions, collateral war damage, and a
potential expansion of the conflict between Russia and Ukraine could further
disrupt the availability of agricultural products and supplies. Russian
production of sugar comes primarily from sugar beets, accounting for
approximately three percent or less of total global sugar production. Ukraine’s
sugar production is small and relatively inconsequential to global sugar
markets. Currently, the conflict has dramatically reduced exports of Russian
sugar. Now at question is the ability of farmers in both countries to plant this
season’s sugar beet crop in 2022. Volatility, trading volumes, and prices in
global sugar markets have risen dramatically and are expected to continue
indefinitely at extreme elevated levels. Given all of the above factors, the
Sponsor has no ability to discern when current high levels of volatility will
subside.
●
To place the impacts of the geopolitical events
described above in context, the following table compares the percentage change
in sugar prices, the price of sugar futures contracts, the price of the Fund's
shares, and the increased trading volume of sugar futures in the twenty trading
days prior to the date of the Russian invasion of Ukraine (January 27, 2022 to
February 23, 2022), compared to the twenty trading days following (February 24,
2022 to March 23,
2022).
●
Recent geopolitical events have also impacted the level
of "backwardation" experienced by the Fund. As illustrated by the table, the
Russian invasion and related developments have placed upward pressure on the
price of sugar and sugar futures contracts. As a result, near to expire
contracts trade at a higher price than longer to expire contracts, a situation
referred to as “backwardation.” Putting aside the impact of the overall movement
in prices of sugar and sugar futures, the Benchmark Component Futures Contracts
(the sugar futures contracts that the Fund invests in to achieve its investment
objective) would tend to rise as they approach expiration. This backwardation
may benefit the Fund because it will sell more expensive contracts and buy less
expensive contracts on an ongoing basis. The degree of backwardation is also
shown in the following table.
●
Conversely, in the event of a sugar futures market where
near to expire contracts trade at a lower price than longer to expire contracts,
a situation referred to as “contango,” then absent the impact of the overall
movement in sugar prices the value of the Benchmark Component Futures Contracts
would tend to decline as they approach expiration. If the prices of sugar and
sugar futures were to decline, for example, because of a resolution of the
Russia-Ukraine conflict, the Fund would experience the negative impact of
contango.
DATA
POINT |
JANUARY 27,
2022 TO FEBRUARY 23, 2022 (20 TRADING DAYS BEFORE THE RUSSIAN
INVASION) |
FEBRUARY 24,
2022 TO MARCH 23, 2022 (20 TRADING DAYS AFTER THE RUSSIAN
INVASION) |
Sugar
prices |
Average SPOT Sugar Price =
$0.182305 |
Average SPOT Sugar Price =
$0.18863 |
Sugar futures
prices |
Average Futures Price Across
next 4 contracts (excluding SPOT month) = $0.178154 |
Average Futures Price Across
next 4 contracts (excluding SPOT month) =
$0.186628 |
Average volume of
futures |
Average Volume Across next 4
contracts (excluding SPOT month) = 22,770 |
Average Volume Across next 4
contracts (excluding SPOT month) = 17,887 |
Degree of backwardation / Roll
Yield |
Average Daily Roll Yield to
SPOT Across 7 Contracts Period Averaged = +5.31%
(backwardation) |
Average Daily Roll Yield to
SPOT Across 7 Contracts Period Averaged = +3.83%
(backwardation) |
Fund share
prices |
Average Price =
$8.8918 |
Average Price =
$9.3741 |
Average share
volume |
71,990 |
132,885 |
* Roll yield is a type of return in commodity futures investing that
comes from "rolling" shorter-dated contracts for longer-dated contracts.
It is driven by the
difference in the price of shorter-dated, closer to maturity commodity contracts
(in the table above the actual spot price of sugar is used) and their
longer-dated counterparts. Roll yields can either be positive or negative,
depending on whether the market is in backwardation or contango,
respectively.
●
The ability of
Authorized Participants to create or redeem shares may be suspended for several
reasons, including but not limited to the Fund voluntarily imposing such
restrictions. A suspension in the ability of
Authorized Participants would have no impact on the Fund's investment objective
– the Fund would continue to seek to track its benchmark. However, with respect
to the impact of a suspension on the price of Fund shares in the secondary
market, investors may have to pay a higher price to buy shares and receive a
lower price when they sell their shares. This "spread" may continue to widen the
longer the suspension
lasts.
For additional risks,
see “What Are the Risk Factors Involved with an Investment in the
Fund?”
Determination of
NAV
The Fund’s NAV is
determined as of the earlier of the close of the New York Stock Exchange or 4:00
p.m. (EST) on each day that the NYSE Arca is open for
trading.
For a glossary of
defined terms, see Appendix A.
Breakeven
Analysis
The breakeven
analysis set forth below is a hypothetical illustration of the approximate
dollar returns and percentage returns for the redemption value of a single share
to equal the amount invested twelve months after the investment is made. For
purposes of this breakeven analysis, an initial selling price of $8.79 per
share, which equals the NAV per share at the close of trading February 28, 2022,
is assumed. The breakeven analysis is an approximation only and assumes a
constant month-end Net Asset Value. In order for a hypothetical investment in
shares to breakeven over the next 12 months, assuming a selling price of $8.79
per share, the investment would have to generate a 1.14% or $0.10
return.
|
|
|
|
Assumed initial
selling price per share (1) |
$8.79 |
Management Fee
(1.00%) (2) |
$0.09 |
Estimated
Brokerage Commissions (3) |
$0.01 |
Other Fund Fees
and Expenses (4)
(5) |
$0.07 |
Interest and
Other Income (0.76%) (6) |
$(0.07) |
Amount of
trading income (loss) required for the redemption value at the end of one
year to equal the selling price of the share |
$0.10 |
Percentage of
initial selling price per share (7) |
1.14% |
(1) In order to show how a
hypothetical investment in shares would break even over the next 12 months, this
breakeven analysis uses an assumed initial selling price of $8.79 per share, which
is based on the NAV per share of CANE at the close of trading on February 28,
2022. Investors should note that, because CANE’S NAV changes on a daily basis,
the breakeven amount on any given day could be higher or lower than the amount
reflected here.
(2) The Fund is obligated to
pay the Sponsor a management fee at the annual rate of 1.00% of the Fund’s
average daily net assets, payable monthly. The Sponsor can elect to waive the
payment of the fee in any amount at its sole discretion, at any time and from
time to time, in order to reduce the Fund’s expenses or for any other
purpose.
(3) Reflects estimated
brokerage commissions and fees for Sugar Futures Contract purchase or sale and
reflected on a per trade basis. The estimated fee is based on the actual
brokerage commissions and trading fees paid for the year ending December 31,
2021.
(4) In connection with orders
to create or redeem baskets, Authorized Purchasers will pay a transaction fee in
the amount of $250 per order. Because these transaction fees are de minimis in
amount, are paid to the Fund’s custodian, U.S. Bank, N.A. (the “Custodian”) and
charged on a transaction-by-transaction basis (and not on a Basket by Basket
basis), and are borne by the Authorized Participants, they have not been
included in the Breakeven Table. See “Creation
and Redemption Transaction Fees,” page 49.
(5) Other Fund Fees and
Expenses are an estimate based on an allocation to the Fund of the total
estimated expenses anticipated to be incurred by the Trust on behalf of the
Fund, net of any expenses or management fee waived by the Sponsor, and include:
Professional fees (primarily legal, auditing and tax-preparation related costs);
Custodian and Administrator fees and expenses, Distribution and Marketing fees
(primarily fees paid to the Distributor, costs related to regulatory compliance
activities and other costs related to the trading activities of the Fund);
Business Permits and Licenses; General and Administrative expenses (primarily
insurance and printing), and Other Expenses. The expenses presented are based on
estimated expenses for the current fiscal year, and do not represent the maximum
amounts payable under the contracts with third-party service providers, as
discussed below in the section of this disclosure document entitled “Contractual
Fees and Compensation Arrangements with the Sponsor and Third-Party Service
Providers.” The cost of these fixed or estimated fees has been calculated
assuming that the Fund has $19.3 million in assets, which was the approximate
amount of assets as of February 28, 2022. The Sponsor can elect to pay (or waive
reimbursement for) certain fees or expenses that would generally be paid by the
Fund, although it has no contractual obligation to do so. Any election to pay or
waive reimbursement for fees and expenses that would generally be paid by the
Fund can be changed at the discretion of the Sponsor.
(6) The Fund seeks to
earn interest and other income in high credit quality, short-duration
instruments or deposits associated with the pool’s cash management strategy that
may be used to offset expenses. These investments may include, but are not
limited to, short-term Treasury Securities, demand deposits, money market funds
and investments in commercial paper. Management estimates that the blended
interest rate will be 0.76% based on the current interest rate environment and
outlook as of February 28, 2022. The actual rate may vary and not all assets of
the Fund will earn interest.
(7) This represents the
estimated approximate percentage for the redemption value of a hypothetical
initial investment in a single share to equal the amount invested twelve months
after the investment was made. The estimated approximate percentage of selling
price before waived expenses is 2.28% or $0.20 per share, based on the Fund
assets, net asset value per share and shares outstanding as of February 28,
2022. The fees waived by the Sponsor is an estimate, can be applied to any
expense related to the Fund, and may be terminated at any time at the discretion
of the Sponsor.
Offering |
|
The Fund’s
Shares are listed on the NYSE Arca and investors may purchase and sell
Shares through their broker-dealer. The Fund only offers Creation Baskets
consisting of 25,000 Shares through the Distributor to Authorized
Purchasers. Authorized Purchasers may purchase Creation Baskets
consisting of 25,000 Shares at the Fund’s NAV. |
|
|
|
Use of
Proceeds |
|
The Sponsor applies substantially all of the Fund’s
assets toward investing in Benchmark Component Futures
Contracts, cash, and cash equivalents. The
Sponsor deposits a portion of the Fund’s net assets with its FCMs or other
financial institutions to be used to meet its current or potential margin
or collateral requirements in connection with its investment in
Benchmark Component Futures Contracts. The
Fund uses only cash and cash equivalents to satisfy these requirements.
The Sponsor expects that all entities that will hold or trade the Fund’s
assets will be based in the United States and will be subject to United
States regulations. The Sponsor believes that approximately 4-6% of the
Fund’s assets will normally be committed as margin for Benchmark
Component Futures Contracts. However, from
time to time, the percentage of assets committed as margin/collateral may
be substantially more, or less, than such range. The remaining portion of
the Fund’s assets is held in cash or cash equivalents. All interest or
other income earned on these investments is retained for the Fund’s
benefit. |
Creation and
Redemption |
|
Authorized
Purchasers pay a $250 fee per order to create Creation Baskets, and a $250
fee per order for Redemption Baskets, which is paid to the
Custodian. Authorized Purchasers are not required to sell any
specific number or dollar amount of Shares. The per share price of
Shares offered in Creation Baskets is the total NAV of the Fund calculated
as of the close of the NYSE Arca on that day divided by the number of
issued and outstanding Shares. |
|
|
|
Inter-Series
Limitation on Liability |
|
While the Fund
is currently one of five separate series of the Trust, additional series
may be created in the future. The Trust has been formed and will be
operated with the goal that the Fund and any other series of the Trust
will be liable only for obligations of such series, and a series will not
be responsible for or affected by any liabilities or losses of or claims
against any other series. If any creditor or shareholder in any
particular series (such as the Fund) were to successfully assert against a
series a claim with respect to its indebtedness or Shares, the creditor or
shareholder could recover only from that particular series and its
assets. Accordingly, the debts and other obligations incurred,
contracted for or otherwise existing solely with respect to a particular
series will be enforceable only against the assets of that series, and not
against any other series or the Trust generally or any of their respective
assets. The assets of the Fund and any other series will include
only those funds and other assets that are paid to, held by or distributed
to the series on account of and for the benefit of that series, including,
without limitation, amounts delivered to the Trust for the purchase of
Shares in a series. |
|
|
|
Registration
Clearance and Settlement |
|
Individual
certificates are not issued for the Shares. Instead, Shares will be
represented by one or more global certificates, which are deposited by the
transfer agent with the Depository Trust Company (“DTC”) and registered in
the name of Cede & Co., as nominee for DTC. The global certificates
evidence all of the Shares outstanding at any time. Beneficial interests
in Shares are held through DTC’s book-entry system, which means that
Shareholders are limited to: (1) participants in DTC such as banks,
brokers, dealers and trust companies (“DTC Participants”), (2) those who
maintain, either directly or indirectly, a custodial relationship with a
DTC Participant (“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect Participants,
in each case who satisfy the requirements for transfers of Shares. DTC
Participants acting on behalf of investors holding Shares through such DTC
Participants’ accounts in DTC will follow the delivery practice applicable
to securities eligible for DTC’s Same-Day Funds Settlement System. Shares
are credited to DTC Participants’ securities accounts following
confirmation of receipt of
payment. |
Net Asset
Value |
|
The NAV is calculated by taking the current market
value of the Fund’s total assets and subtracting any liabilities and
dividing the balance by the number of Shares. Under the Fund’s current
operational procedures, U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services (“Global Fund Services”), the
Fund’s “Administrator” calculates the NAV of
the Fund’s Shares as of the earlier of 4:00 p.m. (EST) or the close of the
New York Stock Exchange each day. ICE Data Indices, LLC calculates an
approximate net asset value every 15 seconds throughout each day that the
Fund’s Shares are traded on the NYSE Arca for as long as the ICE Futures’
main pricing mechanism is open. |
|
Fund
Expenses |
|
The Fund pays
the Sponsor a management fee at an annual rate of 1.00% of the Fund’s
average daily net assets. The Fund is also responsible for
other ongoing fees, costs and expenses of its operations, including (i)
brokerage and other fees and commissions incurred in connection with the
trading activities of the Fund; (ii) expenses incurred in connection with
registering additional Shares of the Fund or offering Shares of the Fund;
(iii) the routine expenses associated with the preparation and, if
required, the printing and mailing of monthly, quarterly, annual and other
reports required by applicable U.S. federal and state regulatory
authorities, Trust meetings and preparing, printing and mailing proxy
statements to Shareholders; (iv) the payment of any distributions related
to redemption of Shares; (v) payment for routine services of the Trustee,
legal counsel and independent accountants; (vi) payment for routine
accounting, bookkeeping, custody and transfer agency services, whether
performed by an outside service provider or by Affiliates of the Sponsor;
(vii) postage and insurance; (viii) costs and expenses associated with
investor relations and services; (ix) costs of preparation of all federal,
state, local and foreign tax returns and any taxes payable on the income,
assets or operations of the Fund; (x) payment for marketing services; and
(xi) extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any indemnification related
thereto). The estimated amount of fees and expenses that are anticipated
to be incurred in a single Share during the first twelve (12) months of
ownership is $0.10 or 1.14% of the selling price. The total estimated fees
and expenses are expressed as a percentage of the net asset value as of
February 28, 2022. These fees and expenses are net of any expenses or
management fees waived by the Sponsor. The Sponsor may, in its discretion,
pay or reimburse the Fund for, or waive a portion of its management fee to
offset, expenses that would otherwise be borne by the
Fund. |
|
|
|
|
|
General
expenses of the Trust will be allocated among the existing Teucrium Funds
and any future series of the Trust as determined by the Sponsor in its
discretion. The Trust may be required to indemnify the Sponsor, and
the Trust and/or the Sponsor may be required to indemnify the Trustee,
Distributor or Administrator, under certain
circumstances. |
|
|
|
Termination
Events |
|
The Trust and
the Fund shall continue in existence from the date of their formation in
perpetuity, unless the Trust or the Fund, as the case may be, is sooner
terminated upon the occurrence of certain events specified in the Trust
Agreement, including the following: (1) the filing of a certificate of
dissolution or cancellation of the Sponsor or revocation of the Sponsor’s
charter or the withdrawal of the Sponsor, unless shareholders holding a
majority of the outstanding shares of the Trust, voting together as a
single class, elect within ninety (90) days after such event to continue
the business of the Trust and appoint a successor Sponsor; (2) the
occurrence of any event which would make the existence of the Trust or the
Fund unlawful; (3) the suspension, revocation, or termination of the
Sponsor’s registration as a CPO with the CFTC or membership with the NFA;
(4) the insolvency or bankruptcy of the Trust or the Fund; (5) a vote by
the shareholders holding at least seventy-five percent (75%) of the
outstanding shares of the Trust, voting together as a single class, to
dissolve the Trust subject to certain conditions; (6) the determination by
the Sponsor to dissolve the Trust or the Fund, subject to certain
conditions.; (7) the Trust is required to be registered as an investment
company under the Investment Company Act of 1940, and (8) DTC is unable or
unwilling to continue to perform its functions and a comparable
replacement is unavailable. Upon termination of the Fund, the affairs of
the Fund shall be wound up and all of its debts and liabilities discharged
or otherwise provided for in the order of priority as provided by law. The
fair market value of the remaining assets of the Fund shall then be
determined by the Sponsor. Thereupon, the assets of the Fund shall be
distributed pro rata to the Shareholders in accordance with their
Shares. |
Authorized
Purchasers |
|
A list of the
Fund’s Authorized Purchasers as of the date of this Prospectus can be
found under “Plan of Distribution – Distributor and Authorized Purchasers,”
on page 45. Authorized Purchasers must be (1) registered
broker-dealers or other securities market participants, such as banks and
other financial institutions, that are not required to register as
broker-dealers to engage in securities transactions, and (2) DTC
Participants. To become an Authorized Purchaser, a person must enter
into an Authorized Purchaser Agreement with the
Sponsor. |
WHAT ARE THE RISK FACTORS INVOLVED
WITH AN INVESTMENT IN THE FUND?
You should consider carefully the
risks described below before making an investment decision. You should also
refer to the other information included in this prospectus, and the Fund’s and
the Trust’s financial statements and the related notes incorporated by reference
herein. See “Incorporation by Reference of Certain
Information.”
Risks Associated with Investing Directly
or Indirectly in Sugar
Investing in
Benchmark Component Futures Contracts subjects the Fund to the risks of the
world sugar market, and this could result in substantial fluctuations in the
price of the Fund’s Shares.
The Fund is subject
to the risks and hazards of the world sugar market because it invests in
Benchmark Component Futures Contracts. The two primary sources for the
production of sugar are sugarcane and sugar beets, both of which are grown in
various countries around the world. The risks and hazards that are
inherent in the world sugar market may cause the price of sugar and the Fund’s
Shares to fluctuate widely and you could incur a partial or total loss of your
investment in the Fund.
|
● |
The global
price and availability of sugar is influenced by economic and industry
conditions, including but not limited to supply and demand factors such
as: crop disease; weed control; water availability; various planting,
growing, or harvesting problems; severe weather conditions such as
drought, floods, or frost that are difficult to anticipate and which
cannot be controlled; uncontrolled fires, including arson; challenges in
doing business with foreign companies; legal and regulatory restrictions;
fluctuation of shipping rates; currency exchange rate fluctuations; and
political and economic instability. Global demand for sugar to
produce ethanol has also been a significant factor affecting the
price of sugar. Additionally, demand for sugar is affected by
changes in consumer tastes, national, regional and local economic
conditions, and demographic trends. The spread of consumerism and
the rising affluence of emerging nations such as China and India have
created 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
would 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 for
sugar. |
|
● |
Sugar
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.
Many foreign countries subsidize sugar production, resulting in lower
prices, but this has led other countries, including the United States, to
impose tariffs and import restrictions on sugar imports. Sugar
producers also may need to comply with various environmental laws and
regulations, such as those regulating the use of certain
pesticides. |
|
● |
Seasonal
fluctuations in the price of sugar may cause risk to an investor because
of the possibility that Share prices will be depressed because of the
sugar harvest cycle. In the futures market, contracts expiring
during the harvest season are typically priced lower than contracts
expiring in the winter and spring. While the sugar harvest seasons
varies from country to country, prices of Sugar Futures Contracts tend to
be lowest in the late spring and early summer, reflecting the harvest
season in Brazil, the world’s leading producer of sugarcane. Thus,
seasonal fluctuations could result in an investor incurring losses upon
the sale of Fund Shares, particularly if the investor needs to sell Shares
when the Benchmark Component Futures Contracts are, in whole or part,
Sugar Futures Contracts expiring in the late spring or early
summer. |
An investment in
the Fund is subject to correlation risk. Your return on an investment in the
Fund may differ from the return of the Benchmark, changes in the Fund’s NAV and
the spot price of sugar.
There is a risk that
changes in the price of Shares on the NYSE Arca will not correlate with changes
in the Fund’s NAV; that changes in the NAV will not correlate with changes in
the price of the Benchmark; and/or changes in the price of the Benchmark will
not correlate with changes in the spot price of sugar. Depending on certain
factors associated with each of these correlations which are discussed in more
detail below, you could incur a partial or total loss of your investment in the
Fund.
The Benchmark is
not designed to correlate with the spot price of sugar, and this could cause the
changes in the price of the Shares to substantially vary from the changes in the
spot price of sugar. Therefore, you may not be able to effectively use the
Fund to hedge against sugar related losses or to indirectly invest in
sugar.
The Benchmark
Component Futures Contracts reflect the price of sugar for future delivery, not
the current spot price of sugar, so at best the correlation between changes in
such Sugar Futures Contracts and the spot price of sugar will be only
approximate. Weak correlation between the Benchmark and the spot price of
sugar may result from the typical seasonal fluctuations in sugar prices
discussed above. Imperfect correlation may also result from speculation in
Benchmark Component Futures Contracts, technical factors in the trading of
Benchmark Component Futures Contracts, and expected inflation in the economy as
a whole. If there is a weak correlation between the Benchmark and the spot
price of sugar, then the price of Shares may not accurately track the spot price
of sugar and you may not be able to effectively use the Fund as a way to hedge
the risk of losses in your sugar related transactions or as a way to indirectly
invest in sugar.
Changes in the
Fund’s NAV may not correlate well with changes in the price of the
Benchmark. If this were to occur, you may not be able to effectively use
the Fund as a way to hedge against sugar related losses or as a way to
indirectly invest in sugar.
The Sponsor endeavors
to invest the Fund’s assets as fully as possible in Benchmark Component Futures
Contracts so that the changes in the NAV closely correlate with the changes in
the Benchmark. However, changes in the Fund’s NAV may not correlate with
the changes in the Benchmark for various reasons, including those set forth
below.
|
● |
The Fund incurs
certain expenses in connection with its operations and holds most of its
assets in income producing, short-term financial instruments for margin
and other liquidity purposes and to meet redemptions that may be necessary
on an ongoing basis. These expenses and income cause imperfect
correlation between changes in the Fund’s NAV and changes in the
Benchmark. |
|
● |
The Sponsor may
not be able to invest the Fund’s assets in Benchmark Component Futures
Contracts having an aggregate notional amount exactly equal to the Fund’s
NAV. As a standardized contract, a single Sugar Futures Contract is
for a specified amount of sugar, and the Fund’s NAV and the proceeds from
the sale of a Creation Basket is unlikely to be an exact multiple of that
amount. In such case, the Fund could not invest the entire proceeds
from the purchase of the Creation Basket in such futures contracts.
(For example, assuming the Fund receives $350,000 for the sale of a
Creation Basket and that the value (i.e., the notional amount) of a Sugar
Futures Contract is $17,920, the Fund could only enter into 19 Sugar
Futures Contracts with an aggregate value of $340,480). While the
Fund may be better able to achieve the exact amount of exposure to the
sugar market through the use of over the counter other sugar interests,
there is no assurance that the Sponsor will be able to continually adjust
the Fund’s exposure to such other sugar interests to maintain such exact
exposure. Any amounts not invested in Benchmark Component Futures
Contracts are held in cash and cash
equivalents. |
|
● |
As Fund assets
increase, there may be more or less correlation. On the one hand, as
the Fund grows it should be able to invest in Benchmark Component Futures
Contracts with a notional amount that is closer on a percentage basis to
the Fund’s NAV. For example, if the Fund’s NAV is equal to 4.9 times
the value of a single futures contract, it can purchase only four futures
contracts, which would cause only 81.6% of the Fund’s assets to be exposed
to the sugar market. On the other hand, if the Fund’s NAV is equal
to 100.9 times the value of a single Sugar Futures Contract, it can
purchase 100 such contracts, resulting in 99.1% exposure. However,
at certain asset levels the Fund may be limited in its ability to purchase
Sugar Futures Contracts due to position limits or accountability levels
imposed by the CFTC or the relevant exchanges. In these instances, the Fund would
likely invest to a greater extent in sugar interests not subject to these
position limits or accountability levels. To the extent that the
Fund invests in other sugar interests, the correlation between the Fund’s
NAV and the Benchmark may be lower. In certain circumstances,
position limits or accountability levels could limit the number of
Creation Baskets that will be
sold. |
|
● |
The Fund has
not approached existing position accountability levels of its Benchmark
Component Futures Contracts which are traded on the Intercontinental
Exchange (ICE) with a 15,000 contract limit. There is no way to predict if
or when investor demand might cause the Fund to approach accountability
levels. Currently the Fund holds just over seven percent (under 1100
contracts) of the ICE accountability levels. The Fund has no intention of
purchasing sugar interests on foreign exchanges. Instead, the fund would
file an 8-K and prospectus supplement to include the ability to purchase
NYSE Sugar futures in the same contract size and in the same contract
months as its existing Benchmark Component Futures Contract holdings.
Accountability levels are 9000 contracts on the
NYMEX. |
|
● |
The Fund
currently has two futures commission merchants through which it buys and
sells orders futures contracts. The recent volatility in the sugar
futures market may lead one or both of the Fund's FCMs to impose risk
mitigation procedures that could limit the Fund's investment in sugar
futures contracts beyond the accountability and position limits imposed by
futures contract exchanges as discussed immediately above. One of
the FCMs has imposed a financial ceiling on initial margin that could
change and become more or less restrictive on the Fund’s activities
depending upon a variety of conditions beyond the Sponsor’s control.
If the Fund’s other current FCM were to impose position limits, or if any
other FCM with which the Fund establishes a relationship in the future
were to impose position limits, the Fund's ability to meet its investment
objective could be negatively impacted. The Fund continues to
monitor and manage its existing relationships with its FCMs and will
continue to seek additional relationships with FCMs as
needed. |
If changes in the
Fund’s NAV do not correlate with changes in the Benchmark, then investing in the
Fund may not be an effective way to hedge against sugar related losses or
indirectly invest in sugar.
Changes in the
price of the Fund’s Shares on the NYSE Arca may not correlate perfectly with
changes in the NAV of the Fund’s Shares. If this variation occurs, then you
may not be able to effectively use the Fund to hedge against sugar related
losses or to indirectly invest in sugar.
While it is expected
that the trading prices of the Shares will fluctuate in accordance with the
changes in the Fund’s NAV, the prices of Shares may also be influenced by other
factors, including the supply of and demand for the Shares, whether for the
short term or the longer term. There is no guarantee that the Shares will
not trade at appreciable discounts from, and/or premiums to, the Fund’s
NAV. This could cause the changes in the price of the Shares to
substantially vary from the changes in the spot price of sugar, even if the
Fund’s NAV was closely tracking movements in the spot price of sugar. If
this occurs, you may not be able to effectively use the Fund to hedge the risk
of losses in your sugar related transactions or to indirectly invest in
sugar.
The Fund may
experience a loss if it is required to sell cash equivalents at a price lower
than the price at which they were acquired.
If the Fund is
required to sell its cash equivalents at a price lower than the price at which
they were acquired, the Fund will experience a loss. This loss may
adversely impact the price of the Shares and may decrease the correlation
between the price of the Shares, the Benchmark, and the spot price of
sugar. The value of cash equivalents held by the Fund generally moves
inversely with movements in interest rates. The prices of longer
maturity securities are subject to greater market fluctuations as a result of
changes in interest rates. While the short-term nature of the Fund’s
investments in cash equivalents should minimize the interest rate risk to which
the Fund is subject, it is possible that the cash equivalents held by the Fund
will decline in value.
Certain of the Fund’s investments
could be illiquid, which could cause large losses to investors at any time or
from time to time.
The Fund may not
always be able to liquidate its positions in its investments at the desired
price for reasons including, among others, insufficient trading volume, limits
imposed by exchanges or other regulatory organizations, or lack of liquidity. As
to futures contracts, it may be difficult to execute a trade at a specific price
when there is a relatively small volume of buy and sell orders in a
market. Limits imposed by futures exchanges or other regulatory
organizations, such as accountability levels, position limits and price
fluctuation limits, may contribute to a lack of liquidity with respect to some
exchange-traded sugar interests. In addition, over the counter contracts
may be illiquid because they are contracts between two parties and generally may
not be transferred by one party to a third party without the counterparty’s
consent. Conversely, a counterparty may give its consent, but the Fund
still may not be able to transfer an over the counter sugar interest to a third
party due to concerns regarding the counterparty’s credit
risk.
A market disruption,
such as a foreign government taking political actions that disrupt the market in
its currency, its sugar production or exports, or in another major export, can
also make it difficult to liquidate a position. Unexpected market
illiquidity may cause major losses to investors at any time or from time to
time. In addition, the Fund does not intend at this time to establish a
credit facility, which would provide an additional source of liquidity, but
instead will rely only on the cash and cash equivalents that it holds to meet
its liquidity needs. The anticipated value of the positions in Benchmark
Component Futures Contracts that the Sponsor will acquire or enter into for the
Fund increases the risk of illiquidity. Because Benchmark Component
Futures Contracts may be illiquid, the Fund’s holdings may be more difficult to
liquidate at favorable prices in periods of illiquid markets and losses may be
incurred during the period in which positions are being
liquidated.
If the nature of
the participants in the futures market shifts such that sugar purchasers are the
predominant hedgers in the market, the Fund might have to reinvest at higher
futures prices or choose other sugar interests.
The changing nature
of the participants in the sugar market will influence whether futures prices
are above or below the expected future spot price. Sugar producers will
typically seek to hedge against falling sugar prices by selling Sugar Futures
Contracts. Therefore, if sugar producers become the predominant hedgers in
the futures market, prices of Sugar Futures Contracts will typically be below
expected future spot prices. Conversely, if the predominant hedgers in the
futures market are the purchasers of the sugar who purchase Sugar Futures
Contracts to hedge against a rise in prices, prices of Sugar Futures Contracts
will likely be higher than expected future spot prices. This can have
significant implications for the Fund when it is time to sell a Sugar Futures
Contract that is no longer a Benchmark Component Futures Contract and purchase a
new Sugar Futures Contract or to sell a Sugar Futures Contract to meet
redemption requests.
Storage costs
could impact the value of the Benchmark Component Futures
Contracts.
Storage costs
associated with purchasing sugar could result in costs and other liabilities
that could impact the value of Sugar Futures Contracts or certain other sugar
interests. Storage costs include the time value of money invested in sugar
as a physical commodity plus the actual costs of storing the sugar less any
benefits from ownership of sugar that are not obtained by the holder of a
futures contract. In general, Sugar Futures Contracts have a one-month
delay for contract delivery and the pricing of back month contracts (the back
month is any future delivery month other than the spot month) include storage
costs. To the extent that these storage costs change for sugar while the
Fund holds Sugar Interests, the value of the Benchmark Component Futures
Contracts, and therefore the Fund’s NAV, may change as well.
The price
relationship between the Benchmark Component Futures Contracts at any point in
time and the Sugar Futures Contracts that will become Benchmark Component
Futures Contracts on the next roll date will vary and may impact both the Fund’s
total return and the degree to which its total return tracks that of sugar price
indices.
The design of the
Fund’s Benchmark is such that the Benchmark Component Futures Contracts change
four times per year, and the Fund’s investments must be rolled periodically to
reflect the changing composition of the Benchmark. For example, when the
second to expire Sugar Futures Contract becomes the first to expire contract,
such contract will no longer be a Benchmark Component Futures Contract and the
Fund’s position in it will no longer be consistent with tracking the
Benchmark. In the event of a sugar futures market where near to expire
contracts trade at a higher price than longer to expire contracts, a situation
referred to as “backwardation,” then absent the impact of the overall movement
in sugar prices the value of the Benchmark Component Futures Contracts would
tend to rise as they approach expiration. As a result, the Fund may
benefit because it would be selling more expensive contracts and buying less
expensive ones on an ongoing basis. Conversely, in the event of a sugar
futures market where near to expire contracts trade at a lower price than longer
to expire contracts, a situation referred to as “contango,” then absent the
impact of the overall movement in sugar prices the value of the Benchmark
Component Futures Contracts would tend to decline as they approach expiration.
As a result, the Fund’s total return may be lower than might otherwise be the
case because it would be selling less expensive contracts and buying more
expensive ones. The impact of backwardation and contango may lead the
total return of the Fund to vary significantly from the total return of other
price references, such as the spot price of sugar. In the event of a
prolonged period of contango, and absent the impact of rising or falling sugar
prices, this could have a significant negative impact on the Fund’s NAV and
total return, and you could incur a partial or total loss of your investment in
the Fund.
Regulation of the
commodity interests and commodity markets is extensive and constantly changing;
future regulatory developments are impossible to predict but may significantly
and adversely affect the Fund.
The regulation of
futures markets, futures contracts and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take extraordinary
actions in the event of a market emergency including, for example, the
retroactive implementation of speculative position limits, increased margin
requirements, the establishment of daily price limits and the suspension of
trading on an exchange or trading facility.
The regulation of
commodity interest transactions in the United States is a rapidly changing area
of law and is subject to ongoing modification by governmental and judicial
action. Congress enacted the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) in 2010. As the Dodd-Frank Act continues
to be implemented by the CFTC and the SEC, there is a possibility of future
regulatory changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability for the Fund to
continue to implement its investment strategy. In addition, various national
governments outside of the United States have expressed concern regarding the
disruptive effects of speculative trading in the commodities markets and the
need to regulate the derivatives markets in general. The effect of any future
regulatory change on the Fund is impossible to predict but could be substantial
and adverse.
If you are
investing in the Fund for purposes of hedging, you might be subject to several
risks unique to the Fund, and the Fund may not be appropriate for hedging
purposes. The Fund was not designed for hedging purposes; those using the Fund
as a hedge of any kind do so exclusively at their own risk.
An investment in the Fund may
provide you little or no diversification benefits. Thus, in a declining market,
the Fund may have no gains to offset your losses from other investments, and you
may suffer losses on your investment in the Fund at the same time you incur
losses with respect to other asset
classes.
It cannot be
predicted to what extent the performance of Benchmark Component Futures
Contracts will or will not correlate to the performance of other broader asset
classes such as stocks and bonds. If the Fund’s performance were to move
more directly with the financial markets, you will obtain little or no
diversification benefits from an investment in the Shares. In such a case,
the Fund may have no gains to offset your losses from other investments, and you
may suffer losses on your investment in the Fund at the same time you incur
losses with respect to other investments.
Variables such as
drought, floods, weather, embargoes, market disruptions, tariffs and other
political events may have a larger impact on sugar and sugar interest prices
than on traditional securities and broader financial markets. These
additional variables may create additional investment risks that subject the
Fund’s investments to greater volatility than investments in traditional
securities.
Lower correlation
should not be confused with negative correlation, where the performance of two
asset classes would be opposite of each other. There is no historic
evidence that the spot price of sugar and prices of other financial assets, such
as stocks and bonds, are negatively correlated. In the absence of negative
correlation, the Fund cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice
versa.
The Fund’s Operating
Risks
The Fund may
change its investment objective, Benchmark or investment strategies at any time
without shareholder approval or advance notice.
Consistent with its
authority under the Trust Agreement and Delaware law, the Fund, in its sole
discretion and without shareholder approval or advance notice, may change the
Fund’s investment objective, Benchmark or investment strategies, subject to
applicable regulatory requirements, including, but not limited to, any
requirement to amend applicable listing rules of the NYSE. The reasons for and
circumstances that may trigger any such changes may vary widely and cannot be
predicted. By way of example, the Fund may change the term structure or
underlying components of the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of sugar for future delivery if, due to market
conditions, a potential or actual imposition of position limits by the CFTC or
futures exchange rules, or the imposition of risk mitigation measures by a
futures commission merchant restricts the ability of the Fund to invest in the
current Benchmark Futures Contracts. Shareholders may experience losses on their
investments in the Fund as a result of such changes.
The Fund is not a
registered investment company, so you do not have the protections of the
Investment Company Act of 1940.
The Fund is not an
investment company subject to the Investment Company Act of 1940.
Accordingly, you do not have the protections afforded by that statute, which,
for example, requires investment companies to have a board of directors with a
majority of disinterested directors and regulates the relationship between the
investment company and its investment manager.
The Sponsor is
leanly staffed and relies heavily on key personnel to manage trading
activities.
In managing and
directing the day to day activities and affairs of the Fund, the Sponsor relies
almost entirely on a small number of individuals, including Mr. Sal Gilbertie,
Mr. Steve Kahler and Ms. Cory Mullen-Rusin. If Mr. Gilbertie, Mr. Kahler
or Ms. Mullen-Rusin were to leave or be unable to carry out their present
responsibilities, it may have an adverse effect on the management of the
Fund. To the extent that the Sponsor establishes additional commodity
pools, even greater demands will be placed on these
individuals.
The Sponsor has
limited capital and may be unable to continue to manage the Fund if it sustains
continued losses.
The Sponsor was
formed for the purpose of managing the Trust, including the Fund, the other
Teucrium Funds, and any other series of the Trust that may be formed in the
future, and has been provided with capital primarily by its principals and a
small number of outside investors. If the Sponsor operates at a loss for
an extended period, its capital will be depleted, and it may be unable to obtain
additional financing necessary to continue its operations. If the Sponsor
were unable to continue to provide services to the Fund, the Fund would be
terminated if a replacement sponsor could not be found. Any expenses related to
the operation of the Fund would need to be paid by the Fund at the time of
termination.
Position limits,
accountability levels and daily price fluctuation limits set by the CFTC and the
exchanges have the potential to cause tracking error, which could cause the
price of Shares to substantially vary from the Benchmark and prevent you from
being able to effectively use the Fund as a way to hedge against sugar related
losses or as a way to indirectly invest in sugar.
The CFTC and U.S.
designated contract markets, such as the ICE Futures have established position
limits and accountability levels on the maximum net long or net short Sugar
Futures Contracts that any person or group of persons under common trading
control may hold, own or control. For example, the current ICE Futures
established position limit level for investments in Sugar No. 11 Futures
Contracts for the spot month, which is defined as on and after the second
business day following the expiration of the regular option contract traded on
the expiring futures contract, is 5,000, the accountability level for
investments in ICE Sugar No. 11 Futures Contracts for any one month is 10,000,
and the accountability level for all combined months is 15,000. While
accountability levels are not fixed ceilings, they are thresholds above which
the exchange may exercise greater scrutiny and control over an investor,
including limiting an investor to holding no more Sugar No. 11 Futures Contracts
than the amount established by the accountability level. The Fund does not
intend to invest in Sugar Futures Contracts in excess of any applicable
accountability levels.
Accountability levels
differ from position limits in that they do not represent a fixed ceiling, but
rather a threshold above which a futures exchange may exercise greater scrutiny
and control over an investor’s positions. If a Fund were to exceed an applicable
accountability level for investments in futures contracts, the exchange will
monitor the Fund’s exposure and may ask for further information on its
activities, including the total size of all positions, investment and trading
strategy, and the extent of liquidity resources of the Fund. If deemed necessary
by the exchange, the Fund could be ordered to reduce its aggregate net position back to the accountability
level
In addition to
position limits and accountability levels, the exchanges set daily price
fluctuation limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of futures contracts may vary
either up or down from the previous day’s settlement price. Once the daily
price fluctuation limit has been reached in a particular futures contract, no
trades may be made at a price beyond that limit. Currently, ICE Futures
has not imposed maximum daily price
fluctuation limits on Sugar Futures Contracts.
On December 16, 2016,
as mandated by the Dodd-Frank Act, the CFTC adopted a final rule that aggregate
all positions, for purposes of position limits; such positions include futures
contracts, futures-equivalent positions, over the counter swaps and options
(i.e., contracts that are not traded on exchanges). These aggregation
requirements became effective on February 14, 2017 and could limit the Fund’s
ability to establish positions in commodity over the counter instruments if the
assets of the Fund were to grow substantially.
As published in the
January 14, 2021 Federal Register, the Commodity Futures Trading Commission
(CFTC) voted to approve a final rule (Final Rule) regarding position limits for
certain futures contracts and economically equivalent swaps. The Final Rule
ends a decade of rulemaking activity in which the CFTC proposed, amended, and
re-proposed its position limit rules and aggregation standards for speculative
positions due to certain amendments to the Commodity Exchange Act (CEA) by the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank
Act). In the Final Rule, the CFTC confirmed that federal speculative position
limits are necessary for 25 core referenced futures contracts and for any
futures contracts and options on futures contracts that are linked to those
contracts. The 25 core referenced futures contracts include the nine
“legacy” agricultural contracts that are currently subject to federal position
limits and 16 additional non-legacy contracts. The Final Rule became effective
on March 15, 2021, but a number of the requirements in the Final Rule have a
general compliance date of January 1, 2022, and later compliance date of January
1, 2023 with respect to swaps-related requirements and the elimination of
previously granted risk management exemptions. The Final Rule became effective
on March 15, 2021, but a number of the requirements in the Final Rule have a
general compliance date of January 1, 2022, and later compliance date of January
1, 2023 with respect to swaps-related requirements and the elimination of
previously granted risk management exemptions.
There
are technical and fundamental risks inherent in the trading system the Sponsor
intends to employ.
The Sponsor’s trading
system is quantitative in nature and it is possible that the Sponsor may make
errors. Any errors or imperfections in the Sponsor’s trading system’s
quantitative models, or in the data on which they are based, could adversely
affect the Sponsor’s effective use of such trading systems. It is not possible
or practicable for the Sponsor’s trading system to factor all relevant,
available data into quantitative systems and/or trading decision. There is no
guarantee that the Sponsor will use any specific data or type of data in making
trading decisions on behalf of the Fund, nor is there any guarantee that the
data actually utilized in making trading decisions on behalf of the Fund will be
the most accurate data or free from errors. In addition, it is possible that a
computer or software program may malfunction and cause an error in
computation.
The Fund and the
Sponsor may have conflicts of interest, which may cause them to favor their own
interests to your detriment.
The Fund and the
Sponsor may have inherent conflicts to the extent the Sponsor attempts to
maintain the Fund’s asset size in order to preserve its fee income and this may
not always be consistent with the Fund’s objective of having the value of its
Shares’ NAV track changes in the Benchmark. The Sponsor’s officers and
employees do not devote their time exclusively to the Fund. These persons
may be directors, officers or employees of other entities. They could have
a conflict between their responsibilities to the Fund and to those other
entities.
In addition, the
Sponsor’s principals, officers or employees may trade securities and futures and
related contracts for their own accounts. A conflict of interest may exist
if their trades are in the same markets and occur at the same time as the Fund
trades using the clearing broker to be used by the Fund. A potential
conflict also may occur if the Sponsor’s principals, officers or employees trade
their accounts more aggressively or take positions in their accounts that are
opposite, or ahead of, the positions taken by the Fund.
The Sponsor has sole
current authority to manage the investments and operations of the Fund, and this
may allow it to act in a way that furthers its own interests and in conflict
with your best interests, including the authority of the Sponsor to allocate
expenses to and between the Funds. Shareholders have very limited voting
rights, which will limit the ability to influence matters such as amendment of
the Trust Agreement, changes in the Fund’s basic investment policies,
dissolution of the Fund, or the sale or distribution of the Fund’s
assets.
Shareholders have
only very limited voting rights and generally will not have the power to replace
the Sponsor. Shareholders will not participate in the management of the
Fund and do not control the Sponsor so they will not have influence over basic
matters that affect the Fund.
Shareholders will
have very limited voting rights with respect to the Fund’s affairs. Shareholders
may elect a replacement sponsor only if the current Sponsor resigns voluntarily
or loses its corporate charter. Shareholders will not be permitted to
participate in the management or control of the Fund or the conduct of its
business. Furthermore, any voting rights on shares held by the Fund will be
exercised by the Sponsor, generally without seeking advice or voting
instructions from Fund Shareholders. Shareholders must therefore rely upon the
duties and judgment of the Sponsor to manage the Fund’s
affairs.
The Sponsor may
manage a large amount of assets and this could affect the Fund’s ability to
trade profitably.
Increases in assets
under management may affect trading decisions. While the Fund’s assets are
currently at manageable levels, the Sponsor does not intend to limit the amount
of Fund assets. The more assets the Sponsor manages, the more difficult it
may be for it to trade profitably because of the difficulty of trading larger
positions without adversely affecting prices and performance and of managing
risk associated with larger positions.
The liability of
the Sponsor and the Trustee are limited, and the value of the Shares will be
adversely affected if the Fund is required to indemnify the Trustee or the
Sponsor.
Under the Trust
Agreement, the Trustee and the Sponsor are not liable, and have the right to be
indemnified, for any liability or expense incurred absent gross negligence or
willful misconduct on the part of the Trustee or Sponsor, as the case may
be. That means the Sponsor may require the assets of the Fund to be sold
in order to cover losses or liability suffered by the Sponsor or by the
Trustee. Any sale of that kind would reduce the NAV of the Fund and the
value of its Shares.
Although the
Shares of the Fund are limited liability investments, certain circumstances such
as bankruptcy could increase a Shareholder’s liability.
The Shares of the
Fund are limited liability investments; Shareholders may not lose more than the
amount that they invest plus any profits recognized on their investment.
However, Shareholders could be required, as a matter of bankruptcy law, to
return to the estate of the Fund any distribution they received at a time when
the Fund was in fact insolvent or that was made in violation of its Trust
Agreement.
You cannot be
assured of the Sponsor’s continued services, and discontinuance may be
detrimental to the Fund.
You cannot be assured
that the Sponsor will be willing or able to continue to service the Fund for any
length of time. The Sponsor was formed for the purpose of sponsoring the
Fund and other commodity pools and has limited financial resources and no
significant source of income apart from its management fees from such commodity
pools to support its continued service for the Fund. If the Sponsor
discontinues its activities on behalf of the Fund or another series of the
Trust, the Fund may be adversely affected. If the Sponsor’s registrations
with the CFTC or memberships in the NFA were revoked or suspended, the Sponsor
would no longer be able to provide services to the Fund.
The Fund could
terminate at any time and cause the liquidation and potential loss of your
investment and could upset the overall maturity and timing of your investment
portfolio.
The Fund may
terminate at any time, regardless of whether the Fund has incurred losses,
subject to the terms of the Trust Agreement. For example, the dissolution
or resignation of the Sponsor would cause the Trust to terminate unless
shareholders holding a majority of the outstanding shares of the Trust, voting
together as a single class, elect within 90 days of the event to continue the
Trust and appoint a successor Sponsor. In addition, the Sponsor may
terminate the Fund if it determines that the Fund’s aggregate net assets in
relation to its operating expenses make the continued operation of the Fund
unreasonable or imprudent. As of the date of this prospectus, the Fund pays
the fees, costs, and expenses of its operations. If the Sponsor and the Fund are
unable to raise sufficient funds so that the Fund’s expenses are reasonable in
relation to its NAV, the Fund may be forced to terminate, and investors may lose
all or part of their investment. Any expenses related to the operation of the
Fund would need to be paid by the Fund at the time of
termination.
However, no level of
losses will require the Sponsor to terminate the Fund. The Fund’s
termination would result in the liquidation of its investments and the
distribution of its remaining assets to the Shareholders on a pro rata basis in
accordance with their Shares, and the Fund could incur losses in liquidating its
investments in connection with a termination. Termination could also
negatively affect the overall maturity and timing of your investment
portfolio.
As a Shareholder,
you will not have the rights enjoyed by investors in certain other types of
entities.
As interests in
separate series of a Delaware statutory trust, the Shares do not involve the
rights normally associated with the ownership of shares of a corporation
(including, for example, the right to bring shareholder oppression and
derivative actions). In addition, the Shares have limited voting and
distribution rights (for example, Shareholders do not have the right to elect
directors, as the Trust does not have a board of directors, and generally will
not receive regular distributions of the net income and capital gains earned by
the Fund). The Fund is also not subject to certain investor protection
provisions of the Sarbanes Oxley Act of 2002 and the NYSE Arca governance rules
(for example, audit committee requirements).
A court could
potentially conclude that the assets and liabilities of the Fund are not
segregated from those of another series of the Trust, thereby potentially
exposing assets in the Fund to the liabilities of another
series.
The Fund is a series
of a Delaware statutory trust and not itself a legal entity separate from the
other Teucrium Funds. The Delaware Statutory Trust Act provides that if
certain provisions are included in the formation and governing documents of a
statutory trust organized in series and if separate and distinct records are
maintained for any series and the assets associated with that series are held in
separate and distinct records and are accounted for in such separate and
distinct records separately from the other assets of the statutory trust, or any
series thereof, then the debts, liabilities, obligations and expenses incurred
by a particular series are enforceable against the assets of such series only,
and not against the assets of the statutory trust generally or any other series
thereof. Conversely, none of the debts, liabilities, obligations and
expenses incurred with respect to any other series thereof is enforceable
against the assets of such series. The Sponsor is not aware of any court
case that has interpreted this inter-series limitation on liability or provided
any guidance as to what is required for compliance. The Sponsor intends to
maintain separate and distinct records for the Fund and account for the Fund
separately from any other Trust series, but it is possible a court could
conclude that the methods used do not satisfy the Delaware Statutory Trust Act,
which would potentially expose assets in the Fund to the liabilities of one or
more of the Teucrium Funds and/or any other Trust series created in the
future.
The Sponsor and
the Trustee are not obligated to prosecute any action, suit or other proceeding
in respect of any Fund property.
Neither the Sponsor
nor the Trustee is obligated to, although each may in its respective discretion,
prosecute any action, suit or other proceeding in respect of any Fund
property. The Trust Agreement does not confer upon Shareholders the right
to prosecute any such action, suit or other proceeding.
The Fund does not
expect to make cash distributions.
The Sponsor intends
to re-invest any income and realized gains of the Fund in additional Benchmark
Component Futures Contracts or cash and cash equivalents rather than
distributing cash to Shareholders. Therefore, unlike mutual funds,
commodity pools or other investment pools that generally distribute income and
gains to their investors, the Fund generally will not distribute cash to
Shareholders. You should not invest in the Fund if you will need cash
distributions from the Fund to pay taxes on your share of income and gains of
the Fund, if any, or for any other reason. Although the Fund does not
intend to make cash distributions, it reserves the right to do so in the
Sponsor’s sole discretion, in certain situations, including for example, if the
income earned from its investments held directly or posted as margin may reach
levels that merit distribution, e.g., at levels where such income is not
necessary to support its underlying investments in Benchmark Component Futures
Contracts and investors adversely react to being taxed on such income without
receiving distributions that could be used to pay such tax. Cash
distributions may be made in these and similar instances.
There is a risk
that the Fund will not have sufficient total net assets to compensate for the
fees and expenses that it must pay and as such the expense ratio of the Fund may
be higher than that filed in this document.
The Fund pays
management fees at an annual rate of 1.00% of its average net assets, brokerage
commissions and various other expenses from its ongoing operations (e.g., fees
of the Administrator, Trustee and Distributor), resulting in a total estimated
expense ratio of approximately 2.28% of net assets. These fees and expenses must
be paid in all events, regardless of the Fund’s total net
assets.
The Fund may
incur higher fees and expenses upon renewing existing or entering into new
contractual relationships.
The arrangements
between clearing brokers and counterparties on the one hand and the Fund on the
other generally are terminable by the clearing brokers or counterparty upon
notice to the Fund. In addition, the agreements between the Fund and its
third-party service providers, such as the Distributor and the Custodian, are
generally terminable at specified intervals. Upon termination, the Sponsor
may be required to renegotiate or make other arrangements for obtaining similar
services if the Fund intends to continue to operate. Comparable services
from another party may not be available, or even if available, these services
may not be available on the terms as favorable as those of the expired or
terminated arrangements.
The Fund may
experience a higher breakeven if interest rates decline.
The Fund seeks to
earn interest on cash balances available for investment. If actual interest
rates earned were to continue to fall and if the Sponsor were not able to waive
expenses sufficient to cover the deficit, the breakeven estimated by the Fund in
this prospectus could be higher.
The Fund is not
actively managed.
The Fund is not
actively managed and is designed to track a benchmark, regardless of whether the
price of the Benchmark Component Futures Contracts is flat, declining or rising.
As a result, the Fund may sustain losses that may have been avoidable if the
Fund was actively managed.
The Net Asset
Value calculation of the Fund may be overstated or understated due to the
valuation method employed when a settlement price is not available on the date
of net asset value calculation.
The Fund’s NAV
includes, in part, any unrealized profits or losses on open swap agreements,
futures or forward contracts. Under normal circumstances, the NAV reflects
the quoted ICE Futures settlement price of open futures contracts on the date
when the NAV is being calculated. In instances when the quoted settlement
price of futures contracts traded on an exchange may not be reflective of fair
value based on market condition, generally due to the operation of daily limits
or other rules of the exchange or otherwise the NAV may not reflect the fair
value of open futures contracts on such date. For purposes of financial
statements and reports, the Sponsor will recalculate the NAV where necessary to
reflect the “fair value” of a Futures Contract when the Futures Contract closes
at its price fluctuation limit for the day.
An unanticipated
number of redemption requests during a short period of time could have an
adverse effect on the NAV of the Fund.
If a substantial
number of requests for redemption of Redemption Baskets are received by the Fund
during a relatively short period of time, the Fund may not be able to satisfy
the requests from the Fund’s assets not committed to trading. As a consequence,
it could be necessary to liquidate the Fund’s trading positions before the time
that its trading strategies would otherwise call for liquidation, which may
result in losses.
Fund assets may
be depleted if investment performance does not exceed fees.
In addition to
certain fees paid to the Fund’s service providers, the Fund pays the Sponsor a
fee of 1.00% of asset under management per annum, regardless of Fund
performance. Over time, the Fund’s assets could be depleted if investment
performance does not exceed such fees.
The liquidity of
the Shares may be affected by the withdrawal from participation of Authorized
Purchasers, market makers, or other significant secondary-market participants
which could adversely affect the market price of the Shares.
Only an Authorized Purchaser may engage in
creation or redemption transactions directly with the Fund. The Fund has a
limited number of institutions that act as Authorized Purchasers. To the extent
that these institutions exit the business or are unable to proceed with creation
and/or redemption orders with respect to the Fund and no other Authorized
Purchaser is able to step forward to create or redeem Creation Units, Fund
shares may trade at a discount to NAV and possibly face trading halts and/or
delisting. In addition, a decision by a market maker, lead market maker, or
other large investor to cease activities for the Fund or a decision by a
secondary market participant to sell a significant number of the Fund’s Shares
could adversely affect liquidity, the spread between the bid and ask quotes, and
potentially the price of the Shares. The Sponsor can make no guarantees that
participation by Authorized Purchasers or market makers will
continue.
If a
minimum number of Shares is outstanding, market makers may be less willing
to purchase Shares in the secondary market which may limit your ability to
sell Shares. |
There is a minimum
number of baskets and associated Shares specified for the Fund. If the Fund
experienced redemptions that caused the number of Shares outstanding to decrease
to the minimum level of Shares required to be outstanding, until the minimum
number of Shares is again exceeded through the purchase of a new Creation
Basket, there can be no more redemptions by an Authorized Purchaser. In such
case, market makers may be less willing to purchase Shares from investors in the
secondary market, which may in turn limit the ability of Shareholders of the
Fund to sell their Shares in the secondary market. These minimum levels for the
Fund are 50,000 Shares representing two baskets. The minimum level of Shares
specified for the Fund is subject to change. As of February 28, 2022, there were
2,200,004 Shares outstanding. (The current number of Shares outstanding is
posted daily on our website, www.teucrium.com.)
The postponement,
suspension or rejection of redemption orders could adversely affect a
shareholder redeeming their Shares in the Fund.
The resulting delay
of any postponement, suspension or rejection may adversely affect the value of
the Shareholders’ redemption proceeds if the NAV of the Fund declines during the
period of delay.
The failure or
bankruptcy of a clearing broker could result in substantial losses for the Fund;
the clearing broker could be subject to proceedings that impair its ability to
execute the Fund’s trades.
Under CFTC
regulations, a clearing broker with respect to the Fund’s exchange-traded sugar
interests must maintain customers’ assets in a bulk segregated account. If
a clearing broker fails to do so or is unable to satisfy a substantial deficit
in a customer account, its other customers may be subject to risk of a
substantial loss of their funds in the event of that clearing broker’s
bankruptcy. In that event, the clearing broker’s customers, such as the
Fund, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers. The Fund also may
be subject to the risk of the failure of, or delay in performance by, any
exchanges and markets and their clearing organizations, if any, on which sugar
interests are traded.
From time to time,
the clearing brokers may be subject to legal or regulatory proceedings in the
ordinary course of their business. A clearing broker’s involvement in
costly or time-consuming legal proceedings may divert financial resources or
personnel away from the clearing broker’s trading operations, which could impair
the clearing broker’s ability to successfully execute and clear the Fund’s
trades.
The failure or
insolvency of the Fund’s Custodian or other financial institution in which the
Fund has deposits could result in a substantial loss of the Fund’s
assets.
As
noted above, the vast majority of the Fund’s assets are held in cash and cash
equivalents with the Custodian and other financial institutions, if applicable.
The insolvency of the Custodian and any financial institution in which the Fund
holds cash and cash equivalents could result in a complete loss of the Fund’s
assets.
Third parties may
infringe upon or otherwise violate intellectual property rights or assert that
the Sponsor has infringed or otherwise violated their intellectual property
rights, which may result in significant costs, litigation, and diverted
attention of Sponsor’s management.
Third parties may
assert that the Sponsor has infringed or otherwise violated their intellectual
property rights. Third parties may independently develop business methods,
trademarks or proprietary software and other technology similar to that of the
Sponsor and claim that the Sponsor has violated their intellectual property
rights, including their copyrights, trademark rights, trade names, trade secrets
and patent rights. As a result, the Sponsor may have to litigate in the
future to determine the validity and scope of other parties’ proprietary rights
or defend itself against claims that it has infringed or otherwise violated
other parties’ rights. Any litigation of this type, even if the Sponsor is
successful and regardless of the merits, may result in significant costs, divert
resources from the Fund, or require the Sponsor to change its proprietary
software and other technology or enter into royalty or licensing
agreements.
On December 17, 2013,
the Sponsor was issued a patent on certain business methods and procedures used
with respect to the Fund. The patent protects the valuation engine which
calculates asset values of futures contracts corresponding to the Fund benchmark
in a locked position. A U.S. government maintenance fee is paid every three and
one-half years from the issue date. The Sponsor paid the maintenance fee in
2021. The Sponsor utilizes certain proprietary software. Any unauthorized use of
such proprietary software, business methods and/or procedures could adversely
affect the competitive advantage of the Sponsor or the Fund and/or require the
Sponsor to take legal action to protect its rights.
The Fund may
experience substantial losses on transactions if the computer or communications
system fails.
The Fund’s trading
activities depend on the integrity and performance of the computer and
communications systems supporting them. Extraordinary transaction volume,
hardware or software failure, power or telecommunications failure, a natural
disaster, cyber-attack or other catastrophe could cause the computer systems to
operate at an unacceptably slow speed or even fail. Any significant
degradation or failure of the systems that the Sponsor uses to gather and
analyze information, enter orders, process data, monitor risk levels and
otherwise engage in trading activities may result in substantial losses on
transactions, liability to other parties, lost profit opportunities, damages to
the Sponsor’s and Fund’s reputations, increased operational expenses and
diversion of technical resources.
If the computer
and communications systems are not upgraded when necessary, the Fund’s financial
condition could be harmed.
The development of
complex computer and communications systems and new technologies may render the
existing computer and communications systems supporting the Fund’s trading
activities obsolete. In addition, these computer and communications
systems must be compatible with those of third parties, such as the systems of
exchanges, clearing brokers and the executing brokers. As a result, if
these third parties upgrade their systems, the Sponsor will need to make
corresponding upgrades to effectively continue its trading activities. The
Sponsor may have limited financial resources for these upgrades or other
technological changes. The Fund’s future success may depend on the Sponsor’s
ability to respond to changing technologies on a timely and cost-effective
basis.
The Fund depends
on the reliable performance of the computer and communications systems of third
parties, such as brokers and futures exchanges, and may experience substantial
losses on transactions if they fail.
The Fund depends on
the proper and timely function of complex computer and communications systems
maintained and operated by the futures exchanges, brokers and other data
providers that the Sponsor uses to conduct trading activities. Failure or
inadequate performance of any of these systems could adversely affect the
Sponsor’s ability to complete transactions, including its ability to close out
positions, and result in lost profit opportunities and significant losses on
commodity interest transactions. This could have a material adverse effect
on revenues and materially reduce the Fund’s available capital. For
example, unavailability of price quotations from third parties may make it
difficult or impossible for the Sponsor to conduct trading activities so that
the Fund will closely track the Benchmark. Unavailability of records from
brokerage firms may make it difficult or impossible for the Sponsor to
accurately determine which transactions have been executed or the details,
including price and time, of any transaction executed. This unavailability
of information also may make it difficult or impossible for the Sponsor to
reconcile its records of transactions with those of another party or to
accomplish settlement of executed transactions.
The occurrence of
a severe weather event, natural disaster, terrorist attack, geopolitical events,
outbreak or public health emergency as declared by the World Health
Organization, the continuation or expansion of war or other hostilities, or a
prolonged government shutdown may have significant adverse effects on the Fund
and its investments and alter current assumptions and
expectations.
The operations of the
Fund, the exchanges, brokers and counterparties with which the Fund does
business, and the markets in which the Fund does business could be severely
disrupted in the event of a severe weather event, natural disaster, major
terrorist attack, cyber-attack, data breach, outbreak or public health emergency
as declared by the World Health Organization (such as the spread of the novel
coronavirus known as COVID-19), or the continuation or expansion of war or other
hostilities.
War and other geopolitical events in
eastern Europe, including but not limited to Russia and Ukraine, may cause
volatility in commodity prices including energy and grain prices, due to the
region’s importance to these markets, potential impacts to global transportation
and shipping, and other supply chain disruptions. These events are unpredictable
and may lead to extended periods of price volatility.
Global terrorist
attacks, anti-terrorism initiatives, and political unrest, as well as the
adverse impact the COVID-19 pandemic has had on the global and U.S. markets and
economy, continue to fuel concerns. For example, the COVID-19 pandemic may
continue to adversely impact the level of services currently provided by the
U.S. government, could weaken the U.S. economy, interfere with the commodities
markets that rely upon data published by U.S. federal government agencies, and
prevent the Funds from receiving necessary regulatory review or approvals. The
types of events discussed above, including the COVID-19 pandemic, are highly
disruptive to economies and markets and have recently led, and may continue to
lead, to increased market volatility and significant market
losses.
More generally, a
climate of uncertainty and panic, including the contagion of the COVID-19 virus
and other infectious viruses or diseases, may adversely affect global, regional,
and local economies and reduce the availability of potential investment
opportunities, and increases the difficulty of performing due diligence and
modeling market conditions, potentially reducing the accuracy of financial
projections. Under these circumstances, the Fund may have difficulty achieving
its investment objective which may adversely impact performance. Further, such
events can be highly disruptive to economies and markets, significantly disrupt
the operations of individual companies (including, but not limited to, the
Fund’s Sponsor and third party service providers), sectors, industries, markets,
securities and commodity exchanges, currencies, interest and inflation rates,
credit ratings, investor sentiment, and other factors affecting the value of the
Fund’s investments. These factors could cause substantial market volatility,
exchange trading suspensions and closures that could impact the ability of the
Fund to complete redemptions and otherwise affect Fund performance and Fund
trading in the secondary market. A widespread crisis may also affect the global
economy in ways that cannot necessarily be foreseen at the current time. How
long such events will last and whether they will continue or recur cannot be
predicted. Impacts from these events could have significant impact on the Fund’s
performance, resulting in losses to your investment. The current and future
global economic impact may cause the underlying assumptions and expectations of
the Fund to become outdated quickly or inaccurate, resulting in significant
losses.
In late February
2022, Russia invaded Ukraine, significantly amplifying already existing
geopolitical tensions among Russia and other countries in the region and in the
west. The responses of countries and political bodies to Russia’s actions, the
larger overarching tensions, and Ukraine’s military response and the potential
for wider conflict may increase financial market volatility generally, have
severe adverse effects on regional and global economic markets, and cause
volatility in the price of agricultural products, including agricultural
futures, and the share price of the Fund. The price per pound of sugar in the
United States is primarily a function of both U.S. and global production and
demand as well as expansive protectionist policies implemented by the US
Government. Long term impacts from sanctions, shipping disruptions, collateral
war damage, and a potential expansion of the conflict between Russia and Ukraine
could further disrupt the availability of agricultural products and
supplies. Russian production of sugar comes primarily from sugar beets,
accounting for approximately three percent or less of total global sugar
production. Ukraine’s sugar production is small and relatively inconsequential
to global sugar markets. Currently, the conflict has dramatically reduced
exports of Russian sugar. Now at question is the ability of farmers in both
countries to plant this season’s sugar beet crop in 2022. Volatility, trading
volumes, and prices in global sugar markets have risen dramatically and are
expected to continue indefinitely at extreme elevated levels. Given all of the
above factors, the Sponsor has no ability to discern when current high levels of
volatility will subside.
Failures or
breaches of electronic systems could disrupt the Fund’s trading activity and
materially affect the Fund’s profitability.
Failures or breaches
of the electronic systems of the Fund, the Sponsor, the Custodian or other
financial institutions in which the Fund invests, or the Fund’s other service
providers, market makers, Authorized Purchasers, NYSE Arca, exchanges on which
Sugar Futures Contracts or other sugar interests are traded or cleared, or
counterparties have the ability to cause disruptions and negatively impact the
Fund’s business operations, potentially resulting in financial losses to the
Fund and its shareholders. Such failures or breaches may include intentional
cyber-attacks that may result in an unauthorized party gaining access to
electronic systems in order to misappropriate the Fund’s assets or sensitive
information. While the Fund has established business continuity plans and risk
management systems seeking to address system breaches or failures, there are
inherent limitations in such plans and systems. Furthermore, the Fund cannot
control the cyber security plans and systems of the Custodian or other financial
institutions in which the Fund invests, or the Fund’s other service providers,
market makers, Authorized Purchasers, NYSE Arca, exchanges on which Sugar
Futures Contracts or other sugar interests are traded or cleared, or
counterparties.
An investment in
a Fund faces numerous risks from its shares being traded in the secondary
market, any of which may lead to the Fund’s shares trading at a premium or
discount to NAV.
Although the Fund’s shares are listed for
trading on the NYSE Arca, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in the Fund’s
shares may be halted due to market conditions or for reasons that, in the view
of the NYSE Arca, make trading in shares inadvisable. There can be no assurance
that the requirements of the NYSE Arca necessary to maintain the listing of the
Fund will continue to be met or will remain unchanged or that the shares will
trade with any volume, or at all. The NAV of the Fund’s shares will generally
fluctuate with changes in the market value of the Fund’s portfolio holdings. The
market prices of shares will generally fluctuate in accordance with changes in
the Fund’s NAV and supply and demand of shares on the NYSE Arca. It cannot be
predicted whether the Fund’s shares will trade below, at or above their NAV.
Investors buying or selling Fund shares in the secondary market will pay
brokerage commissions or other charges imposed by brokers as determined by that
broker. Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
The
NYSE Arca may halt trading in the Shares which would adversely impact your
ability to sell Shares.
Trading in Shares of the Fund may be
halted due to market conditions or, in light of NYSE Arca rules and procedures,
for reasons that, in view of the NYSE Arca, make trading in Shares inadvisable.
In addition, trading is subject to trading halts caused by extraordinary market
volatility pursuant to “circuit breaker” rules that require trading to be halted
for a specified period based on a specified market decline. There can be no
assurance that the requirements necessary to maintain the listing of the Shares
will continue to be met or will remain unchanged. The Fund will be terminated if
its Shares are delisted.
The event of a suspension in the ability of
Authorized Participants to create or redeem shares.
The ability of
Authorized Participants to create or redeem shares may be suspended for several
reasons, including but not limited to the Fund voluntarily imposing such
restrictions. A suspension in the ability of
Authorized Participants would have no impact on the Fund's investment objective;
the Fund's investment objective would remain the same – to have the daily
changes in the Fund shares’ NAV reflect the daily changes of the price of
sugarcane for future delivery, as measured by a benchmark. Nor would the
Benchmark change – the benchmark would remain three stipulated futures
contracts.
With
respect to the impact of a suspension on the price of Fund shares in the
secondary market, Authorized Participants and other groups that make a market in
shares of the Fund would likely continue to actively trade the Fund's shares.
However, in such a situation, Authorized Participants and other market makers
may seek to adjust the market they make in the shares. Specifically, such market
participants may increase the spread between the prices that they quote for
offers to buy and sell shares to allow them to adjust to the potential
uncertainty as to when they might be able to create or redeem additional shares.
In addition, Authorized Participants may be less willing to quote offers to buy
or sell shares in large numbers. The potential impact of either wider spreads
between bid and offer prices, or reduced number of shares on which quotes may be
available, could increase the trading costs to investors in the Fund compared to
the quotes and the number of shares on which bids and offers are made if the
Authorized Participants still were able to freely create new baskets of shares.
In addition, there could be a significant increase in the premium/discount
between the market price at which shares are traded and the shares’ net asset
value. The net asset value is the price at which the Fund can be created or
redeemed by Authorized Participants.
The lack of
active trading markets for the Shares of the Fund may result in losses on your
investment in the Fund at the time of disposition of your
Shares.
Although the Shares
of the Fund will be listed and traded on the NYSE Arca, there can be no
guarantee that an active trading market for the Shares of the Fund will be
maintained. If you need to sell your Shares at a time when no active market for
them exists, the price you receive for your Shares, assuming that you are able
to sell them, likely will be lower than what you would receive if an active
market did exist.
Risk of Leverage and
Volatility
The Fund may
become leveraged and may result in losses on all or substantially all of your
investment if the Fund’s trading positions suddenly turn
unprofitable.
Commodity pools’
trading positions in futures contracts or other commodity interests are
typically required to be secured by the deposit of margin funds that represent
only a small percentage of a futures contract’s (or other commodity interest’s)
entire market value. This feature permits commodity pools to “leverage” their
assets by purchasing or selling futures contracts (or other commodity interests)
with an aggregate notional amount in excess of the commodity pool’s assets.
While this leverage can increase a pool’s profits, relatively small adverse
movements in the price of the pool’s commodity interests can cause significant
losses to the pool. While the Sponsor does not intend to leverage the Fund’s
assets, it is not prohibited from doing so under the Trust Agreement. If the
Sponsor were to cause or permit the Fund to become leveraged, you could lose all
or substantially all of your investment if the Fund’s trading positions suddenly
turn unprofitable.
The price of
sugar can be volatile which could cause large fluctuations in the price of
Shares.
As discussed in more
detail above, price movements for sugar are influenced by, among other things,
weather conditions, crop disease, crop failure, transportation and storage
difficulties, production decisions, various planting, growing and harvesting
problems, governmental policies, various economic and monetary events, changing
demand, and seasonal fluctuations in supply. More generally, commodity
prices may be influenced by economic and monetary events such as changes in
interest rates, changes in balances of payments and trade, U.S. and
international inflation rates, currency valuations and devaluations, U.S. and
international economic events, and changes in the philosophies and emotions of
market participants. Additionally, war and other geopolitical events in
eastern Europe, including but not limited to Russia and Ukraine, may cause
volatility in commodity prices including energy and grains prices, due to: the
region’s importance to these markets, impacts to global transportation and
shipping, and other supply chain disruptions. These events are unpredictable and
may lead to extended periods of price volatility. Because the Fund
invests primarily in interests in a single commodity, it is not a diversified
investment vehicle, and therefore may be subject to greater volatility than a
diversified portfolio of stocks or bonds or a more diversified commodity
pool.
Over the counter Contract
Risk
Over the counter
transactions are subject to changing regulation.
A portion of the
Fund’s assets may be used to trade over the counter sugar interests, such as
forward contracts or swaps. The markets for over the counter contracts will
continue to rely upon the integrity of market participants in lieu of the
additional regulation imposed by the CFTC on participants in the futures
markets. To date, the forward markets have been largely unregulated, except for
anti-manipulation and anti-fraud provisions, forward contracts have been
executed bi-laterally and, in general historically, forward contracts have not
been cleared or guaranteed by a third party. While increased regulation of over
the counter commodity interests is likely to result from changes that are
required to be effectuated by the Dodd-Frank Act, there is no guarantee that
such increased regulation will be effective to reduce these
risks.
The Fund will be
subject to credit risk with respect to counterparties to over the counter
contracts entered into by the Fund.
The Fund faces the
risk of non-performance by the counterparties to the over the counter
contracts. Unlike in futures contracts, the counterparty to these
contracts is generally a single bank or other financial institution, rather than
a clearing organization backed by a group of financial institutions. As a
result, there will be greater counterparty credit risk in these
transactions. A counterparty may not be able to meet its obligations to
the Fund, in which case the Fund could suffer significant losses on these
contracts.
If a counterparty
becomes bankrupt or otherwise fails to perform its obligations due to financial
difficulties, the Fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization proceeding. During any
such period, the Fund may have difficulty in determining the value of its
contracts with the counterparty, which in turn could result in the overstatement
or understatement of the Fund’s NAV. The Fund may eventually obtain only
limited recovery or no recovery in such circumstances.
The Fund may be
subject to liquidity risk with respect to over the counter
contracts.
Over the counter
contracts may have terms that make them less marketable than Sugar Futures
Contracts. Over the counter contracts are less marketable because they are not
traded on an exchange, do not have uniform terms and conditions, and are entered
into based upon the creditworthiness of the parties and the availability of
credit support, such as collateral, and in general, they are not transferable
without the consent of the counterparty. These conditions make such contracts
less liquid than standardized futures contracts traded on a commodities exchange
and diminish the ability to realize the full value of such contracts. In
addition, even if collateral is used to reduce counterparty credit risk, sudden
changes in the value of over the counter transactions may leave a party open to
financial risk due to a counterparty default since the collateral held may not
cover a party’s exposure on the transaction in such
situations.
In general, valuing
OTC derivatives is less certain than valuing actively traded financial
instruments such as exchange traded futures contracts and securities because the
price and terms on which such OTC derivatives are entered into or can be
terminated are individually negotiated, and those prices and terms may not
reflect the best price or terms available from other sources. In addition, while
market makers and dealers generally quote indicative prices or terms for
entering into or terminating OTC contracts, they typically are not contractually
obligated to do so, particularly if they are not a party to the transaction. As
a result, it may be difficult to obtain an independent value for an outstanding
OTC derivatives transaction.
The foregoing
liquidity risks could impact adversely affect the Fund’s ability to meet its
investment objective.
In addition,
regulations adopted by global prudential regulators that are now in effect
require certain prudentially regulated entities and certain of their affiliates
and subsidiaries (including swap dealers) to include in their derivatives
contracts and certain other financial contracts, terms that delay or restrict
the rights of counterparties (such as the Funds) to terminate such contracts,
foreclose upon collateral, exercise other default rights or restrict transfers
of credit support in the event that the prudentially regulated entity and/or its
affiliates are subject to certain types of resolution or insolvency proceedings.
Similar regulations and laws have been adopted in non-US jurisdictions that may
apply to a Fund’s counterparties located in those jurisdictions. It is possible
that these new requirements, as well as potential additional related government
regulation, could adversely affect a Fund’s ability to terminate existing
derivatives contracts, exercise default rights or satisfy obligations owed to it
with collateral received under such contracts.
Risk of Trading in International
Markets
Trading in
international markets would expose the Fund to credit and regulatory
risk.
A significant portion
of the Sugar Futures Contracts entered into by the Fund are traded on United
States exchanges including ICE Futures. However, a portion of the Fund’s
trades may take place on markets or exchanges outside the United States.
Some non-U.S. markets present risks because they are not subject to the same
degree of regulation as their U.S. counterparts. None of the CFTC, NFA, or
any domestic exchange regulates activities of any foreign boards of trade or
exchanges, including the execution, delivery and clearing of transactions, has
the power to compel enforcement of the rules of a foreign board of trade or
exchange or of any applicable non-U.S. laws. Similarly, the rights of
market participants, such as the Fund, in the event of the insolvency or
bankruptcy of a non-U.S. market or broker are also likely to be more limited
than in the case of U.S. markets or brokers. As a result, in these
markets, the Fund has less legal and regulatory protection than it does when it
trades domestically. Currently the Fund does not place trades on any markets or
exchanges outside of the United States and does not anticipate doing so in the
near future.
In some of these
non-U.S. markets, the performance on a futures contract is the responsibility of
the counterparty and is not backed by an exchange or clearing corporation and
therefore exposes the Fund to credit risk. Additionally, trading on
non-U.S. exchanges is subject to the risks presented by exchange controls,
expropriation, increased tax burdens and exposure to local economic declines and
political instability. An adverse development with respect to any of these
variables could reduce the profit or increase the loss earned on trades in the
affected international markets.
International
trading activities subject the Fund to foreign exchange
risk.
The price of any
non-U.S. sugar interest and, therefore, the potential profit and loss on such
investment, may be affected by any variance in the foreign exchange rate between
the time the order is placed and the time it is liquidated, offset or exercised.
However, a portion of the trades for the Fund may take place in markets and on
exchanges outside of the U.S. Some non-U.S. markets present risks because they
are not subject to the same degree of regulation as their U.S.
counterparts. As a result, changes in the value of the local currency
relative to the U.S. dollar may cause losses to the Fund even if the contract is
profitable.
The CFTC’s
implementation of its regulations under the Dodd-Frank Act may further affect
the Fund’s ability to enter into foreign exchange contracts and to hedge its
exposure to foreign exchange losses.
The Fund’s
international trading could expose it to losses resulting from non-U.S.
exchanges that are less developed or less reliable than United States
exchanges.
Some non-U.S.
exchanges also may be in a more developmental stage so that prior price
histories may not be indicative of current price dynamics. In addition,
the Fund may not have the same access to certain positions on foreign trading
exchanges as do local traders, and the historical market data on which the
Sponsor bases its strategies may not be as reliable or accessible as it is for
U.S. exchanges.
Please refer to “U.S.
Federal Income Tax Considerations” for information regarding the U.S. federal
income tax consequences of the purchase, ownership and disposition of
Shares.
Your tax
liability from holding Shares may exceed the amount of distributions, if any, on
your Shares.
Cash or property will
be distributed by the Fund at the sole discretion of the Sponsor, and the
Sponsor currently does not intend to make cash or other distributions with
respect to Shares. You will be required to pay U.S. federal income tax
and, in some cases, state, local, or foreign income tax, on your allocable share
of the Fund’s taxable income, without regard to whether you receive
distributions or the amount of any distributions. Therefore, the tax
liability resulting from your ownership of Shares may exceed the amount of cash
or value of property (if any) distributed.
Your allocable
share of income or loss for U.S. federal income tax purposes may differ from
your economic income or loss on your Shares.
Due to the
application of the assumptions and conventions applied by the Fund in making
allocations for U.S. federal income tax purposes and other factors, your
allocable share of the Fund’s income, gain, deduction or loss may be different
than your economic profit or loss from your Shares for a taxable year.
This difference could be temporary or permanent and, if permanent, could result
in your being taxed on amounts in excess of your economic
income.
Items of income,
gain, deduction, loss and credit with respect to Shares could be reallocated (or
for taxable years beginning after December 31, 2017, the Fund itself could be
liable for U.S. federal income tax along with any interest or penalties) if the
IRS does not accept the assumptions and conventions applied by the Fund in
allocating those items, with potential adverse tax consequences for
you.
The Fund intends to
be is treated as a partnership for U.S. federal income tax purposes. The U.S.
tax rules pertaining to entities taxed as partnerships are complex and their
application to publicly traded partnerships such as the Fund, is in many
respects uncertain. The Fund applies certain assumptions and conventions in an
attempt to comply with the intent of the applicable rules and to report taxable
income, gains, deductions, losses and credits in a manner that properly reflects
Shareholders’ economic gains and losses. These assumptions and conventions may
not fully comply with all aspects of the Internal Revenue Code of 1986, as
amended (the “Code”), and applicable Treasury Regulations, however, and it is
possible that the U.S. Internal Revenue Service (the “IRS”) will successfully
challenge our allocation methods and require us to reallocate items of income,
gain, deduction, loss or credit in a manner that adversely affects you. If this
occurs, you may be required to file an amended tax return and to pay additional
taxes plus deficiency interest.
In addition, for
taxable years beginning after December 31, 2017, the Fund may be liable for U.S.
federal income tax on any “imputed underpayment” of tax resulting from an
adjustment as a result of an IRS audit. The amount of the imputed underpayment
generally includes increases in allocations of items of income or gains to any
investor and decreases in allocations of items of deduction, loss, or credit to
any investor without any offset for any corresponding reductions in allocations
of items of income or gain to any investor or increases in allocations of items
of deduction, loss, or credit to any investor. If the Fund is required to pay
any U.S. federal income tax on any imputed underpayment, the resulting tax
liability would reduce the net assets of the Fund and would likely have an
adverse impact on the value of the Shares. In such a case, the tax liability
would in effect be borne by Shareholders that own Shares at the time of such
assessment, which may be different persons, or persons with different ownership
percentages, than persons owning Shares for the tax year under audit. Under
certain circumstances, the Fund may be eligible to make an election to cause
Shareholders to take into account the amount of any imputed underpayment,
including any interest and penalties. The ability of a publicly traded
partnership such as the Fund to make this election is uncertain. If the election
is made, the Fund would be required to provide Shareholders who owned beneficial
interests in the Shares in the year to which the adjusted allocations relate
with a statement setting forth their proportionate shares of the adjustment
(“Adjusted K-1s”). The investors would be required to take the adjustment into
account in the taxable year in which the Adjusted K-1s are issued. For an
additional discussion please see “U.S. Federal Income Tax Considerations – Other
Tax Matters.”
If the Fund is
required to withhold tax with respect to any Non-U.S. Shareholders, all
Shareholders may bear the cost of such withholding.
Under certain
circumstances, the Fund may be required to pay withholding tax with respect to
allocations to Non-U.S. Shareholders. Although the Trust Agreement provides that
any such withholding will be treated as being distributed to the Non-U.S.
Shareholder, the Fund may not be able to cause the economic cost of such
withholding to be borne by the Non-U.S. Shareholder on whose behalf such amounts
were withheld since the Fund does not intend to make any distributions. Under
such circumstances, all Shareholders may bear the economic cost of the
withholding, not just the Shareholders on whose behalf such amounts were
withheld. This could have a material impact on the value of your
Shares.
The Fund could be
treated as a corporation for U.S. federal income tax purposes, which may
substantially reduce the value of your Shares.
The Trust has
received an opinion of counsel that, under current U.S. federal income tax laws,
the Fund will be treated as a partnership that is not taxable as a corporation
for U.S. federal income tax purposes, provided that, among other things, (i) at
least 90 percent of the Fund’s annual gross income consists of “qualifying
income” as defined in the Code, (ii) the Fund is organized and operated in
accordance with its governing agreements and applicable law, and (iii) the Fund
does not elect to be taxed as a corporation for U.S. federal income tax
purposes. Although the Sponsor anticipates that the Fund has satisfied and will
continue to satisfy the “qualifying income” requirement for all of its taxable
years, that result cannot be assured. The Fund has not requested and will not
request any ruling from the IRS with respect to its classification as a
partnership not taxable as a corporation for U.S. federal income tax purposes.
If the IRS were to successfully assert that the Fund is taxable as a corporation
for U.S. federal income tax purposes in any taxable year, rather than passing
through its income, gains, losses and deductions proportionately to
Shareholders, the Fund would be subject to tax on its net income for the year at
corporate tax rates. In addition, although the Sponsor does not currently intend
to make distributions with respect to Shares, any distributions would be taxable
to Shareholders as dividend income to the extent of the Fund’s current and
accumulated earnings and profits, then treated as a tax-free return of capital
to the extent of the Shareholder’s basis in the Shares (and will reduce the
basis), and, to the extent it exceeds a Shareholder’s basis in such Shares, as
capital gain for Shareholders who hold their Shares as capital assets. Taxation
of the Fund as a corporation could materially reduce the after-tax return on an
investment in Shares and could substantially reduce the value of your
Shares.
Tax legislation
that has been or could be enacted may affect you with respect to your investment
in the Fund.
Legislative,
regulatory or administrative changes could be enacted or promulgated at any
time, either prospectively or with retroactive effect, and may adversely affect
the Fund and its Shareholders. Please consult a tax advisor regarding the
implications of an investment in Shares of the Teucrium Funds, including without
limitation the federal, state, local and foreign tax
consequences.
PROSPECTIVE INVESTORS ARE STRONGLY
URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE POSSIBLE TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN SHARES; SUCH TAX CONSEQUENCES MAY
DIFFER IN RESPECT OF DIFFERENT INVESTORS.
THE OFFERING
The Fund’s investment
objective is to provide investors with a cost-efficient way to gain price
exposure to the sugar market for future delivery. The Sponsor developed the
Benchmark as a representation of the sugar market for future
delivery.
Under normal market
conditions, the Fund will invest in the Benchmark Component Futures Contracts
and cash and cash equivalents. The Sponsor believes that by investing in
Benchmark Component Futures Contracts, the Fund’s net asset value (“NAV”) will
closely track the Benchmark. The Sponsor also believes that because of market
arbitrage opportunities, the market price at which investors will purchase and
sell Shares through their broker-dealer will closely track the Fund’s NAV. The
Sponsor believes that the net effect of these relationships is that the Fund’s
market price on the NYSE Arca at which investors purchase and sell Shares will
closely track the sugar market for future delivery, as measured by the
Benchmark.
Consistent with
applicable provisions of the Trust Agreement and Delaware law, the Fund has
broad authority to make changes to the Fund’s operations. Consistent with this
authority, the Fund, in its sole discretion and without shareholder approval or
advance notice, may change its investment objective, Benchmark, or investment
strategies. The Fund has no current intention to make any such change, and any
change is subject to applicable regulatory requirements, including, but not
limited to, any requirement to amend applicable listing rules of the
NYSE.
The reasons for and
circumstances that may trigger any such changes may vary widely and cannot be
predicted. However, by way of example, the Fund may change the term structure or
underlying components of the Benchmark in furtherance of the Fund’s investment
objective of tracking the price of sugar for future delivery if, due to market
conditions, a potential or actual imposition of position limits by the CFTC or
futures exchange rules, or the imposition of risk mitigation measures by a
futures commission merchant restricts the ability of the Fund to invest in the
current Benchmark Futures Contracts. The Fund would file a current report on
Form 8-K and a prospectus supplement to describe any such change and the
effective date of the change. Shareholders may modify their holdings of the
Fund’s shares in response to any change by purchasing or selling Fund shares
through their broker-dealer.
The Fund is organized
as a series of the Teucrium Commodity Trust, a statutory trust organized under
the laws of the State of Delaware on September 11, 2009. Currently, the Trust
has five series that are separate operating commodity pools: the Teucrium Corn
Fund, the Teucrium Wheat Fund, the Teucrium Soybean Fund, the Teucrium Sugar
Fund, and the Teucrium Agricultural Fund. Additional series of the Trust may be
created in the future at the Sponsor’s discretion. The Fund maintains its main
business office at Three Main Street, Suite 215, Burlington Vermont 05401. The
Fund is a commodity pool. It operates pursuant to the terms of the Trust
Agreement, which is dated as of April 26, 2019 and grants full management
control to the Sponsor.
See “Prior
Performance of the Fund” on page 30 for more information about prior performance
of the Fund.
The Sponsor of the
Trust is Teucrium Trading, LLC, a Delaware limited liability company. The
principal office of the Sponsor and the Trust are located at Three Main Street,
Suite 215, Burlington, Vermont 05401. The Sponsor registered as a CPO with the
CFTC and became a member of the NFA on November 10, 2009. The Sponsor registered
as a Commodity Trading Advisor (“CTA”) with the CFTC effective September 8,
2017.
Aside from
establishing the series of the Trust, operating those series that have commenced
offering their shares, and obtaining capital from a small number of outside
investors in order to engage in these activities, the Sponsor has not engaged in
any other business activity prior to the date of this prospectus. Under the
Trust Agreement, the Sponsor is solely responsible for management and conducts
or directs the conduct of the business of the Trust, the Fund, and any series of
the Trust that may from time to time be established and designated by the
Sponsor. The Sponsor is required to oversee the purchase and sale of Shares by
Authorized Purchasers and to manage the Fund’s investments, including to
evaluate the credit risk of FCMs and swap counterparties and to review daily
positions and margin/collateral requirements. The Sponsor has the power to enter
into agreements as may be necessary or appropriate for the offer and sale of the
Fund’s Shares and the conduct of the Trust’s activities. Accordingly, the
Sponsor is responsible for selecting the Trustee, Administrator, Distributor,
the independent registered public accounting firm of the Trust, and any legal
counsel employed by the Trust. The Sponsor is also responsible for preparing and
filing periodic reports on behalf of the Trust with the SEC and will provide any
required certification for such reports. No person other than the Sponsor and
its principals was involved in the organization of the Trust or the
Fund.
The Sponsor may
determine to engage marketing agents who will assist the Sponsor in marketing
the Shares. See “Plan of Distribution” for more
information.
The Sponsor maintains
a public website on behalf of the Fund, www.teucrium.com , which contains information
about the Trust, the Fund, and the Shares, and oversees certain services for the
benefit of Shareholders.
The Sponsor has
discretion to appoint one or more of its affiliates as additional Sponsors.
The Sponsor receives
a fee as compensation for services performed under the Trust
Agreement. The Sponsor’s fee accrues daily and is paid monthly at an
annual rate of 1.00% of the average daily net assets of the Fund. For
the period from January 1, 2021 through December 31, 2021, the Fund recognized
$204,160 in management fees to the Sponsor. The Fund is also responsible for
other ongoing fees, costs and expenses of its operations, including brokerage
fees, and legal, printing, accounting, custodial, administration and transfer
agency costs, although the Sponsor
bore the costs and expenses related to the registration of the
Shares. None of the costs and expenses related to the initial
registration, offer and sale of Shares, which totaled approximately $450,000,
were or are chargeable to the Fund, and the Sponsor did not and may not recover
any of these costs and expenses from the Fund.
Shareholders have no
right to elect the Sponsor on an annual or any other continuing basis or to
remove the Sponsor. If the Sponsor voluntarily withdraws, the holders of a
majority of the Trust’s outstanding Shares (excluding for purposes of such
determination Shares owned by the withdrawing Sponsor and its affiliates) may
elect its successor. Prior to withdrawing, the Sponsor must give ninety
days’ written notice to the Shareholders and the Trustee.
Ownership or
“membership” interests in the Sponsor are owned by persons referred to as
“members.” The Sponsor currently has three voting or “Class A”
members – Mr. Sal Gilbertie, Mr. Dale Riker and Mr. Carl N. Miller III – and a
small number of non-voting or “Class B” members who have provided working
capital to the Sponsor. Messrs. Gilbertie and Riker each currently own
45.7% of the Sponsor’s Class A membership interests while Mr. Miller holds the
remainder, which is 8.52%.
The Sponsor has an
information security program and policy in place. The program takes reasonable
care to look beyond the security and controls developed and implemented for the
Trust and the Funds directly to the platforms and controls in place for the key
service providers. Such review of cybersecurity and information technology plans
of key service providers are part of the Sponsor’s disaster recovery and
business continuity planning. The Sponsor provides regular training to all
employees of the Sponsor regarding cybersecurity topics, in addition to
real-time dissemination of information regarding cybersecurity matters as
needed. The information security plan is reviewed and updated as needed, but at
a minimum on an annual basis.
Management of the
Sponsor
In general,
under the Sponsor’s Amended and Restated Limited Liability Company Operating
Agreement, as amended from time to time, the Sponsor (and as a result the Trust
and each Fund) is managed by the officers of the Sponsor. The Chief
Executive Officer of the Sponsor is responsible for the overall strategic
direction of the Sponsor and has general control of its business. The Chief
Investment Officer and President of the Sponsor is primarily responsible for new
investment product development with respect to the Funds. The Chief Operating
Officer has primary responsibility for trade operations, trade execution, and
portfolio activities with respect to the Fund. The Chief Financial Officer,
Chief Accounting Officer and Chief Compliance Officer acts as the Sponsor’s
principal financial and accounting officer. Furthermore, certain fundamental
actions regarding the Sponsor, such as the removal of officers, the addition or
substitution of members, or the incurrence of liabilities other than those
incurred in the ordinary course of business and de minimis liabilities, may not be taken
without the affirmative vote of a majority of the Class A members (which is
generally defined as the affirmative vote of Mr. Gilbertie and one of the other
two Class A members). The Sponsor has no board of directors, and the
Trust has no board of directors or officers. The three Class A members of the
Sponsor are Sal Gilbertie, Dale Riker and Carl N. Miller
III.
The Officers of the
Sponsor, one of whom is a Class A Member of the Sponsor, are the
following:
Sal Gilbertie has been the
President of the Sponsor since its inception, its Chief Investment Officer since
September 2011, and its Chief Executive Officer and Secretary since September
17, 2018, and was approved by the NFA as a principal of the Sponsor on September
23, 2009 and registered as an associated person of the Sponsor on November 10,
2009. He maintains his main business office at 65 Adams Road, Easton,
Connecticut 06612. Effective July 16, 2012, Mr. Gilbertie was registered
with the NFA as the Branch Manager for this location. Since October 18,
2010, Mr. Gilbertie has been an associated person of the Distributor under the
terms of the Securities Activities and Services Agreement (“SASA”) between the
Sponsor and the Distributor. Additional information regarding the SASA can
be found in the section of this disclosure document entitled “Plan of
Distribution.” From October 2005 until December 2009, Mr. Gilbertie was
employed by Newedge USA, LLC, an FCM and broker-dealer registered with the CFTC
and the SEC, where he headed the Renewable Fuels/Energy Derivatives OTC
Execution Desk and was an active futures contract and over the counter
derivatives trader and market maker in multiple classes of commodities.
(Between January 2008 and October 2008, he also held a comparable position with
Newedge Financial, Inc., an FCM and an affiliate of Newedge USA, LLC.)
From October 1998 until October 2005, Mr. Gilbertie was principal and co-founder
of Cambial Asset Management, LLC, an adviser to two private funds that focused
on equity options, and Cambial Financing Dynamics, a private boutique investment
bank. While at Cambial Asset Management, LLC and Cambial Financing
Dynamics, Mr. Gilbertie served as principal and managed the day to day
activities of the business and the portfolio of both companies. Mr.
Gilbertie is 61 years old.
Cory Mullen-Rusin, has been
the Chief Financial Officer, Chief Accounting Officer and Chief Compliance
Officer of the Sponsor since September 17, 2018 and Ms. Mullen-Rusin has primary
responsibility for the financial management, compliance and reporting of the
Sponsor and is in charge of its books of account and accounting records, and its
accounting procedures. She maintains her main business office at Three Main
Street, Suite 215, Burlington, Vermont 05401. Ms. Mullen-Rusin was approved by
the NFA as a Principal of the Sponsor on October 8, 2018. Ms. Mullen-Rusin began
working for the Sponsor in September 2011 and worked directly with the former
CFO at Teucrium for seven years. Her responsibilities included aspects of
financial planning, financial operations, and financial reporting for the Trust
and the Sponsor. Additionally, Ms. Mullen-Rusin assisted in developing,
instituting, and monitoring the effectiveness of processes and procedures to
comply with all regulatory agency requirements. Ms. Mullen-Rusin graduated from
Boston College with a Bachelor of Arts and Science in Communications in 2009,
where she was a four-year scholarship player on the NCAA Division I Women’s
Basketball team. In 2017, she earned a Master of Business Administration
from Nichols College. Ms. Mullen-Rusin is 34 years old.
Steve Kahler, Chief Operating Officer, began working for the Sponsor
in November 2011 as Managing Director in the trading division. He became the
Chief Operating Officer on May 24, 2012 and served in that capacity through
September 6, 2018, at which time he resigned. Mr. Kahler was unemployed from
September 7, 2018 until October 10, 2018, when he was reappointed as Chief
Operating Officer. Mr. Kahler is primarily responsible for making trading and
investment decisions for the Funds, and for directing each Fund’s trades for
execution. He maintains his main business office at 13520 Excelsior Blvd.,
Minnetonka, MN 55345. Mr. Kahler was listed as a Principal of the Sponsor from
May 16, 2012 to September 7, 2018 and again was listed as a Principal on October
16, 2018. Mr. Kahler was registered as an Associated Person of the Sponsor on
November 8, 2011 to September 7, 2018 and re-registered as an Associated Person
on October 5, 2018. Mr. Kahler was registered as a Branch Manager of the Sponsor
on March 16, 2012 to September 7, 2018 and was registered again from October 5,
2018 to September 29, 2021. Prior to his employment with the Sponsor, Mr. Kahler
worked for Cargill Inc., an international producer and marketer of food,
agricultural, financial and industrial products and services, from April 2006
until November 2011 in the Energy Division as Senior Petroleum Trader. In
October 2006 and while employed at Cargill Inc., Mr. Kahler was approved as an
Associated Person of Cargill Commodity Services Inc., a commodity trading
affiliate of Cargill Inc. from September 13, 2006 to November 9, 2011. Mr.
Kahler graduated from the University of Minnesota with a Bachelors of
Agricultural Business Administration and is 54 years
old.
Messrs. Gilbertie,
Riker, and Kahler and Ms. Mullen-Rusin are individual “principals,” as that term
is defined in CFTC Rule 3.1, of the Sponsor. These individuals are principals
due to their positions and/or due to their ownership interests in the Sponsor.
Beneficial ownership interests of the principals, if any, are shown under the
section entitled “Security Ownership of Principal Shareholders and Management”
below and any of the principals may acquire beneficial interests in the Fund in
the future. GFI Group LLC is a principal for the Sponsor under CFTC Rules due to
its ownership of certain non-voting securities of the Sponsor. NMSIC Classic LLC
is a principal of the Sponsor under CFTC Rules due to its greater than 10%
capital contribution to the Sponsor.
Market
Price of Shares
The Fund’s Shares have traded on the
NYSE Arca under the symbol “CANE” since September 19, 2011. The following table
sets forth the range of reported high and low sales prices of the Shares as
reported on NYSE Arca for the periods indicated below.
Fiscal Year Ended December 31, 2021: |
|
|
Quarter
Ended |
|
|
March 31,
2021 |
$7.79 |
$6.76 |
June 30,
2021 |
$8.50 |
$6.98 |
September 30,
2021 |
$9.79 |
$8.21 |
December 31,
2021 |
$9.83 |
$8.93 |
Fiscal Year Ended December 31, 2020: |
|
|
Quarter
Ended |
|
|
March 31,
2020 |
$7.59 |
$5.45 |
June 30,
2020 |
$5.95 |
$4.92 |
September 30,
2020 |
$6.20 |
$5.56 |
December 31,
2020 |
$6.75 |
$6.11 |
As
of December 31, 2021, the Fund had approximately 3,315
Shareholders.
Prior Performance
of the Fund
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
The Teucrium Sugar
Fund commenced trading and investment operations on September 19, 2011. The
Teucrium Sugar Fund is listed on NYSE Arca and is neither: (i) a privately
offered pool pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended; (ii) a multi-advisor pool as defined in CFTC Regulation 4.10(d)(2); or
(iii) a principal-protected pool as defined in CFTC Regulation
4.10(d)(3).
Units of beneficial interest
issued (from inception until February 28, 2022) |
8,800,000 |
Aggregate gross sale price for
units issued |
$78,867,264 |
Pool NAV per Share as of
February 28, 2022 |
$8.79 |
Pool NAV as of February 28,
2022 |
$19,339,193 |
Worst monthly percentage
drawdown* |
|
Worst peak to valley
drawdown** |
-78.60% / Sep 2011 – Apr
2020 |
* A drawdown is a
loss experienced by the fund over a specified period. Drawdowns are measured on
the basis of monthly returns only and do not reflect intra-month figures. The
worst monthly percentage drawdown reflects the largest single month loss
sustained over the most recent five calendar years and the current year to
date.
** The worst peak to
valley drawdown is the largest percentage decline in the NAV per unit over the
most recent five calendar years and the current year to date. This need not be a
continuous decline but can be a series of positive and negative returns. Worst
peak to valley drawdown represents the greatest percentage decline from any
month end NAV per unit that occurs without such month end NAV per unit being
equaled or exceeded as of a subsequent month end. For example, if the NAV per
unit declined by $1 in each of January and February, increased by $1 in March
and declined again by $2 in April, a “peak to valley drawdown” analysis
conducted as of the end of April would consider that “drawdown” to be continuing
and to be $3 in amount, whereas if the NAV per unit had increased by $2 in
March, the drawdown would have ended as of the end of February at the $2
level.
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
|
Rates of
Return* |
Month |
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
January |
6.62 |
% |
(8.58) |
% |
6.36 |
% |
3.83 |
% |
2.81 |
% |
(3.86) |
% |
February |
(5.34) |
% |
(1.56) |
% |
0.13 |
% |
(1.68) |
% |
7.93 |
% |
(0.89) |
% |
March |
(10.14) |
% |
(5.90) |
% |
(3.05) |
% |
(23.51) |
% |
(5.73) |
% |
|
% |
April |
(5.17) |
% |
(7.48) |
% |
(1.78) |
% |
(2.76) |
% |
13.55 |
% |
|
% |
May |
(6.89) |
% |
4.95 |
% |
(1.95) |
% |
1.25 |
% |
3.01 |
% |
|
% |
June |
(7.40) |
% |
(5.34) |
% |
1.00 |
% |
5.83 |
% |
3.17 |
% |
|
% |
July |
7.57 |
% |
(9.84) |
% |
(1.70) |
% |
4.77 |
% |
1.25 |
% |
|
% |
August |
(3.09) |
% |
(1.89) |
% |
(7.08) |
% |
0.89 |
% |
12.51 |
% |
|
% |
September |
(6.17) |
% |
(1.63) |
% |
2.58 |
% |
0.90 |
% |
(0.97) |
% |
|
% |
October |
3.08 |
% |
15.99 |
% |
(0.87) |
% |
0.16 |
% |
(2.31) |
% |
|
% |
November |
0.82 |
% |
(2.34) |
% |
2.09 |
% |
4.00 |
% |
(3.42) |
% |
|
% |
December |
(0.10) |
% |
(5.86) |
% |
4.56 |
% |
5.64 |
% |
2.22 |
% |
|
% |
Annual Rate of
Return |
(24.52) |
% |
(27.78) |
% |
(0.48) |
% |
(4.51) |
% |
37.31 |
% |
(4.72) |
%** |
*The monthly rate of
return is calculated by dividing the ending NAV for a given month by the ending
NAV for the previous month, subtracting 1 and multiplying this number by 100 to
arrive at a percentage increase or decrease.
**Not
annualized.
The sole Trustee of
the Trust is Wilmington Trust Company, a Delaware banking corporation. The
Trustee’s principal offices are located at 1100 North Market Street, Wilmington,
Delaware 19890-0001. The Trustee is unaffiliated with the Sponsor.
The Trustee’s duties and liabilities with respect to the offering of Shares and
the management of the Trust and the Fund are limited to its express obligations
under the Trust Agreement.
The Trustee will
accept service of legal process on the Trust in the State of Delaware and will
make certain filings under the Delaware Statutory Trust Act. The Trustee
does not owe any other duties to the Trust, the Sponsor or the
Shareholders. The Trustee is permitted to resign upon at least sixty (60)
days’ notice to the Sponsor. If no successor trustee has been appointed by
the Sponsor within such sixty-day period, the Trustee may, at the expense of the
Trust, petition a court to appoint a successor. The Trust Agreement
provides that the Trustee is entitled to reasonable compensation for its
services from the Sponsor or an affiliate of the Sponsor (including the Trust),
and is indemnified by the Sponsor against any expenses it incurs relating to or
arising out of the formation, operation or termination of the Trust, or any
action or inaction of the Trustee under the Trust Agreement, except to the
extent that such expenses result from the gross negligence or willful misconduct
of the Trustee. The Sponsor has the discretion to replace the
Trustee.
The Trustee has not
signed the registration statement of which this prospectus is a part and is not
subject to issuer liability under the federal securities laws for the
information contained in this prospectus and under federal securities laws with
respect to the issuance and sale of the Shares. Under such laws, neither
the Trustee, either in its capacity as Trustee or in its individual capacity,
nor any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer or a director, officer or controlling person of the
issuer of the Shares.
Under the Trust
Agreement, the Trustee has delegated to the Sponsor the exclusive management and
control of all aspects of the business of the Trust and the Fund. The
Trustee has no duty or liability to supervise or monitor the performance of the
Sponsor, nor does the Trustee have any liability for the acts or omissions of
the Sponsor.
Because the Trustee
has delegated substantially all of its authority over the operation of the Trust
to the Sponsor, the Trustee itself is not registered in any capacity with the
CFTC.
The investment objective of the Fund
is to have the daily changes in the Shares’ NAV reflect the daily changes in the
sugar market for future delivery, as measured by the Fund’s Benchmark. The
Benchmark is a weighted average of the closing settlement prices for the
Benchmark Component Futures Contracts:
CANE
Benchmark
ICE Sugar
Futures Contract |
Weighting |
Second to
expire |
35% |
Third to
expire |
30% |
Expiring in the March following
the expiration of the third to expire contract |
35% |
The Fund seeks to
achieve its investment objective by investing under normal market conditions in
Benchmark Component Futures Contracts. Under normal market conditions, the Fund
expects that 100% of the Fund’s assets will be used to trade Sugar Futures
Contracts and invest in cash and cash equivalents. The Fund reserves the right
to invest in swap agreements, forward contracts and options, a brief description
of which may be found in “Appendix A – Glossary of Defined
Terms.”
The Fund invests in
Benchmark Component Futures Contracts to the fullest extent possible without
being leveraged or unable to satisfy its current or potential margin or
collateral obligations with respect to its investments in Benchmark Component
Futures Contracts. After fulfilling such margin and collateral
requirements, the Fund invests the remainder of its proceeds from the sale of
baskets in cash and cash equivalents, including money-market funds, investment
grade commercial paper, and/or merely holds such assets in cash in
interest-bearing accounts. The Fund seeks to earn interest and other income from
the cash equivalents that it purchases, and on the cash it holds at financial
institutions.
The Fund seeks to
achieve its investment objective primarily by investing in Benchmark Component
Futures Contracts such that the changes in its NAV are expected to closely track
the changes in the Benchmark. The Fund’s positions in Benchmark Component
Futures Contracts are changed or “rolled” on a regular basis in order to track
the changing nature of the Benchmark. For example, four times a year (on
the date on which a Sugar No. 11 Futures Contract expires), the second to expire
Sugar No. 11 Futures Contract will become the next to expire Sugar No. 11
Futures Contract and will no longer be a Benchmark Component Futures Contract,
and the Fund’s investments will have to be changed accordingly. In order
that the Fund’s trading does not cause unwanted market movements and to make it
more difficult for third parties to profit by trading based on such expected
market movements, the Fund’s investments may not be rolled entirely on that day,
but rather may be rolled over a period of days.
The Fund’s total
portfolio composition is disclosed each business day that the NYSE Arca is open
for trading on the Fund’s website at www.teucrium.com . The website disclosure of
portfolio holdings is made daily and includes, as applicable, the name and value
of each commodity futures contract held and those that are pending, and the
value of cash and cash equivalents held in the Fund. The Fund’s website also
includes the NAV, the 4 p.m. Bid/Ask Midpoint as reported by the NYSE Arca, the
last trade price as reported by the NYSE Arca, the shares outstanding, the
shares available for issuance, and the shares created or redeemed on that day.
The prospectus, Monthly Statements of Account, Quarterly Performance of the
Midpoint versus the NAV (as required by the CFTC), and the Roll Dates, as well
as Forms 10-Q, Forms 10-K, and other SEC filings for the Fund, are also posted
on the website. The Fund’s website is publicly accessible at no
charge.
In seeking to achieve
the Fund’s investment objective of tracking the Benchmark, the Sponsor reserves
the right to enter into or hold Sugar Futures Contracts other than the Benchmark
Component Futures Contracts and/or other sugar interests on behalf of the Fund.
Over the counter sugar interests can generally be structured as the parties to
the contract desire. Therefore, the Fund might enter into multiple over the
counter sugar interests intended to exactly replicate the performance of each of
the three Benchmark Component Futures Contracts, or a single over the counter
sugar interest designed to replicate the performance of the Benchmark as a
whole. Assuming that there is no default by a counterparty to an over the
counter sugar interest, the performance of the sugar interest will necessarily
correlate exactly with the performance of the Benchmark or the applicable
Benchmark Component Futures Contract. The Fund might also enter into or hold
sugar interests other than the Benchmark Component Futures Contracts to
facilitate effective trading, consistent with the discussion of the Fund’s
“roll” strategy discussed in the preceding paragraph. In addition, the Fund
might enter into or hold sugar interests that would be expected to alleviate
overall deviation between the Fund’s performance and that of the Benchmark that
may result from certain market and trading inefficiencies or other
reasons.
The Sponsor endeavors
to place the Fund’s trades in Benchmark Component Futures Contracts and
otherwise manage the Fund’s investments so that the Fund’s average daily
tracking error against the Benchmark is less than 10 percent over any period of
30 trading days.
The Fund’s investment
objective is to provide investors with a cost-efficient way to gain exposure to
the sugar market for future delivery. The Sponsor developed the Benchmark as a
representation of the sugar market for future delivery. Under normal market
conditions, the Fund will invest in the Benchmark Component Futures Contracts.
The Sponsor believes that by investing in Benchmark Component Futures Contracts,
the Fund’s net asset value (“NAV”) will closely track the Benchmark. The Sponsor
also believes that because of market arbitrage opportunities, the market price
at which investors will purchase and sell Shares through their broker-dealer
will closely track the Fund’s NAV. The Sponsor believes that the net effect of
these relationships is that the Fund’s market price on the NYSE Arca at which
investors purchase and sell Shares will closely track the sugar market for
future delivery, as measured by the Benchmark.
An investment in the
Shares provides a means for diversifying an investor’s portfolio or hedging
exposure to changes in sugar prices. An investment in the Shares allows both
retail and institutional investors to easily gain this exposure to the sugar
market in a transparent, cost-effective manner.
The Sponsor employs a
“neutral” investment strategy intended to track changes in the Benchmark
regardless of whether the Benchmark goes up or goes down. The Fund’s “neutral”
investment strategy is designed to permit investors generally to purchase and
sell the Fund’s Shares for the purpose of investing indirectly in the sugar
market in a cost-effective manner. Such investors may include participants in
the sugar industry and other industries seeking to hedge the risk of losses in
their sugar related transactions, as well as investors seeking exposure to the
sugar market. Accordingly, depending on the investment objective of an
individual investor, the risks generally associated with investing in the sugar
market and/or the risks involved in hedging may exist. In addition, the Fund
does not expect there to be any meaningful correlation between the performance
of the Fund’s investments in cash and cash equivalents and the changes in the
price of sugar or Benchmark Component Futures Contracts. While the level of
interest earned on, or the market price of, these investments may in some
respects correlate to changes in the price of sugar, this correlation is not
anticipated as part of the Fund’s efforts to meet its objective. This and
certain risk factors discussed in this prospectus may cause a lack of
correlation between changes in the Fund’s NAV and changes in the price of
sugar.
The Shares issued by
the Fund may only be purchased by Authorized Purchasers and only in blocks of
25,000 Shares called Creation Baskets. The amount of the purchase payment for a
Creation Basket is equal to the aggregate NAV of Shares in the Creation Basket.
Similarly, only Authorized Purchasers may redeem Shares and only in blocks of
25,000 Shares called Redemption Baskets. The amount of the redemption proceeds
for a Redemption Basket is equal to the aggregate NAV of Shares in the
Redemption Basket. The purchase price for Creation Baskets and the redemption
price for Redemption Baskets are the actual NAV calculated at the end of the
business day when a request for a purchase or redemption is received by the
Fund. The NYSE Arca publishes an approximate NAV intra-day based on the prior
day’s NAV and the current price of the Benchmark Component Futures Contracts,
but the price of Creation Baskets and Redemption Baskets is determined based on
the actual NAV calculated at the end of each trading day.
While the Fund issues
Shares only in Creation Baskets, Shares may also be purchased and sold in much
smaller increments on the NYSE Arca. These transactions, however, are effected
at the bid and ask prices established by the specialist firm(s). Like any listed
security, Shares can be purchased and sold at any time a secondary market is
open.
The Fund’s
Investment Strategy
In managing the
Fund’s assets, the Sponsor does not use a technical trading system that
automatically issues buy and sell orders. Instead, each time one or more
baskets are purchased or redeemed, the Sponsor purchases or sells Benchmark
Component Futures Contracts with an aggregate market value that approximates the
amount of cash received or paid upon the purchase or redemption of the
basket(s).
As an example, assume
that a Creation Basket is sold by the Fund, and that the Fund’s closing NAV per
Share is $14.00. In that case, the Fund would receive $350,000 in proceeds
from the sale of the Creation Basket ($14.00 NAV per Share multiplied by 25,000
Shares and ignoring the Creation Basket fee of $250). If one were to
assume further that the Sponsor wants to invest the entire proceeds from the
Creation Basket in the Benchmark Component Futures Contracts and that the market
value of each such Benchmark Component Futures Contracts is $17,920 (or
otherwise not a round number), the Fund would be unable to buy an exact number
of Sugar Futures Contracts with an aggregate market value equal to
$350,000. Instead, the Fund would be able to purchase 19 Benchmark Component Futures Contracts
with an aggregate market value of approximately $340,480. Assuming a
margin requirement equal to 10% of the value of the Sugar Futures Contracts
(although the actual percentage is approximately 6%), the Fund would be required
to deposit $34,048 in cash with the FCM through which the Sugar Futures
Contracts were purchased. The remainder of the proceeds from the sale of
the Creation Basket, $315,952, would
remain invested in cash and/or cash equivalents, as determined by the Sponsor
from time to time based on factors such as potential calls for margin or
anticipated redemptions.
The specific sugar
interests purchased depend on various factors, including a judgment by the
Sponsor as to the appropriate diversification of the Fund’s
investments. While the Sponsor anticipates that, under normal market
conditions, a substantial majority of the Fund’s assets will be invested in ICE
Sugar Futures Contracts and cash and cash equivalents, the Sponsor reserves the
right to enter into other sugar interests on behalf of the Fund, including swaps
in the over the counter market.
The Sponsor does not
anticipate letting its Benchmark Component Futures Contracts expire and taking
delivery of sugar. Instead, the Sponsor will close out existing positions,
e.g., in response to ongoing changes in the Benchmark or if it otherwise
determines it would be appropriate to do so and reinvest the proceeds in new
Benchmark Component Futures Contracts. Positions may also be closed out to
meet orders for Redemption Baskets, in which case the proceeds from closing the
positions will not be reinvested.
Futures contracts are
agreements between two parties that are executed on a designated contract market
(“DCM”), i.e., a commodity futures exchange, and that are cleared and margined
through a derivatives clearing organization (“DCO”), i.e., a clearing
house. One party agrees to buy a commodity such as sugar from the other
party at a later date at a price and quantity agreed upon when the contract is
made. In market terminology, a party who purchases a futures contract is
long in the market and a party who sells a futures contract is short in the
market. The contractual obligations of a buyer or seller may generally be
satisfied by taking or making physical delivery of the underlying commodity or
by making an offsetting sale or purchase of an identical futures contract on the
same or linked exchange before the designated date of delivery. The
difference between the price at which the futures contract is purchased or sold
and the price paid for the offsetting sale or purchase, after allowance for
brokerage commissions, constitutes the profit or loss to the
trader.
If the price of the
commodity increases after the original futures contract is entered into, the
buyer of the futures contract will generally be able to sell a futures contract
to close out its original long position at a price higher than that at which the
original contract was purchased, generally resulting in a profit to the
buyer. Conversely, the seller of a futures contract will generally profit
if the price of the underlying commodity decreases, as it will generally be able
to buy a futures contract to close out its original short position at a price
lower than that at which the original contract was sold. Because the Fund
seeks to track the Benchmark directly and profit when the price of sugar
increases and, as a likely result of an increase in the price of sugar, the
price of Sugar Futures Contracts increases, the Fund will generally be long in
the market for sugar and will generally sell Sugar Futures Contracts only to
close out existing long positions.
Futures contracts are
typically traded on futures exchanges (i.e., DCMs) such as the ICE Futures,
which provide centralized market facilities in which multiple persons may trade
contracts. Members of a particular futures exchange and the trades
executed on such exchange are subject to the rules of that exchange.
Futures exchanges and their related clearing organizations (i.e., DCOs) are
given reasonable latitude in promulgating rules and regulations to control and
regulate their members.
Trades on a futures
exchange are generally cleared by the DCO, which provides services designed to
mutualize or transfer the credit risk arising from the trading of contracts on
an exchange. The clearing organization effectively becomes the other party
to the trade, and each clearing member party to the trade looks only to the
clearing organization for performance.
The Sugar No. 11
Futures Contract is the world benchmark contract for raw sugar trading.
This contract prices the physical delivery of raw cane sugar, delivered to the
receiver’s vessel at a specified port within the country of origin of the
sugar. Sugar No. 11 Futures Contracts trade on the ICE Futures and in
units of 112,000 pounds. The Sugar No. 16 Futures Contract prices physical
delivery of U.S.-grown (or foreign origin with duty paid by deliverer) raw cane
sugar at one of five U.S. refinery ports as selected by the receiver.
Sugar No. 16 futures contracts trade on the ICE Futures in units of 112,000
pounds. Because of the higher price of sugar in the U.S. market, Sugar No.
16 Futures Contracts tend to be priced higher than Sugar No. 11 Futures
Contracts, but each Sugar Futures Contract tends to experience similar
proportionate fluctuations in price. There is no difference between Sugar
No. 11 and Sugar No. 16 Futures Contracts in terms of the quality or type of
sugar to be delivered. Because the Benchmark Component Futures Contracts
are Sugar No. 11 Futures Contracts, the Sugar Futures Contracts entered into by
the Fund will typically be Sugar No. 11 Futures Contracts, although Sugar No.
16. Futures Contract may be entered into to a limited
extent.
Generally, futures
contracts traded on the ICE Futures are priced by floor brokers and other
exchange members through an electronic, screen-based system that electronically
determines the price by matching offers to purchase and sell. Futures
contracts may also be based on commodity indices, in that they call for a cash
payment based on the change in the value of the specified index during a
specified period. No futures contracts based on an index of sugar prices
are currently available, although the Fund could enter into such contracts
should they become available in the future.
Certain typical and
significant characteristics of Sugar Futures Contracts are discussed
below. Additional risks of investing in Sugar Futures Contracts are
included in “What are the Risk Factors Involved with an Investment in the
Fund?”
Impact of Position
Limits, Accountability Levels, and Price Fluctuation Limits.
Position Limits,
Accountability Levels, and Price Fluctuation Limits may potentially cause a
tracking error between the price of the Shares and the Benchmark. This may in
turn prevent you from being able to effectively use the Fund as a way to hedge
against sugar related losses or as a way to indirectly invest in
sugar.
It cannot be predicted
whether the Fund’s shares will trade below, at, or above their NAV. However,
when futures contracts in the Fund’s benchmark are halted or locked limit up or
down, it is likely that the Fund’s shares will trade at a premium or discount to
the Fund’s published NAV. Such premium or discount may be elevated and may or
may not reflect current market conditions of the price of futures compared to
normal market conditions. These conditions could cause the Fund to experience
prolonged tracking error from its Benchmark.
The Fund does not
intend to limit the size of the offering and will attempt to expose
substantially all of its proceeds to Benchmark Component Futures Contracts and
cash and cash equivalents. If the Fund encounters position limits,
accountability levels, or price fluctuation limits for Sugar Futures Contracts
on ICE Futures, it may then, if permitted under applicable regulatory
requirements, purchase other sugar interests and/or Sugar Futures Contracts
listed on the New York Mercantile Exchange (“NYMEX”) or foreign exchanges.
However, the Sugar Futures Contracts available on such foreign exchanges may
have different underlying sizes, deliveries, and prices. In addition, the Sugar
Futures Contracts available on these exchanges may be subject to their
own position limits and accountability levels. In any case, notwithstanding the
potential availability of these instruments in certain circumstances, position
limits could force the Fund to limit the number of Creation Baskets that it
sells.
Price
Volatility
Despite daily price
limits, the price volatility of futures contracts generally has been
historically greater than that for traditional securities such as stocks and
bonds. Price volatility often is greater day to day as opposed to
intra-day. Economic factors that may cause volatility in Sugar Futures
Contracts include changes in interest rates; governmental, agricultural, trade,
fiscal, monetary and exchange control programs and policies; weather and climate
conditions; changing supply and demand relationships; changes in balances of
payments and trade; U.S. and international rates of inflation; currency
devaluations and revaluations; U.S. and international political and economic
events; global trade disruption due to outbreaks or public health emergency as
declared by the World Health Organization; and changes in philosophies and
emotions of market participants. Because the Fund invests a significant
portion of its assets in futures contracts, the assets of the Fund, and
therefore the price of the Fund’s Shares, may be subject to greater volatility
than traditional securities.
Term Structure of
Futures Contracts and the Impact on Total Return
Over time, the price
of sugar fluctuates based on a number of market factors, including demand for
sugar relative to its supply. The value of Sugar Futures Contracts
likewise fluctuates in reaction to a number of market factors. Because the
Fund seeks to maintain its holdings in Sugar Futures Contracts with a roughly
constant expiration profile and not take delivery of the sugar, the Fund must
periodically “roll” futures contract positions, closing out soon to expire
contracts that are no longer part of the Benchmark and entering into subsequent
to expire contracts. One factor determining the total return from investing in
futures contracts is the price relationship between soon to expire contracts and
later to expire contracts.
If the futures market
is in a state of backwardation (i.e., when the price of sugar in the future is
expected to be less than the current price), the Fund will buy later to expire
contracts for a lower price than the sooner to expire contracts that it sells.
Hypothetically, and assuming no changes to either prevailing sugar prices or the
price relationship between the immediate delivery, soon to expire contracts and
later to expire contracts, the value of a contract will rise as it approaches
expiration. Over time, if backwardation remained constant, the differences would
continue to increase.
If the futures market
is in contango, the Fund will buy later to expire contracts for a higher price
than the sooner to expire contracts that it sells. Hypothetically, and assuming
no other changes to either prevailing sugar prices or the price relationship
between the spot price, soon to expire contracts and later to expire contracts,
the value of a contract will fall as it approaches expiration. Over time, if
contango remained constant, the difference would continue to increase.
Historically, the sugar futures markets have experienced periods of both
contango and backwardation. Frequently, whether contango or backwardation exists
is a function, among other factors, of the seasonality of the sugar market and
the sugar harvest cycle. All other things being equal, a situation involving
prolonged periods of contango may adversely impact the returns of the Fund;
conversely a situation involving prolonged periods of backwardation may
positively impact the returns of the Fund.
Margin
Requirements and Marking to Market Futures Positions
“Initial margin” is
an amount of funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate an open position in futures contracts. A
margin deposit is like a cash performance bond. It helps assure the
trader’s performance of the futures contracts that he or she purchases or
sells. Futures contracts are customarily bought and sold on initial margin
that represents a small percentage of the aggregate purchase or sales price of
the contract. The amount of margin required in connection with a
particular futures contract is set by the exchange on which the contract is
traded. Brokerage firms, such as the Fund’s clearing broker, carrying
accounts for traders in commodity interest contracts may require higher amounts
of margin as a matter of policy to further protect
themselves.
Futures contracts are
marked to market at the end of each trading day and the margin required with
respect to such contracts is adjusted accordingly. This process of marking
to market is designed to prevent losses from accumulating in any futures
account. Therefore, if the Fund’s futures positions have declined in
value, the Fund may be required to post “variation margin” to cover this
decline. Alternatively, if the Fund’s futures positions have increased in
value, this increase will be credited to the Fund’s account.
Over the counter Derivatives
Under normal market
conditions, the Fund expects that 100% of the Fund’s assets will be used to
trade futures and invest in cash and cash equivalents; however, the Fund has the
ability to trade over the counter contracts and swaps. A description of such
over the counter derivatives is included the statement of additional information
that is part of this prospectus under the heading “Over the counter
Derivatives.”
The Fund’s Investments in Cash and
Cash Equivalents
The Fund seeks to
have the aggregate “notional” amount of the Benchmark Component Futures
Contracts it holds approximate at all times the Fund’s aggregate NAV. At any
given time, however, most of the Fund’s investments are in cash and cash
equivalents that support the Fund’s positions in Benchmark Component Futures
Contracts. For example, the purchase of a Sugar Futures Contract with a stated
or notional amount of $10 million would not require the Fund to pay $10 million
upon entering into the contract; rather, only a margin deposit, approximately
4-6% of the notional amount, would be required. To secure its Sugar Futures
Contract obligations, the Fund would deposit the required margin with the FCM
and would separately hold its remaining assets through its Custodian or other
financial institution in cash and cash equivalents, specifically in demand
deposits, in short-term Treasury Securities held by the FCM, in money-market
funds or in commercial paper. Such remaining assets may be used to meet future
margin payments that the Fund is required to make on its Sugar Futures
Contracts. Other sugar interests typically also involve collateral requirements
that represent a small fraction of their notional amounts, so most of the Fund’s
assets dedicated to these sugar interests are also held in cash, and cash
equivalents.
The Fund earns
interest and other income from the cash equivalents that it purchases, and on
the cash, it holds through the Custodian or other financial institutions. The
earned interest and other income increase the Fund’s NAV. The Fund applies the
earned interest and other income to the acquisition of additional investments or
uses it to pay its expenses. When the Fund reinvests the earned interest and
other income, it makes investments that are consistent with its investment
objectives.
Any cash equivalent
invested in by the Fund will have a remaining maturity of less than 3 months at
the time of investment or will be subject to a demand feature that enables that
Fund to sell the security within that time period at approximately the
security’s face value (plus accrued interest). Any cash equivalents invested in
by the Fund will be or will be deemed by the Sponsor to be of investment grade
credit quality.
Other Trading Policies of the
Fund
Exchange for
Related Position
An “exchange for
related position” (“EFRP”) can be used by the Fund as a technique to facilitate
the exchanging of a futures hedge position against a creation or redemption
order, and thus the Fund may use an EFRP transaction in connection with the
creation and redemption of shares. The market specialist/market maker that is
the ultimate purchaser or seller of shares in connection with the creation or
redemption basket, respectively, agrees to sell or purchase a corresponding
offsetting shares or futures position which is then settled on the same business
day as a cleared futures transaction by the FCMs. The Fund will become subject
to the credit risk of the market specialist/market maker until the EFRP is
settled within the business day, which is typically 7 hours or less. The Fund
reports all activity related to EFRP transactions under the procedures and
guidelines of the CFTC and the exchanges on which the futures are
traded.
EFRPs are subject to
specific rules of the CME and CFTC guidance. It is likely that EFRP mechanisms
will significantly change in the future which may make it uneconomical or
impossible from a regulatory perspective for the Fund to utilize these
mechanisms.
Options on
Futures Contracts
An option on a
futures contract gives the buyer of the option the right, but not the
obligation, to buy or sell a futures contract at a specified price on or before
a specified date. The option buyer deposits the purchase price or
“premium” for the option with his broker, and the money goes to the option
seller. Regardless of how much the market swings, the most an option buyer
can lose is the option premium and the commissions and fees associated with the
transaction. However, the buyer will typically lose the premium if the
exercise price of the option is above (in the case of an option to buy or “call”
option) or below (in the case of an option to sell or “put” option) the market
value at the time of exercise. Option sellers, on the other hand, face
risks similar to participants in the futures markets. For example, since
the seller of a call option is assigned a short futures position if the option
is exercised, his risk is the same as someone who initially sold a futures
contract. Because no one can predict exactly how the market will move, the
option seller posts margin to demonstrate his ability to meet any potential
contractual obligations.
In addition to Sugar
Futures Contracts, there are also a number of options on Sugar Futures Contracts
listed on the ICE Futures. These contracts offer investors and hedgers
another set of financial vehicles to use in managing exposure to the commodities
market. The Fund may purchase and sell (write) options on Sugar Futures
Contracts in pursuing its investment objective, except that it will not sell
call options when it does not own the underlying Sugar Futures Contract.
The Fund would make use of options on Sugar Futures Contracts if, in the opinion
of the Sponsor, such an approach would cause the Fund to track its Benchmark
more closely or if it would lead to an overall lower cost of trading to achieve
a given level of economic exposure to movements in sugar
prices.
Liquidity
The Fund invests only
in Sugar Futures Contracts that, in the opinion of the Sponsor, are traded in
sufficient volume to permit the ready taking and liquidation of positions in
these financial interests and in over the counter commodity interests that, in
the opinion of the Sponsor, may be readily liquidated with the original
counterparty or through a third party assuming the Fund’s
position.
Spot
Commodities
While most futures
contracts can be physically settled, the Fund does not intend to take or make
physical delivery. However, the Fund may from time to time trade in other
sugar interests based on the spot price of sugar.
Leverage
The Sponsor endeavors
to have the value of the Fund’s cash and cash equivalents, whether held by the
Fund or posted as margin or collateral, at all times approximate the aggregate
market value of its obligations under the Fund’s Benchmark Component Futures
Contracts. Commodity pools’ trading positions in futures contracts are typically
required to be secured by the deposit of margin funds that represent only a
small percentage of a futures contract’s (or other commodity interest’s) entire
market value.
Borrowings
The Fund does not
intend to nor foresee the need to borrow money or establish credit lines. The
Fund maintains cash and cash equivalents, either held by the Fund or posted as
margin or collateral, with a value that at all times approximates the aggregate
market value of its obligations under Benchmark Component Futures Contracts. The
Fund meets its liquidity needs in the normal course of business from the
proceeds of the sale of its investments or from the cash and cash equivalents
that it intends to hold at all times.
Benchmark
Performance
The chart below shows
the percent change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the NYSE Arca, and
the Benchmark for five specific periods. The Benchmark does not reflect any
impact of expenses, which would generally reduce the Fund’s NAV, or interest
income, which would generally increase the NAV. The actual results for the NAV
include the impacts of both expenses and interest income.
Teucrium Sugar Fund
Performance as of
12/31/2021
|
|
|
|
|
|
NAV |
-3.56% |
37.31% |
9.29% |
-6.59% |
-9.23% |
Price |
-3.66% |
36.30% |
9.08% |
-6.68% |
-9.26% |
Benchmark
(TCANE) |
-3.16% |
40.02% |
11.37% |
-4.87% |
-6.80% |
The Sugar Market
Sugarcane accounts
for about 80% of the world’s sugar production, while sugar beets account for the
remainder of the world’s sugar production. Sugar manufacturers use sugar beets
and sugarcane as the raw material from which refined sugar (sucrose) for
industrial and consumer use is produced. The United States Department of
Agriculture (“USDA”) publishes two major reports annually on U.S. domestic and
worldwide sugar production and consumption. These are usually released in
November and May. In addition, the USDA publishes periodic, but not as
comprehensive, reports on sugar monthly. These reports are available on the
USDA’s website, www.usda.gov, at no charge. For more information about the Sugar
Market, please see the statement of additional information that is part of this
prospectus under the heading “The Sugar Market.”
The Fund’s Service
Providers
Contractual
Arrangements with the Sponsor and Third-Party Service
Providers
Sponsor
The Sponsor is
responsible for investing the assets of the Fund in accordance with the
objectives and policies of the Fund. In addition, the Sponsor arranges for one
or more third parties to provide administrative, custodial, accounting, transfer
agency and other necessary services to the Fund. For these third-party services,
the Fund pays the fees set forth in the table below entitled “Contractual Fees
and Compensation Arrangements with the Sponsor and Third-Party Service
Providers.” For the Sponsor’s services, the Fund is contractually obligated to
pay a monthly management fee to the Sponsor, based on average daily net assets,
at a rate equal to 1.00% per annum. The Sponsor can elect to waive the payment
of this fee in any amount at its sole discretion, at any time and from time to
time, in order to reduce the Fund’s expenses or for any other
purpose.
Custodian,
Registrar, Transfer Agent, Fund Accountant, and Fund
Administrator
In its capacity as
the Fund’s custodian, the Custodian, currently U.S. Bank, N.A., holds the Fund’s
securities, cash and/or cash equivalents pursuant to a custodial agreement. U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Global Fund Services”), an entity affiliated with U.S. Bank, N.A., is the
registrar and transfer agent for the Fund’s Shares. In addition, Global Fund
Services also serves as Administrator for the Fund, performing certain
administrative, accounting services and preparing certain SEC and CFTC reports
on behalf of the Fund. The Custodian is located at 1555 North Rivercenter Drive,
Suite 302, Milwaukee, Wisconsin 53212. U.S. Bank N.A. is a nationally chartered
bank, regulated by the Office of the Comptroller of the Currency, Department of
the Treasury, and is subject to regulation by the Board of Governors of the
Federal Reserve System. The principal address for Global Fund Services is 615
East Michigan Street, Milwaukee, WI, 53202.
Distributor
The Fund employs
Foreside Fund Services, LLC as the Distributor for the Fund. Pursuant to a
Consulting Services Agreement, Foreside Consulting Services, LLC, performs
certain consulting support services for the Trust’s Sponsor, Teucrium Trading,
LLC. Additionally, Foreside Distributors, LLC performs certain distribution
consulting services pursuant to a Distribution Consulting Agreement with the
Trust’s Sponsor, Teucrium Trading, LLC.
The Distribution
Services Agreement among the Distributor, the Sponsor, and the Trust calls for
the Distributor to work with the Custodian in connection with the receipt and
processing of orders for Creation Baskets and Redemption Baskets and the review
and approval of all Fund sales literature and advertising materials. The
Distributor and the Sponsor have also entered into a Securities Activities and
Service Agreement (the “SASA”) under which certain employees and officers of the
Sponsor are licensed as registered representatives or registered principals of
the Distributor, under “FINRA” rules (“Registered Representatives”). As
Registered Representatives of the Distributor, these persons are permitted to
engage in certain marketing activities for the Fund that they would otherwise
not be permitted to engage in. Under the SASA, the Sponsor is obligated to
ensure that such marketing activities comply with applicable law and are
permitted by the SASA and the Distributor’s internal
procedures.
The Distributor’s
principal business address is Three Canal Plaza, Suite 100, Portland, Maine
04101. The Distributor is a broker-dealer registered with the U.S. Securities
and Exchange Commission (“SEC”) and a member of FINRA.
Clearing
Broker
E D & F Man
Capital Markets, Inc. (“E D & F Man”) and StoneX Financial Inc. – FCM
Division of INTL FCStone Financial Inc. (StoneX) serve as the Fund’s clearing
brokers to execute and clear the Fund’s futures transactions and provide other
brokerage-related services.
E D & F Man and
StoneX (the “Clearing Brokers”) are each registered as an FCM with the CFTC, are
members of the National Futures Association (“NFA”) and are clearing members of
all major U.S. futures exchanges. The clearing brokers are registered as
broker-dealers (“BD”) with the U.S. Securities and Exchange Commission (“SEC”)
and are each a member of the Financial Industry Regulatory Authority, Inc.
(“FINRA”).
Except as indicated
below, there have been no material civil, administrative, or criminal
proceedings pending, on appeal, or concluded against the clearing brokers or
their principals in the past five (5) years.
Litigation
disclosure for E D & F Man
United
States District Court for the Southern District of New York, Civil Action No.
19-CV-8217
In a private
litigation, plaintiffs allege, among other things, that E D & F Man made
certain fraudulent misrepresentations to them that they relied upon in
connection with a futures account carried by E D & F Man in its capacity as
a futures commission merchant. The plaintiffs allege claims of common law fraud,
negligence, breach of fiduciary duty, breach of contract, breach of the duty of
good faith and fair dealing and misrepresentation/omission and seek compensatory
damages of approximately $2,029,659 plus interest, costs, attorneys’ fees and
punitive damages. E D & F Man filed an Amended Answer and a Counterclaim in
which E D & F Man denies the substantive allegations against it and asserted
a counterclaim for breach of contract, indemnification and legal fees. On June
30, 2021, E D & F Man received the Opinion and Order in which the judge
ruled against the plaintiffs and in favor of E D & F Man . Judgment was
entered in favor of E D & F Man in the amount of $1,762,266.57, plus
prejudgment interest and attorney’s fees and costs. On September 29, 2021, E D
& F Man received an Opinion and Order in which the judge awarded E D & F
Man $1,402,234.32 in attorneys’ fees and costs.
For a list of
concluded actions, please go to http://www.nfa.futures.org/basicnet/welcome.aspx. This link will take you to the Welcome Page of
the NFA’s Background Affiliation Status Information Center (“BASIC”). At this
page, there is a box where you can enter the NFA ID of E D & F Man Capital
Markets Inc. (0002613) and then click “Go”. You will be transferred to the NFA’s
information specific to E D & F Man Capital Markets Inc. Under the heading
“Regulatory Actions,” click “details” and you will be directed to the full list
of regulatory actions brought by the CFTC and exchanges.
Litigation
disclosure for the FCM Division of INTL FCStone Financial
Inc.
Updated: September 29,
2020
Below is a list of
material, administrative, civil, enforcement, or criminal complaints or actions
filed against StoneX Financial Inc. – FCM (f/k/a INTL FCStone Financial Inc. -
FCM Division) that are outstanding, and any enforcement actions or complaints
filed against the StoneX Financial Inc. - FCM Division in the past five years
which meet the materiality thresholds in CTFC regulations 4.24.(l) and
4.34(k).
●
On November 14, 2017,
INTL FCStone Financial Inc., without admission or denial or liability, entered
into a settlement with the Commodity Futures Trading Commission (“CFTC”). The
CFTC found that INTL FCStone Financial Inc. failed to have adequate compliance
controls to identify trades improperly designated as EFRPs. According to the
CFTC Order, the firm failed to determine that the EFPs at issue had the
necessary corresponding and related cash or OTC derivative position required for
EFRPs. The CFTC Order also found that the firm failed to ensure that the EFPs at
issue were documented properly. Finally, the firm failed to ensure that its
employees involved in the execution, handling, and processing of EFRPs
understood the requirements for executing, handing, and processing valid EFRPs.
INTL FCStone Financial Inc., and its affiliate FCStone Merchant Services,
jointly paid a $280,000 civil monetary penalty to the
CFTC.
●
After a historic move
in the natural gas market in November of 2018, INTL FCStone Financial Inc. – FCM
Division (“IFF”) experienced a number of customer deficits. IFF soon thereafter
initiated NFA arbitrations, seeking to collect these debits, and has also been
countersued and sued in a number of these arbitrations. These accounts were
managed by Optionsellers.com, (“Optionsellers”) who is a Commodity Trading
Advisor (“CTA”) authorized by investors to act as attorney-in-fact with
exclusive trading authority over these investors’ trading accounts. These
accounts cleared through IFF. After this significant and historic natural gas
market movement, the accounts declined below required maintenance margin levels.
IFF’s role in managing the accounts was limited. As a clearing firm, IFF did not
provide any investment advice, trading advice, or recommendations to customers
of Optionsellers who chose to clear with IFF. Instead, it simply executed and
cleared trades placed by Optionsellers on behalf of Optionsellers’ customers.
Optionsellers is a CFTC registered CTA operating under a CFTC Rule 4.7 exemption
from registration. Optionsellers engaged in a strategy that primarily involved
selling options on futures products. The arbitrations between IFF,
Optionsellers, and the Optionsellers customers are currently
ongoing.
The FCM division of
the INTL FCStone Financial, Inc. (“IFF”) is subject to litigation and regulatory
enforcement in the normal course of business. Except as discussed above, the
current or pending civil litigation, administrative proceedings, or enforcement
actions in which the firm is involved are not expected to have a material effect
upon its condition, financial or otherwise. The firm vigorously defends, as a
matter of policy, civil litigation, reparation, arbitration proceedings, and
enforcement actions brought against it.
The clearing brokers,
in their capacity as registered FCMs, will serve as the Fund's clearing brokers
and, as such, will arrange for the execution and clearing of the Fund's futures
and options on futures transactions. Each broker acts as clearing broker for
many other funds and individuals.
Investors should be
advised that the clearing brokers are not affiliated with and do not act as a
supervisor of the Fund or the Fund's Sponsor, investment managers, members,
officers, administrators, transfer agents, registrars or organizers.
Additionally, the clearing brokers do not act as an underwriter or sponsor of
the offering of any shares or interests in the Fund and have not passed upon the
adequacy of this prospectus, the merits of participating in this offering or on
the accuracy of the information contained herein.
Additionally, the
clearing brokers do not provide any commodity trading advice regarding the
Fund's trading activities. Investors should not rely upon the clearing brokers
in deciding whether to invest in the Fund or retain their interests in the Fund.
Investors should also note that the Fund may select additional clearing brokers
or replace each entity as the Fund's clearing brokers.
Payments to
Certain Third Parties
The Sponsor employs
Thales Capital Partners LLC (“Thales”) for distribution and solicitation-related
services. Thales is registered as a broker-dealer with the SEC and is a member
of the Financial Industry Regulatory Authority (FINRA) and SIPC. Thales receives
a quarterly fee of $18,750 or 0.10% of new assets raised in referred accounts
for distribution and solicitation-related services. This fee based on new assets
raised is determined by an agreed upon level of assets at the time of signing
the contract.
Commodity Trading
Advisor
Currently, the
Sponsor does not employ commodity trading advisors. If, in the future, the
Sponsor does employ commodity trading advisors, it will choose each advisor
based on arm’s length negotiations and will consider the advisor’s experience,
fees, and reputation.
Contractual Fees
and Compensation Arrangements with the Sponsor and Third-Party Service
Providers
Service
Provider |
Compensation Paid by the
Fund |
Teucrium
Trading, LLC, Sponsor |
1.00% of
average net assets annually |
U.S. Bank N.A.,
Custodian
U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
Transfer Agent, Fund Accountant and Fund
Administrator |
For custody
services: 0.0075% of average gross assets up to $1 billion, and .0050% of
average gross assets over $1 billion, annually, plus certain
per-transaction charges
For Transfer
Agency, Fund Accounting and Fund Administration services, based on the
total assets for all the Teucrium Funds in the Trust: 0.05% of average
gross assets on the first $500 million, 0.04% on the next $500 million,
0.03% on the next $2 billion and 0.02% on the balance over $3 billion
annually
A combined
minimum annual fee of $47,000 for custody, transfer agency, accounting and
administrative services is assessed per Fund. |
Foreside Fund
Services, LLC, Distributor |
Subject to a
maximum of $625,812 for the Trust for the two-year period of May 1, 2021
to May 1, 2023 (the “two year offering period”), the Distributor receives:
0.01% of the Fund’s average daily net assets, and an aggregate annual fee
of $100,000 for all Teucrium Funds. For the two year offering period, the
Distributor also receives expense reimbursements for sales and advertising
review fees subject to a maximum of $6,000 per fund.
Under the
Securities Activities and Service Agreement (the “SASA”), the Distributor
receives compensation from the fund for its activities on behalf of all
the Teucrium Funds. For the two year offering period, the Distributor will
not exceed $78,000 for all Teucrium Funds and will receive reimbursements
relating to the registration, continuing education and other
administrative expenses of the Registered Representatives for each
offering, not to exceed $54,000 for all Teucrium
Funds.
|
E D & F Man
Capital Markets, Inc., Futures Commission Merchant and Clearing
Broker
|
$4.50 per Futures Contract half-turn, Effective
April 1, 2022 - $5.50 per Futures Contract
half-turn |
StoneX Financial Inc., Futures Commission Merchant
and Clearing Broker
|
$1.25 per Futures Contract
half-turn exclusive of pass through fees for the exchange and NFA.
Additionally, if the monthly commissions paid does not equal or exceed 20%
return on capital, the Fund will pay a true up to meet that return at the
end of each month.
|
Wilmington
Trust Company, Trustee
Employees of
the Sponsor Registered
with the
Distributor (the “Registered Representatives”) |
$3,300 annually
for the Trust
For
non-marketing services to all Teucrium Funds, approximately $132,350 and,
for marketing and wholesaling purposes, approximately $397,050. These
amounts include expenses that will be reimbursed to the Registered
Representatives for continuing education, travel, and other expenses
related to their activities for the Fund.
|
Other
Non-Contractual Payments by the Fund
The Fund pays
for all brokerage fees, taxes and other expenses, including licensing fees for
the use of intellectual property, registration or other fees paid to the SEC,
FINRA, or any other regulatory agency in connection with the offer and sale of
subsequent Shares after its initial registration and all legal, accounting,
printing and other expenses associated therewith. The Fund also pays its portion
of the fees and expenses for services directly attributable to the Fund such as
accounting, financial reporting, regulatory compliance and trading activities,
which the Sponsor elected not to outsource. Certain aggregate expenses common to
all Teucrium Funds within the Trust are allocated by the Sponsor to the
respective funds based on activity drivers deemed most appropriate by the
Sponsor for such expenses, including but not limited to relative assets under
management and creation order activity. These aggregate common expenses include,
but are not limited to, legal, auditing, accounting and financial reporting,
tax-preparation, regulatory compliance, trading activities, and insurance costs,
as well as fees paid to the Distributor. A portion of these aggregate common
expenses are related to the Sponsor or related parties of principals of the
Sponsor; these are necessary services to the Teucrium Funds, which are primarily
the cost of performing certain accounting and financial reporting, regulatory
compliance, and trading activities that are directly attributable to the Fund
and are included, primarily, in distribution and marketing
fees.
|
Year Ended
December 31,
2021 |
Year Ended
December 31,
2020 |
Year Ended
December 31,
2019 |
Recognized Related Party
Transactions |
$
124,660 |
$
126,960 |
$
183,750 |
Waived Related Party
Transactions |
$
48,034 |
$
50,547 |
$
77,532 |
The Sponsor can elect
to pay (or waive reimbursement for) certain fees or expenses that would
generally be paid for by the Fund, although it has no contractual obligation to
do so. Any election to pay or waive reimbursement for fees that would generally
be paid by the Fund, can be changed at the discretion of the Sponsor. All
asset-based fees and expenses are calculated on the prior day's net
assets.
The contractual and
non-contractual fees and expenses paid by the Fund as described above (exclusive
of the Sponsor’s management fee and estimated brokerage fees) are as follows,
net of any expenses waived by the Sponsor. These are also the “Other Fund Fees
and Expenses” included in the section entitled “Breakeven Analysis” in this
prospectus on page 6.
|
|
Professional Fees1 |
$0.02 |
Distribution and Marketing Fees2 |
0.03 |
Custodian Fees and Expenses3 |
- |
General and Administrative Fees4 |
0.01 |
Business Permits and
Licenses |
0.01 |
Other
Expenses |
- |
Total Other
Fund Fees and Expenses |
$0.07 |
(1) Professional fees
consist of primarily, but not entirely, legal, auditing and tax-preparation
related costs.
(2) Distribution and
marketing fees consist of primarily, but not entirely, fees paid to the
Distributor (Foreside Fund Services, LLC), costs related to regulatory
compliance activities, costs related to marketing and solicitation services, and
other costs related to the trading activities of the Fund.
(3) Custodian and
Administrator fees consist of fees to the Administrator and the Custodian for
accounting, transfer agent and custodian activities.
(4) General and
Administrative fees consist of primarily, but not entirely, insurance and
printing costs.
Asset-based fees are
calculated on a daily basis (accrued at 1/365 of the applicable percentage of
NAV on that day) and paid on a monthly basis. NAV is calculated by taking the
current market value of the Fund’s total assets and subtracting any
liabilities.
Registered
Form
Shares are issued in
registered form in accordance with the Trust Agreement. Global Fund
Services has been appointed registrar and transfer agent for the purpose of
transferring Shares in certificated form. Global Fund Services keeps
a record of all Shareholders and holders of the Shares in certificated form in
the registry (“Register”). The Sponsor recognizes transfers of Shares
in certificated form only if done in accordance with the Trust
Agreement. The beneficial interests in such Shares are held in
book-entry form through participants and/or accountholders in
DTC.
Book
Entry
Individual
certificates are not issued for the Shares. Instead, Shares are
represented by one or more global certificates, which are deposited by the
Administrator with DTC and registered in the name of Cede & Co., as nominee
for DTC. The global certificates evidence all of the Shares
outstanding at any time. Shareholders are limited to (1) participants
in DTC such as banks, brokers, dealers and trust companies (“DTC Participants”),
(2) those who maintain, either directly or indirectly, a custodial relationship
with a DTC Participant (“Indirect Participants”), and (3) those who hold
interests in the Shares through DTC Participants or Indirect Participants, in
each case who satisfy the requirements for transfers of Shares. DTC
Participants acting on behalf of investors holding Shares through such
participants’ accounts in DTC will follow the delivery practice applicable to
securities eligible for DTC’s Same Day Funds Settlement
System. Shares are credited to DTC Participants’ securities accounts
following confirmation of receipt of payment.
DTC
DTC is a limited
purpose trust company organized under the laws of the State of New York and is a
member of the Federal Reserve System, a “clearing corporation” within the
meaning of the New York Uniform Commercial Code and a “clearing agency”
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (“the Exchange Act”). DTC holds securities for DTC
Participants and facilitates the clearance and settlement of transactions
between DTC Participants through electronic book-entry changes in accounts of
DTC Participants.
The Shares are only
transferable through the book-entry system of DTC. Shareholders who
are not DTC Participants may transfer their Shares through DTC by instructing
the DTC Participant holding their Shares (or by instructing the Indirect
Participant or other entity through which their Shares are held) to transfer the
Shares. Transfers are made in accordance with standard securities
industry practice.
Transfers of
interests in Shares with DTC are made in accordance with the usual rules and
operating procedures of DTC and the nature of the transfer. DTC has
established procedures to facilitate transfers among the participants and/or
accountholders of DTC. Because DTC can only act on behalf of DTC
Participants, who in turn act on behalf of Indirect Participants, the ability of
a person or entity having an interest in a global certificate to pledge such
interest to persons or entities that do not participate in DTC, or otherwise
take actions in respect of such interest, may be affected by the lack of a
certificate or other definitive document representing such
interest.
DTC has advised us
that it will take any action permitted to be taken by a Shareholder (including,
without limitation, the presentation of a global certificate for exchange) only
at the direction of one or more DTC Participants in whose account with DTC
interests in global certificates are credited and only in respect of such
portion of the aggregate principal amount of the global certificate as to which
such DTC Participant or Participants has or have given such
direction.
Inter-Series Limitation on
Liability
Because the Trust was
established as a Delaware statutory trust, each Teucrium Fund and each other
series that may be established under the Trust in the future will be operated so
that it will be liable only for obligations attributable to such series and will
not be liable for obligations of any other series or affected by losses of any
other series. If any creditor or shareholder of any particular series
(such as the Fund) asserts against the series a valid claim with respect to its
indebtedness or shares, the creditor or shareholder will only be able to obtain
recovery from the assets of that series and not from the assets of any other
series or the Trust generally. The assets of the Fund and any other
series will include only those funds and other assets that are paid to, held by
or distributed to the series on account of and for the benefit of that series,
including, without limitation, amounts delivered to the Trust for the purchase
of shares in a series. This limitation on liability is referred to as
the Inter-Series Limitation on Liability. The Inter-Series Limitation
on Liability is expressly provided for under the Delaware Statutory Trust Act,
which provides that if certain conditions (as set forth in Section 3804(a)) are
met, then the debts of any particular series will be enforceable only against
the assets of such series and not against the assets of any other series or the
Trust generally. In furtherance of the Inter-Series Limitation on
Liability, every party providing services to the Trust, the Fund or the Sponsor
on behalf of the Trust or the Fund, will acknowledge and consent in writing to
the Inter-Series Limitation on Liability with respect to such party’s
claims.
The existence of a
Trustee should not be taken as an indication of any additional level of
management or supervision over the Fund. Consistent with Delaware
law, the Trustee acts in an entirely passive role, delegating all authority for
the management and operation of the Fund and the Trust to the
Sponsor. The Trustee does not provide custodial services with respect
to the assets of the Fund.
Buying and
Selling Shares
Most investors buy
and sell Shares of the Fund in secondary market transactions through
brokers. Shares trade on the NYSE Arca under the ticker symbol
“CANE.” Shares are bought and sold throughout the trading day like
other publicly traded securities. When buying or selling Shares
through a broker, most investors incur customary brokerage commissions and
charges. Investors are encouraged to review the terms of their
brokerage account for details on applicable charges and, as discussed below
under “U.S. Federal Income Tax Considerations,” any provisions authorizing the
broker to borrow Shares held on your behalf.
Distributor and
Authorized Purchasers
The offering of the
Fund’s Shares is a best efforts offering. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their NAV through the Distributor, to
Authorized Purchasers. Deutsche Bank Securities, Inc. was the initial Authorized
Purchaser. The initial Authorized Purchaser purchased two Creation Baskets of
50,000 Shares each at a per Share price of $25.00 on September 18, 2011. All
Authorized Purchasers pay a $250 fee for each Creation Basket
order.
The following
entities have entered into Authorized Purchaser Agreements with respect to the
Fund: J.P. Morgan Securities LLC; Merrill
Lynch Professional Clearing Corp.; Goldman Sachs & Co.; Citadel Securities
LLC; and Virtu Americas LLC. Effective October 16, 2020, Deutsche Bank
Securities Inc. terminated their agreement as an Authorized Purchaser for the
Fund.
Because new Shares
can be created and issued on an ongoing basis, at any point during the life of
the Fund, a “distribution,” as such term is used in the 1933 Act, will be
occurring. Authorized Purchasers, other broker-dealers and other persons are
cautioned that some of their activities may result in their being deemed
participants in a distribution in a manner that would render them statutory
underwriters and subject them to the prospectus delivery and liability
provisions of the 1933 Act. For example, an Authorized Purchaser, other
broker-dealer firm or its client will be deemed a statutory underwriter if it
purchases a basket from the Fund, breaks the basket down into the constituent
Shares and sells the Shares to its customers; or if it chooses to couple the
creation of a supply of new Shares with an active selling effort involving
solicitation of secondary market demand for the Shares. In contrast, Authorized
Purchasers may engage in secondary market or other transactions in Shares that
would not be deemed “underwriting.” For example, an Authorized Purchaser may act
in the capacity of a broker or dealer with respect to Shares that were
previously distributed by other Authorized Purchasers. A determination of
whether a particular market participant is an underwriter must take into account
all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the activities that
would lead to designation as an underwriter and subject them to the prospectus
delivery and liability provisions of the 1933 Act.
Dealers who are
neither Authorized Purchasers nor “underwriters” but are nonetheless
participating in a distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an “unsold
allotment” within the meaning of Section 4(a)(3)(C) of the 1933 Act, would be
unable to take advantage of the prospectus delivery exemption provided by
Section 4(a)(3) of the 1933 Act.
The Sponsor expects
that any broker-dealers selling Shares will be members of FINRA. Investors
intending to create or redeem baskets through Authorized Purchasers in
transactions not involving a broker-dealer registered in such investor’s state
of domicile or residence should consult their legal advisor regarding applicable
broker-dealer regulatory requirements under the state securities laws prior to
such creation or redemption.
While the Sponsor may
indemnify the Authorized Purchasers, they will not be entitled to receive a
discount or commission from the Trust or the Sponsor for their purchases of
Creation Baskets.
The Fund’s NAV per
Share is calculated by:
|
● |
taking the
current market value of its total assets, and |
|
● |
subtracting any
liabilities and dividing the balance by the number of
Shares. |
Global Fund Services,
in its capacity as the “Administrator,” calculates the NAV of the Fund once each
trading day. It calculates NAV as of the earlier of the close of the
New York Stock Exchange or 4:00 p.m. (EST). The NAV for a particular
trading day is released after 4:15 p.m. (EST).
For purposes of
determining the value of Sugar Futures Contracts, the Administrator uses the ICE
Futures settlement price, except that the “fair value” of Sugar Futures
Contracts (as described in more detail below) may be used when Sugar Futures
Contracts close at their price fluctuation limit for the day. The
Administrator determines the value of all other Fund investments as of the
earlier of the close of the New York Stock Exchange or 4:00 p.m. (EST), in
accordance with the current Services Agreement between the Administrator and the
Trust. The value of over the counter Sugar Interests is determined
based on the value of the commodity or Futures Contract underlying such sugar
interest, except that a fair value may be determined if the Sponsor believes
that the Fund is subject to significant credit risk relating to the counterparty
to such sugar interest. NAV includes any unrealized profit or loss
on open sugar interests and any other credit or debit accruing to the Fund but
unpaid or not received by the Fund.
The fair value of a
sugar interest is determined by the Sponsor in good faith and in a manner that
assesses the sugar interest’s value based on a consideration of all available
facts and all available information on the valuation date. When a
Sugar Futures Contract has closed at its price fluctuation limit, the fair value
determination attempts to estimate the price at which such Sugar Futures
Contract would be trading in the absence of the price fluctuation limit (either
above such limit when an upward limit has been reached or below such limit when
a downward limit has been reached). Typically, this estimate will be
made primarily by reference to the price of comparable sugar interests trading
in the over the counter market. The fair value of a sugar interest
may not reflect such security’s market value or the amount that the Fund might
reasonably expect to receive for the sugar interest upon its current
sale.
In addition, in order
to provide updated information relating to the Fund for use by investors and
market professionals, ICE Data Indices, LLC calculates and disseminates
throughout the trading day an updated “indicative fund value.” The
indicative fund value is calculated by using the prior day’s closing NAV per
Share of the Fund as a base and updating that value throughout the trading day
to reflect changes in the value of the Fund’s sugar interests during the trading
day. Changes in the value of cash and cash equivalents are not
included in the calculation of indicative value. For this and other
reasons, the indicative fund value disseminated during NYSE Arca trading hours
should not be viewed as an actual real time update of the NAV. NAV is
calculated only once at the end of each trading day.
The indicative fund
value is disseminated on a per Share basis every 15 seconds during regular NYSE
Arca trading hours of 9:30 a.m. (EST) to 4:00 p.m. (EST). The normal trading hours for Sugar
Futures Contracts on ICE Futures are generally shorter than those of the NYSE
Arca. This means that there is a gap in time at the beginning and the end of
each day during which the Fund’s Shares are traded on the NYSE Arca, but
real-time ICE trading prices for Sugar Futures Contracts traded on such exchange
are not available. As a result, during those gaps there is no update to the
indicative fund value. The trading hours for the ICE can be found at: http://www.theice.com/productguide/Search.shtml?tradingHours=.
ICE Data Indices, LLC
disseminates the indicative fund value through the facilities of CTA/CQ High
Speed Lines. In addition, the indicative fund value is available
through on-line information services such as Bloomberg and
Reuters.
Dissemination of the
indicative fund value provides additional information that is not otherwise
available to the public and is useful to investors and market professionals in
connection with the trading of Fund Shares on the NYSE
Arca. Investors and market professionals are able throughout the
trading day to compare the market price of the Fund and the indicative fund
value. If the market price of Fund Shares diverges significantly from
the indicative fund value, market professionals may have an incentive to execute
arbitrage trades. For example, if the Fund appears to be trading at a
discount compared to the indicative fund value, a market professional could buy
Fund Shares on the NYSE Arca, aggregate them into Redemption Baskets, and
receive the NAV of such Shares by redeeming them to the Trust, provided that
there is not a minimum number of shares outstanding for the
Fund. Such arbitrage trades can tighten the tracking between the
market price of the Fund and the indicative fund value.
Creation and Redemption of
Shares
The Fund creates and
redeems Shares from time to time, but only in one or more Creation Baskets or
Redemption Baskets. The creation and redemption of baskets are only
made in exchange for delivery to the Fund or the distribution by the Fund of the
amount of cash, cash equivalents and/or commodity futures equal to the combined
NAV of the number of Shares included in the baskets being created or redeemed
determined as of 4:00 p.m. (EST) on the day the order to create or redeem
baskets is properly received.
Authorized Purchasers
are the only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be (1) either registered
broker-dealers or other securities market participants, such as banks and other
financial institutions, that are not required to register as broker-dealers to
engage in securities transactions as described below, and (2) DTC
Participants. To become an Authorized Purchaser, a person must enter
into an Authorized Purchaser Agreement with the Sponsor. The
Authorized Purchaser Agreement provides the procedures for the creation and
redemption of baskets and for the delivery of the cash, cash equivalents and/or
commodity futures required for such creations and redemptions. The
Authorized Purchaser Agreement and the related procedures attached thereto may
be amended by the Sponsor, without the consent of any Shareholder, and the
related procedures may generally be amended by the Sponsor without the consent
of the Authorized Purchaser. Authorized Purchasers pay a transaction
fee of $250 to the Custodian for each creation order they place and a fee of
$250 per order for redemptions. Authorized Purchasers who make
deposits with the Fund in exchange for baskets receive no fees, commissions or
other form of compensation or inducement of any kind from either the Trust or
the Sponsor, and no such person will have any obligation or responsibility to
the Trust or the Sponsor to effect any sale or resale of
Shares.
Certain Authorized
Purchasers are expected to be capable of participating directly in the physical
sugar and the sugar interest markets. Some Authorized Purchasers or
their affiliates may from time to time buy or sell sugar or sugar interests and
may profit in these instances.
Each Authorized
Purchaser will be required to be registered as a broker-dealer under the
Exchange Act and a member in good standing with FINRA or be exempt from being or
otherwise not required to be registered as a broker-dealer or a member of FINRA
and will be qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires. Certain
Authorized Purchasers may also be regulated under federal and state banking laws
and regulations. Each Authorized Purchaser has its own set of rules
and procedures, internal controls and information barriers it deems appropriate
in light of its own regulatory regime.
Under the Authorized
Purchaser Agreement, the Sponsor has agreed to indemnify the Authorized
Purchasers against certain liabilities, including liabilities under the 1933
Act, and to contribute to the payments the Authorized Purchasers may be required
to make in respect of those liabilities.
The following
description of the procedures for the creation and redemption of baskets is only
a summary and an investor should refer to the relevant provisions of the Trust
Agreement and the form of Authorized Purchaser Agreement for more detail, each
of which has been incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. See “Where You Can Find
More Information” for information about where you can obtain the registration
statement.
Creation
Procedures
On any business day,
an Authorized Purchaser may place an order with Global Fund Services in their
capacity as the transfer agent to create one or more baskets. For
purposes of processing purchase and redemption orders, a “business day” means
any day other than a day when any of the NYSE Arca, ICE Futures, or the New York
Stock Exchange is closed for regular trading. Purchase orders must be
placed by 12:00 p.m. (EST) or the close of regular trading on the New York Stock
Exchange, whichever is earlier. The day on which the Distributor
receives a valid purchase order is referred to as the purchase order
date.
By placing a purchase
order, an Authorized Purchaser agrees to deposit cash, cash equivalents,
commodity futures and/or a combination thereof with the Fund, as described
below. Prior to the delivery of baskets for a purchase order, the
Authorized Purchaser must also have wired to the Sponsor the non-refundable
transaction fee due for the purchase order. Authorized Purchasers may
not withdraw a purchase order without the prior consent of the Sponsor in its
discretion.
Determination of
Required Deposits
The total deposit
required to create each basket (“Creation Basket Deposit”) is the amount of
cash, cash equivalents and/or commodity futures that is in the same proportion
to the total assets of the Fund (net of estimated accrued but unpaid fees,
expenses and other liabilities) on the purchase order date as the number of
Shares to be created under the purchase order is in proportion to the total
number of Shares outstanding on the purchase order date. The Sponsor
determines, directly in its sole discretion or in consultation with the
Custodian and the Administrator, the requirements for cash, cash equivalents
and/or commodity futures, including the remaining maturities of the cash
equivalents, which may be included in deposits to create baskets. If
cash equivalents are to be included in a Creation Basket Deposit for orders
placed on a given business day, the Administrator will publish an estimate of
the Creation Basket Deposit requirements at the beginning of such
day.
Delivery of
Required Deposits
An Authorized
Purchaser who places a purchase order is responsible for transferring to the
Fund’s account with the Custodian the required amount of cash, cash equivalents
and/or commodity futures by the end of the next business day following the
purchase order date or by the end of such later business day, not to exceed
three business days after the purchase order date, as agreed to between the
Authorized Purchaser and the Custodian when the purchase order is placed (the
“Purchase Settlement Date”). Upon receipt of the deposit amount, the
Custodian directs DTC to credit the number of baskets ordered to the Authorized
Purchaser’s DTC account on the Purchase Settlement Date.
Because orders to
purchase baskets must be placed by 12:00 p.m., (EST), but the total payment
required to create a basket during the continuous offering period will not be
determined until 4:00 p.m., (EST), on the date the purchase order is received,
Authorized Purchasers will not know the total amount of the payment required to
create a basket at the time they submit an irrevocable purchase order for the
basket. The Fund’s NAV and the total amount of the payment required
to create a basket could rise or fall substantially between the time an
irrevocable purchase order is submitted and the time the amount of the purchase
price in respect thereof is determined.
Rejection of
Purchase Orders
The Sponsor acting by
itself or through the Distributor or transfer agent may reject a purchase order
or a Creation Basket Deposit if:
|
● |
it determines
that, due to position limits or otherwise, investment alternatives that
will enable the Fund to meet its investment objective are not available or
practicable at that time; |
|
● |
it determines
that the purchase order or the Creation Basket Deposit is not in proper
form; |
|
● |
it believes
that acceptance of the purchase order or the Creation Basket Deposit would
have adverse tax consequences to the Fund or its
Shareholders; |
|
● |
the acceptance
or receipt of the Creation Basket Deposit would, in the opinion of counsel
to the Sponsor, be unlawful; |
|
● |
circumstances
outside the control of the Sponsor, Distributor or transfer agent make it,
for all practical purposes, not feasible to process creations of
baskets; |
|
● |
there is a
possibility that any or all of the Benchmark Component Futures Contracts
of the Fund on the ICE Futures from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction;
or |
|
● |
if, in the sole
discretion of the Sponsor, the execution of such an order would not be in
the best interest of the Fund or its
Shareholders. |
None of the Sponsor,
Distributor or transfer agent will be liable for the rejection of any purchase
order or Creation Basket Deposit.
Redemption
Procedures
The procedures by
which an Authorized Purchaser can redeem one or more baskets mirror the
procedures for the creation of baskets. On any business day, an
Authorized Purchaser may place an order with the transfer agent to redeem one or
more baskets. Redemption orders must be placed by 12:00 p.m. (EST) or
the close of regular trading on the New York Stock Exchange, whichever is
earlier. A redemption order so received will be effective on the date
it is received in satisfactory form by the Distributor. The
redemption procedures allow Authorized Purchasers to redeem baskets and do not
entitle an individual Shareholder to redeem any Shares in an amount less than a
Redemption Basket, or to redeem baskets other than through an Authorized
Purchaser. By placing a redemption order, an Authorized Purchaser
agrees to deliver the baskets to be redeemed through DTC’s book-entry system to
the Fund by the end of the next business day following the effective date of the
redemption order or by the end of such later business day. Prior to the delivery
of the redemption distribution for a redemption order, the Authorized Purchaser
must also have wired to the Sponsor’s account at the Custodian the
non-refundable transaction fee due for the redemption order. An
Authorized Purchaser may not withdraw a redemption order without the prior
consent of the Sponsor in its discretion.
Determination of
Redemption Distribution
The redemption
distribution from the Fund consists of a transfer to the redeeming Authorized
Purchaser of an amount of cash, cash equivalents and/or commodity futures that
is in the same proportion to the total assets of the Fund (net of estimated
accrued but unpaid fees, expenses and other liabilities) on the date the order
to redeem is properly received as the number of Shares to be redeemed under the
redemption order is in proportion to the total number of Shares outstanding on
the date the order is received. The Sponsor, directly or in consultation with
the Custodian and the Administrator, determines the requirements for cash, cash
equivalents and/or commodity futures, including the remaining maturities of the
cash equivalents and cash, which may be included in distributions to redeem
baskets. If cash equivalents are to be included in a redemption distribution for
orders placed on a given business day, the Custodian and Administrator will
publish an estimate of the redemption distribution composition as of the
beginning of such day.
Delivery of
Redemption Distribution
The redemption
distribution due from a Fund will be delivered to the Authorized Purchaser on
the Redemption Settlement Date if the Fund’s DTC account has been credited with
the baskets to be redeemed. If the Fund’s DTC account has not been
credited with all of the baskets to be redeemed by the end of such date, the
redemption distribution will be delivered to the extent of whole baskets
received. Any remainder of the redemption distribution will be
delivered on the next business day after the Redemption Settlement Date to the
extent of remaining whole baskets received. Pursuant to information
from the Sponsor, the Custodian will also be authorized to deliver the
redemption distribution notwithstanding that the baskets to be redeemed are not
credited to the Fund’s DTC account by noon (EST) on the Redemption Settlement
Date if the Authorized Purchaser has collateralized its obligation to deliver
the baskets through DTC’s book-entry system on such terms as the Sponsor may
from time to time determine.
Suspension or
Rejection of Redemption Orders
The Sponsor may, in
its discretion, suspend the right of redemption, or postpone the redemption
settlement date, (1) for any period during which the NYSE Arca or ICE Futures is
closed other than customary weekend or holiday closings, or trading on the NYSE
Arca or ICE Futures is suspended or restricted, (2) for any period during which
an emergency exists as a result of which delivery, disposal or evaluation of
cash equivalents is not reasonably practicable, (3) for such other period as the
Sponsor determines to be necessary for the protection of the Shareholders, (4)
if there is a possibility that any or all of the Benchmark Component Futures
Contracts of the Fund on the ICE Futures from which the NAV of the Fund is
calculated will be priced at a daily price limit restriction, or (5) if, in the
sole discretion of the Sponsor, the execution of such an order would not be in
the best interest of the Fund or its Shareholders. For example, the
Sponsor may determine that it is necessary to suspend redemptions to allow for
the orderly liquidation of the Fund’s assets at an appropriate value to fund a
redemption. If the Sponsor has difficulty liquidating the Fund’s
positions, e.g., because of a market disruption event in the futures markets or
an unanticipated delay in the liquidation of a position in an over the counter
contract, it may be appropriate to suspend redemptions until such time as such
circumstances are rectified. None of the Sponsor, the Distributor, or
the transfer agent will be liable to any person or in any way for any loss or
damages that may result from any such suspension or
postponement.
Redemption orders
must be made in whole baskets. The Sponsor will reject a redemption order if the
order is not in proper form as described in the Authorized Purchaser Agreement
or if the fulfillment of the order, in the opinion of its counsel, might be
unlawful. The Sponsor may also reject a redemption order if the
number of Shares being redeemed would reduce the remaining outstanding Shares to
50,000 Shares (i.e., two baskets of 25,000 Shares each) or less, unless the
Sponsor has reason to believe that the placer of the redemption order does in
fact possess all the outstanding Shares of the Fund and can deliver
them.
Creation and
Redemption Transaction Fees
To compensate for
expenses in connection with the creation and redemption of baskets, an
Authorized Purchaser is required to pay a transaction fee of $250 per order to
the Custodian. The transaction fees may be reduced, increased or
otherwise changed by the Sponsor.
Tax
Responsibility
Authorized Purchasers
are responsible for any transfer tax, sales or use tax, stamp tax, recording
tax, value added tax or similar tax or governmental charge applicable to the
creation or redemption of baskets, regardless of whether or not such tax or
charge is imposed directly on the Authorized Purchaser, and agree to indemnify
the Sponsor and the Fund if they are required by law to pay any such tax,
together with any applicable penalties, additions to tax and interest
thereon.
Secondary Market
Transactions
As noted, the Fund
will create and redeem Shares from time to time, but only in one or more
Creation Baskets or Redemption Baskets. The creation and redemption
of baskets are only made in exchange for delivery to the Fund or the
distribution by the Fund of the amount of cash, cash equivalents, and/or
commodity futures equal to the aggregate NAV of the number of Shares included in
the baskets being created or redeemed determined on the day the order to create
or redeem baskets is properly received.
As discussed above,
Authorized Purchasers are the only persons that may place orders to create and
redeem baskets. Authorized Purchasers must be registered
broker-dealers or other securities market participants, such as banks and other
financial institutions that are not required to register as broker-dealers to
engage in securities transactions. An Authorized Purchaser is under
no obligation to create or redeem baskets, and an Authorized Purchaser is under
no obligation to offer to the public Shares of any baskets it does
create. Authorized Purchasers that do offer to the public Shares from
the baskets they create will do so at per Share offering prices that are
expected to reflect, among other factors, the trading price of the Shares on the
NYSE Arca, the NAV of the Shares at the time the Authorized Purchaser purchased
the Creation Baskets, the NAV of the Shares at the time of the offer of the
Shares to the public, the supply of and demand for Shares at the time of sale,
and the liquidity of the sugar interest markets. The prices of Shares
offered by Authorized Purchasers are expected to fall between the Fund’s NAV and
the trading price of the Shares on the NYSE Arca at the time of
sale. Shares initially comprising the same basket but offered by
Authorized Purchasers to the public at different times may have different
offering prices. An order for one or more baskets may be placed by an
Authorized Purchaser on behalf of multiple clients. Shares are
expected to trade in the secondary market on the NYSE Arca. Shares
may trade in the secondary market at prices that are lower or higher relative to
their NAV per Share. The amount of the discount or premium in the
trading price relative to the NAV per Share may be influenced by various
factors, including the number of investors who seek to purchase or sell Shares
in the secondary market and the liquidity of the sugar interest
markets. While the Shares trade on the NYSE Arca until 4:00 p.m.
(EST), liquidity in the markets for sugar interests may be reduced after the
close of the ICE Futures. As a result, during this time, trading
spreads, and the resulting premium or discount, on the Shares may
widen.
The Sponsor causes
the Fund to transfer the proceeds of the sale of Creation Baskets to the
Custodian or another financial institution for use in trading activities and/or
investment in Benchmark Component Futures Contracts and cash and cash
equivalents. Under normal market conditions, the Sponsor invests the Fund’s
assets in Benchmark Component Futures Contracts and cash and cash equivalents.
When the Fund purchases Benchmark Component Futures Contracts, the Fund is
required to deposit with the FCM on behalf of the exchange a portion of the
value of the contract or other interest as security to ensure payment for the
obligation under the Benchmark Component Futures Contracts at maturity. This
deposit is known as initial margin. Counterparties in transactions in over the
counter sugar interests will generally impose similar collateral requirements on
the Fund. The Sponsor invests the Fund’s assets that remain after margin and
collateral is posted in cash and cash equivalents. Subject to these margin and
collateral requirements, the Sponsor has sole authority to determine the
percentage of assets that will be:
|
● |
held as margin
or collateral with FCMs or other custodian; |
|
● |
used for other
investments; and |
|
● |
held in bank
accounts to pay current obligations and as
reserves. |
In general, the Fund
expects that it will be required to post approximately 4-6% of the notional
amount of a Benchmark Component Futures Contracts as initial margin when
entering into such Benchmark Component Futures Contracts. Ongoing margin and
collateral payments will generally be required for both exchange-traded and over
the counter sugar interests based on changes in the value of the sugar
interests. Furthermore, ongoing collateral requirements with respect to over the
counter sugar interests are negotiated by the parties, and may be affected by
overall market volatility, volatility of the underlying commodity or index, the
ability of the counterparty to hedge its exposure under the sugar interest, and
each party’s creditworthiness. In light of the differing requirements for
initial payments under exchange-traded and over the counter sugar interests and
the fluctuating nature of ongoing margin and collateral payments, it is not
possible to estimate what portion of the Fund’s assets will be posted as margin
or collateral at any given time. Cash and cash equivalents held by the Fund
constitute reserves that are available to meet ongoing margin and collateral
requirements. All interest or other income is used for the Fund’s
benefit.
An FCM, counterparty,
government agency or commodity exchange could increase margin or collateral
requirements applicable to the Fund to hold trading positions at any
time. Moreover, margin is merely a security deposit and has no
bearing on the profit or loss potential for any positions held. Further, under
recently adopted CFTC rules, the Fund may be obligated to post both initial and
variation margin with respect to swaps (and options that qualify as swaps) and
traded over-the -counter, and, where applicable, on SEFs.
The approximate 4-6%
of the Fund’s assets held by the FCM are held in segregation pursuant to the CEA
and CFTC regulations.
The following
paragraphs are a summary of certain provisions of the Trust Agreement. The
following discussion is qualified in its entirety by reference to the Trust
Agreement.
Authority of the
Sponsor
The Sponsor is
generally authorized to perform all acts deemed necessary to carry out the
purposes of the Trust and to conduct the business of the Trust. The Trust and
the Fund will continue to exist until terminated in accordance with the Trust
Agreement.
The Sponsor’s
Obligations
In addition to the
duties imposed by the Delaware Trust Statute, under the Trust Agreement the
Sponsor has obligations as a Sponsor of the Trust, which include, among others,
responsibility for certain organizational and operational requirements of the
Trust, as well as fiduciary responsibility for the safekeeping and use of the
Trust’s assets, whether or not in the Sponsor’s immediate possession or
control.
To the extent that,
at law (common or statutory) or in equity, the Sponsor has duties (including
fiduciary duties) and liabilities relating thereto to the Trust, the Fund, the
Shareholders or to any other person, the Sponsor will not be liable to the
Trust, the Fund, the Shareholders or to any other person for its good faith
reliance on the provisions of the Trust Agreement or this prospectus unless such
reliance constitutes gross negligence or willful misconduct on the part of the
Sponsor. The provisions of the Trust Agreement, to the extent they restrict or
eliminate the duties and liabilities of the Sponsor otherwise existing at law or
in equity, replace such other duties and liabilities of the
Sponsor.
Liability and
Indemnification
Under the Trust
Agreement, the Sponsor, the Trustee and their respective Affiliates
(collectively, “Covered Persons”) shall have no liability to the Trust, the
Fund, or to any Shareholder for any loss suffered by the Trust or the Fund which
arises out of any action or inaction of such Covered Person if such Covered
Person, in good faith, determined that such course of conduct was in the best
interest of the Trust or the Fund and such course of conduct did not constitute
gross negligence or willful misconduct of such Covered Person. Subject to the
foregoing, neither the Sponsor nor any other Covered Person shall be personally
liable for the return or repayment of all or any portion of the capital or
profits of any Shareholder or assignee thereof, it being expressly agreed that
any such return of capital or profits made pursuant to the Trust Agreement shall
be made solely from the assets of the applicable Teucrium Fund without any
rights of contribution from the Sponsor or any other Covered Person. A Covered
Person shall not be liable for the conduct or willful misconduct of any
administrator or other delegate selected by the Sponsor with reasonable care,
provided, however, that the Trustee and its Affiliates shall not, under any
circumstances be liable for the conduct or willful misconduct of any
administrator or other delegate or any other person selected by the Sponsor to
provide services to the Trust.
The Trust Agreement
also provides that the Sponsor shall be indemnified by the Trust (or by a series
separately to the extent the matter in question relates to a single series or
disproportionately affects a specific series in relation to other series)
against any losses, judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it in connection with its activities for
the Trust, provided that (i) the Sponsor was acting on behalf of or performing
services for the Trust and has determined, in good faith, that such course of
conduct was in the best interests of the Trust and such liability or loss was
not the result of gross negligence,
willful misconduct, or a breach of the Trust Agreement on the part of the
Sponsor and (ii) any such indemnification will only be recoverable from the
assets of the applicable series. The Sponsor’s rights to indemnification
permitted under the Trust Agreement shall not be affected by the dissolution or
other cessation to exist of the Sponsor, or the withdrawal, adjudication of
bankruptcy or insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy Code by or
against the Sponsor.
Notwithstanding the
above, the Sponsor shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of U.S. federal or state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves the indemnification of such
expenses (including, without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation, litigation
costs), or (iii) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification of the
settlement and related costs should be made.
The payment of any
indemnification shall be allocated, as appropriate, among the Trust’s series.
The Trust and its series shall not incur the cost of that portion of any
insurance which insures any party against any liability, the indemnification of
which is prohibited under the Trust Agreement.
Expenses incurred in
defending a threatened or pending action, suit or proceeding against the Sponsor
shall be paid by the Trust in advance of the final disposition of such action,
suit or proceeding, if (i) the legal action relates to the performance of duties
or services by the Sponsor on behalf of the Trust; (ii) the legal action is
initiated by a party other than the Trust; and (iii) the Sponsor undertakes to
repay the advanced funds with interest to the Trust in cases in which it is not
entitled to indemnification.
The Trust Agreement
provides that the Sponsor and the Trust shall indemnify the Trustee and its
successors, assigns, legal representatives, officers, directors, shareholders,
employees, agents and servants (the “Trustee Indemnified Parties”) against any
liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes
on the compensation received for services as Trustee or on indemnity payments
received), claims, actions, suits, costs, expenses or disbursements which may be
imposed on a Trustee Indemnified Party relating to or arising out of the
formation, operation or termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is a party, or the action
or inaction of the Trustee under the Trust Agreement or any other agreement,
except for expenses resulting from the gross negligence or willful misconduct of
a Trustee Indemnified Party. Further, certain officers of the Sponsor are
insured against liability for certain errors or omissions which an officer may
incur or that may arise out of his or her capacity as such.
In the event the
Trust is made a party to any claim, dispute, demand or litigation or otherwise
incurs any liability or expense as a result of or in connection with any
Shareholder’s (or assignee’s) obligations or liabilities unrelated to the Trust
business, such Shareholder (or assignees cumulatively) is required under the
Trust Agreement to indemnify the Trust for all such liability and expense
incurred, including attorneys’ and accountants’ fees.
Withdrawal of the
Sponsor
The Sponsor may
withdraw voluntarily as the Sponsor of the Trust only upon ninety (90) days’
prior written notice to the holders of the Trust’s outstanding shares and the
Trustee. If the withdrawing Sponsor is the last remaining Sponsor,
shareholders holding a majority (over 50%) of the outstanding shares of the
Teucrium Funds, voting together as a single class (not including shares acquired
by the Sponsor through its initial capital contribution) may vote to elect a
successor Sponsor. The successor Sponsor will continue the business
of the Trust. Shareholders have no right to remove the
Sponsor.
In the event of
withdrawal, the Sponsor is entitled to a redemption of the shares it acquired
through its initial capital contribution to any of the series of the Trust at
their NAV per Share. If the Sponsor withdraws and a successor Sponsor
is named, the withdrawing Sponsor shall pay all expenses as a result of its
withdrawal.
Meetings
Meetings of the
Trust’s shareholders may be called by the Sponsor and will be called by it upon
the written request of Shareholders holding at least 25% of the outstanding
Shares of the Trust or the Fund, as applicable (not including Shares acquired by
the Sponsor through its initial capital contribution). The Sponsor shall deposit
in the United States mail or electronically transmit written notice to all
Shareholders of the Fund of the meeting and the purpose of the meeting, which
shall be held on a date not less than 30 nor more than 60 days after the date of
mailing of such notice, at a reasonable time and place. Where the meeting is
called upon the written request of the shareholders of the Fund, or any other
Teucrium Fund, as applicable, such written notice shall be mailed or transmitted
not more than 45 days after such written request for a meeting was received by
the Sponsor.
Voting
Rights
Shareholders have no
voting rights with respect to the Trust or the Fund except as expressly provided
in the Trust Agreement. The Trust Agreement provides that shareholders
representing at least a majority (over 50%) of the outstanding shares of the
Teucrium Funds voting together as a single class (excluding shares acquired by
the Sponsor in connection with its initial capital contribution to any Trust
series) may vote to (i) continue the Trust by electing a successor Sponsor as
described above, and (ii) approve amendments to the Trust Agreement that impair
the right to surrender Redemption Baskets for redemption. (Trustee consent to
any amendment to the Trust Agreement is required if the Trustee reasonably
believes that such amendment adversely affects any of its rights, duties or
liabilities.) In addition, shareholders holding shares representing seventy-five
percent (75%) of the outstanding shares of the Teucrium Funds, voting together
as a single class (excluding shares acquired by the Sponsor in connection with
its initial capital contribution to any Trust series) may vote to dissolve the
Trust upon not less than ninety (90) days’ notice to the Sponsor.
Limited Liability
of Shareholders
Shareholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the general corporation law
of Delaware, and no Shareholder shall be liable for claims against, or debts of
the Trust or the Fund in excess of his share of the Fund’s assets. The Trust or
the Fund shall not make a claim against a Shareholder with respect to amounts
distributed to such Shareholder or amounts received by such Shareholder upon
redemption unless, under Delaware law, such Shareholder is liable to repay such
amount.
The Trust or the Fund
shall indemnify to the full extent permitted by law and the Trust Agreement each
Shareholder (excluding the Sponsor to the extent of its ownership of any Shares
acquired through its initial capital contribution) against any claims of
liability asserted against such Shareholder solely because of its ownership of
Shares (other than for taxes on income from Shares for which such Shareholder is
liable).
The Trust Agreement
provides that every written note, bond, contract, instrument, certificate or
undertaking made or issued by or on behalf of the Fund shall give notice to the
effect that the obligations of such instrument are not binding upon the
Shareholders individually but are binding only upon the assets and property of
the Fund.
The Sponsor Has Conflicts of
Interest
There are present and
potential future conflicts of interest in the Trust’s structure and operation
you should consider before you purchase Shares. The Sponsor may use this notice
of conflicts as a defense against any claim or other proceeding
made.
The Sponsor’s
principals, officers and employees, do not devote their time exclusively to the
Funds. Notwithstanding obligations and expectations related to the management of
the Sponsor, the Sponsor’s principals, officers and employees may be directors,
officers or employees of other entities, and may manage assets of other
entities, including the other Teucrium Funds, through the Sponsor or otherwise.
As a result, the principals could have a conflict between responsibilities to
the Fund on the one hand and to those other entities on the
other.
The Sponsor and its
principals, officers and employees may trade securities, futures and related
contracts for their own accounts, creating the potential for preferential
treatment of their own accounts. Shareholders will not be permitted to inspect
the trading records of such persons, or any written policies of the Sponsor
related to such trading. A conflict of interest may exist if their trades are in
the same markets and at approximately the same times as the trades for the Fund.
A potential conflict also may occur when the Sponsor’s principals trade their
accounts more aggressively or take positions in their accounts which are
opposite, or ahead of, the positions taken by the Fund.
The Sponsor has sole
current authority to manage the investments and operations of the Fund, and this
may allow it to act in a way that furthers its own interests which may create a
conflict with your best interests, including the authority of the Sponsor to
allocate expenses to and between the Teucrium Funds. Shareholders have very
limited voting rights with respect to the Fund, which will limit the ability to
influence matters such as amendment of the Trust Agreement, change in the Fund’s
basic investment policies, or dissolution of the Fund or the
Trust.
The Sponsor serves as
the Sponsor to the Teucrium Funds and may in the future serve as the Sponsor or
investment adviser to commodity pools other than the Teucrium Funds. The Sponsor
may have a conflict to the extent that its trading decisions for the Fund may be
influenced by the effect they would have on the other pools it manages. In
addition, the Sponsor may be required to indemnify the officers and directors of
the other pools, if the need for indemnification arises. This potential
indemnification will cause the Sponsor’s assets to decrease. If the Sponsor’s
other sources of income are not sufficient to compensate for the
indemnification, it could cease operations, which could in turn result in Fund
losses and/or termination of the Fund.
In addition, the
Sponsor may be required to indemnify the officers and directors of the other
pools, if the need for indemnification arises. This potential indemnification
will cause the Sponsor’s assets to decrease. If the Sponsor’s other sources of
income are not sufficient to compensate for the indemnification, it could cease
operations, which could in turn result in Fund losses and/or termination of the
Fund.
If the Sponsor
acquires knowledge of a potential transaction or arrangement that may be an
opportunity for the Fund, it shall have no duty to offer such opportunity to the
Fund. The Sponsor will not be liable to the Fund or the Shareholders for breach
of any fiduciary or other duty if the Sponsor pursues such opportunity or
directs it to another person or does not communicate such opportunity to the
Fund and is not required to share income or profits derived from such business
ventures with the Fund.
Resolution of
Conflicts Procedures
The Trust Agreement
provides that whenever a conflict of interest exists between the Sponsor or any
of its Affiliates, on the one hand, and the Trust, any shareholder of a Trust
series, or any other person, on the other hand, the Sponsor shall resolve such
conflict of interest, take such action or provide such terms, considering in
each case the relative interest of each party (including its own interest) to
such conflict, agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or accepted industry practices, and
any applicable generally accepted accounting practices or principles. In the
absence of bad faith by the Sponsor, the resolution, action or terms so made,
taken or provided by the Sponsor shall not constitute a breach of the Trust
Agreement or any other agreement contemplated therein or of any duty or
obligation of the Sponsor at law or in equity or
otherwise.
Interests of Named Experts and
Counsel
No expert hired by
the Fund to give advice on the preparation of this offering document has been
hired on a contingent fee basis, nor do any of them have any present or
future expectation of interest in the Sponsor, Distributor, Authorized
Purchasers, Custodian/Administrator or other service providers to the
Fund.
Provisions of Federal and State Securities
Laws
This offering is made
pursuant to federal and state securities laws. The SEC and state
securities agencies take the position that indemnification of the Sponsor that
arises out of an alleged violation of such laws is prohibited unless certain
conditions are met. Those conditions require that no indemnification
of the Sponsor or any underwriter for the Fund may be made in respect of any
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws unless: (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the party seeking indemnification and the court approves
the indemnification; (ii) such claim has been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the party seeking
indemnification; or (iii) a court of competent jurisdiction approves a
settlement of the claims against the party seeking indemnification and finds
that indemnification of the settlement and related costs should be made,
provided that, before seeking such approval, the Sponsor or other indemnitee
must apprise the court of the position held by regulatory agencies against such
indemnification.
The Trust keeps its
books of record and account at its office located at Three Main Street, Suite
215, Burlington, VT 05401, or at the offices of the Administrator, U.S. Bancorp
Fund Services, LLC, doing business as U.S. Bank Global Fund Services located at
777 E. Wisconsin Ave, Milwaukee, Wisconsin 53202, or such office, including of
an administrative agent, as it may subsequently designate upon notice. The
books of account of the Fund are open to inspection by any Shareholder (or any
duly constituted designee of a Shareholder) at all times during the usual
business hours of the Fund upon reasonable advance notice to the extent such
access is required under CFTC rules and regulations. In addition, the
Trust keeps a copy of the Trust Agreement on file in its office which will be
available for inspection by any Shareholder at all times during its usual
business hours upon reasonable advance notice.
Statements, Filings, and Reports to
Shareholders
The Trust will
furnish to DTC Participants for distribution to Shareholders annual reports (as
of the end of each fiscal year) for the Fund as are required to be provided to
Shareholders by the CFTC and the NFA. These annual reports will
contain financial statements prepared by the Sponsor and audited by an
independent registered public accounting firm designated by the
Sponsor. The Trust will also post monthly reports to the Fund’s
website (www.teucrium.com). These
monthly reports will contain certain unaudited financial information regarding
the Fund, including the Fund’s NAV. The Sponsor will furnish to the
Shareholders other reports or information which the Sponsor, in its discretion,
determines to be necessary or appropriate. In addition, under SEC
rules the Trust will be required to file quarterly and annual reports for the
Fund with the SEC, which need not be sent to Shareholders but will be publicly
available through the SEC. The Trust will post the same information
that would otherwise be provided in the Trust’s CFTC, NFA and SEC reports on the
Fund’s website: www.teucrium.com.
The accountants’
report on its audit of the Fund’s financial statements will be furnished by the
Trust to Shareholders upon request. The Trust will file such tax returns, and
prepare, disseminate and file such tax reports for the Fund as it is advised by
its counsel or accountants are from time to time required by any applicable
statute, rule or regulation and will make such tax elections for the Fund as it
deems advisable.
PricewaterhouseCoopers (“PwC”), 2001 Ross Avenue, Suite
1800, Dallas, Texas 75201-2997, will provide tax information in accordance with
the Code and applicable U.S. Treasury Regulations. Persons treated as
intermediaries for purposes of these regulations may obtain tax information
regarding the Fund from PwC or from the Fund’s website,
www.teucrium.com.
Fiscal Year
The fiscal year of
the Fund is the calendar year.
Governing Law
The rights of the
Sponsor, the Trust, the Fund, DTC (as registered owner of the Fund’s global
certificate for Shares) and the Shareholders are governed by the laws of the
State of Delaware, except with respect to causes of action for violations of
U.S. federal or state securities laws. The Trust Agreement and the effect of
every provision thereof shall control over any contrary or limiting statutory or
common law of the State of Delaware, other than the Delaware Trust
Statute.
Security Ownership of Principal
Shareholders and Management
The following table sets forth
information with respect to each person or entity known to own beneficially more
than 5% of the outstanding shares of CANE as of December 31, 2021, based on
information known to the Sponsor.
(1)
Title of
Class |
(2)
Name and
Address of Beneficial Owner |
(3)
Amount and
Nature of Beneficial Ownership |
(4)
Percent of
Class |
CANE |
Teucrium
Agricultural Fund
Burlington,
VT
|
389,317 common
units (1) |
15.7% |
CANE |
Korea
Securities Depository
Busan, Korea,
Republic of (South) |
144,804 common
units (1) |
5.8% |
(1)
These individuals and
entities have not filed any public reports with the
SEC.
The following table
sets forth information regarding the beneficial ownership of shares of CANE by
the executive officers of the Sponsor as of February 28, 2022. Except as
listed, no other executive officer of the Sponsor is a beneficial owner of
shares of the Fund.
(1)
Title of
Class |
(2)
Name of Beneficial
Owner |
(3)
Amount and nature of Beneficial
Ownership |
(4)
Percent of
Class |
CANE |
Sal
Gilbertie |
500 common
units |
* |
*Less than
1%.
Legal Matters
Litigation and
Claims
On November 30, 2020,
certain officers and members of Teucrium Trading, LLC (the “Sponsor”), along
with the Sponsor, filed a Verified Complaint (as amended through the Amended
Verified Complaint filed on February 18, 2021) (the “Gilbertie complaint”) in
the Delaware Court of Chancery, C.A. No. 2020-1018-AGB. The Gilbertie complaint asserts various claims
against Dale Riker, the Sponsor’s former Chief Executive Officer and Barbara
Riker, the Sponsor’s former Chief Financial Officer and Chief Compliance
Officer. Sal Gilbertie v. Dale
Riker, et al., C.A. No.
2020-1018-AGB (Del. Ch.) (the “Gilbertie case”)
Among other things,
the Gilbertie complaint responded to and addressed certain allegations that Mr.
Riker had made in a draft complaint that he threatened to file (and subsequently
did file) in New York Supreme Court. See Dale
Riker v. Sal Gilbertie, et al., No. 656794-2020 (N.Y. Sup. Ct.). On April
22, 2021, the Supreme Court of the State of New York, New York County dismissed
Mr. Riker’s case without prejudice to the case being refiled after the
conclusion of the Gilbertie case in
Delaware Chancery Court. See Dale Riker, et al.
v. Teucrium Trading, LLC et al, Decision + Order on Motions, No.
6567943-2020 (N.Y. Sup. Ct) (Apr. 22, 2021).
The Gilbertie
complaint asserts claims for a declaration concerning the effects of the final
order and judgment in an earlier books and records action; for a declaration
concerning Mr. Riker’s allegation that Mr. Gilbertie had entered into an
agreement to purchase Mr. Riker’s equity in the Sponsor; for an order compelling
the return of property from Mr. Riker; for a declaration concerning Mr. Riker’s
allegations that the Sponsor and certain of the plaintiffs had improperly
removed him as an officer and caused purportedly false financial information to
be published; for breach of Ms. Riker’s separation agreement with the Sponsor;
for tortious interference by Mr. Riker with Ms. Riker’s separation agreement;
for a declaration concerning the releases that had been provided to Ms. Riker
through her separation agreement; for breach of the Sponsor’s Operating
Agreement by Mr. Riker; and for breach of fiduciary duty by Mr.
Riker.
On June 29, 2021,
Dale Riker, individually and derivatively on behalf of the Sponsor, filed a new
suit in the Court of Chancery of the State of Delaware against the Sponsor’s
officers and certain of the Sponsor’s Class A Members. See Dale Riker v. Salvatore Gilbertie et al., C.A.
No. 2021-0561-LWW. (the “Riker case”).
On September 7, 2021, Dale Riker and Barbara Riker filed their answers to the
Gilbertie complaint. As a result of the
Court having ordered the consolidation of the Gilbertie case and Riker case, the claims in the Riker case were re-filed as counterclaims in
the Gilbertie case, which accompanied
the Rikers’ answers. The now-consolidated Gilbertie case and the Riker case is captioned Sal Gilbertie, Cory Mullen-Rusin, Steve Kahler, Carl
Miller III, and Teucrium Trading LLC v. Dale Riker and Barbara Riker,
C.A. No. 2020-1018-LWW.
Through their
counterclaims, the Rikers assert direct and derivative claims for breach of
fiduciary duty, breach of contract, declaratory relief, specific performance,
unjust enrichment, fraud, and conspiracy to commit fraud. The Sponsor intends to
pursue its claims and defend vigorously against the Rikers’ counterclaims in
Delaware.
Except as described
above, within the past 10 years of the date of this prospectus, there have been
no material administrative, civil or criminal actions against the Sponsor, the
Trust or the Fund, or any principal or affiliate of any of them. This includes
any actions pending, on appeal, concluded, threatened, or otherwise known to
them.
Legal
Opinion
Vedder Price P.C.
(“Vedder Price”) has been retained to advise the Trust and the Sponsor with
respect to the Shares being offered hereby and has passed upon the validity of
the Shares being issued hereunder. Vedder Price P.C. has also
provided the Sponsor with its opinion with respect to U.S. federal income tax
matters addressed below in “U.S. Federal Income Tax
Considerations.”
Experts
The financial
statements of the Trust and the Fund incorporated by reference in this
prospectus and elsewhere in the registration statement have been so incorporated
by reference in reliance upon the reports of Grant Thornton LLP (“Grant
Thornton”), independent registered public accountants, upon the authority of
said firm as experts in accounting and auditing.
Privacy Policy
The following
discussion is qualified in its entirety by reference to the privacy policy. A
copy of the privacy policy is available at www.teucrium.com.
The Sponsor, the
Trust, and the Teucrium Funds have adopted a privacy policy relating to the
collection, maintenance, and use of nonpublic personal information about the
Teucrium Funds’ current and former investors, as required under federal law.
Federal law gives investors the right to limit
some but not all sharing of their nonpublic personal information. Federal law
also requires the Sponsor to tell investors how it collects, shares, and
protects such nonpublic personal information.
Collection of
Nonpublic Personal Information
The Sponsor may
collect or have access to nonpublic personal information about current and
former Fund investors for certain purposes relating to the operation of the
Funds. This information may include information received from investors, such as
their name, social security number, telephone number, and address, and
information about investors’ holdings and transactions in shares of the Teucrium
Funds.
Use and
Disclosure of Nonpublic Personal Information
The Sponsor does not
sell nonpublic personal information to any third parties. The Sponsor primarily
uses investors’ nonpublic personal information to complete financial
transactions that may be requested. The Sponsor may disclose investors’
nonpublic personal information to third parties under specific circumstances
described in the privacy policy. These circumstances include, among others,
information needed to complete financial transactions, information released at
the direction of an investor, and certain information requested by courts,
regulators, law enforcement, or tax authorities. Investors may not opt out of
these disclosures.
Investors’ nonpublic
personal information, particularly information about investors’ holdings and
transactions in shares of the Teucrium Funds, may be shared between and amongst
the Sponsor and the Teucrium Funds. An investor
cannot opt-out of the sharing of nonpublic personal information between and
amongst the Sponsor and the Teucrium Funds. However, the Sponsor and the
Teucrium Funds will not use this information for any cross-marketing purposes.
In other words, all investors will be treated as
having “opted out” of receiving marketing solicitations from Teucrium Funds
other than the Teucrium Fund(s) in which it invests.
Protection of
Nonpublic Personal Information
As described in the
privacy policy, the Sponsor takes safeguards to protect investors’ nonpublic
personal information, which include, among others, restricting access to such
information, requiring third parties to follow appropriate standards of security
and confidentiality, and maintaining physical, technical, administrative, and
procedural safeguards.
Teucrium’s Website is
hosted in the United States and any data provided to Teucrium is stored in the
United States. If you choose to provide Personal Data from regions outside of
the United States, then by your submission of such data, you acknowledge and
agree that: (a) you are transferring your personal information outside of those
regions to the United States voluntarily and with consent; (b) the laws and
regulations of the United States shall govern your use of the provision of your
information, which laws and regulations may differ from those of your country of
residence; and (c) you permit your personal information to be used for the
purposes herein and in the Privacy Policy above.
U.S. Federal Income Tax
Considerations
The following
discussion summarizes the material U.S. federal income tax consequences of the
purchase, ownership and disposition of Shares of the Fund and the U.S. federal
income tax treatment of the Fund. Except where noted otherwise, it deals only
with the tax consequences relating to Shares held as capital assets by U.S.
Shareholders (as defined below) who are not subject to special tax treatment.
For example, in general it does not address the tax consequences, such as, but
not limited to dealers in securities or currencies or commodities, traders in
securities or dealers or traders in commodities that elect to use a mark to
market method of accounting, financial institutions, tax-exempt entities (except
as discussed below), insurance companies, persons holding Shares as a part of a
position in a “straddle” or as part of a “hedging,” “conversion” or other
integrated transaction for U.S. federal income tax purposes, persons with
“applicable financial statements” within the meaning of Section 451(b) of Code
or holders of Shares whose “functional currency” is not the U.S. dollar.
Furthermore, the discussion below is based on the provisions of the Code, and
regulations (“Treasury Regulations”), rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed, revoked or modified
(possibly with retroactive effect) so as to result in U.S. federal income tax
consequences different from those discussed below.
The Sponsor has
received the opinion of Vedder Price, counsel to the Trust, that the material
U.S. federal income tax consequences to the Fund and to U.S. Shareholders and
Non-U.S. Shareholders (as defined below) will be as described in the following
paragraphs. In rendering its opinion, Vedder Price has relied on the facts and
assumptions described in this prospectus as well as certain factual
representations made by the Trust, the Fund, and the Sponsor. This opinion is
not binding on the Internal Revenue Service (the "IRS") and is not a guarantee
of the results. No ruling has been requested from the IRS with respect to any
matter affecting the Fund or prospective investors. The IRS may disagree with
the tax positions taken by the Trust, and if the IRS were to challenge the
Trust’s tax positions in litigation, they might not be sustained by the
courts.
As used herein, the
term “U.S. Shareholder” means a Shareholder that is, for U.S. federal income tax
purposes, (i) a citizen or resident of the U.S., (ii) a corporation created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (iv) a trust that (a) is subject to the
supervision of a court within the U.S. and the control of one or more United
States persons as described in section 7701(a)(30) of the Code, or (b) has a
valid election in effect under applicable Treasury Regulations to be treated as
a United States person. A “Non-U.S. Shareholder” is a holder that is not a U.S.
Shareholder. If a partnership or other entity or arrangement treated as a
partnership holds our Shares, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding our Shares, the discussion below may
not be applicable to you and you should consult your own tax advisor regarding
the tax consequences of acquiring, owning and disposing of
Shares.
EACH PROSPECTIVE
INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN SHARES, AS WELL AS ANY APPLICABLE
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES.
Tax
Classification of the Trust and the Fund
The Trust is
organized and will be operated as a statutory trust in accordance with the
provisions of the Trust Agreement and applicable Delaware law. Notwithstanding
the Trust’s status as a statutory trust and the Fund’s status as a series of the
Trust, due to the nature of its activities the Fund will be treated as a
partnership rather than a trust for U.S. federal income tax purposes. In
addition, the trading of Shares on the NYSE Arca will cause the Fund to be
classified as a “publicly traded partnership” for U.S. federal income tax
purposes. Under the Code, a publicly traded partnership is generally taxable as
a corporation. In the case of an entity (such as the Fund) not registered under
the Investment Company Act of 1940 as amended, and not meeting certain other
conditions, however, an exception to this general rule applies if at least 90%
of the entity’s gross income is “qualifying income” for each taxable year of its
existence (the “qualifying income exception”). For this purpose, qualifying
income is defined as including, in pertinent part, interest (other than from a
financial business), dividends, and gains from the sale or disposition of
capital assets held for the production of interest or dividends. In the case of
a partnership of which a principal activity is the buying and selling of
commodities other than as inventory or of futures, forwards and options with
respect to commodities, “qualifying income” also includes income and gains from
commodities and from such futures, forwards, options, and provided the
partnership is a trader or investor with respect to such assets, swaps and other
notional principal contracts with respect to commodities. The Trust and the
Sponsor have represented the following to Vedder Price:
|
●
|
at least 90% of
the Fund’s gross income for each taxable year will constitute “qualifying
income” within the meaning of Code section 7704 (as described
above);
|
|
●
|
the Fund is
organized and will be operated in accordance with its governing documents
and applicable law; and
|
|
●
|
the Fund has
not elected, and will not elect, to be classified as a corporation for
U.S. federal income tax purposes.
|
Based in part on
these representations, Vedder Price is of the opinion that the Fund will be
treated as a partnership that it is not taxable as a corporation for U.S.
federal income tax purposes. The Fund’s taxation as a partnership rather than a
corporation will require the Sponsor to conduct the Fund’s business activities
in such a manner that it satisfies the requirements of the qualifying income
exception on a continuing basis. No assurances can be given that the Fund’s
operations for any given year will produce income that satisfies these
requirements. Vedder Price will not review the Fund’s ongoing compliance with
these requirements and will have no obligation to advise the Trust, the Fund or
the Fund’s Shareholders in the event of any subsequent change in the facts,
representations or applicable law relied upon in reaching its
opinion.
If the Fund failed to
satisfy the qualifying income exception in any year, other than a failure that
is determined by the IRS to be inadvertent and that is cured within a reasonable
time after discovery (in which case, as a condition of relief, the Fund could be
required to pay the government amounts determined by the IRS), the Fund would be
taxable as a corporation for U.S. federal income tax purposes and would pay U.S.
federal income tax on its income at regular corporate rates. In that event,
Shareholders would not report their share of the Fund’s income or loss on their
tax returns. Distributions by the Fund (if any) would be treated as dividend
income to the Shareholders to the extent of the Fund’s current and accumulated
earnings and profits, then treated as a tax-free return of capital to the extent
of the Shareholder’s basis in the Shares (and will reduce the basis), and, to
the extent it exceeds a Shareholder’s basis in such Shares, as capital gain for
Shareholders who hold their Shares as capital assets. Accordingly, if the Fund
were to be taxable as a corporation, it would likely have a material adverse
effect on the economic return from an investment in the Fund and on the value of
the Shares.
The remainder of this
summary assumes that the Fund is classified for U.S. federal income tax purposes
as a partnership that it is not taxable as a corporation.
U.S.
Shareholders
Tax Consequences
of Ownership of Shares
Taxation of the Fund’s Income. No U.S. federal
income tax is paid by the Fund on its income. Instead, the Fund files annual
partnership returns, and each U.S. Shareholder is required to report on its U.S.
federal income tax return its allocable share of the income, gain, loss,
deductions and credits reflected on such partnership returns. If the Fund
recognizes income, including interest on cash equivalents and net capital gains
from cash settlement of Benchmark Component Futures Contracts for a taxable
year, Shareholders must report their share of these items even though the Fund
makes no distributions of cash or property during the taxable year.
Consequently, a Shareholder may be taxable on income or gain recognized by the
Fund but receive no cash distribution with which to pay the resulting tax
liability or may receive a distribution that is insufficient to pay such
liability. Because the Sponsor currently does not intend to make distributions,
it is likely that a U.S. Shareholder that realizes net income or gain with
respect to Shares for a taxable year will be required to pay any resulting tax
from sources other than Fund distributions. Additionally, individuals with
modified adjusted gross income in excess of $200,000 ($250,000 in the case of
married individuals filing jointly) and certain estates and trusts are subject
to an additional 3.8% tax on their “net investment income,” which generally
includes net income from interest, dividends, annuities, royalties, and rents,
and net capital gains (other than certain amounts earned from trades or
businesses). Also included as income subject to the additional 3.8% tax is
income from businesses involved in the trading of financial instruments or
commodities. Shareholders subject to this provision may be required to pay this
3.8% surtax on interest income and capital gains allocated to them by the
Fund.
Monthly Conventions for Allocations of the Fund’s
Profit and Loss and Capital Account Restatements. Under Code section 704,
the determination of a partner’s distributive share of any item of income, gain,
loss, deduction or credit is governed by the applicable organizational document
unless the allocation provided by such document lacks “substantial economic
effect.” An allocation that lacks substantial economic effect nonetheless will
be respected if it is in accordance with the partners’ interests in the
partnership, determined by considering all facts and circumstances relating to
the economic arrangements among the partners. Subject to the possible exception
for certain conventions to be used by the Fund as discussed below, allocations
pursuant to the Trust Agreement should be considered as having substantial
economic effect or being in accordance with Shareholders’ interests in the
Fund.
In situations where a
partner’s interest in a partnership is redeemed or sold during a taxable year,
the Code generally requires that partnership tax items for the year be allocated
to the partner using either an interim closing of the books or a daily proration
method. The Fund intends to allocate tax items using an interim closing of the
book’s method under which income, gains, losses and deductions will be
determined on a monthly basis, taking into account the Fund’s accrued income and
deductions and gains and losses (both realized and unrealized) for the month.
The tax items for each month during a taxable year will then be allocated among
the holders of Shares in proportion to the number of Shares owned by them as of
the close of trading on the last trading day of the preceding month (the
“monthly allocation convention”).
Under the monthly
allocation convention, an investor who disposes of a Share during the current
month will be treated as disposing of the Share as of the end of the last day of
the calendar month. For example, an investor who buys a Share on April 10 of a
year and sells it on May 20 of the same year will be allocated all of the tax
items attributable to May (because it is deemed to hold the Share through the
last day of May) but none of those attributable to April. The tax items
attributable to that Share for April will be allocated to the person who held
the Share as of the close of trading on the last trading day of March. Under the
monthly allocation convention, an investor who purchases and sells a Share
during the same month, and therefore does not hold (and is not deemed to hold)
the Share at the close of the last trading day of either that month or the
previous month, will receive no allocations with respect to that Share for any
period. Accordingly, investors may receive no allocations with respect to Shares
that they actually held or may receive allocations with respect to Shares
attributable to periods that they did not actually hold the
Shares.
By investing in
Shares, a U.S. Shareholder agrees that, in the absence of new legislation,
regulatory or administrative guidance, or judicial rulings to the contrary, it
will file its U.S. income tax returns in a manner that is consistent with the
monthly allocation convention as described above and with the IRS Schedule K-1
or any successor form provided to Shareholders by the Fund or the
Trust.
For any month in
which a Creation Basket is issued or a Redemption Basket is redeemed, the Fund
will credit or debit the “book” capital accounts of existing Shareholders with
the amount of any unrealized gain or loss, respectively, on Fund assets. For
this purpose, the Fund will use a convention whereby unrealized gain or loss
will be computed based on the lowest NAV of the Fund’s assets during the month
in which Shares are issued or redeemed, which may be different than the value of
the assets on the date of an issuance or redemption. The capital accounts as
adjusted in this manner will be used in making tax allocations intended to
account for differences between the tax basis and fair market value of property
owned by the Fund at the time new Shares are issued or outstanding Shares are
redeemed (so-called “reverse Code section 704(c) allocations”). The intended
effect of these adjustments is to equitably allocate among Shareholders any
unrealized appreciation or depreciation in the Fund’s assets existing at the
time of a contribution or redemption for book and tax
purposes.
The conventions used
by the Fund, as noted above, in making tax allocations may cause a Shareholder
to be allocated more or less income or loss for U.S. federal income tax purposes
than its proportionate share of the economic income or loss realized by the Fund
during the period it held its Shares. This mismatch between taxable and economic
income or loss in some cases may be temporary, reversing itself in a later year
when the Shares are sold, but could be permanent. As one example, a Shareholder
could be allocated income accruing after it sold its Shares, resulting in an
increase in the basis of the Shares (see “Tax
Basis of Shares” below). In connection with the disposition of the
Shares, the additional basis might produce a capital loss the deduction of which
may be limited (see “Limitations on
Deductibility of Losses and Certain Expenses,”
below).
Section 754 election. The Fund has made the
election permitted by Code section 754 (a “section 754 election”) which election
is irrevocable without the consent of the IRS. The effect of this election is
that when a secondary market sale of Shares occurs, the Fund adjusts the
purchaser’s proportionate share of the tax basis of the Fund’s assets to fair
market value, as reflected in the price paid for the Shares, as if the purchaser
had made a direct acquisition of an interest in the Fund’s assets. The section
754 election is intended to eliminate disparities between a partner’s basis in
its partnership interest and its share of the tax basis of the partnership’s
assets, so that the partner’s allocable share of taxable gain or loss on a
disposition of an asset will correspond to the partner’s share of the
appreciation or depreciation in the value of the asset since the partner
acquired its interest. Depending on the price paid for Shares and the tax basis
of the Fund’s assets at the time of the purchase, the effect of the section 754
election on a purchaser of Shares may be favorable or unfavorable. In order to
make the appropriate basis adjustments in a cost-effective manner, the Fund will
use certain simplifying conventions and assumptions. In particular, the Fund
will obtain information regarding secondary market transactions in its Shares
and use this information to adjust the Shareholders’ indirect basis in the
Fund’s assets. It is possible the IRS could be successful in asserting that the
conventions and assumptions applied are improper and require different basis
adjustments to be made, which could adversely affect some
Shareholders.
Section 1256 Contracts. Under the Code,
special rules apply to instruments constituting “section 1256 contracts.”
Section 1256 requires that such instruments held at the end of a taxable year be
treated as if they were sold for their fair market value on the last business
day of the taxable year (i.e., “marked
to market”). Moreover, any gain or loss realized from a disposition,
termination or marking-to-market of section 1256 contracts is treated as
long-term capital gain or loss to the extent of 60% thereof, and as short-term
capital gain or loss to the extent of 40% thereof, without regard to the actual
holding period (“60-40 Treatment”). The term “section 1256 contract”
generally includes, in relevant part: (1) a ”regulated futures
contract,” defined as a contract (a) that is traded on or subject to the rules
of a national securities exchange that is registered with the SEC, a domestic
board of trade designated as a contract market by the CFTC, or any other board
of trade or exchange designated by the Secretary of the Treasury (a “qualified
board or exchange”), and (b) with respect to which the amount required to be
deposited and the amount that may be withdrawn depends on a system of “marking
to market”; and (2) a non-equity option traded on or subject to the rules of a
qualified board or exchange.
Many of the Fund’s
Sugar Futures Contracts will qualify as “section 1256 contracts” under the Code,
as will some other sugar interests that are cleared through a qualified board or
exchange. Any gain or loss recognized with respect to section 1256 contracts
will be subject to the 60-40 treatment and will be allocated to Shareholders in
accordance with the monthly allocation convention. Commodity swaps will most
likely not qualify as section 1256 contracts. If a commodity swap is not taxable
as a section 1256 contract, any gain or loss on the swap will be recognized at
the time of disposition or termination as long-term or short-term capital gain
or loss depending on the holding period of the swap in the Fund’s
hands.
Foreign exchange
gains and losses realized by the Fund in connection with certain transactions
involving foreign currency-denominated debt securities, certain futures
contracts, forward contracts, options and similar investments denominated in a
foreign currency, and payables or receivables denominated in a foreign currency
are subject to section 988 of the Code, which generally causes such gain and
loss to be treated as ordinary income or loss. To the extent the Fund hold
foreign investments, it may be subject to withholding and other taxes imposed by
foreign countries. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. Because the amount of the Fund’s investments
in various countries will change from time to time, it is not possible to
determine the effective rate of such taxes in advance.
Limitations on Deductibility of Losses and Certain
Expenses. A number of different provisions of the Code may defer or
disallow the deduction of losses or expenses allocated to Shareholders by the
Fund, including but not limited to those described below.
A Shareholder’s
deduction of its allocable share of any loss of the Fund is limited to the
lesser of (1) the tax basis in its Shares or (2) in the case of a Shareholder
that is an individual or a closely held corporation, the amount which the
Shareholder is considered to have “at risk” with respect to the Fund’s
activities. In general, the amount at risk initially will be a Shareholder’s
invested capital. Losses in excess of the amount at risk must be deferred until
years in which the Fund generates additional taxable income against which to
offset such carryover losses or until additional capital is placed at
risk.
Individuals and other
non-corporate taxpayers are permitted to deduct capital losses only to the
extent of their capital gains for the taxable year plus $3,000 of other income.
Unused capital losses can be carried forward and used in future years, subject
to these same limitations. In addition, an individual taxpayer may elect to
carry back net losses on section 1256 contracts to each of the three preceding
years and use them to offset section 1256 contract gains in those years, subject
to certain limitations. Corporate taxpayers generally may deduct capital losses
only to the extent of capital gains, subject to special carryback and
carryforward rules.
The deduction for
expenses incurred by non-corporate taxpayers constituting “miscellaneous
itemized deductions,” generally including investment-related expenses (other
than interest and certain other specified expenses), is suspended for taxable
years beginning after December 31, 2017 and before January 1, 2026. During these
taxable years, non-corporate taxpayers will not be able to deduct miscellaneous
itemized deductions. Provided the suspension is not extended, for taxable years
ending on or after January 1, 2026, miscellaneous itemized deductions are
deductible only to the extent they exceed 2% of the taxpayer’s adjusted gross
income for the year. Although the matter is not free from doubt, we believe
management fees the Fund pays to the Sponsor and other expenses of the Fund
constitute investment-related expenses subject to this miscellaneous itemized
deduction limitation, rather than expenses incurred in connection with a trade
or business and will report these expenses consistent with that interpretation.
For taxable years beginning on or after January 1, 2026, the Code imposes
additional limitations on the amount of certain itemized deductions allowable to
individuals with adjusted gross income in excess of certain amounts by reducing
the otherwise allowable portion of such deductions by an amount equal to the
lesser of:
● 3% of the
individual’s adjusted gross income in excess of certain threshold amounts;
or
● 80% of the amount
of certain itemized deductions otherwise allowable for the taxable
year.
Non-corporate
Shareholders generally may deduct “investment interest expense” only to the
extent of their “net investment income.” Investment interest expense of a
Shareholder will generally include any interest expense accrued by the Fund and
any interest paid or accrued on direct borrowings by a Shareholder to purchase
or carry its Shares, such as interest with respect to a margin account. Net
investment income generally includes gross income from property held for
investment (including “portfolio income” under the passive loss rules but not,
absent an election, long-term capital gains or certain qualifying dividend
income) less deductible expenses other than interest directly connected with the
production of investment income.
If
the Fund incurs indebtedness that is treated as allocable to a trade or
business, the Fund’s ability to deduct interest on such indebtedness is limited
to an amount equal to the sum of (1) the Fund’s business interest income during
the year and (2) 30% of the Fund’s adjusted taxable income for such taxable
year. If the Fund is not entitled to fully deduct its business interest in any
taxable year, such excess business interest expense will be allocated to each
Shareholder as excess business interest and can be carried forward by the
Shareholder to successive taxable years and used to offset any excess taxable
income allocated by the Fund to such Shareholder. Any excess business interest
expense allocated to a Shareholder will reduce such Shareholder’s basis in its
Shares in the year of the allocation even if the expense does not give rise to a
deduction to the Shareholder in that year. Immediately prior to a Shareholder’s
disposition of its Shares, the Shareholder’s basis will be increased by the
amount by which such basis reduction exceeds the excess interest expense that
has been deducted by such Shareholder.
To the extent that
the Fund allocates losses or expenses to a Shareholder that must be deferred or
are disallowed as a result of these or other limitations in the Code, the
Shareholder may be taxed on income in excess of its economic income or
distributions (if any) on its Shares. As one example, a Shareholder could be
allocated and required to pay tax on its share of interest income accrued by the
Fund for a particular taxable year, and in the same year be allocated a share of
a capital loss that the Shareholder cannot deduct currently because it has
insufficient capital gains against which to offset the loss. As another example,
a Shareholder could be allocated and required to pay tax on its share of
interest income and capital gains for a year but be unable to deduct some or all
of its share of Fund expenses and/or margin account interest incurred by the
Shareholder with respect to its Shares. Each Shareholder is urged to consult its
own tax advisor regarding the effect of limitations under the Code on the
ability to deduct their allocable share of the Fund’s losses and
expenses.
Tax Basis of
Shares
A Shareholder’s tax
basis in its Shares is important in determining (1) the amount of taxable gain
or loss it will realize on the sale or other disposition of its Shares, (2) the
amount of non-taxable distributions that it may receive from the Fund, and (3)
its ability to utilize its distributive share of any losses of the Fund on its
U.S. federal income tax return. A Shareholder’s initial tax basis of its Shares
will equal its cost for the Shares plus its share of the Fund’s liabilities (if
any) at the time of purchase. In general, a Shareholder’s “share” of those
liabilities will equal the sum of (i) the entire amount of any otherwise
nonrecourse liability of the Fund as to which the Shareholder or certain
affiliates of the Shareholder is the creditor (a “partner nonrecourse
liability”) and (ii) a pro rata share of any nonrecourse liabilities of the Fund
that are not partner nonrecourse liabilities as to any
Shareholder.
A Shareholder’s tax
basis in its Shares generally will be (1) increased by (a) its allocable share
of the Fund’s taxable income and gain and (b) any additional contributions by
the Shareholder to the Fund and (2) decreased (but not below zero) by (a) its
allocable share of the Fund’s tax deductions and losses and (b) any
distributions by the Fund to the Shareholder. For this purpose, an increase in a
Shareholder’s share of the Fund’s liabilities will be treated as a contribution
of cash by the Shareholder to the Fund and a decrease in that share will be
treated as a distribution of cash by the Fund to the Shareholder. Pursuant to
certain IRS rulings, a Shareholder will be required to maintain a single,
“unified” basis in all Shares that it owns. As a result, when a Shareholder that
acquired its Shares at different prices sells less than all of its Shares, such
Shareholder will not be entitled to specify particular Shares (e.g., those with a higher basis) as having
been sold. Rather, it must determine its gain or loss on the sale by using an
“equitable apportionment” method to allocate a portion of its unified basis in
its Shares to the Shares sold.
Treatment of Fund Distributions. If the Fund
makes non-liquidating distributions to Shareholders, such distributions
generally will not be taxable to the Shareholders for U.S. federal income tax
purposes except to the extent that the amount of money distributed exceeds the
Shareholder’s adjusted basis of its interest in the Fund immediately before the
distribution. Any money distributed that is in excess of a Shareholder’s tax
basis generally will be treated as gain from the sale or exchange of Shares. For
purposes of determining the gain recognized on a distribution from a
partnership, a marketable security distributed to a partner is generally treated
as money. This treatment, however, does not apply to distributions to “eligible
partners” of an “investment partnership,” as those terms are defined in the
Code.
Tax Consequences of Disposition of
Shares
If a Shareholder
sells its Shares, it will recognize gain or loss equal to the difference between
the amount realized and its adjusted tax basis for the Shares sold. A
Shareholder’s amount realized will be the sum of the cash or the fair market
value of other property received plus its share of the Fund's
liabilities.
Gain or loss
recognized by a Shareholder on the sale or exchange of Shares held for more than
one year will generally be taxable as long-term capital gain or loss; otherwise,
such gain or loss will generally be taxable as short-term capital gain or loss.
A special election is available under the Treasury Regulations that allows
Shareholders to identify and use the actual holding periods for the Shares sold
for purposes of determining whether the gain or loss recognized on a sale of
Shares will give rise to long-term or short-term capital gain or loss. It is
expected that most Shareholders will be eligible to elect, and generally will
elect, to identify and use the actual holding periods for Shares sold. If a
Shareholder who has differing holding periods for its Shares fails to make the
election or is not able to identify the holding periods of the Shares sold, the
Shareholder will have a split holding period in the Shares sold. Under such
circumstances, a Shareholder will be required to determine its holding period in
the Shares sold by first determining the portion of its entire interest in the
Fund that would give rise to long-term capital gain or loss if its entire
interest were sold and the portion that would give rise to short-term capital
gain or loss if the entire interest were sold. The Shareholder would then treat
each Share sold as giving rise to long-term capital gain or loss and short-term
capital gain or loss in the same proportions as if it had sold its entire
interest in the Fund.
Under Code section
751, a portion of a Shareholder’s gain or loss from the sale of Shares
(regardless of the holding period for such Shares), will be computed separately
and taxed as ordinary income or loss to the extent attributable to “unrealized
receivables” or “inventory” owned by the Fund. The term “unrealized receivables”
includes, among other things, market discount bonds and short-term debt
instruments to the extent that such items would give rise to ordinary income if
sold by the Fund. However, the short-term capital gain on section 1256 contracts
resulting from 60-40 Treatment, described above, should not be subject to this
rule.
If some or all of a
Shareholder’s Shares are lent by its broker or other agent to a third party —
for example, for use by the third party in covering a short sale — the
Shareholder may be considered as having made a taxable disposition of the loaned
Shares, in which case —
|
● |
the Shareholder
may recognize taxable gain or loss to the same extent as if it had sold
the Shares for cash; |
|
● |
any of the
income, gain, loss or deduction allocable to those Shares during the
period of the loan is not reportable by the Shareholder for tax purposes;
and |
|
● |
any
distributions the Shareholder receives with respect to the Shares under
the loan agreement will be fully taxable to the Shareholder, most likely
as ordinary income. |
Shareholders desiring
to avoid these and other possible consequences of a deemed disposition of their
Shares should consider modifying any applicable brokerage account agreements to
prohibit the lending of their Shares.
Other U.S.
Federal Income Tax Matters
Information
Reporting. The Fund provides tax information to the Shareholders and to the IRS,
as required. Shareholders are treated as partners for U.S. federal income tax
purposes. Accordingly, the Fund will furnish Shareholders each year, with tax
information on IRS Schedule K-1 (Form 1065), which will be used by the
Shareholders in completing their tax returns. The IRS has ruled that assignees
of partnership interests who have not been admitted to a partnership as partners
but who have the capacity to exercise substantial dominion and control over the
assigned partnership interests will be considered partners for U.S. federal
income tax purposes. On the basis of this ruling, except as otherwise provided
herein, we will treat as a Shareholder any person whose shares are held on their
behalf by a broker or other nominee if that person has the right to direct the
nominee in the exercise of all substantive rights attendant to the ownership of
the Shares.
Persons who hold an
interest in the Fund as a nominee for another person are required to furnish to
us the following information: (1) the name, address and taxpayer identification
number of the beneficial owner and the nominee; (2) whether the beneficial owner
is (a) a person that is not a U.S. person, (b) a foreign government, an
international organization or any wholly-owned agency or instrumentality of
either of the foregoing, or (c) a tax-exempt entity; (3) the number and a
description of Shares acquired or transferred for the beneficial owner; and (4)
certain information including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisition cost for purchases, as well as the
amount of net proceeds from sales. Brokers and financial institutions are
required to furnish additional information, including whether they are U.S.
persons and certain information on Shares they acquire, hold or transfer for
their own account. A penalty of $250 per failure (as adjusted for inflation), up
to a maximum of $3,000,000 per calendar year (as adjusted for inflation), is
imposed by the Code for failure to report such information correctly to the
Fund. If the failure to furnish such information correctly is determined to be
willful, the per failure penalty increases to $500 (as adjusted for inflation)
or, if greater, 10% of the aggregate amount of items required to be reported,
and the $3,000,000 maximum does not apply. The nominee is required to supply the
beneficial owner of the Shares with the U.S. federal income tax information
furnished by the Fund.
Partnership Audit
Procedures. The IRS may audit the U.S. federal income tax returns filed by the
Fund. Adjustments resulting from any such audit may require a Shareholder to
adjust a prior year’s tax liability and could result in an audit of the
Shareholder’s own return. Any audit of a Shareholder’s return could result in
adjustments of non-partnership items as well as Fund items. Partnerships are
generally treated as separate entities for purposes of U.S. federal income tax
audits, judicial review of administrative adjustments by the IRS, and tax
settlement proceedings. The tax treatment of partnership items of income, gain,
loss and deduction are determined at the partnership level in a unified
partnership proceeding rather than in separate proceedings with the partners.
The Code provides for one partner to be designated as the “tax matters partner”
and to represent the partnership for purposes of these proceedings. The Trust
Agreement appoints the Sponsor as the tax matters partner of the
Fund.
The Bipartisan Budget
Act of 2015 adopted a new partnership-level audit and assessment procedure for
all entities treated as partnerships for U.S. federal income tax purposes. These
new rules generally apply to partnership taxable years beginning after December
31, 2017. Under these rules, tax deficiencies (including interest and penalties)
that arise from an adjustment to partnership items generally would be assessed
and collected from the partnership (rather than from the partners), and
generally would be calculated using maximum applicable tax rates (although such
partnership level tax may be reduced or eliminated under limited circumstances).
A narrow category of partnerships (generally, partnerships having no more than
100 partners that consist exclusively of individuals, C corporations, S
corporations and estates) are permitted to elect out of the new
partnership-level audit rules. As an alternative to partnership-level tax
liability, a partnership may elect to furnish adjusted Schedule K-1s to the IRS
and to each person who was a partner in the audit year, stating such partner’s
share of any partnership adjustments, and each such partner would then take the
adjustments into account on its tax returns in the year in which it receives its
adjusted Schedule K-1 (rather than by amending their tax returns for the audited
year). If the Fund were subject to a partnership level tax as a result of these
new rules, the economic return of all Shareholders (including Shareholders that
did not own Shares in the Fund during the taxable year to which the audit
relates) may be affected.
To address these new
rules, the Sponsor amended the Trust Agreement so that if the Fund becomes
subject to any tax as a result of any adjustment to taxable income, gain, loss,
deduction or credit for any taxable year of the Fund (pursuant to a tax audit or
otherwise), such Shareholder (and each former Shareholder) is obligated to
indemnify the Fund and the Sponsor against any such taxes (including any
interest and penalties) to the extent such tax (or portion thereof) is properly
attributable to such Shareholder (or former Shareholder). In addition, the
Sponsor, on behalf of the Fund, will be authorized to take any action permitted
under applicable law to avoid the assessment of any such taxes against the Fund
(including an election to issue adjusted Schedule K-1s to the Shareholders
(and/or former Shareholders) which takes such adjustments to taxable income,
gain, loss, deduction or credit into account.
Reportable
Transaction Rules. In certain circumstances the Code and Treasury Regulations
require that the IRS be notified of transactions through a disclosure statement
attached to a taxpayer’s U.S. federal income tax return. These disclosure rules
may apply to transactions irrespective of whether they are structured to achieve
particular tax benefits and they could require disclosure by the Trust or
Shareholders if a Shareholder incurs a loss in excess of a specified threshold
from a sale or redemption of its Shares and possibly in other circumstances.
While these rules generally do not require disclosure of a loss recognized on
the disposition of an asset in which the taxpayer has a “qualifying basis”
(generally a basis equal to the amount of cash paid by the taxpayer for such
asset), they apply to a loss recognized with respect to interests in a
pass-through entity, such as the Shares, even if the taxpayer’s basis in such
interests is equal to the amount of cash it paid for such interests. In
addition, significant monetary penalties may be imposed in connection with a
failure to comply with these reporting requirements. Investors should consult
their own tax advisor concerning the application of these reporting requirements
to their specific situation.
Tax-Exempt
Organizations. Subject to numerous exceptions, qualified retirement plans and
individual retirement accounts, charitable organizations and certain other
organizations that otherwise are exempt from U.S. federal income tax
(collectively, “exempt organizations”) nonetheless are subject to the tax on
unrelated business taxable income (“UBTI”). Generally, UBTI means the gross
income derived by an exempt organization from a trade or business that it
regularly carries on, the conduct of which is not substantially related to the
exercise or performance of its exempt purpose or function, less allowable
deductions directly connected with that trade or business. If the Fund were to
regularly carry on (directly or indirectly) a trade or business that is
unrelated with respect to an exempt organization Shareholder, then in computing
its UBTI, the Shareholder must include its share of (1) the Fund’s gross income
from the unrelated trade or business, whether or not distributed, and (2) the
Fund’s allowable deductions directly connected with that gross income. An exempt
organization that has more than one unrelated trade or business must compute its
UBTI separately for each such trade or business.
UBTI generally does
not include dividends, interest, or payments with respect to securities loans
and gains from the sale of property (other than property held for sale to
customers in the ordinary course of a trade or business). Nonetheless, income
on, and gain from the disposition of, “debt-financed property” is UBTI.
Debt-financed property generally is income-producing property (including
securities), the use of which is not substantially related to the exempt
organization’s tax-exempt purposes, and with respect to which there is
“acquisition indebtedness” at any time during the taxable year (or, if the
property was disposed of during the taxable year, the 12-month period ending
with the disposition). Acquisition indebtedness includes debt incurred to
acquire property, debt incurred before the acquisition of property if the debt
would not have been incurred but for the acquisition, and debt incurred
subsequent to the acquisition of property if the debt would not have been
incurred but for the acquisition and at the time of acquisition the incurrence
of debt was foreseeable. The portion of the income from debt-financed property
attributable to acquisition indebtedness is equal to the ratio of the average
outstanding principal amount of acquisition indebtedness over the average
adjusted basis of the property for the year. The Fund currently does not
anticipate that it will borrow money to acquire investments; however, the Fund
cannot be certain that it will not borrow for such purpose in the future, which
could result in an exempt organization Shareholder having UBTI. In addition, an
exempt organization Shareholder that incurs acquisition indebtedness to purchase
its Shares in the Fund may have UBTI.
The U.S. federal
income tax rate applicable to an exempt organization Shareholder on its UBTI
generally will be either the corporate or trust tax rate, depending upon the
Shareholder’s form of organization. The Fund may report to each such Shareholder
information as to the portion, if any, of the Shareholder’s income and gains
from the Fund for any year that will be treated as UBTI; the calculation of that
amount is complex, and there can be no assurance that the Fund’s calculation of
UBTI will be accepted by the IRS. An exempt organization Shareholder will be
required to make payments of estimated U.S. federal income tax with respect to
its UBTI.
Regulated Investment
Companies. Interests in and income from “qualified publicly traded partnerships”
satisfying certain gross income tests are treated as qualifying assets and
income, respectively, for purposes of determining eligibility under the Code for
regulated investment company (“RIC”) status. A RIC may invest up to 25% of its
assets in interests in qualified publicly traded partnerships. The determination
of whether a publicly traded partnership such as the Fund is a qualified
publicly traded partnership is made on an annual basis. The Fund expects to be a
qualified publicly traded partnership in each of its taxable years. However,
such qualification is not assured.
Non-U.S.
Shareholders
Generally, non-U.S.
persons who derive U.S. source income or gain from investing or engaging in a
U.S. business are taxable on two categories of income. The first category
consists of amounts that are fixed or determinable, annual or periodic income,
such as interest, dividends and rent that are not connected with the operation
of a U.S. trade or business (“FDAP”). The second category is income that is
effectively connected with the conduct of a U.S. trade or business (“ECI”). FDAP
income (other than interest that is considered “portfolio interest;” as
discussed below) is generally subject to a 30% withholding tax, which may be
reduced for certain categories of income by a treaty between the U.S. and the
recipient’s country of residence. In contrast, ECI is generally subject to U.S.
tax on a net basis at graduated rates upon the filing of a U.S. tax return.
Where a non-U.S. person has ECI as a result of an investment in a partnership,
the ECI is currently subject to a withholding tax at a rate of 37% for
individual Shareholders and a rate of 21% for corporate Shareholders. The tax
withholding on ECI, which is the highest tax rate under Code section 1 for
non-corporate Non-U.S. Shareholders and Code section 11(b) for corporate
Non-U.S. Shareholders, may increase in future tax years if tax rates increase
from their current levels.
Withholding on Allocations and Distributions.
The Code provides that a non-U.S. person who is a partner in a partnership that
is engaged in a U.S. trade or business during a taxable year will also be
considered to be engaged in a U.S. trade or business during that year.
Classifying an activity by a partnership as an investment or an operating
business is a factual determination. Under certain safe harbors in the Code, an
investment fund whose activities consist of trading in stocks, securities, or
commodities for its own account generally will not be considered to be engaged
in a U.S. trade or business unless it is a dealer is such stocks, securities, or
commodities. This safe harbor applies to investments in commodities only if the
commodities are of a kind customarily dealt in on an organized commodity
exchange and if the transaction is of a kind customarily consummated at such
place. Although the matter is not free from doubt, the Fund believes that the
activities directly conducted by the Fund do not result in the Fund being
engaged in a trade or business within the United States. However, there can be
no assurance that the IRS would not successfully assert that the Fund’s
activities constitute a U.S. trade or business.
In the event that the Fund is considered to be engaged in a
U.S. trade or business, the Fund would be required to withhold at the highest
rate specified in Code section 1 (currently 37%) on allocations of its ECI to
non-corporate Non-U.S. Shareholders and the highest rate specified in Code
section 11(b) (currently 21%) on allocations of its ECI to corporate Non-U.S.
Shareholders, when such income is distributed. Non-U.S. Shareholders
would also be subject to a 10% withholding tax on the consideration payable upon
a sale or exchange of such Non-U.S. Shareholder’s Shares, although the IRS has
temporarily suspended this withholding for transfers of interests in publicly
traded partnerships that occur before January 1, 2023. Such withholding will be
required on transactions occurring on or after January 1, 2023. In the case of a
transfer made through a broker, the obligation to withhold will generally be
imposed on the transferor’s broker. A Non-U.S.
Shareholder with ECI generally will be required to file a U.S. federal income
tax return, and the return will provide the Non-U.S. Shareholder with the
mechanism to seek a refund of any withholding in excess of such Shareholder’s
actual U.S. federal income tax liability.
Even if the Fund did
not realize ECI, a Non-U.S. Shareholder nevertheless may be treated as having
FDAP income, which would be subject to a 30% U.S. withholding tax (possibly
subject to reduction by treaty), with respect to some or all of its
distributions from the Fund or its allocable share of Fund
income.
Amounts withheld by
the Fund on behalf of a Non-U.S. Shareholder will be treated as being
distributed to such Shareholder to the extent possible. In some cases, the
Fund may not be able to match the economic cost of satisfying its withholding
obligations to a particular Non-U.S. Shareholder, which may result in that cost
being borne by the Fund, generally, and accordingly, by all Shareholders
proportionately.
To the extent any
interest income allocated to a Non-U.S. Shareholder that otherwise constitutes
FDAP is considered “portfolio interest,” neither the allocation of such interest
income to the Non-U.S. Shareholder nor a subsequent distribution of such
interest income to the Non-U.S. Shareholder will be subject to withholding,
provided that the Non-U.S. Shareholder is not otherwise engaged in a trade or
business in the U.S. and provides the Fund with a timely and properly completed
and executed IRS Form W-8BEN or other applicable form. In general, portfolio
interest is interest paid on debt obligations issued in registered form, unless
the recipient owns 10% or more of the voting power of the issuer. A Non-U.S.
Shareholder’s allocable share of interest on U.S. bank deposits, certificates of
deposit and discount obligations with maturities from original issue of 183 days
or less should also not be subject to withholding. Generally, other interest
from U.S. sources paid to the Fund and allocable to Non-U.S. Shareholders will
be subject to withholding.
In order for the Fund
to avoid withholding on any interest income allocable to Non-U.S. Shareholders
that would qualify as portfolio interest, it will be necessary for all Non-U.S.
Shareholders to provide the Fund with a timely and properly completed and
executed Form W-8BEN (or other applicable form).
Gain from Sale of Shares. Gain from the sale
or exchange of Shares may be taxable to a Non-U.S. Shareholder if the Non-U.S.
Shareholder is a nonresident alien individual who is present in the U.S. for 183
days or more during the taxable year. In such case, the nonresident alien
individual may be subject to a 30% withholding tax on the amount of such
individual’s gain.
Branch Profits Tax on Corporate Non-U.S.
Shareholders. In addition to the taxes noted above, any Non-U.S.
Shareholders that are corporations may also be subject to an additional tax, the
branch profits tax, at a rate of 30%. The branch profits tax is imposed on a
non-U.S. corporation’s dividend equivalent amount, which generally consists of
the corporation’s after-tax earnings and profits that are effectively connected
with the corporation’s U.S. trade or business but are not reinvested in a U.S.
business. This tax may be reduced or eliminated by an income tax treaty between
the United States and the country in which the Non-U.S. Shareholder is a
“qualified resident.”
Foreign Account Tax Compliance Act.
Legislation commonly referred to as the Foreign Account Tax Compliance Act or
"FATCA", generally imposes a 30% U.S. withholding tax on payments of certain
types of income to foreign financial institutions that fail to enter into an
agreement with the United States Treasury to report certain required information
with respect to accounts held by U.S. persons (or held by foreign entities that
have U.S. persons as substantial owners). The types of income subject to the
withholding tax include U.S.-source interest and dividends and the gross
proceeds from the sale of any property that could produce U.S.-source interest
or dividends. Proposed Treasury Regulations, however, generally eliminate
withholding under FATCA on gross proceeds. Taxpayers generally may rely on these
proposed Treasury Regulations until final Treasury Regulations are issued. The
information required to be reported includes the identity and taxpayer
identification number of each account holder that is a U.S. person and
transaction activity within the holder’s account. In addition, subject to
certain exceptions, this legislation also imposes a 30% U.S. withholding tax on
payments to foreign entities that are not financial institutions unless the
foreign entity certifies that it does not have a greater than 10% U.S. owner or
provides the withholding agent with identifying information on each greater than
10% U.S. owner. Depending on the status of a Non-U.S. Shareholder and the status
of the intermediaries through which it holds Shares, a Non-U.S. Shareholder
could be subject to this 30% U.S. withholding tax with respect to distributions
on its Shares. Under certain circumstances, a Non-U.S. Shareholder may be
eligible for a refund or credit of such taxes.
Prospective Non-U.S.
Shareholders should consult their own tax advisor regarding these and other tax
issues unique to Non-U.S. Shareholders.
Backup
Withholding
The Fund may be
required to withhold U.S. federal income tax (“backup withholding”) from
payments to: (1) any Shareholder who fails to furnish the Fund with his, her or
its correct taxpayer identification number or a certificate that the Shareholder
is exempt from backup withholding, and (2) any Shareholder with respect to whom
the IRS notifies the Fund that the Shareholder is subject to backup
withholding. Backup withholding is not an additional tax and may be
returned or credited against a taxpayer’s regular U.S. federal income tax
liability if appropriate information is provided to the IRS. The
backup withholding rate is the fourth lowest rate applicable to individuals
under Code section 1(c) (currently 24%) and may increase in future tax
years.
Other Tax
Considerations
In addition to U.S.
federal income taxes, Shareholders may be subject to other taxes, such as state
and local income taxes, unincorporated business taxes, business franchise taxes,
and estate, gift, inheritance or intangible taxes that may be imposed by the
various jurisdictions in which the Fund does business or owns property or where
the Shareholder resides. Although an analysis of those various taxes
is not presented here, each prospective Shareholder should consider their
potential impact on its investment in the Fund. It is each
Shareholder’s responsibility to file the appropriate U.S. federal, state, local,
and foreign tax returns. Vedder Price has not provided an opinion
concerning any aspects of state, local or foreign tax or U.S. federal tax other
than those U.S. federal income tax issues discussed under the heading “U.S.
Federal Income Tax Considerations.”
Investment by ERISA
Accounts
General
Most employee benefit
plans and individual retirement accounts (“IRAs”) are subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), or the Code, or
both. This section discusses certain considerations that arise under
ERISA and the Code that a fiduciary of: (i) an employee benefit plan as defined
in ERISA; (ii) a plan as defined in Section 4975 of the Code; or (iii) any
collective investment vehicle, business trust, investment partnership, pooled
separate account or other entity the assets of which are treated as comprised
(at least in part) of “plan assets” under the ERISA “plan assets” rules (“plan
asset entity”) who has investment discretion should take into account before
deciding to invest the plan’s assets in the Fund. Employee benefit
plans under ERISA, plans under the Code and plan asset entities are collectively
referred to below as “plans,” and fiduciaries with investment discretion are
referred to below as “plan fiduciaries.”
This summary is based
on the provisions of ERISA and the Code as of the date hereof. This
summary is not intended to be complete, but only to address certain questions
under ERISA and the Code likely to be raised by your advisors. The
summary does not include state or local law.
Potential plan investors are urged to
consult with their own advisors concerning the appropriateness of an investment
in the Fund and the manner in which Shares should be
purchased.
Special
Investment Considerations
Each plan fiduciary
must consider the facts and circumstances that are relevant to an investment in
the Fund, including the role that an investment in the Fund would play in the
plan’s overall investment portfolio. Each plan fiduciary, before
deciding to invest in the Fund, must be satisfied that the investment is prudent
for the plan, that the investments of the plan are diversified so as to minimize
the risk of large losses, and that an investment in the Fund complies with the
terms of the plan. The Sponsor is not undertaking to provide investment advice,
or to give advice in a fiduciary capacity, in connection with a plan’s
investment in the Fund.
The Fund and Plan
Assets
A regulation issued
under ERISA contains rules for determining when an investment by a plan in an
equity interest of a statutory trust will result in the underlying assets of the
statutory trust being deemed plan assets for purposes of ERISA and Section 4975
of the Code. Those rules provide that assets of a statutory trust
will not be plan assets of a plan that purchases an equity interest in the
statutory trust if the equity interest purchased is a publicly offered
security. If the underlying assets of a statutory trust are
considered to be assets of any plan for purposes of ERISA or Section 4975 of the
Code, the operations of that trust would be subject to and, in some cases,
limited by the provisions of ERISA and Section 4975 of the
Code.
The publicly offered
security exception described above applies if the equity interest is a security
that is:
(1) freely
transferable (determined based on the relevant facts and
circumstances);
(2) part of a class
of securities that is widely held (meaning that the class of securities
is owned by 100 or more investors
independent of the issuer and of each other); and
(3) either (a) part
of a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act or (b) sold to the plan as part of a
public offering pursuant to an effective registration statement under the 1933
Act and the class of which such security is a part is registered under the Exchange Act within 120 days (or
such later time as may be allowed by the SEC) after the end of the fiscal year
of the issuer in which the offering of such security occurred.
The plan asset
regulations under ERISA state that the determination of whether a security is
freely transferable is to be made based on all the relevant facts and
circumstances. In the case of a security that is part of an offering
in which the minimum investment is $10,000 or less, the following requirements,
alone or in combination, ordinarily will not affect a finding that the security
is freely transferable: (1) a requirement that no transfer or assignment of the
security or rights relating to the security be made that would violate any
federal or state law; and (2) a requirement that no transfer or assignment be
made without advance written notice given to the entity that issued the
security.
The Sponsor believes
that the conditions described above are satisfied with respect to the
Shares. The Sponsor believes that the Shares therefore constitute
publicly offered securities, and the underlying assets of the Fund should not be
considered to constitute plan assets of any plan that purchases
Shares.
Prohibited
Transactions
ERISA and the Code
generally prohibit certain transactions involving a plan and persons who have
certain specified relationships to the plan. In general, Shares may
not be purchased with the assets of a plan if the Sponsor, the clearing brokers,
the trading advisors (if any), or any of their affiliates, agents or employees
either:
|
● |
exercise any
discretionary authority or discretionary control with respect to
management of the plan; |
|
● |
exercise any
authority or control with respect to management or disposition of the
assets of the plan; |
|
● |
render
investment advice for a fee or other compensation, direct or indirect,
with respect to any moneys or other property of the
plan; |
|
● |
have any
authority or responsibility to render investment advice with respect to
any monies or other property of the plan; or |
|
● |
have any
discretionary authority or discretionary responsibility in the
administration of the plan. |
Also, a prohibited
transaction may occur under ERISA or the Code when circumstances indicate that
(1) the investment in Shares is made or retained for the purpose of avoiding
application of the fiduciary standards of ERISA, (2) the investment in Shares
constitutes an arrangement under which the Fund is expected to engage in
transactions that would otherwise be prohibited if entered into directly by the
plan purchasing the Shares, (3) the investing plan, by itself, has the authority
or influence to cause the Fund to engage in such transactions, or (4) a person
who is prohibited from transacting with the investing plan may, but only with
the aid of certain of its affiliates and the investing plan, cause the Fund to
engage in such transactions with such person.
Special IRA
Rules
IRAs are not subject
to ERISA’s fiduciary standards, but are subject to their own rules, including
the prohibited transaction rules of Section 4975 of the Code, which generally
mirror ERISA’s prohibited transaction rules. For example, IRAs are
subject to special custody rules and must maintain a qualifying IRA custodial
arrangement separate and distinct from the Fund and its custodial
arrangement. If a separate qualifying custodial arrangement is not
maintained, an investment in the Shares will be treated as a distribution from
the IRA. Second, IRAs are prohibited from investing in certain
commingled investments, and the Sponsor makes no representation regarding
whether an investment in Shares is an inappropriate commingled investment for an
IRA. Third, in applying the prohibited transaction provisions of
Section 4975 of the Code, in addition to the rules summarized above, the
individual for whose benefit the IRA is maintained is also treated as the
creator of the IRA. For example, if the owner or beneficiary of an
IRA enters into any transaction, arrangement, or agreement involving the assets
of his or her IRA to benefit the IRA owner or beneficiary (or his or her
relatives or business affiliates) personally, or with the understanding that
such benefit will occur, directly or indirectly, such transaction could give
rise to a prohibited transaction that is not exempted by any available
exemption. Moreover, in the case of an IRA, the consequences of a
non-exempt prohibited transaction are that the IRA’s assets will be treated as
if they were distributed, causing immediate taxation of the assets (including
any early distribution penalty tax applicable under Section 72 of the Code), in
addition to any other fines or penalties that may apply.
Exempt
Plans
Certain employee
benefit plans may be governmental plans or church plans. Governmental
plans and church plans are generally not subject to ERISA, nor do the prohibited
transaction provisions described above apply to them. These plans
are, however, subject to prohibitions against certain related-party transactions
under Section 503 of the Code, which are similar to the prohibited transaction
rules described above. In addition, the fiduciary of any governmental
or church plan must consider any applicable state or local laws and any
restrictions and duties of common law imposed upon the plan.
No view is expressed
as to whether an investment in the Fund (and any continued investment in the
Fund), or the operation and administration of the fund, is appropriate or
permissible for any governmental plan or church plan under Code Section 503, or
under any state, county, local or other law relating to that type of
plan.
Allowing an investment in the Fund is
not to be construed as a representation by the Trust, the Fund, the Sponsor, any
trading advisor, any clearing broker, the Distributor or legal counsel or other
advisors to such parties or any other party that this investment meets some or
all of the relevant legal requirements with respect to investments by any
particular plan or that this investment is appropriate for any such particular
plan. The person with investment discretion should consult with the
plan’s attorney and financial advisors as to the propriety of an investment in
the Fund in light of the circumstances of the particular plan, current tax law
and ERISA.
INCORPORATION BY REFERENCE OF CERTAIN
INFORMATION
We are a reporting
company and file annual, quarterly and current reports and other information
with the SEC. The rules of the SEC allow us to “incorporate by reference”
information that we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus. This
prospectus incorporates by reference the documents set forth below that have
been previously filed with the SEC and any future filings that the Trust makes
with the SEC under Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange
Act of 1934 (in each case other than those documents or portions of those
documents not deemed to have been filed in accordance with SEC rules) between
the date of this prospectus and the termination of the offering of the
securities to be issued under the registration statement:
●
our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,
filed with the SEC on March 16, 2022
Any statement
contained in a document incorporated by reference in this prospectus shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
We will provide to
each person to whom a prospectus is delivered, including any beneficial owner, a
copy of any document incorporated by reference in the prospectus (excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in that document) at no cost, upon written or oral
request at the following address or telephone number:
Teucrium Sugar
Fund
Attention: Cory
Mullen-Rusin
Three Main Street,
Suite 215
Burlington, VT
05401
(802)
540-0019
Our Internet website
is www.teucrium.com. We make our electronic filings with the SEC, including our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports available on our website free of charge
as soon as practicable after we file or furnish them with the SEC. The
information contained on our website is not incorporated by reference in this
prospectus and should not be considered a part of this
prospectus.
INFORMATION YOU SHOULD
KNOW
This prospectus
contains information you should consider when making an investment decision
about the Shares. You should rely only on the information contained
in this prospectus or any applicable prospectus supplement. None of
the Trust, the Fund or the Sponsor has authorized any person to provide you with
different information and, if anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an
offer to sell the Shares in any jurisdiction where the offer or sale of the
Shares is not permitted.
The information
contained in this prospectus was obtained from us and other sources believed by
us to be reliable.
You should disregard
anything we said in an earlier document that is inconsistent with what is
included in this prospectus or any applicable prospectus
supplement. Where the context requires, when we refer to this
“prospectus,” we are referring to this prospectus and (if applicable) the
relevant prospectus supplement.
You should not assume
that the information in this prospectus or any applicable prospectus supplement
is current as of any date other than the date on the front page of this
prospectus or the date on the front page of any applicable prospectus
supplement.
We include cross
references in this prospectus to captions in these materials where you can find
further related discussions. The table of contents tells you where to
find these captions.
WHERE YOU CAN FIND MORE
INFORMATION
The Trust has filed
on behalf of the Fund a registration statement on Form S-1 with the SEC under
the 1933 Act. This prospectus does not contain all of the information
set forth in the registration statement (including the exhibits to the
registration statement), parts of which have been omitted in accordance with the
rules and regulations of the SEC. For further information about the
Trust, the Fund or the Shares, please refer to the registration statement, which
you may inspect online at www.sec.gov.
Information about the Trust, the Fund and the Shares can also be obtained from
the Fund’s website, which is www.teucrium.com. The
Fund’s website address is only provided here as a convenience to you and the
information contained on or connected to the website is not part of this
prospectus or the registration statement of which this prospectus is
part. The Trust is subject to the informational requirements of the
Exchange Act and will file certain reports and other information with the SEC
under the Exchange Act. The Sponsor will file an updated prospectus
annually for the Fund pursuant to the 1933 Act. The reports and other
information can be inspected online at www.sec.gov, which is the Internet
site maintained by the SEC that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus
includes “forward-looking statements” which generally relate to future events or
future performance. In some cases, you can identify forward-looking statements
by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential” or the negative of these terms or
other comparable terminology. All statements (other than statements of
historical fact) included in this prospectus that address activities, events or
developments that will or may occur in the future, including such matters as
movements in the commodities markets and indexes that track such movements, the
Fund’s operations, the Sponsor’s plans and references to the Fund’s future
success and other similar matters, are forward-looking statements. These
statements are only predictions. Actual events or results may differ materially.
These statements are based upon certain assumptions and analyses the Sponsor has
made based on its perception of historical trends, current conditions and
expected future developments, as well as other factors appropriate in the
circumstances. Whether or not actual results and developments will conform to
the Sponsor’s expectations and predictions, however, is subject to a number of
risks and uncertainties, including the special considerations discussed in this
prospectus, general economic, market and business conditions, changes in laws or
regulations, including those concerning taxes, made by governmental authorities
or regulatory bodies, and other world economic and political developments. See
“What Are the Risk Factors Involved with an Investment in the Fund?”
Consequently, all the forward-looking statements made in this prospectus are
qualified by these cautionary statements, and there can be no assurance that
actual results or developments the Sponsor anticipates will be realized or, even
if substantially realized, that they will result in the expected consequences
to, or have the expected effects on, the Fund’s operations or the value of its
Shares.
APPENDIX A
Glossary of Defined
Terms
In this prospectus,
each of the following terms have the meanings set forth after such
term:
Administrator: U.S. Bancorp Fund Services, LLC, doing
business as U.S. Bank Global Fund Services |
|
Authorized
Purchaser: One that
purchases or redeems Creation Baskets or Redemption Baskets, respectively,
from or to the Fund. |
|
Benchmark: A weighted average of the closing
settlement prices for three Sugar Futures Contracts, specifically futures
contracts on Sugar No. 11, that are traded on ICE Futures: (1) the second
to expire ICE Futures Sugar Futures Contract, weighted 35%, (2) the third
to expire ICE Futures Sugar Futures Contract, weighted 30%, and (3) the
ICE Futures Sugar Futures Contract expiring in the March following the
expiration month of the third to expire contract, weighted
35%. |
|
Benchmark Component Futures
Contracts: The three Sugar
Futures Contracts that at any given time make up the
Benchmark. |
|
Business
Day: Any day other than a
day when any of the NYSE Arca, ICE Futures, or the New York Stock Exchange
is closed for regular trading. |
|
CFTC: Commodity Futures Trading Commission, an
independent federal agency with the mandate to regulate commodity futures
and options in the United States.
Code: Internal Revenue Code of 1986, as
amended. |
|
Commodity
Pool: An enterprise in
which several individuals contribute funds in order to trade futures
contracts or options on futures contracts
collectively. |
|
Commodity Pool Operator or
CPO: Any person engaged in
a business which is of the nature of an investment trust, syndicate, or
similar enterprise, and who, in connection therewith, solicits, accepts,
or receives from others, funds, securities, or property, either directly
or through capital contributions, the sale of stock or other forms of
securities, or otherwise, for the purpose of trading in any swap or
commodity for future delivery or commodity option on or subject to the
rules of any contract market. |
|
Creation
Basket: A block of 25,000
Shares used by the Fund to issue Shares. |
|
Custodian: U.S. Bank, N.A. |
|
Distributor: Foreside Fund Services,
LLC. |
|
DTC: The Depository Trust Company. DTC will
act as the securities depository for the
Shares. |
|
DTC
Participant: An entity that
has an account with DTC. |
|
Exchange
Act: The Securities
Exchange Act of 1934. |
|
Exchange for Related
Position: A privately
negotiated and simultaneous exchange of a futures contract position for a
swap or other over the counter instrument on the corresponding
commodity. |
|
FINRA: Financial Industry Regulatory
Authority. |
|
Forward Contract: an over the counter
bilateral contract for the purchase or sale of a specified quantity of a
commodity at a specified price, on a specified date and at a specified
location. Forwards are almost always settled by delivery of the underlying
commodity. Although possible, it is unusual to settle a Forward
financially; therefore, Forwards are generally
illiquid. |
|
Futures Contract: an exchange-traded
contract traded with standard terms that calls for the delivery of a
specified quantity of a commodity at a specified price, on a specified
date and at a specified location. Typically, a futures contract is traded
out or rolled on an exchange before delivery or receipt of the underlying
commodity is required. |
|
ICE
Futures: The primary
exchange on which Sugar Futures Contracts are traded in the
U.S. The Fund expressly disclaims any association with or
endorsement of the Fund by ICE Futures and acknowledges that “ICE Futures”
and “ICE Futures US” are registered trademarks of such
exchange. |
|
Indirect
Participants: Banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or
indirectly. |
|
Limited Liability Company
(LLC): A type of business
ownership combining several features of corporation and partnership
structures. |
|
Margin: The amount of equity required for an investment in
futures contracts. |
|
NAV: Net Asset Value of the
Fund.
New York Mercantile Exchange
(NYMEX): An exchange on which Sugar
Futures Contracts are traded in the U.S. The Fund expressly
disclaims any association with or endorsement of the Fund by the NYMEX and
acknowledges that “New York Mercantile Exchange” and “NYMEX” are
registered trademarks of such
exchange. |
|
NFA: National Futures
Association. |
|
NSCC: National Securities Clearing
Corporation. |
|
1933
Act: The Securities Act of
1933. |
|
Option: The right, but not the obligation, to buy or sell a
futures contract, swap agreement, forward contract or commodity, as
applicable, at a specified price on or before a specified
date. |
|
Over the counter
Derivative: A financial
contract, whose value is designed to track the return on stocks, bonds,
currencies, commodities, or some other benchmark, that is traded over the
counter or off organized exchanges. |
|
Redemption
Basket: A block of 25,000
Shares used by the Fund to redeem Shares. |
|
SEC: Securities and Exchange
Commission. |
|
Secondary
Market: The stock exchanges
and the over the counter market. Securities are first issued as a primary
offering to the public. When the securities are traded from that first
holder to another, the issues trade in these secondary
markets. |
|
Shareholders: Holders of
Shares. |
|
Shares: Common units representing fractional
undivided beneficial interests in the
Fund. |
|
Sponsor: Teucrium Trading, LLC, a Delaware limited liability
company, which is registered as a Commodity Pool Operator, who controls
the investments and other decisions of the
Fund. |
|
Spot
Contract: A cash market
transaction in which the buyer and seller agree to the immediate purchase
and sale of a commodity, usually with a two-day
settlement. |
|
Sugar Futures
Contracts: Futures
contracts for sugar that are traded on ICE Futures, the NYMEX, or foreign
exchanges. |
|
Sugar No. 11 Futures
Contracts: Futures
contracts that are traded on ICE Futures and NYMEX for the physical
delivery of raw cane sugar, delivered to the receiver’s vessel at a
specified port within the country of origin of the
sugar. |
|
Swap
Agreement: An over the
counter derivative that generally involves an exchange of a stream of
payments between the contracting parties based on a notional amount and a
specified index. |
|
Tracking
Error: Possibility that the
daily NAV of the Fund will not track the
Benchmark. |
|
Trust
Agreement: The Fifth
Amended and Restated Declaration of Trust and Trust Agreement of the Trust
effective as of April 26, 2019. |
|
Valuation
Day: Any day as of which
the Fund calculates its NAV. |
|
You: The owner of
Shares |