As filed
with the Securities and Exchange Commission on April 18,
2022
Registration
No. 333-256339
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Pre-Effective
Amendment No. 2 to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
Teucrium
Commodity Trust
(Registrant)
Delaware
(State
or other jurisdiction of incorporation or
organization)
6799
(Primary
Standard Industrial Classification Code Number)
[●]
(I.R.S.
Employer Identification No.)
c/o
Teucrium Trading, LLC
Three
Main Street
Suite
215
Burlington,
VT 05401
Phone:
(802) 540-0019
(Address,
including zip code, and telephone number, including area code, of
Registrant’s principal executive offices)
Sal
Gilbertie
Chief
Executive Officer
Teucrium
Trading, LLC
Three
Main Street
Suite
215
Burlington,
VT 05401
Phone:
(802) 540-0019
(Name,
address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
W.
Thomas Conner, Esq.
Vedder
Price P.C.
1401 New
York Avenue NW
Suite
500
Washington,
DC 20005
Approximate date of
commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration
Statement.
If any of the
securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this Form is
filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
☐
|
Accelerated filer ☐
|
|
Non-accelerated filer
☒
|
Smaller reporting company
☒
Emerging growth company
☐
|
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
The
registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject
to Completion
Preliminary
Prospectus dated April 18, 2022
Hashdex Bitcoin Futures
ETF
Hashdex Bitcoin Futures ETF (the
“Fund” or “Us” or “We” or
“DEFI”) is designed
to provide investors with a means to gain price exposure to the
bitcoin market. The Fund issues shares (“Shares”) that
trade on the NYSE Arca stock exchange (“NYSE Arca”)
under the symbol “DEFI.” Shares 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 a specified benchmark (the “Benchmark”),
less expenses from the Fund’s operations. The Benchmark is
currently the average of the closing settlement prices for the
first to expire and second to expire bitcoin futures contracts
(“Bitcoin Futures Contracts”) listed on the Chicago
Mercantile Exchange Inc. (“CME”). The Bitcoin Futures
Contracts that at any given time make up the Benchmark are referred
to hereinafter as the “Benchmark Component Futures
Contracts.” Under normal market conditions, the Fund invests
in Benchmark Component Futures Contracts and cash and cash
equivalents. Because the Fund’s investment objective is to
track the price of the Benchmark by investing in Benchmark Futures
Contracts rather than bitcoin, changes in the price of the Shares
will vary from changes in the spot price of
bitcoin.
The Fund is a series of the Teucrium Commodity
Trust (the “Trust”). Shareholders have no voting rights
with respect to the Trust or the Fund except as expressly provided
in the Trust’s Fifth Amended and Restated Declaration of
Trust and Trust Agreement (the “Trust Agreement”). 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 investors will purchase and sell Shares
through their broker-dealer, the Fund continuously offers creation
baskets consisting of 12,500 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 Bitcoin
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 40. 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. [●] is expected to be the initial Authorized
Purchaser. It is expected that on the effective date, the initial
Authorized Purchaser will purchase one or more initial Creation
Baskets of 12,500 Shares at a per Share price of $50.00. The
initial offering price of $50.00 was set as an appropriate and
convenient price that would facilitate secondary market trading of
Shares, and the Shares of the Fund acquired by the Sponsor in
connection with its initial capital contribution were purchased at
a price of $50.00 per Share. An Authorized Purchaser is under no
obligation to purchase Shares. This is intended to be a continuous
offering that will terminate on [●] 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
11. 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.
Hashdex Bitcoin Futures ETF 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.
The date of this prospectus is
[●]
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 TO THIS POOL AT PAGE 38 AND A STATEMENT OF THE PERCENTAGE
RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF
YOUR INITIAL INVESTMENT, AT PAGE 8.
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 7.
Hashdex Bitcoin Futures
ETF
TABLE OF
CONTENTS
|
|
PART ONE
– DISCLOSURE DOCUMENT
|
|
PROSPECTUS
SUMMARY
|
4
|
Principal Offices of the Fund and
the Sponsor
|
4
|
Breakeven Point
|
4
|
Investment Objective
|
4
|
Principal Investment Risks of an
Investment in the Fund
|
7
|
Determination
of NAV
|
8
|
Defined Terms
|
8
|
Breakeven
Analysis
|
8
|
The Offering
|
9
|
WHAT ARE THE RISK FACTORS INVOLVED WITH AN
INVESTMENT IN THE FUND?
|
11
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Risks Associated with Investing
Directly or Indirectly in Bitcoin
|
11
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The Fund’s Operating
Risks
|
16
|
Risk of Leverage and
Volatility
|
24
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Tax Risk
|
25
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THE OFFERING
|
27
|
The Fund in
General
|
27
|
The Sponsor
|
28
|
Prior Performance of the
Fund
|
30
|
The
Trustee
|
30
|
Operation of the
Fund
|
30
|
Futures
Contracts
|
32
|
The Fund’s Investments in Cash
and Cash Equivalents
|
34
|
Other Trading Policies of the
Fund
|
35
|
The Fund’s Service
Providers
|
36
|
Form of Shares
|
39
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Transfer of
Shares
|
39
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Inter-Series Limitation on
Liability
|
40
|
Plan of
Distribution
|
40
|
Calculating NAV
|
41
|
Creation and Redemption of
Shares
|
42
|
Secondary Market Transactions
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45
|
Use of Proceeds
|
45
|
The Trust Agreement
|
46
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The Sponsor Has Conflicts of
Interest
|
48
|
Interests of Named Experts and
Counsel
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49
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Provisions of Federal and State Securities
Laws
|
49
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Books and Records
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50
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Statements, Filings, and Reports to
Shareholders
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50
|
Fiscal Year
|
50
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Governing Law
|
50
|
Legal Matters
|
51
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Privacy Policy
|
52
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U.S. Federal Income Tax
Considerations
|
53
|
Investment by ERISA Accounts
|
61
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INCORPORATION BY REFERENCE OF CERTAIN
INFORMATION
|
64
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INFORMATION YOU SHOULD KNOW
|
65
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WHERE YOU CAN FIND MORE
INFORMATION
|
66
|
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
|
67
|
APPENDIX A - GLOSSARY OF DEFINED
TERMS
|
68
|
PART TWO – STATEMENT OF ADDITIONAL
INFORMATION
|
70
|
PROSPECTUS
SUMMARY
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 11, 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 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.
Breakeven
Point
The amount of trading income required for the
redemption value of a Share at the end of one year to equal the
selling price of the Share, assuming an initial price of $50.00, is
$[●] or [●]% of the selling price. For more
information, see “Breakeven Analysis”
below.
The Fund’s Investment
Objective
The Fund is a commodity pool that issues Shares
that may be purchased and sold on NYSE Arca. The Fund’s
investment objective is for changes in the Shares’ NAV to
reflect the daily changes of the price of the Benchmark, less
expenses from the Fund’s operations. Under normal market
conditions, the Fund invests in Benchmark Component Futures
Contracts and cash and cash equivalents. Because the Fund’s
investment objective is to track the price of the Benchmark by
investing in Benchmark Futures Contracts rather than bitcoin,
changes in the price of the Shares will vary from changes in the
spot price of bitcoin.
Bitcoin is a digital asset or cryptocurrency
that is a unit of account on the “Bitcoin Network,” an
open source, decentralized peer-to-peer computer network. The
ownership and operation of bitcoin is determined by participants in
the Bitcoin Network, The Bitcoin Network connects computers that
run publicly accessible, or open source, software that follows the
rules and procedures governing the Bitcoin Network. This is
commonly referred to as the Bitcoin Protocol. Bitcoin may be held,
may be used to purchase of goods and services or may be exchanged
for fiat currency. No single entity owns or operates the Bitcoin
Network, and the value of bitcoin is not backed by any government,
corporation or other entity. Instead, the value of bitcoin is
determined in party by the supply and demand in markets created to
facilitate the trading of bitcoin. Public key cryptography protects
the ownership and transaction records for bitcoin. Because the
source code for the Bitcoin Network is open-source, anyone can
contribute to its development. At this time the ultimate supply of
bitcoin is finite and limited to 21 million “coins,”
with the number of bitcoin increasing gradually as new bitcoin
supplies are created or “mined.” The Fund does not invest directly in
bitcoin.
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 Agreement, dated
April 26, 2019. The Trust Agreement may be found on the SEC’s
EDGAR filing database at
https://www.sec.gov/Archives/edgar/data/1471824/000165495419004865/ex31.htm.
The Fund was formed and is managed and controlled by the Sponsor, a
limited liability company formed in Delaware on July 28, 2009. The
Sponsor is registered as a commodity pool operator
(“CPO”) and a commodity trading adviser
(“CTA”) with the Commodity Futures Trading Commission
(“CFTC”) and is a member of the National Futures
Association (“NFA”). The Fund intends to be treated as
a partnership for U.S. federal income tax
purposes.
The Benchmark currently is the average of the
closing settlement prices for the first to expire and second to
expire bitcoin futures contracts (“Bitcoin Futures
Contracts”) listed on the CME. These futures contracts are
the Benchmark Component Futures Contracts. The CME currently offers
two Bitcoin Futures Contracts, one contract representing 5 bitcoin
(“BTC Contracts”) and another contract representing
0.10 bitcoin (“MBT Contracts”). The Fund will invest in
BTC Contracts and MBT Contracts to the extent necessary to achieve
maximum exposure to the bitcoin futures market. Because the
Fund’s investment objective is to track the price of the
Benchmark by investing in Benchmark Futures Contracts rather than
bitcoin, changes in the price of the Shares will vary from changes
in the spot price of bitcoin.
BTC Contracts began trading on the CME Globex
trading platform on December 15, 2017 under the CME ClearPort
ticker symbol “BTC” and are cash settled in U.S.
dollars. MBT Contracts began trading on the CME Globex trading
platform on May 3, 2021 under the CME ClearPort ticker symbol
“MBT” and are also cash settled in U.S. dollars. The
daily settlement prices for MBT Contracts are derived directly from
the settlements in the BTC Contracts. BTC Contracts and MBT
Contracts each trade six consecutive monthly contracts plus two
additional December contract months (if the 6 consecutive months
include December, only one additional December contract month is
listed).
Because BTC Contracts and MBT Contracts are
exchange-listed, they allow investors to gain price exposure to
bitcoin without having to hold the underlying cryptocurrency. Like
a futures contract on a commodity or stock index, BTC Contracts and
MBT Contracts provide a means for investors to hedge investment
positions or speculate on the future price of the bitcoin
market.
CME Bitcoin Futures Contracts are cash-settled
and based on the CME CF
Bitcoin Reference Rate (BRR) and CME CF Bitcoin Real-Time Index
(BRTI). The BRR is a daily reference rate of the U.S. dollar price
of one bitcoin calculated daily as of 4:00 p.m. London time. It is
representative of the bitcoin trading activity on constituent
bitcoin exchanges, which currently include Bitstamp, Coinbase,
Gemini, itBit and Kraken. LMAX Digital will become a
constituent exchange starting May 3, 2022. BRTI is a real time
index of the U.S. dollar price of one bitcoin, published once per
second, 24 hours per day, 7 days per week, and 365 days per year.
The CME launched the BRR and BRTI on November 14,
2016.
The Fund’s Investment
Strategies
The Fund seeks to achieve its investment
objective by investing in Benchmark Component Futures Contracts.
Under normal market conditions, the Fund expects that the
Fund’s assets will be invested in Benchmark Component Futures
Contracts and in cash and cash equivalents, such as short-term
Treasury bills, money market funds, demand deposit accounts and
commercial paper. The term “normal market conditions”
includes, but is not limited to, the absence of: trading halts in
the applicable financial markets generally; operational issues
(e.g., systems failure) causing dissemination of inaccurate market
information; or force majeure type events such as natural or
manmade disaster, act of God, armed conflict, act of terrorism,
riot or labor disruption or any similar intervening
circumstance.
Because the Fund seeks to maintain its holdings
in Benchmark Component Futures Contracts with a roughly constant
expiration profile, the Fund’s positions are changed or
“rolled” on a regular basis in order to track the
changing nature of the Benchmark by closing out soon to expire contracts prior to
settlement or on settlement date that are no longer part of the
Benchmark and entering into later to expire contracts. One
factor determining the total return from investing in futures
contracts is the price relationship between soon to expire
contracts and later to expire contracts. If the futures market is
in a state of backwardation (i.e., when the price of bitcoin in the
future is expected to be less than the current price), the Fund
will buy later to expire contracts for a lower price than the soon
to expire contracts that it sells. If the futures market is in
contango, the Fund will buy later to expire contracts for a higher
price than the soon to expire contracts that it sells. All other
things being equal, a situation involving prolonged periods of
contango may adversely impact the returns of the Fund; conversely a
situation involving prolonged periods of backwardation may
positively impact the returns of the Fund.
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 the
Benchmark Component Futures Contracts if, due to market conditions,
a potential or actual imposition of position limits by the CFTC or
futures exchange rules, or the imposition of risk mitigation
measures by a futures commission merchant restricts the ability of
the Fund to invest in the current Benchmark Component Futures
Contracts. The Fund would 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.”
The Sponsor employs a “neutral”
investment strategy intended to track the changes in the Benchmark
regardless of whether the Benchmark goes up or goes down. The
Fund’s “neutral” investment strategy is designed
to permit investors generally to purchase and sell the Fund’s
Shares for the purpose of investing indirectly in the bitcoin
market in a cost-effective manner. The Sponsor endeavors to place
the Fund’s trades in Benchmark Component Futures Contracts
and otherwise manage the Fund’s investments so that the
Fund’s average daily tracking error against the Benchmark
will be less than 10 percent over any period of 30 trading days.
However, the Fund incurs certain expenses in connection with its
operations, which cause imperfect correlation between changes in
the Fund’s NAV and changes in the Benchmark because the
Benchmark does not reflect expenses or income. As a result,
investors may incur a partial or complete loss of their investment
even when the performance of the Benchmark is
positive.
Investors may purchase and sell Shares through
their broker-dealers. However, the Fund creates and redeems Shares
only in blocks called Creation Baskets and Redemption Baskets,
respectively, and only Authorized Purchasers may purchase or redeem
Creation Baskets or Redemption Baskets. An Authorized Purchaser is
under no obligation to create or redeem baskets, and an Authorized
Purchaser is under no obligation to offer to the public Shares of
any baskets it does create. Baskets are generally created when
there is a demand for Shares, including, but not limited to, when
the market price per share is at (or perceived to be at) a premium
to the NAV per Share. Similarly, baskets are generally redeemed
when the market price per share is at (or perceived to be at) a
discount to the NAV per Share. Retail investors seeking to purchase
or sell Shares on any day are expected to affect such transactions
in the secondary market, on 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 bitcoin market, as measured by the
Benchmark.
The CFTC and U.S. designated contract markets,
such as the CME, have established position limits and
accountability levels on the maximum net long or net short Bitcoin
Futures Contracts that the Fund may hold, own or control. The
current CME established position limit level for investments in BTC
Contracts for the spot month is 4,000 contracts. A position
accountability level of 5,000 contracts will be applied to
positions in single months outside the spot month and in all months
combined. The MBT Contracts have a spot month limit of 200,000
contracts and a position accountability level of 250,000 contracts.
Open positions in MBT Contracts will count as 1/50 of a BTC
Contract for the purposes of determining the aggregate position
limit. Accountability levels are not fixed ceilings but rather
thresholds above which the exchange may exercise greater scrutiny
and control over an investor, including limiting the Fund to
holding no more Bitcoin Futures Contracts than the amount
established by the accountability levels. The potential for the
Fund to reach position or accountability limits will depend on if
and how quickly the Fund’s net assets
increase.
In addition to position limits and
accountability limits, the CME and other exchanges have set dynamic
price fluctuation limits on Bitcoin Futures Contracts. The dynamic
price limit functionality under the special price fluctuation
limits mechanism assigns a price limit variant which equals a
percentage of the prior trading day’s settlement price, or a
price deemed appropriate. During the trading day, the dynamic
variant is utilized in continuous rolling 60-minute look-back
periods to establish dynamic upper and lower price fluctuation
limits. Once the dynamic price fluctuation limit has been reached
in a particular Bitcoin Futures Contract, no trades may be made at
a price beyond that limit. The CME has adopted daily dynamic price
fluctuation limit functionality effective March 11, 2019,
specifically Rule 589 found in the following link:
https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2019/03/SER-8351.pdf.
Position limits, accountability limits and
dynamic price fluctuation limits may limit the Fund’s ability
to invest the proceeds of Creation Baskets in Bitcoin Futures
Contracts. As a result, when the Fund offers to sell Creation
Baskets it may be limited in its ability to invest in Bitcoin
Futures Contracts, including the Benchmark Component Futures
Contracts. The Fund may hold larger amounts of cash and cash
equivalents, which will impair the Fund’s ability to meet its
investment objective of tracking the Benchmark.
There is a minimum number of baskets and
associated Shares specified for the Fund. If the Fund experiences
redemptions that cause the number of Shares outstanding to decrease
to the minimum level of Shares required to be outstanding, until
the minimum number of Shares is again exceeded through the purchase
of a new Creation Basket, there can be no more redemptions by an
Authorized Purchaser. In such case, market makers may be less
willing to purchase Shares from investors in the secondary market,
which may in turn limit the ability of Shareholders of the Fund to
sell their Shares in the secondary market. These minimum levels for
the Fund are 50,000 Shares, representing four baskets. The minimum
level of Shares specified for the Fund is subject to
change.
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 12,500
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
Bitcoin Futures Contracts traded on the CME. The Fund expressly
disclaims any association with the CME or endorsement of the Fund
by such exchange and acknowledges that “CME” is a
registered trademarks of such exchange.
Voting
Rights
As interests in separate series of a Delaware
statutory trust, the Shares do not involve the rights normally
associated with the ownership of shares of a corporation
(including, for example, the right to bring shareholder oppression
and derivative actions). In addition, the Shares have limited
voting and distribution rights (for example, Shareholders do not
have the right to elect directors, as the Trust does not have a
board of directors, and generally will not receive regular
distributions of the net income and capital gains earned by the
Fund).
Shareholders have no voting rights with respect
to 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.
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
11.
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The Fund has no
operating history, so there is no performance history to serve as a
basis for you to evaluate an investment in the Fund. In
addition, the Fund may not be successful in implementing its
investment objective or may fail to attract sufficient
assets.
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Bitcoin and Bitcoin Futures Contracts are a
relatively new asset class and bitcoin is subject to rapid changes,
uncertainty and regulation that may adversely affect the value of
the bitcoin futures or the nature of an investment in the Fund, and
may adversely affect the ability of the Fund to buy and sell
Bitcoin futures or achieve its investment
objective.
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Historically, bitcoin and Bitcoin Futures
Contracts have been subject to significant price volatility. The
price of Bitcoin Futures Contracts may differ significantly from
the spot price of bitcoin.
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The market for Bitcoin Futures Contracts is less
developed than older, more established futures markets (such as
corn or wheat futures) and may be more volatile and less
liquid.
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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.
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Investors may choose to use the Fund as a means
of investing indirectly in bitcoin, and there are risks involved in
this investment strategy. The risks and hazards that are inherent
in the market for bitcoin may cause the price of bitcoin to
fluctuate widely.
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Only an Authorized Purchaser may engage in
creation or redemption transactions with the Fund. The Fund has a
limited number of institutions that act as Authorized Purchasers.
To the extent that these institutions exit the business or are
unable or unwilling to proceed with creation and/or redemption
orders with respect to the Fund, 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.
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In some cases, the near month Bitcoin Futures
Contract’s price will be 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 bitcoin 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.
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You will have no rights to participate in the
management of the Fund and will have to rely on the duties and
judgment of the Sponsor to manage the Fund.
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The Fund pays fees and expenses that are
incurred regardless of whether it is
profitable.
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The Fund seeks to have the changes in its
Shares’ NAV track changes in the Benchmark, rather than
profit from speculative trading of Bitcoin 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.
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Bitcoin and other
cryptocurrencies are a new and developing asset class subject to
both developmental and regulatory uncertainty. 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.
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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.
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The Fund is subject to position limits,
accountability limits and dynamic price fluctuation limits that
could limit the Fund’s ability to invest the proceeds of
Creation Baskets in Bitcoin Futures Contracts. Position limits,
accountability limits and dynamic price fluctuation limits may
cause tracking error or may impair the Fund’s ability to meet
its investment objective of tracking the
Benchmark.
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War and other geopolitical
events in eastern Europe, including but not limited to Russia and
Ukraine, may cause volatility in bitcoin prices. These events are
unpredictable and may lead to extended periods of price
volatility.
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The Fund currently has two
futures commission merchants (“FCMs”) through which it
buys and sells futures contracts. Volatility in the bitcoin 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 Bitcoin 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.
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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
bitcoin, bitcoin futures and the share price of the
Fund.
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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.
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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.
Defined
Terms
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 $[●] per Share, which equals the NAV per share at
the close of trading [●], 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
$[●] per share, the investment would have to generate a
[●]% or $[●] return.
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Assumed initial selling price per Share
(1)
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$50.00
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Management Fee ([●]%)
(2)
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Estimated Brokerage Commissions
(3)
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Other Fund Fees and Expenses (4)
(5)
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Interest and Other Income ( [●]%)
(6)
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Amount of trading income (loss) required for the
redemption value at the end of one year to equal the selling price
of the Share
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Percentage of initial selling price per Share
(7)
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(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
$[●] per Share. Investors should note that, because
‘DEFI’s NAV will change on a daily basis, the breakeven
amount on any given day could be higher or lower than the amount
reflected here.
(2) The Fund is obligated to pay the Sponsor a
management fee at the annual rate of [●]% 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 Bitcoin Futures Contract purchase or sale and reflected on
a per trade basis.
(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 45.
(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 $[●] million in assets. 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
[●]% based on the current interest rate environment and
outlook as of [●]. 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 [●]% or
$[●] per share. 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.
The
Offering
Offering
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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
12,500 Shares through the Distributor to Authorized Purchasers.
Authorized Purchasers may purchase Creation Baskets consisting of
12,500 Shares at the Fund’s NAV.
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Use of Proceeds
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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 futures commission merchant (“FCM”) 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
40% 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 due to, among
others, price volatility caused by changes in the fundamentals of
the underlying bitcoin cryptocurrency markets resulting in
increased margin requirements by the exchange. 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.
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NYSE Arca Symbol
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“DEFI”
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Creation and Redemption
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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.
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Inter-Series Limitation on
Liability
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While the Fund will be one of six separate
series of the Trust, additional series may be created in the
future. The Trust has been formed and will be operated with the
goal that the Fund and any other series of the Trust will be liable
only for obligations of such series, and a series will not be
responsible for or affected by any liabilities or losses of or
claims against any other series. If any creditor or shareholder in
any particular series (such as the Fund) were to successfully
assert against a series a claim with respect to its indebtedness or
Shares, the creditor or shareholder could recover only from that
particular series and its assets. Accordingly, the debts and other
obligations incurred, contracted for or otherwise existing solely
with respect to a particular series will be enforceable only
against the assets of that series, and not against any other series
or the Trust generally or any of their respective assets. The
assets of the Fund and any other series will include only those
funds and other assets that are paid to, held by or distributed to
the series on account of and for the benefit of that series,
including, without limitation, amounts delivered to the Trust for
the purchase of Shares in a series.
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Registration Clearance and
Settlement
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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.
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Net Asset Value
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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 CME’s main pricing mechanism is
open.
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Fund Expenses
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The Fund pays the Sponsor a management fee at an
annual rate of [●]% 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 $[●] or [●]% of the
selling price. The total estimated fees and expenses are expressed
as a percentage of an estimated $[●] million in assets. 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.
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The Sponsor will bear the costs and expenses
related to the initial offer and sale of Shares, including
registration fees paid or to be paid to the SEC, Financial Industry
Regulatory Authority (“FINRA”) or any other regulatory
body or self-regulatory organization. None of the costs and
expenses related to the initial offer and sale of Shares, which
total approximately $[●], are chargeable to the Fund, and the
Sponsor may not recover any of these costs and expenses from the
Fund. Total fees to be paid by the Fund are currently estimated to
be approximately [●]% of the daily net assets of the Fund for
the twelve-month period ending [●], though this amount may
change in future years. The Sponsor may, in its discretion, pay or
reimburse the Fund for, or waive a portion of its management fee to
offset, expenses that would otherwise be borne by the
Fund.
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General expenses of the Trust will be allocated
among the existing Teucrium Funds and any future series of the
Trust as determined by the Sponsor in its discretion. The Trust may
be required to indemnify the Sponsor, and the Trust and/or the
Sponsor may be required to indemnify the Trustee, Distributor or
Administrator, under certain circumstances.
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Termination Events
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The Trust and the Fund shall continue in
existence from the date of their formation in perpetuity, unless
the Trust or the Fund, as the case may be, is sooner terminated
upon the occurrence of certain events specified in the Trust
Agreement, including the following: (1) the filing of a certificate
of dissolution or cancellation of the Sponsor or revocation of the
Sponsor’s charter or the withdrawal of the Sponsor, unless
shareholders holding a majority of the outstanding shares of the
Trust, voting together as a single class, elect within ninety (90)
days after such event to continue the business of the Trust and
appoint a successor Sponsor; (2) the occurrence of any event which
would make the existence of the Trust or the Fund unlawful; (3) the
suspension, revocation, or termination of the Sponsor’s
registration as a CPO with the CFTC or membership with the NFA; (4)
the insolvency or bankruptcy of the Trust or the Fund; (5) a vote
by the shareholders holding at least seventy-five percent (75%) of
the outstanding shares of the 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.
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Authorized Purchasers
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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 40. Authorized
Purchasers must be (1) registered broker-dealers or other
securities market participants, such as banks and other financial
institutions, which are not required to register as broker-dealers
to engage in securities transactions, and (2) DTC Participants. To
become an Authorized Purchaser, a person must enter into an
Authorized Purchaser Agreement with the
Sponsor.
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Conflicts of Interest
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There are present and potential future conflicts
of interest related to the Trust’s structure and operation
that you should consider before you purchase Shares. These include,
among others, conflicts related to the Sponsor serving as the
Sponsor to the Teucrium Funds and to commodity pools other than the
Teucrium Funds in the future. A description of such conflicts of
interest can be found under “The Sponsor Has Conflicts of
Interest” on page 48.
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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 Bitcoin
Investing
in Bitcoin Futures Contracts subjects the Fund to the risks of the
bitcoin 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 bitcoin market because it invests in Bitcoin Futures Contracts
listed on the CME.. The risks and hazards that are inherent in the
bitcoin market may cause the price of bitcoin and the Fund’s
Shares to fluctuate widely and you could incur a partial or total
loss of your investment in the Fund. The prices of bitcoin and bitcoin futures have
historically been highly volatile. The value of the Fund’s
investments in bitcoin futures – and therefore the value of
an investment in the Fund – could decline significantly and
without warning, including to zero. If you are not prepared to
accept significant and unexpected changes in the value of the Fund
and the possibility that you could lose your entire investment in
the Fund you should not invest in the Fund.
Bitcoin is a digital asset or cryptocurrency
that is a unit of account on the “Bitcoin Network,” an
open source, decentralized peer-to-peer computer network. The
ownership and operation of bitcoin is determined by participants in
the Bitcoin Network. The Bitcoin Network connects computers that
run publicly accessible, or open source, software that follows the
rules and procedures governing the Bitcoin Network. This is
commonly referred to as the Bitcoin Protocol. Bitcoin may be held,
may be used to purchase of goods and services or may be exchanged
for fiat currency. No single entity owns or operates the Bitcoin
Network, and the value of bitcoin is not backed by any government,
corporation or other entity. Instead the value of bitcoin is
determined in party by the supply and demand in markets created to
facilitate the trading of bitcoin. Public key cryptography protects
the ownership and transaction records for bitcoin. Because the
source code for the Bitcoin Network is open-source, anyone can
contribute to its development. At this time the ultimate supply of
bitcoin is finite and limited to 21 million “coins”
with the number of bitcoin available increasing gradually as new
bitcoin supplies are mined until the 21 million current protocol
cap is reached. The following factors, among others, may affect the
price and market for bitcoin:
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How widely bitcoin is adopted, including the use
of bitcoin as a payment.
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The regulatory environment for cryptocurrencies,
which continues to evolve in the U.S., and which may delay, impede,
or restrict the adoption or use of bitcoin.
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Speculative activity in the market for bitcoin,
including by holders of large amounts of bitcoin, which may
increase volatility.
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Cyberattacks, including the risk that malicious
actors will exploit flaws in the code or structure of bitcoin,
control the blockchain, steal information or cause disruptions to
the internet.
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Rewards for mining bitcoin are designed to
decline over time, which may lessen the incentive for miners to
process and confirm transactions on the Bitcoin
Network.
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The open-source nature of the Bitcoin Network
may result in forks, or changes to the underlying code of bitcoin
that result in the creation of new, separate digital
assets.
|
●
|
Fraud, manipulation, security failure or
operational problems at bitcoin exchanges that result in a decline
in adoption or acceptance of bitcoin.
|
●
|
Scalability as the use of bitcoin expands to a
greater number of users.
|
If the bitcoin futures market is in a state of
backwardation (i.e., when the price of bitcoin in the future is
expected to be less than the current price), the Fund will buy
later to expire contracts for a lower price than the sooner to
expire contracts that it sells. Hypothetically, and assuming no
changes to either prevailing bitcoin prices or the price
relationship between immediate delivery, soon to expire contracts
and later to expire contracts, the value of a contract will rise as
it approaches expiration. If the bitcoin 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
bitcoin prices or the price relationship between the spot price,
soon to expire contracts and later to expire contracts, the value
of a contract will fall as it approaches expiration. All other
things being equal, a situation involving prolonged periods of
contango may adversely impact the returns of the Funds; conversely
a situation involving prolonged periods of backwardation may
positively impact the returns of the Funds.
The
Bitcoin Futures Contracts listed on the CME are a relatively new
type of futures contract that may be less developed than other,
more established futures markets.
The Bitcoin Futures Contracts listed on the CME
are a relatively new type of futures contract that may be less
developed than more established futures markets (such as the
futures markets for corn or wheat). Accordingly, although BTC
Contracts have traded on the CME since December 2017 and MBT
Contracts have traded on the CME since May 2021 and the market for
exchange listed Bitcoin Futures Contracts has grown since
inception, the market for Bitcoin Futures Contracts may be riskier,
less liquid, more volatile and more vulnerable to economic, market,
industry, regulatory and other changes than more established
futures contracts. The liquidity of the market for BTC Contracts
and MBT Contracts will depend on, among other things, the supply
and demand for Bitcoin Futures Contracts, speculative interest in
the market for Bitcoin Futures Contracts and the potential ability
to hedge against the price of bitcoin with Bitcoin Futures
Contracts.
An
investment in the Fund is subject to the risks of an investment in
futures contracts.
An investment in the Fund is subject to the
risks of an investment in futures contracts, which are complex
instruments that are often subject to a high degree of price
variability. Accordingly, an investment in the Fund should be
monitored periodically and may not be suitable for all
investors.
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
bitcoin.
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 bitcoin. 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
bitcoin, and this could cause the changes in the price of the
Shares to substantially vary from the changes in the spot price of
bitcoin. Therefore, you may not be able to effectively use the Fund
to hedge against bitcoin related losses or to indirectly invest in
bitcoin.
The Benchmark Component Futures Contracts
reflect the price of bitcoin as determined by an index, so at best
the correlation between changes in such Bitcoin Futures Contracts
and the spot price of bitcoin will be only approximate. Weak
correlation between the Benchmark and the spot price of bitcoin may
result from the factors discussed above. Imperfect correlation may
also result from speculation in Benchmark Component Futures
Contracts, and/or technical or other factors that may influence the
trading of Benchmark Component Futures Contracts. If there is a
weak correlation between the Benchmark and the spot price of
bitcoin, then the price of Shares may not accurately track the spot
price of bitcoin and you may not be able to effectively use the
Fund as a way to hedge the risk of losses in your bitcoin related
transactions or as a way to indirectly invest in
bitcoin.
Moreover, while there is a
spot bitcoin index calculated by the CME that is based on price
feeds from certain designated bitcoin spot market exchanges, the
Fund will never directly price off of this index. This is because
the Fund will roll its futures holdings prior to settlement of the
expiring contract and intends to never carry futures positions all
the way to cash settlement (the only date that the BTC Contracts
and MBT Contracts settle to the CME spot price index). The Fund
will only price off of Bitcoin Futures Contracts VWAP daily
settlement price, which might cause the Fund’s NAV to differ
from spot bitcoin prices.
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 bitcoin
related losses or as a way to indirectly invest in
bitcoin.
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 BTC Contract is for a specified amount of bitcoin, 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 might not invest the entire proceeds from the
purchase of the Creation Basket in such futures contracts. (As an
example, assume that a Creation Basket is sold by the Fund, and
that the Fund’s closing NAV per Share is $50.00. In that
case, the Fund would receive $625,000 in proceeds from the sale of
the Creation Basket ($50.00 NAV per Share multiplied by 12,500
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 $175,000 (or otherwise not a round
number), the Fund would be unable to buy an exact number of BTC
Contracts with an aggregate market value equal to $625,000. In this
case, the Fund would be able to purchase 3 BTC Contracts with an aggregate
market value of approximately $525,000 and 28 MBT Contracts at
$3,500 with an aggregate market value of approximately $98,000,
bringing the aggregate value of proceeds to $623,000.) Any amounts
not invested in Benchmark Component Futures Contracts are held in
cash and cash equivalents.
●
The
Benchmark Component Futures Contracts reflect the price of bitcoin
for future delivery, not the current spot price of bitcoin, so at
best the correlation between changes in such Bitcoin Futures
Contracts and the spot price of bitcoin will be only approximate.
Weak correlation between the Benchmark and the spot price of
bitcoin may result from fluctuations in bitcoin prices discussed
above. Imperfect correlation may also result from speculation in
Benchmark Component Futures Contracts, technical factors in the
trading of Benchmark Component Futures Contracts, and expected
inflation in the economy as a whole. If there is a weak correlation
between the Benchmark and the spot price of bitcoin, then the price
of Shares may not accurately track the spot price of bitcoin and
you may not be able to effectively use the Fund as a way to hedge
the risk of losses in your bitcoin related transactions or as a way
to indirectly invest in bitcoin.
As 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 corn market.
On the other hand, if the Fund’s NAV is equal to 100.9 times
the value of a single Bitcoin Futures Contract, it can purchase 100
such contracts, resulting in 99.1% exposure.
However, at certain asset
levels the Fund may be limited in its ability to purchase Bitcoin
Futures Contracts due to position limits imposed by the CFTC or
position limits or accountability levels imposed by the relevant
exchanges. In these instances, the Fund would likely invest to a
greater extent in bitcoin interests not subject to these position
limits or accountability levels. To the extent that the Fund
invests in other bitcoin 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
currently has two futures commission merchants through which it buys and sells futures contracts.
Volatility in the bitcoin 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 bitcoin 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 on, 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 bitcoin related losses
or indirectly invest in bitcoin.
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 bitcoin. 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 CME
exchange-traded Bitcoin Futures Contracts.
A market disruption, such as a government taking
regulatory or other actions that disrupt the market in bitcoin, can
also make it difficult to liquidate a position. Unexpected market
illiquidity may cause major losses to investors at any time or from
time to time. In addition, the 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
bitcoin purchasers are the predominant hedgers in the market, the
Fund might have to reinvest at higher futures prices or choose
other bitcoin interests.
The changing nature of the participants in the
bitcoin market will influence whether futures prices are above or
below the expected future spot price. Holders of bitcoin will
typically seek to hedge against falling bitcoin prices by selling
Bitcoin Futures Contracts. Therefore, if holders of bitcoin become
the predominant hedgers in the futures market, prices of Bitcoin
Futures Contracts will typically be below expected future spot
prices. Conversely, if the predominant hedgers in the futures
market are the holders of bitcoin who purchase Bitcoin Futures
Contracts to hedge against a rise in prices, prices of Bitcoin
Futures Contracts will likely be higher than expected future spot
prices. This can have significant implications for the Fund when it
is time to sell a Bitcoin Futures Contract that is no longer a
Benchmark Component Futures Contract and purchase a new Bitcoin
Futures Contract or to sell a Bitcoin Futures Contract to meet
redemption requests.
The price
relationship between the Benchmark Component Futures Contracts at
any point in time and the Bitcoin Futures Contracts that will
become Benchmark Component Futures Contracts on the next roll date
will vary and may impact both the Fund’s total return and the
degree to which its total return tracks that of bitcoin price
indices.
The design of the Fund’s Benchmark is such
that the Benchmark Component Futures Contracts will change
on a monthly basis, and the
Fund’s investments may be rolled periodically to reflect the
changing composition of the Benchmark. In the event of a bitcoin
futures market where near to expire contracts trade at a higher
price than longer to expire contracts, a situation referred to as
“backwardation,” then absent the impact of the overall
movement in bitcoin prices the value of the Benchmark Component
Futures Contracts would tend to rise as they approach expiration.
As a result, the Fund may benefit because it may be selling more
expensive contracts and buying less expensive ones on an ongoing
basis. Conversely, in the event of a bitcoin futures market where
near to expire contracts trade at a lower price than longer to
expire contracts, a situation referred to as
“contango,” then absent the impact of the overall
movement in bitcoin prices the value of the Benchmark Component
Futures Contracts would tend to decline as they approach
expiration. As a result, the Fund’s total return may be lower
than might otherwise be the case because it may be selling less
expensive contracts and buying more expensive ones. The impact of
backwardation and contango may lead the total return of the Fund to
vary significantly from the total return of other price references,
such as the spot price of bitcoin. In the event of a prolonged
period of contango, and absent the impact of rising or falling
bitcoin prices, this could have a significant negative impact on
the Fund’s NAV and total return, and you could incur a
partial or total loss of your investment in the
Fund.
Regulation
of futures markets, futures contracts and futures exchanges is
extensive and constantly changing; future regulatory developments
are impossible to predict but may significantly and adversely
affect the Fund. This risk is especially heightened for
cryptocurrency derivatives and
cryptocurrencies.
The regulation of futures markets, futures
contracts and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of dynamic
price limits and the suspension of trading on an exchange or
trading facility.
The regulation of bitcoin interest and crypto
derivatives transactions in the United States is a rapidly changing
area of law and is subject to ongoing modification by governmental
and judicial action. Congress enacted the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank
Act”) in 2010. As the Dodd-Frank Act continues to be
implemented by the CFTC and the SEC, there is a possibility of
future regulatory changes within the United States altering,
perhaps to a material extent, the nature of an investment in the
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 and
crypto derivatives 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.
The regulation of cryptocurrency derivatives and
cryptocurrencies continues to evolve. Inconsistent, changing and
sometimes conflicting regulations may make it more difficult for
Bitcoin businesses to provide services, which may slow the adoption
of the Bitcoin economy and may impede consumer adoption of Bitcoin.
Future regulatory changes may materially alter the ability to buy
and sell Bitcoin and Bitcoin futures, or could impact the ability
of the Fund to achieve its investment objective. This may alter the
nature of an investment in the Fund or the ability of the Fund to
continue to operate as planned.
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 cost of electricity,
regulation, market disruptions, cyber-attacks and political events
may have a larger impact on bitcoin and bitcoin interest prices
than on traditional securities and broader financial markets. These
additional variables may create additional investment risks that
subject the Fund’s investments to greater volatility than
investments in traditional securities.
Lower correlation should not be confused with
negative correlation, where the performance of two asset classes
would be opposite of each other. There is no historic evidence that
the spot price of bitcoin and prices of other financial assets,
such as stocks and bonds, are negatively correlated. In the absence
of negative correlation, the 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 t 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 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 Fund
has no operating history so there is no performance history to
serve as a basis for you to evaluate an investment in the
Fund.
The Fund is new and has no operating history.
Therefore, you do not have the benefit of reviewing the past
performance of the Fund as a basis to evaluate an investment in the
Fund.
The Fund
is newly formed and may not be successful in implementing its
investment objective or attracting sufficient
assets.
The Fund is newly formed, and the Fund faces
competition from other funds with exposure to cryptocurrency.
Accordingly, investors in the Fund bear the risk that the Fund may
not be successful in implementing its investment objective or may
fail to attract sufficient assets, which could result in the Fund
being liquidated at a time that may not be favorable to all
shareholders or which could have negative tax
consequences.
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 dynamic price fluctuation limits
set by the CFTC and the exchanges have the potential to cause
tracking error, which could cause the price of Shares to
substantially vary from the Benchmark and prevent you from being
able to effectively use the Fund as a way to hedge against bitcoin
related losses or as a way to indirectly invest in
bitcoin.
The CFTC and U.S. designated contract markets,
such as the CME, have established position limits and
accountability levels on the maximum net long or net short BTC
Contracts that the Fund may hold, own or control. Spot position
limits are set at 4,000 contracts. A position accountability level
of 5,000 contracts will be applied to positions in single months
outside the spot month and in all months combined. The MBT
Contracts have a spot month limit of 200,000 contracts and a
position accountability level of 250,000 contracts. Accountability
levels are not fixed ceilings but rather thresholds above which the
exchange may exercise greater scrutiny and control over an
investor, including limiting the Fund to holding no more Bitcoin
Futures Contracts than the amount established by the accountability
level. The potential for the Fund to reach position or
accountability limits will depend on if and how quickly the
Fund’s net assets increase.
In addition to position limits and
accountability limits, the CME and other exchanges have set dynamic
price fluctuation limits on Bitcoin Futures Contracts. The dynamic
price limit functionality under the special price fluctuation
limits mechanism assigns a price limit variant which equals a
percentage of the prior trading day’s settlement price, or a
price deemed appropriate. During the trading day, the dynamic
variant is utilized in continuous rolling 60-minute look-back
periods to establish dynamic upper and lower price fluctuation
limits. Once the dynamic price fluctuation limit has been reached
in a particular futures contract, no trades may be made at a price
beyond that limit. The CME has adopted daily dynamic price
fluctuation limit functionality effective March 11, 2019,
specifically Rule 589 found in the following link:
https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2019/03/SER-8351.pdf.
Position limits, accountability limits and
dynamic price fluctuation limits may limit the Fund’s ability
to invest the proceeds of Creation Baskets in Bitcoin Futures
Contracts. As a result, when the Fund offers to sell Creation
Baskets it may be limited in its ability to invest in Bitcoin
Futures Contracts, including the Benchmark Futures Contracts. The
Fund may be required to invest in other permitted exchange listed
bitcoin interests and may hold larger amounts of cash and cash
equivalents, which will impair the Fund’s ability to meet its
investment objective of tracking the Benchmark.
There 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. 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 [●]% 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 gross expense ratio of approximately [●]% 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 positions. Under normal
circumstances, the NAV reflects the quoted CME settlement price of
open futures contracts on the date when the NAV is being
calculated. In instances when the quoted settlement price of
futures contracts traded on an exchange may not be reflective of
fair value based on market condition, generally due to the
operation of daily limits or other rules of the exchange or
otherwise the NAV may not reflect the fair value of open futures
contracts on such date. For purposes of financial statements and
reports, 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 four baskets. The minimum
level of Shares specified for the Fund is subject to change. (The
current number of Shares outstanding will be 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 bitcoin interests must
maintain customers’ assets in a bulk segregated account. If a
clearing broker fails to do so or is unable to satisfy a
substantial deficit in a customer account, its other customers may
be subject to risk of a substantial loss of their funds in the
event of that clearing broker’s bankruptcy. In that event,
the clearing broker’s customers, such as the 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 bitcoin interests are
traded.
From time to time, the clearing brokers may be
subject to legal or regulatory proceedings in the ordinary course
of their business. A clearing broker’s involvement in costly
or time-consuming legal proceedings may divert financial resources
or personnel away from the clearing broker’s trading
operations, which could impair the clearing broker’s ability
to successfully execute and clear the 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.
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
cryptocurrency derivative 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, 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 recent pandemic spread of the novel
coronavirus known as COVID-19), or the continuation or expansion of
war or other hostilities. Global terrorist attacks, anti-terrorism
initiatives, and political unrest, as well as the adverse impact
the COVID-19 pandemic will have on the global and U.S. markets and
economy, continue to fuel this concern. For example, the COVID-19
pandemic may adversely impact the level of services currently
provided by the U.S. government, could weaken the U.S. economy,
interfere with the commodities markets that rely upon data
published by U.S. federal government agencies, and prevent the
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 past,
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.
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 Bitcoin Futures Contracts or other bitcoin
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
bitcoin Futures Contracts or other bitcoin 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 who buy
the Fund’s shares at a market price that is a premium to NAV
face a risk of loss if the market price of their shares
subsequently converges with NAV per share. Investors buying or
selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by
that broker. Brokerage commissions are often a fixed amount and may
be a significant proportional cost for investors seeking to buy or
sell relatively small amounts of shares.
The NYSE Arca may halt trading in the Shares which would adversely
impact your ability to sell Shares.
Trading in Shares of the
Fund may be halted due to market conditions or, in light of NYSE
Arca rules and procedures, for reasons that, in view of the NYSE
Arca, make trading in Shares inadvisable. In addition, trading is
subject to trading halts caused by extraordinary market volatility
pursuant to “circuit breaker” rules that require
trading to be halted for a specified period based on a specified
market decline. There can be no assurance that the requirements
necessary to maintain the listing of the Shares will continue to be
met or will remain unchanged. The Fund will be terminated if its
Shares are delisted.
The lack
of active trading markets for the Shares of the Fund may result in
losses on your investment in the Fund at the time of disposition of
your Shares.
Although the Shares of the Fund will be listed
and traded on the NYSE Arca, there can be no guarantee that an
active trading market for the Shares of the Fund will be
maintained. If you need to sell your Shares at a time when no
active market for them exists, the price you receive for your
Shares, assuming that you are able to sell them, likely will be
lower than what you would receive if an active market did
exist.
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 are typically required to be secured by the
deposit of margin funds that represent only a small percentage of a
futures contract’s entire market value. This feature permits
commodity pools to “leverage” their assets by
purchasing or selling futures contracts with an aggregate notional
amount in excess of the commodity pool’s assets. While this
leverage can increase a pool’s profits, relatively small
adverse movements in the price of the pool’s futures
contracts 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 bitcoin can be volatile which could cause large fluctuations in
the price of Shares.
As discussed in more detail above, price
movements for bitcoin are influenced by, among other things, the
environment, natural or man-made disasters, governmental oversight
and regulation, demographics, economic conditions, infrastructure
limitations, existing and future technological developments, and a
variety of other factors now known and unknown, any and all of
which can have an impact on the supply, demand, and price
fluctuations in the bitcoin markets. More generally, cryptocurrency
prices may be influenced by economic and monetary events such as
changes in interest rates, changes in balances of payments and
trade, U.S. and international inflation rates, currency valuations
and devaluations, U.S. and international economic events, and
changes in the philosophies and emotions of market participants.
Because the Fund invests in futures contracts in a single
cryptocurrency, it is not a diversified investment vehicle, and
therefore may be subject to greater volatility than a diversified
portfolio of stocks or bonds or a more diversified commodity or
cryptocurrency pool.
Tax Risk
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.
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 expects to receive an opinion of
counsel that, under current U.S. federal income tax laws, the Fund
more likely than not will be treated as a partnership that is not
taxable as a corporation for U.S. federal income tax purposes,
provided that, among other things, (i) at least 90 percent of the
Fund’s annual gross income consists of “qualifying
income” as defined in the Internal Revenue Code of 1986, as
amended (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. Opinions of counsel are not
binding on the Internal Revenue Service (the “IRS”) and
no assurance can be given that the IRS or a court will agree with
counsel’s opinion. Although the Sponsor anticipates that the
Fund will satisfy the “qualifying income” requirement
for all of its taxable years, that result cannot be assured. There
is very limited authority on the U.S. federal income tax treatment
of bitcoin and no direct authority on bitcoin derivatives. The 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 such 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.
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. Assuming the Fund qualifies to be taxed as a partnership
for U.S. federal income tax purposes, you will be required to pay
U.S. federal income tax and, in some cases, state, local, or
foreign income tax, on your allocable share of the 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 and 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 consequences for
you.
The Fund intends to be treated as a partnership
for U.S. federal income tax purposes. The U.S. tax rules pertaining
to entities taxed as partnerships are complex and their application
to publicly traded partnerships such as the Fund, is in many
respects uncertain. The Fund will apply certain assumptions and
conventions in an attempt to comply with the intent of the
applicable rules and to report taxable income, gains, deductions,
losses and credits in a manner that properly reflects
Shareholders’ economic gains and losses. These assumptions
and conventions may not fully comply with all aspects of the Code,
and applicable Treasury Regulations, however, and it is possible
that the IRS will successfully challenge our allocation methods and
require us to reallocate items of income, gain, deduction, loss or
credit in a manner that adversely affects you.
The 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, the cost of such withholding may be borne by all
Shareholders.
Under certain circumstances, the Fund may be
required to pay withholding tax with respect to allocations to
Non-U.S. Shareholders. Although the Trust Agreement provides that
any such withholding will be treated as being distributed to the
Non-U.S. Shareholder, the Fund may not be able to cause the
economic cost of such withholding to be borne by the Non-U.S.
Shareholder on whose behalf such amounts were withheld since the
Fund does not intend to make any distributions. Under such
circumstances, the economic cost of the withholding may be borne by
all Shareholders, not just the Shareholders on whose behalf such
amounts were withheld. This could have a material impact on the
value of your Shares.
Shareholders
will receive partner information tax returns on Schedule K-1, which
could increase the complexity of tax returns.
The partner information tax returns on Schedule
K-1, which the Fund will distribute to Shareholders, will contain
information regarding the income items and expense items of the
Fund. If you have not received Schedule K-1s from other
investments, you may find that preparing your income tax returns
may require additional time, or it may be necessary for you to
retain an accountant or other tax preparer, at an additional
expense to you, to assist you in the preparation of your
returns.
Shareholders
of the Fund may recognize significant amounts of ordinary income
and short-term capital gain.
Due to the investment strategy of the Fund, the
Fund may realize and pass through to Shareholders significant
amounts of ordinary income and short-term capital gains as opposed
to long-term capital gains. Ordinary income and short-term capital
gains are generally taxed at higher federal income tax rates than
the preferential federal income rates applicable to long-term
capital gains.
Tax
legislation that has been or could be enacted may affect you with
respect to your investment in the 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 in
General
The Fund seeks to provide investors with a way
to gain price exposure to the bitcoin market. In furtherance of
this goal, the Fund’s investment objective is for changes in
the Shares’ NAV to reflect the daily changes of the price of
the Benchmark, less expenses from the Fund’s operations. The
Sponsor developed the Benchmark as a representation of the bitcoin
market. The Fund does not invest
directly in bitcoin.
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 bitcoin market, as measured by the Benchmark. However, the Fund
may not be successful in implementing its investment objective
because the Fund is newly formed and because the BTC Contracts and
MBT Contracts listed on the CME are a relatively new type of
futures contract that may be less developed than more established
futures markets (such as the futures markets for corn or
wheat).
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 the
Benchmark Component Futures Contracts if, due to market conditions,
a potential or actual imposition of position limits by the CFTC or
futures exchange rules, or the imposition of risk mitigation
measures by a futures commission merchant restricts the ability of
the Fund to invest in the current Benchmark 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 six 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 and the Hashdex Bitcoin Futures ETF. 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.
The
Sponsor
The Sponsor of the Trust is Teucrium Trading,
LLC, a Delaware limited liability company. The principal office of
the Sponsor and the Trust is 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 did not engage in
any business activity. 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. The Fund is newly
organized and as of the date of this prospectus has not paid any
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 has borne or will bear
the costs and expenses related to the initial offer and sale of
Shares. None of the costs and expenses related to the initial
registration, offer and sale of Shares, which are estimated to be
approximately $[●], will be 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 OTC
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 has
primary responsibility for the Trade Operations for the Funds. He
maintains his main business office at 13520 Excelsior Blvd.,
Minnetonka, MN 55345. Mr. Kahler was
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 25, 2011, approved as a Branch Manager of
the Sponsor on March 16, 2012 and approved by the NFA as a
Principal of the Sponsor on May 16, 2012. These NFA registrations
were withdrawn on September 7, 2018 and then he re-registered as an
Associated Person and Branch Office Manager of the Sponsor on
October 5,2018 and as a Principal of the Sponsor on October 16,
2018. Since January 18, 2012, Mr. Kahler has been an associated
person of the Distributor under the terms of the SASA between the
Sponsor and the Distributor. Additional information regarding the
SASA can be found in the section of this disclosure document
entitled “Plan of Distribution.” Prior to his
employment with the Sponsor, Mr. Kahler worked for Cargill Inc., an
international producer and marketer of food, agricultural,
financial and industrial products and services, from April 2006
until November 2011 in the Energy Division as Senior Petroleum
Trader. In October 2006 and while employed at Cargill Inc., Mr.
Kahler was approved as an Associated Person of Cargill Commodity
Services Inc., a commodity trading affiliate of Cargill Inc. from
September 13, 2006 to November 9, 2011. Mr. Kahler graduated from
the University of Minnesota with a Bachelors of Agricultural
Business Administration and is 54 years old. Mr. Kahler is
primarily responsible for making trading and investment decisions
for the Fund and other Teucrium Funds, and for directing Fund and
other Teucrium Fund trades for execution.
Messrs. Gilbertie, Riker, and Kahler and Ms.
Mullen-Rusin are individual “principals,” as that term
is defined in CFTC Rule 3.1, of the Sponsor. These individuals are
principals due to their positions and/or due to their ownership
interests in the Sponsor. Beneficial ownership interests of the
principals, if any, are shown under the section entitled
“Security Ownership of Principal Shareholders and
Management” below and any of the principals may acquire
beneficial interests in the Fund in the future. GFI Group LLC is a
principal for the Sponsor under CFTC Rules due to its ownership of
certain non-voting securities of the Sponsor. NMSIC Classic LLC is
a principal of the Sponsor under CFTC Rules due to its greater than
10% capital contribution to the Sponsor.
Prior
Performance of the Fund
THE FUND HAS NOT COMMENCED
TRADING AND DOES NOT HAVE ANY PERFORMANCE
HISTORY.
The
Trustee
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.
Operation of the
Fund
The investment
objective of the Fund is for changes in the Shares’ NAV to
reflect the daily changes of the price of the Benchmark, less
expenses from the Fund’s operations. Under normal
market conditions, the Fund expects that the Fund’s assets
will be used to invest in Bitcoin Futures Contracts and cash and
cash equivalents, such as short-term Treasury bills, money market
funds, demand deposit accounts and commercial paper. The term
“normal market conditions” includes, but is not limited
to, the absence of: trading halts in the applicable financial
markets generally; operational issues (e.g., systems failure)
causing dissemination of inaccurate market information; or force
majeure type events such as natural or manmade disaster, act of
God, armed conflict, act of terrorism, riot or labor disruption or
any similar intervening circumstance.
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, less expenses from the
Fund’s operations. The Benchmark is the average of the
closing settlement prices for the first to expire and second to
expire Bitcoin futures contracts listed on the CME. The Benchmark
will roll prior the expiration of the spot month CME Bitcoin
Futures. The Benchmark is not
designed to track the spot price of bitcoin. 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 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. value, CUSIP, and total weight as a percentage of each
futures contract, and the total combined 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
Median bid-ask spread for the past 30 days, the shares outstanding,
the shares available for issuance. Historical premium/discount
information will be updated quarterly and daily as needed. The
prospectus, Monthly Statements of Account, Quarterly Performance of
the Midpoint versus the NAV (as required by the CFTC), and the Roll
Dates, as well as Forms 10-Q, Forms 10-K, and other SEC filings for
the Fund, are also posted on the website. The Fund’s website
is publicly accessible at no charge.
The Fund’s investment objective is to
provide investors with a way to gain price exposure to the bitcoin
market. The Sponsor developed the Benchmark as a representation of
the bitcoin market. 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 bitcoin market, as
measured by the Benchmark.
An investment in the Shares can potentially
provide a means for diversifying an investor’s portfolio or
hedging exposure to changes in bitcoin prices. An investment in the
Shares allows both retail and institutional investors to easily
gain this exposure to the bitcoin market in a transparent,
cost-effective manner.
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 bitcoin
market. Such investors may include those seeking to hedge the risk
of losses in their bitcoin related transactions as well as
investors seeking exposure to the bitcoin market. Accordingly,
depending on the investment objective of an individual investor,
the risks generally associated with investing in the bitcoin market
and/or the risks involved in hedging may exist. In addition, the
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 bitcoin or Benchmark
Component Futures Contracts. While the level of interest earned on,
or the market price of, these investments may in some respects
correlate to changes in the price of bitcoin, this correlation is
not anticipated as part of the 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
bitcoin.
The Shares issued by the Fund may only be
purchased by Authorized Purchasers and only in blocks of 12,500
Shares called Creation Baskets. The amount of the purchase payment
for a Creation Basket is equal to the total NAV of Shares in the
Creation Basket. Similarly, only Authorized Purchasers may redeem
Shares and only in blocks of 12,500 Shares called Redemption
Baskets. The amount of the redemption proceeds for a Redemption
Basket is equal to the total NAV of Shares in the Redemption
Basket. The purchase price for Creation Baskets and the redemption
price for Redemption Baskets are the actual NAV calculated at the
end of the business day when a request for a purchase or redemption
is received by the 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 $50.00. In that case, the Fund would receive $625,000 in
proceeds from the sale of the Creation Basket ($50.00 NAV per Share
multiplied by 12,500 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 $175,000 (or
otherwise not a round number), the Fund would be unable to buy an
exact number of Bitcoin Futures Contracts with an aggregate market
value equal to $625,000. In this case, the Fund would be able to
purchase 3 BTC Contracts with an aggregate
market value of approximately $525,000 and 28 MBT Contracts (each
of which represent 0.10 bitcoin) at $3,500 with an aggregate market
value of approximately $98,000, bringing the aggregate value of
proceeds to $623,000. Assuming a margin requirement equal to 40% of
the notional amount based on the previous settlement price of the
BTC Contracts and MBT Contracts, the Fund would be required to
deposit $249,200 in cash with the FCM through which the Bitcoin
Futures Contracts were purchased. The remainder of the proceeds
from the sale of the Creation Basket, $375,800, 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 Benchmark Component Futures Contracts are
cash-settled, and the Fund will not be required to take delivery of
bitcoin. Positions may also be closed out to meet orders for
Redemption Baskets, in which case the proceeds from closing the
positions will not be reinvested.
Futures
Contracts
Futures contracts are agreements between two
parties that are executed on a designated contract market
(“DCM”), i.e., a commodity futures exchange, and that
are cleared and margined through a derivatives clearing
organization (“DCO”), i.e., a clearing house. Bitcoin
Futures Contacts are financially settled, which means that one
party agrees to buy a commodity such as bitcoin from the other
party at a later date at a price and quantity agreed upon when the
contract is made, but instead of taking physical delivery of the
commodity at such later date, settlement occurs in a dollar amount
that is equivalent to the amount of bitcoin agreed to in the
contract. In market terminology, a party who purchases a futures
contract is long in the market and a party who sells a futures
contract is short in the market. The contractual obligations of a
buyer or seller may generally be satisfied by financial settlement
or by making an offsetting sale or purchase of an identical futures
contract on the same or linked exchange before the designated date
of delivery. The difference between the price at which the futures
contract is purchased or sold and the price paid for the offsetting
sale or purchase, after allowance for brokerage commissions,
constitutes the profit or loss to the trader.
If the price of the cryptocurrency increases
after the original futures contract is entered into, the buyer of
the futures contract will generally be able to sell a futures
contract to close out its original long position at a price higher
than that at which the original contract was purchased, generally
resulting in a profit to the buyer. Conversely, the seller of a
futures contract will generally profit if the price of the
underlying bitcoin cryptocurrency decreases, as it will generally
be able to buy a futures contract to close out its original short
position at a price lower than that at which the original contract
was sold. Because the Fund seeks to track the Benchmark directly.
The Fund will generally be long in the market for bitcoin and will
generally sell Bitcoin Futures Contracts only to close out existing
long positions.
Futures contracts are typically traded on
futures exchanges (i.e. DCMs) such as the CME, which provide
centralized market facilities in which multiple persons may trade
contracts. Members of a particular futures exchange and the trades
executed on such exchange are subject to the rules of that
exchange. Futures exchanges and their related clearing
organizations (i.e. DCOs) are given reasonable latitude in
promulgating rules and regulations to control and regulate their
members.
Trades on a futures exchange are generally
cleared by the DCO, which provides services designed to mutualize
or transfer the credit risk arising from the trading of contracts
on an exchange. The clearing organization effectively becomes the
other party to the trade, and each clearing member party to the
trade looks only to the clearing organization for
performance.
Bitcoin
Futures Contracts
As noted above,
CME began offering trading in BTC Contracts in 2017, and in MBT
Contracts in 2021. Each of the contract’s final cash
settlement is based on the CME CF Bitcoin Reference Rate (the
“CME CF BRR”). The contracts trade and settle like
other cash-settled commodity futures contracts. According to the
Sponsor, trading in CME Bitcoin Futures Contracts has increased
significantly, in particular with respect to BTC Contracts. Nearly
every measurable metric related to BTC Contracts has trended
consistently up since launch and/or accelerated upward in the past
year. For example, the daily notional average volume for the
benchmark component futures contracts was approximately $503
million in 2020. In 2021 that number grew to more than $2.25
billion. Average daily volume and open interest have continued to
grow year over year. This general upward trend in trading volume
and open interest is captured in the following
chart.
The following
table and chart, calculated by the Sponsor, sets forth the
approximate daily notional average volume for the Benchmark
Component Futures Contracts together, followed by the daily average
volume (in number of contracts) for each of the Benchmark Component
Futures Contracts, the first to expire and the second to
expire.
|
Daily
Notional Average Volume for Benchmark Component Futures Contracts
($)
|
First-to-Expire
Benchmark
Component Futures Contract
|
Second-to-Expire
Benchmark
Component Futures Contract
|
2018
|
$124,450,008
|
3,208
|
413
|
2019
|
$235,149,976
|
5,452
|
754
|
2020
|
$503,393,255
|
7,146
|
1,329
|
2021
|
$2,254,584,941
|
7,311
|
2,163
|
2022*
|
$1,729,063,526
|
6,574
|
1,868
|
*2022 data
through
03/31/2022.
Impact of
Position Limits, Accountability Levels, and Price Fluctuation
Limits.
Position Limits, Accountability Levels, and
Dynamic Price Fluctuation Limits may potentially cause a tracking
error between the price of the Shares and the Benchmark. This may
in turn prevent you from being able to effectively use the Fund as
a way to hedge against bitcoin related losses or as a way to
indirectly invest in bitcoin.
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 Bitcoin Futures Contracts,
it could force the Fund to limit the number of Creation Baskets
that it sells.
Price
Volatility
Despite dynamic price limits, the price
volatility of futures contracts generally has been historically
greater than that for traditional securities such as stocks and
bonds. Price volatility often is greater day to day as opposed to
intra-day. Economic factors that may cause volatility in Bitcoin
Futures Contracts include but are not limited to cost of
electricity, regulation, market disruptions, cyber-attacks,
political events and existing and future technologic developments.
There are also various other factors now known and unknown, any and
all of which can have an impact on the supply, demand, and price
fluctuations in the bitcoin markets. See “Risks Associated
with Investing Directly or Indirectly in Bitcoin.” 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 bitcoin fluctuates based
on a number of market factors, including demand for bitcoin. The
value of Bitcoin Futures Contracts likewise fluctuates in reaction
to a number of market factors. Because the Fund seeks to maintain
its holdings in Bitcoin Futures Contracts with a roughly constant
expiration profile, the Fund must periodically “roll”
futures contract positions, closing out soon to expire contracts
that will no longer be part of the Benchmark and entering into
subsequent to expire contracts. One factor determining the total
return from investing in futures contracts is the price
relationship between soon to expire contracts and later to expire
contracts.
If the futures market is in a state of
backwardation (i.e., when the price of bitcoin in the future is
expected to be less than the current price), the Fund will buy
later to expire contracts for a lower price than the sooner to
expire contracts that it sells. Hypothetically, and assuming no
changes to either prevailing bitcoin prices or the price
relationship between soon to expire contracts and later to expire
contracts, the value of a contract will rise as it approaches
expiration. Over time, if backwardation remained constant, the
differences would continue to increase. If the futures market is in
contango, the Fund will buy later to expire contracts for a higher
price than the sooner to expire contracts that it sells.
Hypothetically, and assuming no other changes to either prevailing
bitcoin prices or the price relationship between the spot price,
soon to expire contracts and later to expire contracts, the value
of a contract will fall as it approaches expiration. Over time, if
contango remained constant, the difference would continue to
increase. All other things being equal, a situation involving
prolonged periods of contango may adversely impact the returns of
the 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 bitcoin interest trader with the
trader’s broker to initiate an open position in futures
contracts. A margin deposit is like a cash performance bond. It
helps assure the trader’s performance of the futures
contracts that he or she purchases or sells. Futures contracts are
customarily bought and sold on initial margin that represents a
small percentage of the aggregate purchase or sales price of the
contract. The amount of margin required in connection with a
particular futures contract is set by the exchange on which the
contract is traded. Brokerage firms, such as the Fund’s
clearing broker, carrying accounts for traders in bitcoin interest
contracts may require higher amounts of margin as a matter of
policy to further protect themselves.
Futures contracts are marked to market at the
end of each trading day and the margin required with respect to
such contracts is adjusted accordingly. This process of marking to
market is designed to prevent losses from accumulating in any
futures account. Therefore, if the 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.
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 total
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 BTC Contract with a stated or
notional amount of $175,000 would not require the Fund to pay
$175,000 upon entering into the contract; rather, only a margin
deposit, approximately 40% of the notional amount based on the
previous settlement price, would be required. To secure its BTC
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 BTC
Contracts and/or MBT Contracts.
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 90 days at the time of
investment or will be subject to a demand feature that enables that
Fund to sell the security within that time period at approximately
the security’s face value (plus accrued interest). Any cash
equivalents invested in by the 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.
Liquidity
The Fund invests only in Bitcoin 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 or other bitcoin interests
based on the spot price of bitcoin.
Spot
Commodities
While most futures contracts can be physically
settled, the Bitcoin Futures Contracts are cash settled. However,
the Fund may from time to time trade in other exchange listed
bitcoin interests based on the spot price of
bitcoin.
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 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.
Bitcoin
Bitcoin is a digital asset or cryptocurrency
that is a unit of account on the “Bitcoin Network,” an
open source, decentralized peer-to-peer computer network. The
ownership and operation of bitcoin is determined by participants in
the Bitcoin Network. The Bitcoin Network connects computers that
run publicly accessible, or open source, software that follows the
rules and procedures governing the Bitcoin Network. This is
commonly referred to as the Bitcoin Protocol.
Bitcoin may be held, may be used to purchase of
goods and services or may be exchanged for fiat currency. No single
entity owns or operates the Bitcoin Network, and the value of
bitcoin is not backed by any government, corporation or other
entity. Instead, the value of bitcoin is determined in part by the
supply and demand in markets created to facilitate the trading of
bitcoin. Public-key cryptography protects the ownership and
transaction records for bitcoin.
Because the source code for the Bitcoin Network
is open-source, anyone can contribute to its development. At this
time the ultimate supply of bitcoin is finite and limited to 21
million “coins,” with the number of bitcoin available
increasing gradually as new bitcoin supplies are mined until the 21
million current protocol cap is reached.
The Bitcoin Network is maintained by a
decentralized group of participants who run computer software that
results in the recording and validation of transactions, commonly
referred to as “miners;” developers who propose
improvements to the Bitcoin Protocol and the software that that
enforces the protocol; and users who transact in bitcoin or hold
bitcoin for investment purposes. Miners use special computer
software to solve a complex mathematical problems. The miner who
successfully solves the problem first receives newly-minted bitcoin
as compensation and is permitted to add a block of transactions to
the “blockchain,” a decentralized ledger that records
the transactions on the Bitcoin Network. This new block is then
validated by a majority of the users of the Blockchain Network.
Anyone can be a user, developer or miner.
As discussed previously, the code underlying the
Bitcoin Network, or the “Bitcoin Protocol” is open
sourced, which means that anyone can contribute to its development.
In practice, a few developers regularly contribute to the
development of the Bitcoin Protocol, but their updates or
modifications are only effective to the extent that they are
accepted by participants that collectively have a majority of the
processing power on the Bitcoin Network. A “fork” in
the Bitcoin Network, may occur, and would result in two separate
networks, if a new modification is accepted by a small portion of
users.
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. 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, and 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.
Marketing
Agents
[To be provided by
amendment.]
Clearing Brokers
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 (the “Clearing
Brokers”) to execute and clear the Fund’s futures
transactions and provide other brokerage-related services. The
Clearing Brokers are each registered as an FCM with the CFTC, are
members of the National Futures Association (“NFA”) and
are clearing members of all major U.S. futures exchanges. The
Clearing Brokers are registered as broker-dealers
(“BDs”) with the U.S. Securities and Exchange
Commission (“SEC”) and are each a member of the
Financial Industry Regulatory Authority, Inc.
(“FINRA”).
Except as indicated below,
there have been no material civil, administrative, or criminal
proceedings pending, on appeal, or concluded against the Clearing
Brokers or their principals in the past five (5)
years.
Litigation
disclosure for 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.
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 Futures Commission
Merchant 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 one or both Clearing
Brokers as the Fund’s clearing brokers.
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
|
[●]% 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: [●]% of average
gross assets up to $[●], and [●]% of average gross
assets over $[●], 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: [●]% of average gross assets on
the first $[●], [●]% on the next $[●], [●]%
on the next $[●] and [●]% on the balance over
$[●] annually
A combined minimum annual fee of $[●] for
custody, transfer agency, accounting and administrative services is
assessed per Fund.
|
Foreside Fund Services, LLC,
Distributor
|
The Distributor receives a fee of [●]% of
the Fund’s average daily net assets and an aggregate annual
fee of $[●] for all Teucrium Funds, along with certain
expense reimbursements. The asset-based fees which will be paid to
the Distributor by the Fund for distribution services will not
exceed $[●] for the two year period immediately following the
initial offering of shares (the “two year offering
period”). Expense reimbursements consist of costs for sales
and advertising review fees and will not exceed $[●] for the
two year offering period.
Under the Securities Activities and Service
Agreement (the “SASA”), the Distributor receives
compensation from the fund for its activities on behalf of all the
Teucrium Funds. The fees paid to the Distributor pursuant to the
SASA for this offering will not exceed $[●] for the two-year
offering period. The total expense reimbursement payable to the
Distributor relating to the registration, continuing education and
other administrative expenses of the Registered Representatives for
this offering will not exceed $[●] for the two-year offering
period.
|
[●], Marketing Agents
|
[To be provided by
amendment.]
|
|
|
E D & F Man Capital Markets, Inc., Futures
Commission Merchant and Clearing Broker
|
$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 do not equal or exceed 20% return on the
StoneX Capital Requirement at 9.6% of Exchange Maintenance Margin,
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 Registered Representatives non-marketing
services to the Fund, fees will not exceed $[●] and, for
marketing and wholesaling purposes, fees will not exceed $[●]
for the two year offering period. These amounts include expenses
that will be reimbursed to the Registered Representatives for
travel and other expenses related to their activities for the Fund.
Registered Representatives will also receive continuing education
valued at a maximum of $[●] for the two-year offering
period.
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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. As of the date of
this prospectus, none of the expenses discussed above have been
charged to the Fund.
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.
Form of
Shares
Registered
Form
Shares are issued in registered form in
accordance with the Trust Agreement. [●] has been appointed
registrar and transfer agent for the purpose of transferring Shares
in certificated form. [●] 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 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.
Transfer of
Shares
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.
Plan of
Distribution
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 “DEFI.” 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 12,500 Shares at their NAV through the
Distributor, to Authorized Purchasers. [●] is expected to be
the initial Authorized Purchaser. It is expected that on the
effective date, the initial Authorized Purchaser will purchase one
or more initial Creation Baskets of [●] Shares at a per Share
price of $50.00. The initial offering price of $50.00 was set as an
appropriate and convenient price that would facilitate secondary
market trading of Shares, and the Shares of the Fund acquired by
the Sponsor in connection with its initial capital contribution
were purchased at a price of $50.00 per Share. 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:
[●].
Because new Shares can be created and issued on
an ongoing basis, at any point during the life of the Fund, a
“distribution,” as such term is used in the 1933 Act,
will be occurring. Authorized Purchasers, other broker-dealers and
other persons are cautioned that some of their activities may
result in their being deemed participants in a distribution in a
manner that would render them statutory underwriters and subject
them to the prospectus delivery and liability provisions of the
1933 Act. For example, an Authorized Purchaser, other broker-dealer
firm or its client will be deemed a statutory underwriter if it
purchases a basket from the Fund, breaks the basket down into the
constituent Shares and sells the Shares to its customers; or if it
chooses to couple the creation of a supply of new Shares with an
active selling effort involving solicitation of secondary market
demand for the Shares. In contrast, Authorized Purchasers may
engage in secondary market or other transactions in Shares that
would not be deemed “underwriting.” For example, an
Authorized Purchaser may act in the capacity of a broker or dealer
with respect to Shares that were previously distributed by other
Authorized Purchasers. A determination of whether a particular
market participant is an underwriter must take into account all the
facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete
description of all the activities that would lead to designation as
an underwriter and subject them to the prospectus delivery and
liability provisions of the 1933 Act.
Dealers who are neither Authorized Purchasers
nor “underwriters” but are nonetheless participating in
a distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an
“unsold allotment” within the meaning of Section
4(a)(3)(C) of the 1933 Act, would be unable to take advantage of
the prospectus delivery exemption provided by Section 4(a)(3) of
the 1933 Act.
The Sponsor expects that any broker-dealers
selling Shares will be members of FINRA. Investors intending to
create or redeem baskets through Authorized Purchasers in
transactions not involving a broker-dealer registered in such
investor’s state of domicile or residence should consult
their legal advisor regarding applicable broker-dealer regulatory
requirements under the state securities laws prior to such creation
or redemption.
While the Authorized Purchasers may be
indemnified by the Sponsor, they will not be entitled to receive a
discount or commission from the Trust or the Sponsor for their
purchases of Creation Baskets.
Calculating
NAV
The Fund’s NAV per Share is calculated
by:
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taking the current market value of its total
assets, and
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subtracting any liabilities and dividing the
balance by the number of Shares.
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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).
In determining the value of Bitcoin Futures
Contracts, the Administrator uses the BTC Contract settlement price
on the exchange on which the contract is traded, except that the
“fair value” of Bitcoin Futures Contracts (as described
in more detail below) may be used when Bitcoin Futures Contracts
close at their price fluctuation limit for the day. The
Administrator determines the value of all 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. NAV includes any
unrealized profit or loss on open bitcoin interests and any other
credit or debit accruing to the Fund but unpaid or not received by
the Fund.
The fair value of a bitcoin interest is
determined by the Sponsor in good faith and in a manner that
assesses the bitcoin interest’s value based on a
consideration of all available facts and all available information
on the valuation date. When a Bitcoin Futures Contract has closed
at its price fluctuation limit, the fair value determination
attempts to estimate the price at which such Bitcoin 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 the BRTI at 4:00 p.m. EST on settlement
day. The fair value of a bitcoin interest may not reflect such
security’s market value or the amount that the Fund might
reasonably expect to receive for the bitcoin 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 bitcoin interests during the
trading day. Changes in the value of cash equivalents are not
included in the calculation of indicative value. For this and other
reasons, the indicative fund value disseminated during NYSE Arca
trading hours should not be viewed as an actual real time update of
the NAV. NAV is calculated only once at the end of each trading
day.
The indicative fund value is disseminated on a
per Share basis every 15 seconds during regular NYSE Arca trading
hours of 9:30 a.m. (EST) to 4:00 p.m. (EST). The trading hours for
the CME can be found at:
https://www.cmegroup.com/education/bitcoin/cme-bitcoin-futures-frequently-asked-questions.html.
ICE Data Indices, LLC disseminates the
indicative fund value through the facilities of CTA/CQ High Speed
Lines. In addition, the indicative fund value is available through
on-line information services such as Bloomberg and
Reuters.
Dissemination of the indicative fund value
provides additional information that is not otherwise available to
the public and is useful to investors and market professionals in
connection with the trading of Fund Shares on 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 bitcoin 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, which 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 bitcoin 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 bitcoin and the
bitcoin interest markets. Some Authorized Purchasers or their
affiliates may from time to time buy or sell bitcoin or bitcoin
interests and may profit in these instances.
Each Authorized Purchaser will be required to be
registered as a broker-dealer under the Exchange Act and a member
in good standing with FINRA, or be exempt from being or otherwise
not required to be registered as a broker-dealer or a member of
FINRA, and will be qualified to act as a broker or dealer in the
states or other jurisdictions where the nature of its business so
requires. Certain Authorized Purchasers may also be regulated under
federal and state banking laws and regulations. Each Authorized
Purchaser has its own set of rules and procedures, internal
controls and information barriers it deems appropriate in light of
its own regulatory regime.
Under the Authorized Purchaser Agreement, 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 its capacity as the
transfer agent to create one or more baskets. For purposes of
processing purchase and redemption orders, a “business
day” means any day other than a day when any of the NYSE
Arca, the CME, or the New York Stock Exchange is closed for regular
trading. Purchase orders must be placed by 3:00 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, bitcoin 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 bitcoin 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
bitcoin 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 bitcoin 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 3:00 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:
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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;
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it determines that the purchase order or the
Creation Basket Deposit is not in proper form;
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it believes that acceptance of the purchase
order or the Creation Basket Deposit would have adverse tax
consequences to the Fund or its Shareholders;
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the acceptance or receipt of the Creation Basket
Deposit would, in the opinion of counsel to the Sponsor, be
unlawful;
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circumstances outside the control of the
Sponsor, Distributor or transfer agent make it, for all practical
purposes, not feasible to process creations of
baskets;
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there is a possibility that any or all of the
Benchmark Component Futures Contracts of the Fund on the CME from
which the NAV of the Fund is calculated will be priced at a dynamic
price limit restriction; or
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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.
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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 3:00 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 bitcoin 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 bitcoin 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 CME is closed
other than customary weekend or holiday closings, or trading on the
NYSE Arca or CME is suspended or restricted, (2) for any period
during which an emergency exists as a result of which delivery,
disposal or evaluation of cash equivalents is not reasonably
practicable, (3) for such other period as 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 CME 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, 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 below 50,000 Shares (i.e., four baskets of
12,500 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 bitcoin
futures equal to the total NAV of the number of Shares included in
the baskets being created or redeemed determined on the day the
order to create or redeem baskets is properly
received.
As discussed above, Authorized Purchasers are
the only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be registered broker-dealers or
other securities market 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
bitcoin 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 bitcoin
interest markets. While the Shares trade on the NYSE Arca until
4:00 p.m. (EST), liquidity in the markets for bitcoin interests may
be reduced after the close of the CME. As a result, during this
time, trading spreads, and the resulting premium or discount, on
the Shares may widen.
Use of
Proceeds
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. 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:
|
●
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held as margin or collateral with FCMs or other
custodian;
|
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used for other investments;
and
|
|
●
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held in bank accounts to pay current obligations
and as reserves.
|
In general, the Fund expects that it will be
required to post approximately 40% of the previous day settlement
price of a Benchmark Component Futures Contracts as initial margin.
Ongoing margin and collateral payments will generally be required
for exchange-traded bitcoin interests based on changes in the value
of the bitcoin interests. In light of the differing requirements
for initial payments under exchange-traded bitcoin 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
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 8-10% of the Fund’s assets
held by the FCM are held in segregation pursuant to the CEA and
CFTC regulations.
The Trust
Agreement
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.
Books and
Records
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.
[_____], will provide tax information in
accordance with the Code and applicable U.S. Treasury Regulations.
Persons treated as middlemen for purposes of these regulations may
obtain tax information regarding the Fund from [___] 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.
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
[_______] 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.
[______] 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
management’s assessment of the effectiveness of internal
control over financial reporting of the Trust incorporated by
reference in this prospectus and elsewhere in the registration
statement have been so incorporated by reference in reliance upon
the reports of [_____], independent registered public accountants,
upon the authority of said firm as experts in accounting and
auditing. The financial statements of the Fund included in this
prospectus have been so included in reliance upon the reports of
[_____], 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 federal income tax consequences relating to Shares held as
capital assets by U.S. Shareholders (as defined below) who are not
subject to special tax treatment. For example, in general it does
not address the tax consequences, such as, but not limited to
dealers in securities or currencies or commodities, traders in
securities or dealers or traders in commodities that elect to use a
mark to market method of accounting, financial institutions,
regulated investment companies (except as discussed below),
tax-exempt entities (except as discussed below), insurance
companies, persons holding Shares as a part of a position in a
“straddle” or as part of a “hedging,”
“conversion” or other integrated transaction for U.S.
federal income tax purposes, persons with “applicable
financial statements” within the meaning of section 451(b) of
the Internal Revenue Code of 1986, as amended (the
“Code”), or holders of Shares whose “functional
currency” is not the U.S. dollar. Furthermore, the discussion
below is based on the provisions of the Code, and regulations
(“Treasury Regulations”), rulings and judicial
decisions thereunder as of the date hereof, and such authorities
may be repealed, revoked or modified (possibly with retroactive
effect) so as to result in U.S. federal income tax consequences
different from those discussed below.
The Sponsor expects to receive the opinion of
[______], 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, [_______] will
rely 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 will not be binding on the
Internal Revenue Service (the “IRS”) and will not be a
guarantee of the results. No ruling has been requested from the IRS
with respect to any matter affecting the Fund or prospective
investors, and the IRS may disagree with the tax positions taken by
the Trust. If the IRS were to challenge the Trust’s tax
positions in litigation, they might not be sustained by the courts.
No statutory, administrative or judicial authority directly
addresses the treatment of the Shares or instruments similar to the
Shares for U.S. federal income tax purposes. As a result, the Trust
cannot assure investors that the IRS or the courts will agree with
the tax consequences described herein. A different treatment from
that described below could adversely affect the amount, timing and
character of income, gain or loss in respect of an investment in
the Shares and could adversely affect the value of the
Shares.
As used herein, the term “U.S.
Shareholder” means a Shareholder that is, for U.S. federal
income tax purposes, (i) a citizen or resident of the United
States, (ii) a corporation created or organized in or under the
laws of the United States or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal
income taxation regardless of its source or (iv) a trust that (a)
is subject to the supervision of a court within the United States
and the control of one or more United States persons as described
in section 7701(a)(30) of the Code, or (b) has a valid election in
effect under applicable Treasury Regulations to be treated as a
United States person. A “Non-U.S. Shareholder” is a
holder that is not a U.S. Shareholder. If a partnership or other
entity or arrangement treated as a partnership holds our Shares,
the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership. If you
are a partner of a partnership holding our Shares, the discussion
below may not be applicable to you and you should consult your own
tax advisor regarding the tax consequences of acquiring, owning and
disposing of Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT
ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN SHARES, AS WELL AS ANY APPLICABLE
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF ITS
PARTICULAR CIRCUMSTANCES.
Tax
Classification of the 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 not be treated as a trust for U.S. federal
income tax purposes, but rather will be treated as a partnership
for such purposes. 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
section 7704 of the Code, a publicly traded partnership is
generally taxable as a corporation. In the case of an entity not
registered under the Investment Company Act of 1940 as amended,
(such as the Fund) and not meeting certain other conditions,
however, an exception to this general rule applies if at least 90%
of the entity’s gross income is “qualifying
income” for each taxable year of its existence (the
“qualifying income exception”). For this purpose,
qualifying income is defined as including, in pertinent part,
interest (other than from a financial business), dividends, and
gains from the sale or disposition of capital assets held for the
production of interest or dividends. In the case of a partnership
of which a principal activity is the buying and selling of
commodities other than as inventory or of futures, forwards and
options with respect to commodities, “qualifying
income” also includes income and gains from commodities and
from such futures, forwards, options, and, provided the partnership
is a trader or investor with respect to such assets, swaps and
other notional principal contracts with respect to
commodities.
There is very limited authority on the federal
income tax treatment of bitcoin and no direct authority on bitcoin
derivatives, such as Bitcoin Futures Contracts. [_____] is of the
opinion that Bitcoin Futures Contracts more likely than not will be
considered futures with respect to commodities for purposes of the
qualifying income exception under section 7704 of the Code. Based
on the opinion of [_____] and [a CFTC determination that treats
bitcoin as a commodity under the CEA,]1 the Fund
intends to take the position that Bitcoin Futures Contracts consist
of futures on commodities for purposes of the qualifying income
exception under section 7704 of the Code. Shareholders should be
aware that the Fund’s position is not binding on the IRS, and
no assurance can be given that the IRS will not challenge the
Fund’s position, or that the IRS or a court will not
ultimately reach a contrary conclusion, which would result in the
material adverse consequences to Shareholders and the Fund
discussed below.
The Trust and the Sponsor expect to represent
the following to [_______]:
|
●
|
assuming Bitcoin Futures Contracts consist of
futures on commodities for purposes of the qualifying income
exception under section 7704(d) of the Code, at least 90% of the
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, [______]
is expected to provide an opinion that the Fund more likely than
not will be treated as a partnership that it is not taxable as a
corporation for U.S. federal income tax purposes. The 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. [_______] 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 tax 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 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.
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).
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 intends to make the election permitted by
section 754 of the Code, which election is irrevocable without the
consent of the IRS. The effect of this election is that when a
secondary market sale of Shares occurs, the Fund adjusts the
purchaser’s proportionate share of the tax basis of the
Fund’s assets to fair market value, as reflected in the price
paid for the Shares, as if the purchaser had directly acquired an
interest in the Fund’s assets. The section 754 election is
intended to eliminate disparities between a partner’s basis
in its partnership interest and its share of the tax basis of the
partnership’s assets, so that the partner’s allocable
share of taxable gain or loss on a disposition of an asset will
correspond to its share of the appreciation or depreciation in the
value of the asset since it acquired its interest. Depending on the
price paid for Shares and the tax basis of the Fund’s assets
at the time of the purchase, the effect of the section 754 election
on a purchaser of Shares may be favorable or unfavorable. In order
to make the appropriate basis adjustments in a cost-effective
manner, the Fund will use certain simplifying conventions and
assumptions. In particular, the Fund will obtain information
regarding secondary market transactions in its Shares and use this
information to adjust the Shareholders’ indirect basis in the
Fund’s assets. It is possible the IRS could successfully
assert that the conventions and assumptions applied are improper
and require different basis adjustments to be made, which could
adversely affect some Shareholders.
Section 1256
Contracts. Under the Code, special rules apply to
instruments constituting “section 1256 contracts.” A
section 1256 contract is defined as including, in relevant part:
(1) a futures contract that is traded on or subject to the rules of
a national securities exchange which is registered with the SEC, a
domestic board of trade designated as a contract market by the
CFTC, or any other board of trade or exchange designated by the
Secretary of the Treasury, and with respect to which the amount
required to be deposited and the amount that may be withdrawn
depends on a system of “marking to market”; and (2) a
non-equity option traded on or subject to the rules of a qualified
board or exchange. Section 1256 contracts held at the end of each
taxable year are treated as if they were sold for their fair market
value on the last business day of the taxable year (i.e., are “marked to
market”). In addition, any gain or loss realized from a
disposition, termination or marking to market of a section 1256
contract is treated as long-term capital gain or loss to the extent
of 60% thereof, and as short-term capital gain or loss to the
extent of 40% thereof, without regard to the actual holding period
(“60-40 treatment”).
The Sponsor expects that many of the
Fund’s Bitcoin Futures Contracts will qualify as
“section 1256 contracts” under the Code. Some other
bitcoin interests that are cleared through a qualified board or
exchange will also constitute section 1256 contracts. Gain or loss
recognized as a result of the disposition, termination or marking
to market of the Fund’s section 1256 contracts during a
calendar month will be subject to 60-40 treatment and allocated to
Shareholders in accordance with the monthly allocation convention.
Commodity swaps will most likely not qualify as section 1256
contracts. If a commodity swap is not taxable as a section 1256
contract, any gain or loss on the swap will be recognized at the
time of disposition or termination as long-term or short-term
capital gain or loss depending on the holding period of the swap in
the Fund’s hands.
Foreign exchange gains and losses realized by
the Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain futures contracts,
forward contracts, options and similar investments denominated in a
foreign currency, and payables or receivables denominated in a
foreign currency are subject to section 988 of the Code, which
generally causes such gain and loss to be treated as ordinary
income or loss. To the extent the Fund hold foreign investments, it
may be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Because the amount of
the Fund’s investments in various countries will change from
time to time, it is not possible to determine the effective rate of
such taxes in advance.
Limitations on
Deductibility of Losses and Certain Expenses. A number of
different provisions of the Code may defer or disallow the
deduction of losses or expenses allocated to Shareholders by the
Fund, including but not limited to those described
below.
A Shareholder’s deduction of its allocable
share of any loss of the Fund is limited to the lesser of (1) the
tax basis in its Shares or (2) in the case of a Shareholder that is
an individual or a closely held corporation, the amount which the
Shareholder is considered to have “at risk” with
respect to the Fund’s activities. In general, the amount at
risk initially will be a Shareholder’s invested capital.
Losses in excess of the amount at risk must be deferred until years
in which the Fund generates additional taxable income against which
to offset such carryover losses or until additional capital is
placed at risk.
Individuals and other non-corporate taxpayers
are permitted to deduct capital losses only to the extent of their
capital gains for the taxable year plus $3,000 of other income.
Unused capital losses can be carried forward and used in future
years, subject to these same limitations. In addition, an
individual taxpayer may elect to carry back net losses on section
1256 contracts to each of the three preceding years and use them to
offset section 1256 contract gains in those years, subject to
certain limitations. Corporate taxpayers generally may deduct
capital losses only to the extent of capital gains, subject to
special carryback and carryforward rules.
The deduction for expenses incurred by
non-corporate taxpayers constituting “miscellaneous itemized
deductions,” generally including investment-related expenses
(other than interest and certain other specified expenses), is
suspended for taxable years beginning after December 31, 2017 and
before January 1, 2026. During these taxable years, non-corporate
taxpayers will not be able to deduct miscellaneous itemized
deductions. Provided the suspension is not extended, for taxable
years ending on or after January 1, 2026, miscellaneous itemized
deductions are deductible only to the extent they exceed 2% of the
taxpayer’s adjusted gross income for the year. Although the
matter is not free from doubt, we believe management fees the Fund
pays to the Sponsor and other expenses of the Fund will constitute
investment-related expenses subject to this miscellaneous itemized
deduction limitation, rather than expenses incurred in connection
with a trade or business and will report these expenses consistent
with that interpretation. For taxable years beginning on or after
January 1, 2026, the Code imposes additional limitations on the
amount of certain itemized deductions allowable to individuals with
adjusted gross income in excess of certain amounts by reducing the
otherwise allowable portion of such deductions by an amount equal
to the lesser of:
● 3% of the individual’s adjusted
gross income in excess of certain threshold amounts;
or
● 80% of the amount of certain itemized
deductions otherwise allowable for the taxable
year.
Non-corporate Shareholders generally may deduct
“investment interest expense” only to the extent of
their “net investment income.” Investment interest
expense of a Shareholder will generally include any interest
expense accrued by the 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 allocable to a trade or business, the
Fund’s ability to deduct interest on such indebtedness
allocable is limited to an amount equal to the sum of (1) the
Fund’s business interest income during the year and (2) 30%
of the Fund’s adjusted taxable income for such taxable year,.
If the Fund is not entitled to fully deduct its business interest
in any taxable year, such excess business interest expense will be
allocated to each Shareholder as excess business interest and can
be carried forward by the Shareholder to successive taxable years
and used to offset any excess taxable income allocated by the Fund
to such Shareholder. Any excess business interest expense allocated
to a Shareholder will reduce such Shareholder’s basis in its
Shares in the year of the allocation even if the expense does not
give rise to a deduction to the Shareholder in that year.
Immediately prior to a Shareholder’s disposition of its
Shares, the Shareholder’s basis will be increased by the
amount by which such basis reduction exceeds the excess interest
expense that has been deducted by such
Shareholder.
To the extent that the Fund allocates losses or
expenses to you that must be deferred or are disallowed as a result
of these or other limitations in the Code, you may be taxed on
income in excess of your economic income or distributions (if any)
on your Shares. As one example, you could be allocated and required
to pay tax on your share of interest income accrued by the Fund for
a particular taxable year, and in the same year be allocated a
share of a capital loss that you cannot deduct currently because
you have insufficient capital gains against which to offset the
loss. As another example, you could be allocated and required to
pay tax on your share of interest income and capital gain for a
year but be unable to deduct some or all of your share of
management fees and/or margin account interest incurred by you with
respect to your Shares. Shareholders are urged to consult their own
tax advisor regarding the effect of limitations under the Code on
their ability to deduct their allocable share of the 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 period
for Shares sold. If a Shareholder who has differing holding periods
for its Shares fails to make the election or is not able to
identify the holding periods of the Shares sold, the Shareholder
will have a split holding period in the Shares sold. Under such
circumstances, a Shareholder will be required to determine its
holding period in the Shares sold by first determining the portion
of its entire interest in the Fund that would give rise to
long-term capital gain or loss if its entire interest were sold and
the portion that would give rise to short-term capital gain or loss
if the entire interest were sold. The Shareholder would then treat
each Share sold as giving rise to long-term capital gain or loss
and short-term capital gain or loss in the same proportions as if
it had sold its entire interest in the Fund.
Under Section 751 of the Code, a portion of a
Shareholder’s gain or loss from the sale of Shares
(regardless of the holding period for such Shares), will be
separately computed and taxed as ordinary income or loss to the
extent attributable to “unrealized receivables” or
“inventory” owned by the Fund. The term
“unrealized receivables” includes, among other things,
market discount bonds and short-term debt instruments to the extent
such items would give rise to ordinary income if sold by the Fund.
However, the short-term capital gain on section 1256 contracts
resulting from 60-40 treatment, described above, should not be
subject to this rule.
If some or all of a Shareholder’s Shares
are lent by its broker or other agent to a third party — for
example, for use by the third party in covering a short sale
— the Shareholder may be considered as having made a taxable
disposition of the loaned Shares, in which case
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the Shareholder may recognize taxable gain or
loss to the same extent as if it had sold the Shares for
cash;
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any of the income, gain, loss or deduction
allocable to those Shares during the period of the loan is not
reportable by the Shareholder for U.S. federal income tax purposes;
and
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any distributions the Shareholder receives with
respect to the Shares under the loan agreement will be fully
taxable to the Shareholder, most likely as ordinary income for U.S.
federal income tax purposes.
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Shareholders desiring to avoid these and other
possible consequences of a deemed disposition of their Shares
should consider modifying any applicable brokerage account
agreements to prohibit the lending of their
Shares.
Other
U.S. Federal Income Tax Matters
Information Reporting. The Fund provides tax
information to the Shareholders and to the IRS, as required.
Shareholders of the Fund 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 U.S. federal income tax returns. The IRS has ruled that
assignees of partnership interests who have not been admitted to a
partnership as partners but who have the capacity to exercise
substantial dominion and control over the assigned partnership
interests will be considered partners for U.S. federal income tax
purposes. On the basis of this ruling, except as otherwise provided
herein, we will treat as a Shareholder any person whose shares are
held on their behalf by a broker or other nominee if that person
has the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of the
Shares.
Persons who hold an interest in the 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. Partnerships
are generally treated as separate entities for purposes of federal
tax audits, judicial review of administrative adjustments by the
IRS, and tax settlement proceedings. The tax treatment of
partnership items of income, gain, loss and deduction are
determined at the partnership level in a unified partnership
proceeding rather than in separate proceedings with the
partners.
Tax deficiencies (including interest and
penalties) that arise from an adjustment to partnership items
generally are assessed and collected from the partnership (rather
than from the partners), and generally are calculated using maximum
applicable tax rates (although such partnership level tax may be
reduced or eliminated under limited circumstances). A narrow
category of partnerships (generally, partnerships having no more
than 100 partners that consist exclusively of individuals, C
corporations, S corporations and estates) are permitted to elect
out of the partnership-level audit rules. As an alternative to
partnership-level tax liability, a partnership may elect to furnish
adjusted Schedule K-1s to the IRS and to each person who was a
partner in the audit year, stating such partner’s share of
any partnership adjustments, and each such partner would then take
the adjustments into account on its tax returns in the year in
which it receives its adjusted Schedule K-1 (rather than by
amending their tax returns for the audited year). If the Fund were
subject to a partnership level tax, 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.
The Trust Agreement provides 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.
They could require disclosure by the Trust or Shareholders if a
Shareholder incurs a loss in excess of a specified threshold from a
sale or redemption of its Shares and possibly in other
circumstances. While these rules generally do not require
disclosure of a loss recognized on the disposition of an asset in
which the taxpayer has a “qualifying basis” (generally
a basis equal to the amount of cash paid by the taxpayer for such
asset), they apply to a loss recognized with respect to interests
in a pass-through entity, such as the Shares, even if the
taxpayer’s basis in such interests is equal to the amount of
cash it paid. In addition, significant monetary penalties may be
imposed in connection with a failure to comply with these reporting
requirements. Investors should consult their own tax advisor
concerning the application of these reporting requirements to their
specific situation.
Tax-Exempt Organizations. Subject to numerous
exceptions, qualified retirement plans and individual retirement
accounts, charitable organizations and certain other organizations
that otherwise are exempt from U.S. federal income tax
(collectively, “exempt organizations”) nonetheless are
subject to the tax on unrelated business taxable income
(“UBTI”). Generally, UBTI means the gross income
derived by an exempt organization from a trade or business that it
regularly carries on, the conduct of which is not substantially
related to the exercise or performance of its exempt purpose or
function, less allowable deductions directly connected with that
trade or business. If the Fund were to regularly carry on (directly
or indirectly) a trade or business that is unrelated with respect
to an exempt organization Shareholder, then in computing its UBTI,
the Shareholder must include its share of (1) the Fund’s
gross income from the unrelated trade or business, whether or not
distributed, and (2) the Fund’s allowable deductions directly
connected with that gross income. An exempt organization that has
more than one unrelated trade or business generally 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 federal tax rate applicable to an exempt
organization Shareholder on its UBTI generally will be either the
corporate or trust tax rate, depending upon the Shareholder’s
form of organization. The Fund may report to each such Shareholder
information as to the portion, if any, of the Shareholder’s
income and gains from the Fund for any year that will be treated as
UBTI; the calculation of that amount is complex, and there can be
no assurance that the Fund’s calculation of UBTI will be
accepted by the IRS. An exempt organization Shareholder will be
required to make payments of estimated U.S. federal income tax with
respect to its UBTI.
Regulated Investment Companies. Interests in and
income from “qualified publicly traded partnerships”
satisfying certain gross income tests are treated as qualifying
assets and income, respectively, for purposes of determining
eligibility for regulated investment company (“RIC”)
status. A RIC may invest up to 25% of its assets in interests in
qualified publicly traded partnerships. The determination of
whether a publicly traded partnership such as the Fund is a
qualified publicly traded partnership is made on an annual basis.
While the tax treatment of bitcoin derivatives is not entirely
clear, it is possible that the Fund may be a qualified publicly
traded partnership. However, such qualification is not assured and
prospective RIC investors should consult a tax advisor regarding
the treatment of an investment in the Fund under current tax rules
and in light of their particular circumstances.
Non-U.S.
Shareholders
Generally, non-U.S. persons who derive U.S.
source income or gain from investing or engaging in a U.S. business
are taxable on two categories of income. The first category
consists of amounts that are fixed or determinable, annual or
periodic income, such as interest, dividends and rent that are not
connected with the operation of a U.S. trade or business
(“FDAP”). The second category is income that is
effectively connected with the conduct of a U.S. trade or business
(“ECI”). FDAP income (other than interest that is
considered “portfolio interest;” as discussed below) is
generally subject to a 30% withholding tax, which may be reduced
for certain categories of income by a treaty between the U.S. and
the recipient’s country of residence. In contrast, ECI is
generally subject to U.S. tax on a net basis at graduated rates
upon the filing of a U.S. tax return. Where a non-U.S. person has
ECI as a result of an investment in a partnership, the ECI is
currently subject to a withholding tax at a rate of 37% for
individual Shareholders and a rate of 21% for corporate
Shareholders. The tax withholding on ECI, which is the highest tax
rate under Code section 1 for non-corporate Non-U.S. Shareholders
and Code section 11(b) for corporate Non-U.S. Shareholders, may
increase in future tax years if tax rates increase from their
current levels.
Withholding on Allocations and Distributions.
The Code provides that a non-U.S. person who is a partner in a
partnership that is engaged in a U.S. trade or business during a
taxable year will also be considered to be engaged in a U.S. trade
or business during that year. Classifying an activity by a
partnership as an investment or an operating business is a factual
determination. Under certain safe harbors in the Code, an
investment fund whose activities consist of trading in stocks,
securities, or commodities for its own account generally will not
be considered to be engaged in a U.S. trade or business unless it
is a dealer in such stocks, securities, or commodities. This safe
harbor applies to investments in commodities only if the
commodities are of a kind customarily dealt in on an organized
commodity exchange and if the transaction is of a kind customarily
consummated at such place. As noted above, there is limited
authority on the U.S. federal income tax treatment of bitcoin and
no direct authority on bitcoin derivatives. However, based on the
CFTC treatment of bitcoin as a commodity and on the assumption that
the Fund will invest in Bitcoin Futures Contracts through the CME,
the Fund intends to take the position that investing in Bitcoin
Futures Contracts falls within the commodities trading safe harbor.
Thus, the Fund anticipates that the activities directly conducted
by the Fund should not result in the Fund being engaged in a trade
or business within the United States for purposes of this rule.
However, there can be no assurance that the IRS would not
successfully assert, or that a court would not decide, that the
Fund’s activities constitute a U.S. trade or
business.
In the event that the Fund’s activities
were considered to constitute a U.S. trade or business, the Fund
would be required to withhold at the highest rate specified in Code
section 1 (currently 37%) on allocations of our income to
non-corporate Non-U.S. Shareholders and the highest rate specified
in Code section 11(b) (currently 21%) on allocations of our income
to corporate Non-U.S. Shareholders, when such income is
distributed. Non-U.S. Shareholders would also be subject to a 10%
withholding tax on the consideration payable upon a sale or
exchange of such Non-U.S. Shareholder’s Shares, although the
IRS has temporarily suspended this withholding for interests in
publicly traded partnerships until regulations implementing such
withholding are issued. If recently promulgated regulations are
finalized as proposed, such regulations would provide, with respect
to transfers of publicly traded interests in publicly traded
partnerships effected through a broker, that the obligation to
withhold is imposed on the transferor’s broker. However, it
is not clear when such regulations will be finalized and if they
will be finalized in their current form. A Non-U.S. Shareholder
with ECI will generally be required to file a U.S. federal income
tax return, and the return will provide the Non-U.S. Shareholder
with the mechanism to seek a refund of any withholding in excess of
such Shareholder’s actual U.S. federal income tax liability.
Any amount withheld by the Fund will be treated as a distribution
to the Non-U.S. Shareholder to the extent possible. In some cases,
the Fund may not be able to match the economic cost of satisfying
its withholding obligations to a particular Non-U.S. Shareholder,
which may result in said cost being borne by the Fund, generally,
and accordingly, by all Shareholders.
If the Fund is not treated as engaged in a U.S.
trade or business, a Non-U.S. Shareholder may nevertheless be
treated as having FDAP income, which would be subject to a 30%
withholding tax (possibly subject to reduction by treaty), with
respect to some or all of its distributions from the Fund or its
allocable share of Fund income. Amounts withheld on behalf of a
Non-U.S. Shareholder will be treated as being distributed to such
Shareholder. If the Fund is not able to match the economic cost of
satisfying its withholding obligation to a particular Non-U.S.
Shareholder, said cost may have to be borne by the Fund and
accordingly by all Shareholders.
To the extent any interest income allocated to a
Non-U.S. Shareholder that otherwise constitutes FDAP is considered
“portfolio interest,” neither the allocation of such
interest income to the Non-U.S. Shareholder nor a subsequent
distribution of such interest income to the Non-U.S. Shareholder
will be subject to withholding, provided that the Non-U.S.
Shareholder is not otherwise engaged in a trade or business in the
U.S. and provides the 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, a
Shareholder may be subject to other taxes, such as state and local
income taxes, unincorporated business taxes, business franchise
taxes, and estate, gift, inheritance or intangible taxes that may
be imposed by the various jurisdictions in which the 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. [_______] is not expected to provide 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 professional advisors concerning
the appropriateness of an investment in the Fund and the manner in
which Shares should be purchased.
Special
Investment Considerations
Each plan fiduciary must consider the facts and
circumstances that are relevant to an investment in the Fund,
including the role that an investment in the Fund would play in the
plan’s overall investment portfolio. Each plan fiduciary,
before deciding to invest in the Fund, must be satisfied that the
investment is prudent for the plan, that the investments of the
plan are diversified so as to minimize the risk of large losses,
and that an investment in the Fund complies with the terms of the
plan. The Sponsor is not undertaking to provide investment advice,
or to give advice in a fiduciary capacity, in connection with a
plan’s investment in the Fund.
The Fund
and Plan Assets
A regulation issued under ERISA contains rules
for determining when an investment by a plan in an equity interest
of a statutory trust will result in the underlying assets of the
statutory trust being deemed plan assets for purposes of ERISA and
Section 4975 of the Code. Those rules provide that assets of a
statutory trust will not be plan assets of a plan that purchases an
equity interest in the statutory trust if the equity interest
purchased is a publicly offered security. If the underlying assets
of a statutory trust are considered to be assets of any plan for
purposes of ERISA or Section 4975 of the Code, the operations of
that trust would be subject to and, in some cases, limited by the
provisions of ERISA and Section 4975 of the
Code.
The publicly offered security exception
described above applies if the equity interest is a security that
is:
(1) freely transferable (determined based on the
relevant facts and circumstances);
(2) part of a class of securities that is widely
held (meaning that the class of securities is owned by 100 or more
investors independent of the issuer and of each other);
and
(3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (b)
sold to the plan as part of a public offering pursuant to an
effective registration statement under the 1933 Act and the class
of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the
SEC) after the end of the fiscal year of the issuer in which the
offering of such security occurred.
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 $12,500 or less, the following requirements,
alone or in combination, ordinarily will not affect a finding that
the security is freely transferable: (1) a requirement that no
transfer or assignment of the security or rights relating to the
security be made that would violate any federal or state law; and
(2) a requirement that no transfer or assignment be made without
advance written notice given to the entity that issued the
security.
The Sponsor believes that the conditions
described above are satisfied with respect to the Shares. The
Sponsor believes that the Shares therefore constitute publicly
offered securities, and the underlying assets of the Fund should
not be considered to constitute plan assets of any plan that
purchases Shares.
Prohibited
Transactions
ERISA and the Code generally prohibit certain
transactions involving a plan and persons who have certain
specified relationships to the plan. In general, Shares may not be
purchased with the assets of a plan if the Sponsor, the clearing
brokers, the trading advisors (if any), or any of their affiliates,
agents or employees either:
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exercise any discretionary authority or
discretionary control with respect to management of the
plan;
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exercise any authority or control with respect
to management or disposition of the assets of the
plan;
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render investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or
other property of the plan;
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have any authority or responsibility to render
investment advice with respect to any monies or other property of
the plan; or
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have any discretionary authority or
discretionary responsibility in the administration of the
plan.
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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 U.S. federal income taxation of the
assets (including any early distribution penalty tax applicable
under Section 72 of the Code), in addition to any other fines or
penalties that may apply.
Exempt
Plans
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
The Trust is a reporting company and files
annual, quarterly and current reports and other information with
the SEC. The rules of the SEC allow the Trust to “incorporate
by reference” information that the Trust files with them,
which means that the Trust 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:
● [to be completed by pre-effective
amendment]
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● [to be completed by pre-effective
amendment]
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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:
Hashdex Bitcoin Futures ETF
Attention: Cory Mullen-Rusin
Three Main Street, Suite 215
Burlington, VT 05401
(802) 540-0019
The Trust’s Internet website is
www.teucrium.com. The Trust makes its electronic filings with the
SEC, including its 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 the Trust’s website free of charge as
soon as practicable after we file or furnish them with the SEC. The
information contained on the Trust’s 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 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.
FINANCIAL
STATEMENTS
The financial statements of the Trust have been
incorporated into this prospectus and registration statement as
described above under “Incorporation By Reference of Certain
Information.”
The financial statements of the Fund are set
forth below.
Hashdex
Bitcoin Futures ETF
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Page
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Hashdex Bitcoin Futures ETF
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Report of Independent Registered Accounting
Firm
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F-2
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Statement of Financial Condition as of _________
__, 2022
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F-3
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Notes to statement of financial
condition
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CONTENTS
[Fund
financial statements to be added by pre-effective
amendment.]
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.
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Authorized Purchaser:
One that purchases or redeems Creation
Baskets or Redemption Baskets, respectively, from or to the
Fund.
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Benchmark: The mean average of the closing settlement
prices for the first to expire and second to expire CME Bitcoin
Futures Contracts.
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Benchmark Component Futures
Contracts: The Bitcoin Futures
Contracts that at any given time make up the
Benchmark.
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Business Day:
Any day other than a day when any of
the NYSE Arca, CME, or the New York Stock Exchange is closed for
regular trading.
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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.
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Commodity Pool:
An enterprise in which several
individuals contribute funds in order to trade futures contracts or
options on futures contracts
collectively.
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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.
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Creation Basket:
A block of 12,500 Shares used by the
Fund to issue Shares.
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Custodian: U.S. Bank,
N.A.
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Distributor: Foreside
Fund Services, LLC.
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DTC: The Depository Trust Company. DTC will act as the
securities depository for the Shares.
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DTC Participant:
An entity that has an account with
DTC.
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Exchange Act:
The Securities Exchange Act of
1934.
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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 cryptocurrency.
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FINRA: Financial Industry Regulatory
Authority.
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Futures
Contract: An exchange-traded contract traded with standard
terms that calls for the delivery of a specified quantity of a
cryptocurrency 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
cryptocurrency is required.
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Indirect Participants:
Banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a DTC Participant, either directly or
indirectly.
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Limited Liability Company
(LLC): A type of business
ownership combining several features of corporation and partnership
structures.
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Margin: The amount of equity required for an investment in
futures contracts.
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NAV: Net Asset Value of the
Fund.
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NFA: National Futures
Association.
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NSCC: National Securities Clearing
Corporation.
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1933 Act: The Securities Act of
1933.
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Redemption Basket:
A block of 12,500 Shares used by the
Fund to redeem Shares.
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SEC: Securities and Exchange
Commission.
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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.
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Shareholders:
Holders of
Shares.
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Shares: Common units representing fractional undivided
beneficial interests in the Fund.
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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.
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Spot Contract:
A cash market transaction in which the
buyer and seller agree to the immediate purchase and sale of a
cryptocurrency, usually with a two-day
settlement.
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Bitcoin Futures
Contracts: Futures contracts
for bitcoin.
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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.
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Tracking Error:
Possibility that the daily NAV of the
Fund will not track the Benchmark.
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Trust Agreement:
The Fifth Amended and Restated
Declaration of Trust and Trust Agreement of the Trust effective as
of April 26, 2019.
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Valuation Day:
Any day as of which the Fund
calculates its NAV.
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You: The owner of Shares
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STATEMENT OF ADDITIONAL
INFORMATION
Hashdex Bitcoin Futures
ETF
This statement of additional information is the
second part of a two-part document. The first part is the
Fund’s disclosure document. The disclosure document and this
statement of additional information are bound together, and both
parts contain important information. This statement of additional
information should be read in conjunction with the disclosure
document. To obtain a copy of the disclosure document without
charge, call the Fund at (802) 540-0019. Before you decide whether
to invest, you should read the entire prospectus carefully and
consider the risk factors beginning on page 11.
This statement of additional information and
accompanying disclosure document are both dated April 18, 2022.
Hashdex Bitcoin Futures
ETF
STATEMENT OF ADDITIONAL
INFORMATION
TABLE OF
CONTENTS
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Page
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Cryptocurrency Derivatives Market
Participants
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72
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Regulation
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72
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Potential Advantages of
Investment
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75
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Fund Performance
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75
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Cryptocurrency Derivatives
Market Participants
Two broad classes of persons who trade
cryptocurrency futures are hedgers and speculators. Hedgers include
financial institutions and entities that manage or deal in
cryptocurrency instruments or crypto related stock portfolios, and
commercial market participants, such as crypto mining companies or
Decentralized Finance (DeFi) participants, that mine, lend, accept,
or otherwise conduct business using cryptocurrencies. Hedging is a
protective procedure designed to effectively lock in prices that
would otherwise change due to an adverse movement in the price of
the underlying commodity or cryptocurrency, such as the adverse
price movement between the time a producer enters into a contract
to sell a product for cryptocurrency at a certain price and the
time it acquires the cryptocurrency against the delivery of the
product to the customer. For example, if a manufacturer contracts
to physically sell its product at a future date for a fixed amount
of cryptocurrency, it may simultaneously sell a futures or forward
contract for the necessary equivalent quantity of the
cryptocurrency. At the time the producer delivers the physical
product to the customer, the producer/hedger will accept customer
payment in cryptocurrency, the value of which will offset the
producer’s short cryptocurrency futures contract thereby
locking in the original financial value of the amount of
cryptocurrency the producer had accepted when it agreed to sell its
product in return for a fixed amount of
cryptocurrency.
Futures markets enable the hedger to shift the
risk of price fluctuations. The usual objective of the hedger is to
protect the profit it expects to earn from its ordinary business
activities rather than to profit from trading. Unlike the hedger,
the speculator generally expects neither to make nor take delivery
of cryptocurrencies in return for a product or services. Instead,
the speculator risks his capital with the hope of making profits
from price fluctuations in the cryptocurrency markets. The
speculator is, in effect, the risk bearer who assumes the risks
that the hedger seeks to avoid. Speculators attempt to close out
their positions prior to the expiration of a futures contract. A
speculator who takes a long position generally will make a profit
if the price of the underlying cryptocurrency or futures contract
goes up in value and incur a loss if the price of the
cryptocurrency or futures contract goes down, while a speculator
who takes a short position generally will make a profit if the
price of the cryptocurrency or futures contract goes down and incur
a loss if the price of the cryptocurrency or futures contract goes
up.
Regulation
The regulation of futures markets, futures
contracts, and futures exchanges has historically been
comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including,
for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily
price limits and the suspension of trading on an exchange or
trading facility.
Pursuant to authority in the CEA, the NFA has
been formed and registered with the CFTC as a registered futures
association. At the present time, the NFA is the only SRO for
commodity interest professionals, other than futures exchanges. The
CFTC has delegated to the NFA responsibility for the registration
of CPOs and FCMs and their respective associated persons. The
Sponsor and the Fund’s clearing broker are members of the
NFA. As such, they will be subject to NFA standards relating to
fair trade practices, financial condition and consumer protection.
The NFA also arbitrates disputes between members and their
customers and conducts registration and fitness screening of
applicants for membership and audits of its existing members.
Neither the Trust nor the Teucrium Funds are required to become a
member of the NFA. The regulation of commodity interest
transactions in the United States is a rapidly changing area of law
and is subject to ongoing modification by governmental and judicial
action. Considerable regulatory attention has been focused on
non-traditional investment pools that are publicly distributed in
the United States. There is a possibility of future regulatory
changes within the United States altering, perhaps to a material
extent, the nature of an investment in the Fund, or the ability of
a Fund to continue to implement its investment strategy. In
addition, various national governments outside of the United States
have expressed concern regarding the disruptive effects of
speculative trading in the commodities markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Teucrium Funds is impossible to
predict but could be substantial and adverse.
The CFTC possesses exclusive jurisdiction to
regulate the activities of commodity pool operators and commodity
trading advisors with respect to “commodity interests,”
such as futures and swaps and options, and has adopted regulations
with respect to the activities of those persons and/or entities.
Under the Commodity Exchange Act (“CEA”), a registered
commodity pool operator, such as the Sponsor, is required to make
annual filings with the CFTC and the NFA describing its
organization, capital structure, management and controlling
persons. In addition, the CEA authorizes the CFTC to require and
review books and records of, and documents prepared by, registered
commodity pool operators. Pursuant to this authority, the CFTC
requires commodity pool operators to keep accurate, current and
orderly records for each pool that they operate. The CFTC may
suspend the registration of a commodity pool operator (1) if the
CFTC finds that the operator’s trading practices tend to
disrupt orderly market conditions, (2) if any controlling person of
the operator is subject to an order of the CFTC denying such person
trading privileges on any exchange, and (3) in certain other
circumstances. Suspension, restriction or termination of the
Sponsor’s registration as a commodity pool operator would
prevent it, until that registration were to be reinstated, from
managing the Fund, and might result in the termination of the Fund
if a successor sponsor is not elected pursuant to the Trust
Agreement. Neither the Trust nor the Fund is required to be
registered with the CFTC in any capacity.
The Fund’s investors are afforded
prescribed rights for reparations under the CEA. Investors may also
be able to maintain a private right of action for violations of the
CEA. The CFTC has adopted rules implementing the reparation
provisions of the CEA, which provide that any person may file a
complaint for a reparations award with the CFTC for violation of
the CEA against a floor broker or an FCM, introducing broker,
commodity trading advisor, CPO, and their respective associated
persons.
The regulations of the CFTC and the NFA prohibit
any representation by a person registered with the CFTC or by any
member of the NFA, that registration with the CFTC, or membership
in the NFA, in any respect indicates that the CFTC or the NFA has
approved or endorsed that person or that person’s trading
program or objectives. The registrations and memberships of the
parties described in this summary must not be considered as
constituting any such approval or endorsement. Likewise, no futures
exchange has given or will give any similar approval or
endorsement.
Trading venues in the United States are subject
to varying degrees of regulation under the CEA depending on whether
such exchange is a designated contract market (i.e. a futures
exchange) or a swap execution facility. Clearing organizations are
also subject to the CEA and the rules and regulations adopted
thereunder as administered by the CFTC. The CFTC’s function
is to implement the CEA’s objectives of preventing price
manipulation and excessive speculation and promoting orderly and
efficient commodity interest markets. In addition, the various
exchanges and clearing organizations themselves as SROs exercise
regulatory and supervisory authority over their member
firms.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) was enacted in
response to the economic crisis of 2008 and 2009 and it
significantly altered the regulatory regime to which the securities
and commodities markets are subject. To date, the CFTC has issued
proposed or final versions of almost all of the rules it is
required to promulgate under the Dodd-Frank Act, and it continues
to issue proposed versions of additional rules that it has
authority to promulgate. Provisions of the new law include the
requirement that position limits be established on a wide range of
commodity interests, including agricultural, energy, and
metal-based commodity futures contracts, options on such futures
contracts and uncleared swaps that are economically equivalent to
such futures contracts and options (“Reference
Contracts”); new registration and recordkeeping requirements
for swap market participants; capital and margin requirements for
“swap dealers” and “major swap
participants,” as determined by the new law and applicable
regulations; reporting of all swap transactions to swap data
repositories; and the mandatory use of clearinghouse mechanisms for
sufficiently standardized swap transactions that were historically
entered into in the OTC market, but are now designated as subject
to the clearing requirement; and margin requirements for OTC swaps
that are not subject to the clearing
requirements.
In addition, considerable regulatory attention
has recently been focused on non-traditional publicly distributed
investment pools such as the Fund. Furthermore, various national
governments have expressed concern regarding the disruptive effects
of speculative trading in certain commodity markets and the need to
regulate the derivatives markets in general. The effect of any
future regulatory change on the Teucrium Funds is impossible to
predict but could be substantial and adverse.
The Dodd-Frank Act was intended to reduce
systemic risks that may have contributed to the 2008/2009 financial
crisis. Since the first draft of what became the Dodd-Frank Act,
supporters and opponents have debated the scope of the legislation.
As the Administrations of the U.S. change, the interpretation and
implementation will change along with them. Nevertheless,
regulatory reform of any kind may have a significant impact on U.S.
regulated entities.
Position Limits, Aggregation
Limits, Price Fluctuation Limits
The CFTC and US futures exchanges impose limits
on the maximum net long or net short speculative positions that any
person may hold or control in any particular futures or options
contracts traded on US futures exchanges. For example, the CFTC
currently imposes speculative position limits on cryptocurrencies
and a number of commodities (e.g., corn, oats, wheat, soybeans and
cotton) and US futures exchanges currently impose speculative
position limits on many other commodities. A Fund could be required
to liquidate positions it holds in order to comply with position
limits or may not be able to fully implement trading instructions
generated by its trading models, in order to comply with position
limits. Any such liquidation or limited implementation could result
in substantial costs to a Fund.
The Dodd-Frank Act significantly expanded the
CFTC’s authority to impose position limits with respect to
futures contracts and options on futures contracts, swaps that are
economically equivalent to futures or options on futures, and swaps
that are traded on a regulated exchange and certain swaps that
perform a significant price discovery function.
The aggregate position limits currently in place
under the current position limits and the Aggregation Requirements
are as follows for each of the cryptocurrency derivatives traded by
the Fund:
Cryptocurrency
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Spot Month Position
Limit
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All Month and Single Month
(excluding spot month) Aggregate Accountability
Level
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Bitcoin Futures Contract
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4,000 contracts
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5,000 contracts
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Micro Bitcoin Futures
Contract
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200,000 contracts
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250,000 contracts
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The CFTC has attempted to exercise authority to
enact additional and more restricted speculative position limits
with respect to futures and options on futures on so-called
“exempt commodities” (which includes most energy and
metals contracts) and with respect to agricultural commodities, but
those proposed limits were vacated by a United States District
Court. The CFTC has once again attempted to enact additional and
more restrictive limits. For a discussion generally regarding the
risks that position limits may pose for the Fund, see the risk
factor in “WHAT ARE THE RISK FACTORS INVOLVED WITH AN
INVESTMENT IN THE FUND” regarding position limits,
accountability levels and dynamic price fluctuation
limits.
With the exception of the nine legacy
agricultural contracts, the CFTC’s position limits would
apply only in the spot month. These limits would generally be set
at 25 percent of the deliverable supply, but may be higher or lower
for certain contracts. With respect to the non-legacy contracts,
the rule would require the relevant exchange on which the contracts
are traded to adopt either position limits or position
accountability levels.
The proposed rules also would expand the current
list of enumerated bona fide hedges to include, for example, hedges
of anticipated merchandizing. To provide market participants with
greater flexibility on managing their business risks, the proposal
also provides guidance on whether and when market participants are
permitted to measure risk on a gross basis rather than a net basis.
However, firms will be required to measure risk on a consistent
basis. Enumerated hedges are self-effectuating. That is, no prior
approval would be required from the CFTC, although a market
participant would be required to obtain approval from the relevant
exchange. Self-effectuating hedge exemptions also would be
available for other transactions such as spreads and pass-through
swaps as approved by exchanges. With respect to non-enumerated
hedge exemptions, a market participant would be required to file a
request to exceed the position limit with the relevant exchange. If
the exchange grants the request for a non-enumerated hedge
exemption, the exchange will forward its decision to the CFTC for
review. The exemption will be deemed granted provided the CFTC does
not intervene during a 10-day review period. The market participant
would not be permitted to exceed the applicable position limit
until the 10-day review period lapses. Importantly, the CFTC may
act solely through its commissioners and not through staff. In
terms of process changes, the CFTC is proposing to eliminate Form
204 cash positions report and the cash information reported under
Form 304. Comments on the proposed rule must be submitted no later
than 90 days after approval of the proposal by the CFTC (i.e.,
April 29, 2020). The CFTC does not intend to extend the comment
period.
It is unknown at this time the effect that such
passage, adoption or modification will have, positively or
negatively, on our industry or on a Fund. The size or duration of
positions available to a Fund may be severely limited. Pursuant to
the CFTC’s and the exchanges’ aggregation requirements,
all accounts owned or managed by the Sponsor are likely to be
combined for speculative position limits purposes. The Funds could
be required to liquidate positions it holds in order to comply with
such limits, or may not be able to fully implement trading
instructions generated by its trading models, in order to comply
with such limits. Any such liquidation or limited implementation
could result in substantial costs to a Fund.
These new regulations and the resulting
increased costs and regulatory oversight requirements may result in
market participants being required or deciding to limit their
trading activities, which could lead to decreased market liquidity
and increased market volatility. In addition, transaction costs
incurred by market participants are likely to be higher due to the
increased costs of compliance with the new regulations. These
consequences could adversely affect a Fund’s
returns.
FCMs
The CEA requires all FCMs, such as the Teucrium
Funds’ clearing brokers, to meet and maintain specified
fitness and financial requirements, to segregate customer funds
from proprietary funds and account separately for all
customers’ funds and positions, and to maintain specified
books and records open to inspection by the staff of the CFTC. The
CFTC has similar authority over introducing brokers, or persons who
solicit or accept orders for commodity interest trades but who do
not accept margin deposits for the execution of trades. The CEA
authorizes the CFTC to regulate trading by FCMs and by their
officers and directors, permits the CFTC to require action by
exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute
complaints for damages arising from alleged violations of the CEA.
The CEA also gives the states powers to enforce its provisions and
the regulations of the CFTC.
On November 14, 2013, the CFTC published final
regulations that require enhanced customer protections, risk
management programs, internal monitoring and controls, capital and
liquidity standards, customer disclosures and auditing and
examination programs for FCMs. The rules are intended to afford
greater assurances to market participants that customer segregated
funds and secured amounts are protected, customers are provided
with appropriate notice of the risks of futures trading and of the
FCMs with which they may choose to do business, FCMs are monitoring
and managing risks in a robust manner, the capital and liquidity of
FCMs are strengthened to safeguard the continued operations and the
auditing and examination programs of the CFTC and the SROs are
monitoring the activities of FCMs in a thorough
manner.
Potential Advantages of
Investment
Interest
Income and Expense
Unlike some alternative investment funds, the
Fund does not borrow money in order to obtain leverage, so the Fund
does not incur any interest expense. Rather, the Fund’s
margin deposits, and cash reserves are maintained in cash and cash
equivalents and interest is generally earned on available assets,
which include unrealized profits credited to the Fund’s
accounts
Fund
Performance
AS OF THE DATE OF THIS
PROSPECTUS THE FUND HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY
PERFORMANCE HISTORY.
PART II
Information Not Required in
the Prospectus
Item 13.
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Other
Expenses of Issuance and Distribution.
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Set forth below is an estimate (except as
indicated) of the amount of fees and expenses (other than
underwriting commissions and discounts) payable by the registrant
in connection with the issuance and distribution of the units
pursuant to the prospectus contained in this registration
statement.
[To be added by pre-effective
amendment]
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SEC registration fee (actual)
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(1)
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NYSE Arca Listing Fee
(actual)
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FINRA filing fees (actual)
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Blue Sky expenses
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Auditor’s fees and
expenses
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Legal fees and expenses
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Printing expenses
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Miscellaneous expenses
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Total
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(2)
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(1) Applicable SEC registration fees have been
deferred in accordance with Rules 456(d) and 457(u) of the
Securities Act and will be paid on an annual net basis no later
than 90 days after the end of each fiscal year and are therefore
not estimable at this time.
(2) Because an indeterminable amount of
securities is covered by this registration statement, the total
expenses in connection with the issuance and distribution of the
securities are, therefore, not currently
determinable.
Item 14.
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Indemnification
of Directors and Officers.
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The Trust’s Fifth Amended and Restated
Declaration of Trust and Trust Agreement (the “Trust
Agreement”) provides that the Sponsor shall be indemnified by
the Trust (or, by a series of the Trust separately to the extent
the matter in question relates to a single series or
disproportionately affects a series in relation to other series)
against any losses, judgments, liabilities, expenses and amounts
paid in settlement of any claims sustained by it in connection with
its activities for the Trust, provided that (i) the Sponsor was
acting on behalf of or performing services for the Trust and has
determined, in good faith, that such course of conduct was in the
best interests of the Trust and such liability or loss was not the
result of gross negligence, willful misconduct, or a breach of the
Trust Agreement on the part of the Sponsor and (ii) any such
indemnification will only be recoverable from the applicable trust
estate or trust estates. All rights to indemnification permitted by
the Trust Agreement and payment of associated expenses shall not be
affected by the dissolution or other cessation to exist of the
Sponsor, or the withdrawal, adjudication of bankruptcy or
insolvency of the Sponsor, or the filing of a voluntary or
involuntary petition in bankruptcy under Title 11 of the Bankruptcy
Code by or against the Sponsor.
Notwithstanding the foregoing, the Sponsor shall
not be indemnified for any losses, liabilities or expenses arising
from or out of an alleged violation of U.S. federal or state
securities laws unless (i) there has been a successful adjudication
on the merits of each count involving alleged securities law
violations as to the particular indemnitee and the court approves
the indemnification of such expenses (including, without
limitation, litigation costs), (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee and the court approves the
indemnification of such expenses (including, without limitation,
litigation costs) or (iii) a court of competent jurisdiction
approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs
should be made.
The Trust and its series shall not incur the
cost of that portion of any insurance which insures any party
against any liability, the indemnification of which is prohibited
by the Trust Agreement.
Expenses incurred in defending a threatened or
pending civil, administrative or criminal action, suit or
proceeding against the Sponsor shall be paid by the Trust or the
applicable series of the Trust in advance of the final disposition
of such action, suit or proceeding, if (i) the legal action relates
to the performance of duties or services by the Sponsor on behalf
of the Trust or a series of the Trust; (ii) the legal action is
initiated by a party other than the Trust; and (iii) the Sponsor
undertakes to repay the advanced funds with interest to the Trust
or the applicable series of the Trust in cases in which it is not
entitled to indemnification under the Trust
Agreement.
For purposes of the indemnification provisions
of the Trust Agreement, the term “Sponsor” includes, in
addition to the Sponsor, any other covered person performing
services on behalf of the Trust and acting within the scope of the
Sponsor’s authority as set forth in the Trust
Agreement.
In the event the Trust or a series of the Trust
is made a party to any claim, dispute, demand or litigation or
otherwise incurs any loss, liability, damage, cost or expense as a
result of or in connection with any Shareholder’s (or
assignee’s) obligations or liabilities unrelated to Trust
business, such Shareholder (or assignees cumulatively) shall
indemnify, defend, hold harmless, and reimburse the Trust or the
applicable series of the Trust for all such loss, liability,
damage, cost and expense incurred, including attorneys’ and
accountants’ fees.
The payment of any amount pursuant to the Trust
Agreement shall take into account the allocation of liabilities and
other amounts, as appropriate, among the series of the
Trust.
Item 15
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Recent
Sales of Unregistered Securities.
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Not applicable.
Item 16
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Exhibits
and Financial Statement Schedules.
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(a) Exhibits
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3.1
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Fifth Amended and Restated Declaration of Trust
and Trust Agreement. (1)
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3.3
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Instrument Establishing the
Fund.*
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5.1
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Opinion of [_____] relating to the legality of
the Shares.*
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8.1
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Opinion of [_____] with respect to federal
income tax consequences.*
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Marketing Services
Agreement.*
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23.1
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Consents of [_____] (included in Exhibits 5.1
and 8.1).*
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23.2
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Consent of [_____], Independent Registered
Public Accounting Firm.*
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* To be filed by amendment.
(1) Previously filed as Exhibit 3.1 to
Pre-Effective Amendment No. 2 to Registrant’s Registration
Statement on Form S-1 (333-230626), filed on April 26, 2019 and
incorporated by reference herein.
(2) Previously filed as Exhibit 3.2 to
Registrant’s Registration Statement on Form S-1 (333-162033),
filed on September 21, 2009 and incorporated by reference
herein.
(3) Previously filed as Exhibit 10.2(1) to the
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund (File No. 001-34765), filed on November 1, 2011 and
incorporated by reference herein.
(4) Previously filed as Exhibit 10.2(2) to the
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund (File No. 001-34765), filed on November 1, 2011 and
incorporated by reference herein.
(5) Previously filed as Exhibit 10.2(3) to the
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund (File No. 001-34765), filed on November 1, 2011 and
incorporated by reference herein.
(6) Previously filed as like-numbered exhibit to
Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-1 (333-187463), filed on April 26, 2013 and
incorporated by reference herein.
(7) Previously filed as Exhibit 10.9 to
Registrant’s Registration Statement on Form S-1 (File No.
333-201953) filed on February 9, 2015 and incorporated by reference
herein.
(8) Previously filed as Exhibit 10.8 to the
Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed on March 15, 2016, and incorporated by
reference herein.
(9) Previously filed as Exhibit 10.9 to the
Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed on March 15, 2016, and incorporated by
reference herein.
(10) Previously filed as Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed on March 15, 2016, and incorporated by
reference herein.
(11) Previously filed as Exhibit 10.11 to the
Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed on March 15, 2016, and incorporated by
reference herein.
(12) Previously filed as Exhibit 10.6 to
Post-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-1 (333-162033) filed on October 22, 2010 and
incorporated by reference herein.
(13) Previously filed as like-numbered exhibit
to Registrant’s Report on Form 10-K for the fiscal year ended
December 31, 2020, filed on March 16, 2021.
(14) Previously filed as Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2021, filed on March 10, 2021, and incorporated by
reference herein.
(b) Financial
Statement Schedules
The financial statement schedules are either not
applicable or the required information is included in the financial
statements and footnotes related thereto.
(a) The undersigned registrant hereby
undertakes:
(1) To file, during any period in which offers,
or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee”
table in the effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
Provided, however, that paragraphs (a)(1)(i),
(ii), and (iii) of this section do not apply if the registration
statement is on Form S-1, Form S-3, Form SF-3 or Form F-3 and the
information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished
to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement, or, as to
a registration statement on Form S-3, is contained in a form of
prospectus filed pursuant to § 230.424(b) that is part of the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining
liability under the Securities Act of 1933 to any
purchaser:
(i) If the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first
use.
(5) That, for the purpose of determining
liability of the registrant under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of
the undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned registrant or
used or referred to by the undersigned
registrant;
(iii) The portion of any other free writing
prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or
on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in
the offering made by the undersigned registrant to the
purchaser.
(6) That, for purposes of determining any
liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan’s annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(7) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by
a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this Registration
Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Burlington,
State of Vermont, on April 18, 2022.
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Teucrium Commodity
Trust
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By: Teucrium Trading, LLC,
Sponsor
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By:
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/s/ Sal Gilbertie
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Date: April 18, 2022
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Sal Gilbertie
Principal Executive Officer, Secretary and
Member
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Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates as indicated.
The document may be executed by signatories hereto on any number of
counterparts, all of which shall constitute one and the same
instrument. The undersigned members and officers of Teucrium
Trading, LLC, the sponsor of Teucrium Commodity Trust, hereby
constitute and appoint Sal Gilbertie, Cory Mullen Rusin and Steve
Kahler and each of them with full power to act with full power of
substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and behalf
in the capacities indicated below this Registration Statement on
Form S-1 and any and all amendments thereto, including
post-effective amendments to this Registration Statement and to
sign any and all additional registration statements relating to the
same offering of securities as this Registration Statement that are
filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission and thereby ratify and confirm that such
attorneys-in-fact, or any of them, or their substitutes shall
lawfully do or cause to be done by virtue
hereof.
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Signature
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Title
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Date
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/s/ Sal Gilbertie
Sal Gilbertie
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President/Chief Executive Officer/Chief
Investment Officer/Member of the Sponsor
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April 18, 2022
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/s/ Cory Mullen-Rusin
Cory Mullen-Rusin
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Chief Financial Officer/Chief Accounting
Officer/Chief Compliance Officer/Principal Financial
Officer
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April 18, 2022
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/s/ Steve Kahler
Steve Kahler
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Chief Operating Officer
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April 18, 2022
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Exhibit
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