TEUCRIUM COMMODITY TRUST
10-Ks and 10-Qs
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
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☒
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Annual report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31,
2017
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OR
|
☐
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Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the transition
period
from to
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Commission File
Number: 001-34765
Teucrium Commodity Trust
(Exact name of
registrant as specified in its charter)
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Delaware
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61-1604335
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(State or
other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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115 Christina
Landing Drive, Unit 2004
Wilmington, DE
19801
(Address of
principal executive offices) (Zip code)
(302)
543-5977
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act:
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Title of each
Fund
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Name of each
exchange on which registered
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Shares of
Teucrium Corn Fund
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NYSE Arca,
Inc.
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Shares of
Teucrium Sugar Fund
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NYSE Arca,
Inc.
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Shares of
Teucrium Soybean Fund
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NYSE Arca,
Inc.
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Shares of
Teucrium Wheat Fund
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NYSE Arca,
Inc.
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Shares of
Teucrium Agricultural Fund
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NYSE
Arca, Inc.
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.
☐ Yes ☒
No
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act.
☐ Yes ☒
No
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
☒
Yes ☐
No
Indicate by check mark whether
the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files).
☒
Yes ☐ No
Indicate by check mark if
disclosure of delinquent files pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated
filer ☐
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Accelerated filer
☒
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Non-accelerated filer
☐
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Smaller reporting
company
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
☐ Yes ☒
No
The aggregate market value of the
units of each series of the registrant held by non-affiliates as of
June 30, 2017 are included in the table below:
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Aggregate Market Value of Each Funds’ Shares
Held
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Total Number of
Outstanding
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by Non-Affiliates as of June 30,
2017
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Shares as of March 14,
2018
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Teucrium
Corn Fund
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$
66,675,076
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4,025,004
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Teucrium
Sugar Fund
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8,185,539
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925,004
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Teucrium
Soybean Fund
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11,732,572
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850,004
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Teucrium
Wheat Fund
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77,517,031
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10,775,004
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Teucrium
Agricultural Fund
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$
1,240,050
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50,002
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Total
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$
165,350,268
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Statement
Regarding Forward-Looking Statements
This filing 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 filing 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,
operations of the Funds, the Sponsor’s plans and references
to the future success of a Fund or the Funds 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 annual report, general
economic, market and business conditions, changes in laws or
regulations, including those concerning taxes, made by governmental
authorities or regulatory bodies, and other world economic and
political developments. Consequently, all the forward-looking
statements made in this filing 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 operations of
the Funds or the value of the Shares of the
Funds.
T
able of
Contents
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Part
I
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1
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28
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41
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41
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41
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41
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PART
II
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41
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47
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48
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63
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66
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66
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66
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67
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PART
III
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67
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67
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68
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69
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69
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PART
IV
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69
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The Trust and
the Funds
Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust organized on
September 11, 2009, is a series trust consisting of five series:
Teucrium Corn Fund (“CORN”), Teucrium Sugar Fund
(“CANE”), Teucrium Soybean Fund (“SOYB”),
Teucrium Wheat Fund (“WEAT”), and Teucrium Agricultural
Fund (“TAGS”). All of the series of the Trust are
collectively referred to as the “Funds” and singularly
as the “Fund.” Each Fund is a commodity pool that is a
series of the Trust. The Funds issue common units, called the
“Shares,” representing fractional undivided beneficial
interests in a Fund. The Trust and the Funds operate pursuant
to the Trust’s Second Amended and Restated Declaration of
Trust and Trust Agreement (the “Trust
Agreement”).
The
Sponsor
Teucrium Trading, LLC is the
sponsor of the Trust and each of the series of the Trust. The
Sponsor is a Delaware limited liability company, formed on July 28,
2009. The principal office is located at 115 Christina Landing
Drive, Unit 2004, Wilmington, DE 19801. The Sponsor is registered
as a commodity pool operator (“CPO”) with the Commodity
Futures Trading Commission (“CFTC”) and became a member
of the National Futures Association (“NFA”) on November
10, 2009. Teucrium Trading, LLC registered as a Commodity Trading
Advisor (“CTA”) with the NFA effective September 8,
2017. The Trust and the Funds operate pursuant to the Trust
Agreement.
Under the Trust Agreement, the
Sponsor is solely responsible for the management, and conducts or
directs the conduct of the business of the Trust, the Funds, and
any other Fund 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 firms designated as
“Authorized Purchasers” and to manage the Funds’
investments, including to evaluate the credit risk of futures
commission merchants 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 Funds’ 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 providing 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
Funds.
Teucrium Trading, LLC designs the
Funds to offer liquidity, transparency, and capacity in
single-commodity investing for a variety of investors, including
institutions and individuals, in an exchange-traded product format.
The Funds have also been designed to mitigate the impacts of
contango and backwardation, situations that can occur in the course
of commodity trading which can affect the potential returns to
investors. Backwardation is defined as a market condition in which
a futures price of a commodity is lower in the distant delivery
months than in the near delivery months, while contango, the
opposite of backwardation, is defined as a condition in which
distant delivery prices for futures exceed spot prices, often due
to the costs of storing and insuring the underlying
commodity.
The Sponsor has a patent on
certain business methods and procedures used with respect to the
Funds.
The
Funds
On June 5, 2010, the initial Form
S-1 for CORN was declared effective by the U.S. Securities and
Exchange Commission (“SEC”). On June 8, 2010, four
Creation Baskets for CORN were issued representing 200,000 shares
and $5,000,000. CORN began trading on the New York Stock Exchange
(“NYSE”) Arca on June 9, 2010. The current registration
statement for CORN was declared effective by the SEC on April 29,
2016.
On June 17, 2011, the initial
Forms S-1 for CANE, SOYB, and WEAT were declared effective by the
SEC. On September 16, 2011, two Creation Baskets were issued for
each Fund, representing 100,000 shares and $2,500,000, for CANE,
SOYB, and WEAT. On September 19, 2011, CANE, SOYB, and WEAT started
trading on the NYSE Arca. The current registration statements for
CANE and SOYB were declared effective by the SEC on May 1, 2017.
The current registration statement for WEAT was declared effective
on July 15, 2016. This registration statement for WEAT registered
an additional 24,050,000 shares.
On February 10, 2012, the Form
S-1 for TAGS was declared effective by the SEC. On March 27, 2012,
six Creation Baskets for TAGS were issued representing 300,000
shares and $15,000,000. TAGS began trading on the NYSE Arca on
March 28, 2012. The current registration statement for TAGS was
declared effective by the SEC on April 30,
2015.
Investing
Strategy
Overview
The Funds are designed and
managed so that the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for specific futures contracts on designated
commodities or the closing Net Asset Value per share of the
Underlying Funds (as defined below) in the case of TAGS. Each Fund
pursues its investment objective by investing in a portfolio of
exchange-traded futures contracts (each, a “Futures
Contract”) that expire in a specific month and trade on a
specific exchange in the designated commodity comprising the
Benchmark, as defined below or shares of the Underlying Funds in
the case of TAGS. Each Fund also holds United States Treasury
Obligations and/or other high credit quality short-term fixed
income securities for deposit with the commodity broker of the
Funds as margin.
The investment objective of CORN
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for corn (“Corn
Futures Contracts”) that are traded on the Chicago Board of
Trade (“CBOT”):
CORN
Benchmark
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CBOT Corn Futures Contract
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Weighting
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Second to
expire
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35%
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Third to
expire
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30%
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December
following the third to expire
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35%
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The investment objective of SOYB
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for soybeans
(“Soybeans Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”):
SOYB
Benchmark
|
CBOT Soybeans Futures Contract
|
Weighting
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Second to
expire (excluding August & September)
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35%
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Third to
expire (excluding August & September)
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30%
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Expiring in
the November following the expiration of the third-to-expire
contract
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35%
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The investment objective of CANE
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for No. 11 sugar
(“Sugar Futures Contracts”) that are traded on the ICE
Futures US (“ICE”):
CANE
Benchmark
|
ICE Sugar Futures Contract
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Weighting
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Second to
expire
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35%
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Third to
expire
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30%
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Expiring in
the March following the expiration of the third-to-expire
contract
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35%
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The investment objective of WEAT
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”):
WEAT
Benchmark
|
CBOT Wheat Futures Contract
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Weighting
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Second to
expire
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35%
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Third to
expire
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30%
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December
following the third-to-expire
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35%
|
The investment objective of the
TAGS is to have the daily changes in percentage terms of the NAV of
its Shares reflect the daily changes in percentage terms of a
weighted average (the “Underlying Fund Average”) of the
NAVs per share of four other commodity pools that are series of the
Trust and are sponsored by the Sponsor: the Teucrium Corn Fund, the
Teucrium Wheat Fund, the Teucrium Soybean Fund and the Teucrium
Sugar Fund (collectively, the “Underlying Funds”). The
Underlying Fund Average will have a weighting of 25% to each
Underlying Fund, and the Fund’s assets will be rebalanced,
generally on a daily basis, to maintain the approximate 25%
allocation to each Underlying Fund:
TAGS
Benchmark
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Underlying Fund
|
Weighting
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CORN
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25%
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SOYB
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25%
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CANE
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25%
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WEAT
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25%
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This weighted average of the
referenced specific Futures Contracts for each Fund is referred to
herein as the “Benchmark,” and the specific Futures
Contracts that at any given time make up the Benchmark for that
Fund and are referred to herein as the “Benchmark Component
Futures Contracts.”
Each Fund seeks to achieve its
investment objective by investing under normal market conditions in
Benchmark Component Futures Contracts (“Futures
Contracts”) of the Fund or, in certain circumstances, in
other Futures Contracts for its Specified Commodity. In addition,
and to a limited extent, a Fund also may invest in exchange-traded
options on Futures Contracts for its Specified Commodity. Once
position limits or accountability levels on Futures Contracts on a
Fund’s Specified Commodity are applicable, each Fund’s
intention is to invest first in contracts and instruments such as
cash-settled options on Futures Contracts and forward contracts,
swaps and other over-the-counter transactions that are based on the
price of its Specified Commodity or Futures Contracts on its
Specified Commodity (collectively, “Other Commodity
Interests,” and together with Futures Contracts,
“Commodity Interests”). By utilizing certain or all of
these investments, the Sponsor will endeavor to cause each
Fund’s performance to closely track that of its
Benchmark.
The Sponsor operates the Funds
with the intent to never hold a Benchmark Component Futures
Contract once it becomes the next-to-expire contract (commonly
called the “spot” contract). Accordingly, the positions
of each Fund in its Specified Commodity Interests are changed or
“rolled” on a regular basis in order to track the
changing nature of the Benchmark. Using CORN as an example, five
times a year (on the dates on which certain Corn Futures Contracts
expire), a particular Corn Futures Contract will no longer be a
Benchmark Component Futures Contract, and the Corn Fund’s
investments will have to be changed accordingly. Corn Futures
Contracts traded on the CBOT expire on a specified day in the
following five months: March, May, July, September, and December.
Therefore, in terms of the Benchmark, in June of a given year the
next-to-expire or “spot month” Corn Futures Contract
will expire in July of that year, and the Benchmark Component
Futures Contracts will be the contracts expiring in September of
that year (the second-to-expire contract), December of that year
(the third-to-expire contract), and December of the following year.
As another example using CORN, in November of agiven year the
Benchmark Component Futures Contracts will be the contracts
expiring in March, May and December of the following year. The
Teucrium Corn Fund is designed to roll or replace its contracts
five times per year but will always hold a December Corn Futures
Contract as an “anchor” month. The Sponsor will
determine if the investments of a Fund will be “rolled”
in one day or over a period of several days, in order that any
trading does not signal unwanted market movements and to make it
more difficult for third parties to profit by trading ahead based
on such expected market movements. Such “roll” periods
are posted to the website for each Fund well in advance of the
“roll” date.
The Sponsor employs a
“neutral” investment strategy intended to track the
changes in the Benchmark of each Fund 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 commodity-specific
market in a cost-effective manner. Such investors may include
participants in the specific industry and other industries seeking
to hedge the risk of losses in their commodity-specific-related
transactions, as well as investors seeking exposure to that
commodity market. Accordingly, depending on the investment
objective of an individual investor, the risks generally associated
with investing in the commodity-specific market and/or the risks
involved in hedging may exist. In addition, an investment in a Fund
involves the risks that the changes in the price of the
Fund’s Shares will not accurately track the changes in the
Benchmark, and that changes in the Benchmark will not closely
correlate with changes in the price of the commodity on the spot
market. The Sponsor does not intend to operate each Fund in a
fashion such that its per share NAV equals, in dollar terms, the
spot price of the commodity or the price of any particular
commodity-specific Futures Contract.
Calculation of the Benchmark
The notional amount of each
Benchmark Component Futures Contract included in each Benchmark is
intended to reflect the changes in market value of each such
Benchmark Component Futures Contract within the Benchmark. The
closing level of each Benchmark is calculated on each business day
by U.S. Bancorp Fund Services, LLC (the
“Administrator”) based on the closing price of the
futures contracts for each of the underlying Benchmark Component
Futures Contracts and the notional amounts of such Benchmark
Component Futures Contracts.
Each Benchmark is rebalanced
periodically to ensure that each of the Benchmark Component Futures
Contracts is weighted in the same proportion as in the investment
objective for each Fund. The following tables reflect the December
31, 2017, Benchmark Component Futures Contracts weights for each of
the Funds. The contract held is identified by the generally
accepted nomenclature of contract month and year, which may differ
from the month in which the contract expires:
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CORN Benchmark Component Futures Contracts
|
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Notional Value
|
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Weight (%)
|
|
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CBOT Corn
Futures (1,265 contracts, MAY18)
|
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$
|
22,706,750
|
|
35
|
%
|
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CBOT Corn
Futures (1,060 contracts, JUL18)
|
|
|
19,464,250
|
|
30
|
|
|
CBOT Corn
Futures (1,184 contracts, DEC18)
|
|
|
22,732,800
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2017
|
|
$
|
64,903,800
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
SOYB Benchmark Component Futures Contracts
|
|
Notional Value
|
|
Weight (%)
|
|
|
|
CBOT Soybean
Futures (75 contracts, MAR18)
|
|
$
|
3,606,563
|
|
35
|
%
|
|
CBOT Soybean
Futures (63 contracts, MAY18)
|
|
|
3,064,950
|
|
30
|
|
|
CBOT Soybean
Futures (74 contracts, NOV18)
|
|
|
3,610,275
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2017
|
|
$
|
10,281,788
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
CANE Benchmark Component Futures Contracts
|
|
Notional Value
|
|
Weight (%)
|
|
|
|
ICE Sugar
Futures (133 contracts, MAY18)
|
|
$
|
2,237,379
|
|
35
|
%
|
|
ICE Sugar
Futures (114 contracts, JUL18)
|
|
|
1,920,307
|
|
30
|
|
|
ICE Sugar
Futures (126 contracts, MAR19)
|
|
|
2,214,173
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2017
|
|
$
|
6,371,859
|
|
100
|
%
|
|
|
|
|
|
|
|
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|
WEAT Benchmark Component Futures Contracts
|
|
Notional Value
|
|
Weight (%)
|
|
|
|
CBOT Wheat
Futures (976 contracts, MAY18)
|
|
$
|
21,484,200
|
|
35
|
%
|
|
CBOT Wheat
Futures (813 contracts, JUL18)
|
|
|
18,424,613
|
|
30
|
|
|
CBOT Wheat
Futures (893 contracts, DEC18)
|
|
|
21,521,300
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2017
|
|
$
|
61,430,113
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
TAGS Benchmark Component Futures Contracts
|
|
Fair Value
|
|
Weight (%)
|
|
|
|
Shares of
Teucrium Corn Fund
|
|
$
|
287,376
|
|
25
|
%
|
|
Shares of
Teucrium Soybean Fund
|
|
|
273,664
|
|
25
|
|
|
Shares of
Teucrium Wheat Fund
|
|
|
286,031
|
|
25
|
|
|
Shares of
Teucrium Sugar Fund
|
|
|
289,049
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Total at
December 31, 2017
|
|
$
|
1,136,120
|
|
100
|
%
|
The price relationship between the
near month Futures Contract to expire and the Benchmark Component
Futures Contracts will vary and may impact both the total return of
each Fund over time and the degree to which such total return
tracks the total return of the price indices related to the
commodity of each Fund. In cases in which the near month
contract’s price is lower than later-expiring
contracts’ prices (a situation known as
“contango” in the futures markets), then absent the
impact of the overall movement in commodity prices the value of the
Benchmark Component Futures Contracts would tend to decline as they
approach expiration. In cases in which the near month
contract’s price is higher than later-expiring
contracts’ prices (a situation known as
“backwardation” in the futures markets), then absent
the impact of the overall movement in a Fund’s prices the
value of the Benchmark Component Futures Contracts would tend to
rise as they approach expiration, all other things being
equal.
The total portfolio composition
for each Fund is disclosed each business day that the NYSE Arca is
open for trading on the Fund’s website. The website for CORN
is
www.teucriumcornfund.com
; for
CANE is
www.teucriumcanefund.com
; for
SOYB is
www.teucriumsoybfund.com
; for
WEAT is
www.teucriumweatfund.com
; for
TAGS is
www.teucriumtagsfund.com
.
These sites are accessible at no charge. The website disclosure of
portfolio holdings is made daily and includes, as applicable, the
name and value of each Futures Contract, other commodity interest
and the amount of cash and cash equivalents held in the
Fund’s portfolio. The specific types of other commodity
interests held (if any, which may include options on futures
contracts and derivative contracts such as swaps) (collectively,
“Other Commodity Interests,” and together with Futures
Contracts, “Commodity Interests” or
“Interests”) (in addition to futures contracts, options
on futures contracts and derivative contracts) that are tied to
various commodities are entered into outside of public exchanges.
These “over-the-counter” contracts are entered into
between two parties in private contracts, or on a recently formed
swap execution facility (“SEF”) for standardized swaps.
For example, unlike Futures Contracts, which are guaranteed by a
clearing organization, each party to an over-the-counter derivative
contract bears the credit risk of the other party (unless such
over-the-counter swap is cleared through a derivatives clearing
organization (“DCO”)), i.e., the risk that the other
party will not be able to perform its obligations under its
contract, and characteristics of such Other Commodity
Interests.
Consistent with achieving a
Fund’s investment objective of closely tracking the
Benchmark, the Sponsor may for certain reasons cause the Fund to
enter into or hold Futures Contracts other than the Benchmark
Component Futures Contracts and/or Other Commodity Interests. Other
Commodity Interests that do not have standardized terms and are not
exchange-traded, referred to as “over-the-counter” Corn
Interests, can generally be structured as the parties to the Corn
Interest contract desire. Therefore, each Fund might enter into
multiple and/or over-the-counter Interests intended to replicate
the performance of each of the Benchmark Component Futures
Contracts for the Fund, or a single over-the-counter Interest
designed to replicate the performance of the Benchmark as a whole.
Assuming that there is no default by a counterparty to an
over-the-counter Interest, the performance of the Interest will
necessarily correlate with the performance of the Benchmark or the
applicable Benchmark Component Futures Contract. Each Fund might
also enter into or hold Interests other than Benchmark Component
Futures Contracts to facilitate effective trading, consistent with
the discussion of the Fund’s “roll” strategy. In
addition, each Fund might enter into or hold Interests that would
be expected to alleviate overall deviation between the Fund’s
performance and that of the Benchmark that may result from certain
market and trading inefficiencies or other reasons. By utilizing
certain or all of the investments described above, the Sponsor will
endeavor to cause the Fund’s performance to closely track
that of the Benchmark of the Fund.
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 futures position which is then settled on
the same business day as a cleared futures transaction by the
FCMs. The Fund will become subject to the credit risk of
the market specialist/market maker until the EFRP is settled within
the business day, which is typically 7 hours or less. The
Fund reports all activity related to EFRP transactions under the
procedures and guidelines of the CFTC and the exchanges on which
the futures are traded.
The Funds earn interest and other
income (“interest income”) from cash equivalents that
it purchases and on the cash, it holds through the Custodian or
other financial institution. The Sponsor anticipates that the
interest income will increase the NAV of each Fund. The Funds apply
the interest income to the acquisition of additional investments or
use it to pay its expenses. If the Fund reinvests the earned
interest income, it makes investments that are consistent with its
investment objectives as disclosed. Any cash equivalent invested by
a Fund will have original maturity dates of three months or less at
inception. Any cash equivalents invested by a Fund will be deemed
by the Sponsor to be of investment grade quality. At the end
of the year, available cash balances in each of the Funds were
invested in the Fidelity Institutional Money Market Funds –
Government Portfolio, in the Blackrock FedFund Money Market –
Institutional Class, and in demand deposits at Rabobank, N.A.
Effective October 3, 2017, CORN and WEAT purchased commercial paper
with maturities of ninety days or less as described in the
prospectus supplements filed with the SEC on October 2,
2017.
In managing the assets of the
Funds, the Sponsor does not use a technical trading system that
automatically issues buy and sell orders. Instead, the Sponsor will
purchase or sell the specific underlying Commodity Interests with
an aggregate market value that approximates the amount of cash
received or paid upon the purchase or redemption of
Shares.
The Sponsor does not anticipate
letting the commodity Futures Contracts of any Fund expire, thus
taking delivery of the underlying commodity. Instead, the Sponsor
will close out existing positions, for instance, in response to
ongoing changes in the Benchmark or if it otherwise determines it
would be appropriate to do so and reinvest the proceeds in new
Commodity Interests. Positions may also be closed out to meet
redemption orders, in which case the proceeds from closing the
positions will not be reinvested.
Market Outlook
The Corn
Market
Corn is currently the most widely
produced livestock feed grain in the United States. The two largest
demands of the United States’ corn crop are used in livestock
feed and ethanol production. Corn is also processed into food and
industrial products, including starch, sweeteners, corn oil,
beverages and industrial alcohol. The United States Department of
Agriculture (“USDA”) publishes weekly, monthly,
quarterly and annual updates for U.S. domestic and worldwide corn
production and consumption, and for other grains such as soybeans
and wheat which can be used in some cases as a substitute for corn.
These reports are available on the USDA’s website,
www.usda.gov, at no charge.
The United States is the
world’s leading producer and exporter of corn. For the Crop
Year 2017-18, the United States Department of Agriculture
(“USDA”) estimates that the U.S. will produce
approximately 36% of all the corn globally, of which about 13% will
be exported. For 2017-2018, based on the January 2018 USDA reports,
global consumption of 1,067 Million Metric Tons (MMT) is expected
to be slightly higher than global production of 1,045 MMT. If the
global supply of corn exceeds global demand, this may have an
adverse impact on the price of corn. Besides the United States,
other principal world corn exporters include Argentina, Brazil and
the former Soviet Union nations known as the FSU-12 which includes
the Ukraine. Major importer nations include Mexico, Japan, the
European Union (EU), South Korea, Egypt and parts of Southeast
Asia. China’s production at 216 MMT is approximately 11% less
than its domestic usage.
According to the USDA, global
corn consumption has increased just over 446% from crop year
1960/1961 to 2017/2018 as demonstrated by the graph below and is
projected to continue to grow in upcoming years. Consumption growth
is the result of a combination of many factors including: 1) global
population growth, which, according to the U.S. Census Department,
is estimated to increase by approximately 82.5 million people in
the 2017-18 timeframe and reach 9.4 billion by 2050; 2) a growing
global middle class which is increasing the demand for protein and
meat-based products globally and most significantly in developing
countries; and 3) increased use of bio-fuels, including ethanol in
the United States. Based on USDA estimates as of October 12, 2017,
for each person added to the population, there needs to be an
additional 5.6 bushels of corn, 1.7 bushels of soybeans and 3.7
bushels of wheat produced.
While
global consumption of corn has increased over the
1960/1961-2017/2018 period, so has production, driven by increases
in acres planted and yield per acre. However, according to the USDA
and United Nations, future growth in planted acres and yield may be
inhibited by lower-productive land, and lack of infrastructure and
transportation. In addition, agricultural crops such as corn are
highly weather-dependent for yield and therefore susceptible to
changing weather patterns. In addition, given the current
production/consumption patterns, nearly 100% of all corn produced
globally is consumed which leaves minimal excess inventory if
production issues arise.
The
price per bushel of corn in the United States is primarily a
function of both U.S. and global production, as well as U.S. and
global demand. The graph below shows the USDA published price per
bushel by month for the period January 2007 to November
2017.
On January 12, 2018, the USDA released its
monthly World Agricultural Supply and Demand Estimates (WASDE) for
the Crop Year 2017-18. The exhibit below provides a summary of
historical and current information for United States corn
production.
Standard
Corn Futures Contracts trade on the CBOT in units of 5,000 bushels,
although 1,000 bushels “mini-corn” Corn Futures
Contracts also trade. Three grades of corn are deliverable under
CBOT Corn Futures Contracts: Number 1 yellow, which may be
delivered at 1.5 cents over the contract price; Number 2 yellow,
which may be delivered at the contract price; and Number 3 yellow,
which may be delivered at 1.5 cents under the contract price for
all contract months prior to March 2019 or may be delivered between
2 and 4 cents per bushel under the contract price for all contract
months commencing with March 2019 and beyond. There are five months
each year in which CBOT Corn Futures Contracts expire: March, May,
July, September and December.
If the futures market is in a
state of backwardation (i.e., when the price of corn 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 corn 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. 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 corn prices or the price relationship between the
spot price, soon-to-expire contracts and later-to-expire contracts,
the value of a contract will fall as it approaches expiration. Over
time, if contango remained constant, the difference would continue
to increase. Historically, the corn futures markets have
experienced periods of both contango and backwardation. Frequently,
whether contango or backwardation exists is a function, among other
factors, of the seasonality of the corn market and the corn harvest
cycle. All other things being equal, a situation involving
prolonged periods of contango may adversely impact the returns of
the Fund; conversely a situation involving prolonged periods of
backwardation may positively impact the returns of the
Fund.
The Soybean
Market
Global soybean production is
concentrated in the U.S., Brazil, Argentina and China. The United
States Department of Agriculture (“USDA”) has estimated
that, for the Crop Year 2017-18, the United States will produce
approximately 120 MMT of soybeans or approximately 34% of estimated
world production, with Brazil production at 110 MMT. Argentina is
projected to produce about 56 MMT. For 2017-18, based on the
January 2018 USDA report, global consumption of 344 MMT is
estimated slightly lower than global production of 349 MMT. If the
global supply of soybeans exceeds global demand, this may have an
adverse impact on the price of soybeans. The USDA publishes weekly,
monthly, quarterly and annual updates for U.S. domestic and
worldwide soybean production and consumption. These reports are
available on the USDA’s website, www.usda.gov, at no
charge.
The soybean processing industry
converts soybeans into soybean meal, soybean hulls, and soybean
oil. Soybean meal and soybean hulls are processed into soy flour or
soy protein, which are used, along with other commodities, by
livestock producers and the farm fishing industry as feed. Soybean
oil is sold in multiple grades and is used by the food, petroleum
and chemical industries. The food industry uses soybean oil in
cooking and salad dressings, baking and frying fats, and butter
substitutes, among other uses. In addition, the soybean industry
continues to introduce soy-based products as substitutes to various
petroleum-based products including lubricants, plastics, ink,
crayons and candles. Soybean oil is also converted to biodiesel for
use as fuel.
Standard Soybean Futures
Contracts trade on the CBOT in units of 5,000 bushels, although
1,000 bushel “mini-sized” Soybean Futures Contracts
also trade. Three grades of soybean are deliverable under CBOT
Soybean Futures Contracts: Number 1 yellow, which may be delivered
at 6 cents per bushel over the contract price; Number 2 yellow,
which may be delivered at the contract price; and Number 3 yellow,
which may be delivered at 6 cents per bushel under the contract
price. There are seven months each year in which CBOT Soybean
Futures Contracts expire: January, March, May, July, August,
September and November.
If the futures market is in a
state of backwardation (i.e., when the price of soybeans 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 soybean prices or the
price relationship between immediate delivery, soon-to-expire
contracts and later-to-expire contracts, the value of a contract
will rise as it approaches expiration. If the futures market is in
contango, the Fund will buy later-to-expire contracts for a higher
price than the sooner-to-expire contracts that it sells.
Hypothetically, and assuming no other changes to either prevailing
soybean prices or the price relationship between the spot price,
soon-to-expire contracts and later-to-expire contracts, the value
of a contract will fall as it approaches expiration. Historically,
the soybeans futures markets have experienced periods of both
contango and backwardation. Frequently, whether contango or
backwardation exists is a function, among other factors, of the
seasonality of the soybean market and the soybean harvest cycle.
All other things being equal, a situation involving prolonged
periods of contango may adversely impact t
he returns of the Fund;
conversely a situation involving prolonged periods of backwardation
may positively impact the returns of the Fund.
The price per bushel of soybeans
in the United States is primarily a function of both U.S. and
global production, as well as U.S. and global demand. The graph
below shows the USDA published price per bushel by month for the
period January 2007 to November 2017.
On January 12, 2018, the USDA
released its monthly World Agricultural Sup
ply and Demand
Estimates (WASDE) for the Crop Year 2017-18. The exhibit below
provides a summary of historical and current information for United
States soybean production.
The
Sugar Market
Sugarcane accounts for about 80%
of the world’s sugar production, while sugar beets account
for the remainder of the world’s sugar
production. Sugar manufacturers use sugar beets and
sugarcane as the raw material from which refined sugar (sucrose)
for industrial and consumer use is produced. Sugar is
produced in various forms, including granulated, powdered, liquid,
brown, and molasses. The food industry (in particular,
producers of baked goods, beverages, cereal, confections, and dairy
products) uses sugar and sugarcane molasses to make
sugar-containing food products. Sugar beet pulp and
molasses products are used as animal feed
ingredients. Ethanol is an important by-product of
sugarcane processing. Additionally, the material that is
left over after sugarcane is processed is used to manufacture
paper, cardboard, and “environmentally friendly” eating
utensils.
The Sugar No. 11 Futures Contract
is the world benchmark contract for raw sugar trading. This
contract prices the physical delivery of raw cane sugar, delivered
to the receiver’s vessel at a specified port within the
country of origin of the sugar. Sugar No. 11 Futures
Contracts trade on ICE Futures US and the NYMEX in units of 112,000
pounds.
The United States Department of
Agriculture (“USDA”) publishes two major reports
annually on U.S. domestic and worldwide sugar production and
consumption. These are usually released in November and May.
In addition, the USDA publishes periodic, but not as comprehensive,
reports on sugar monthly. These reports are available on the
USDA’s website, www.usda.gov, at no charge. The
USDA’s November 2017 report forecasts that Brazil, with
estimated record production of 40.2 million metric tons, will
continue to be the leading producer of sugarcane worldwide.
Brazil’s production, which outpaces the other principal
global producers, namely India, Thailand and China, equates to
approximately 22% of the world’s supply. The principal
producers of sugar beets, as forecasted by the USDA for 2018,
include the European Union, the United States, and
Russia.
World estimated raw sugar
production is record 185 million metric tons, up from the
USDA’s initial forecast in May 2017. The USDA’s
November 2017 report estimates that record global consumption of
174 million metric tons will still be below production. Because of
record production this year, ending stocks are projected to rise 5%
to 40.8 million metric tons. Unlike the previous two years in
whic
h demand
exceeded supply, the most current period may see the global supply
for sugar exceed demand. In the past, this situation has,
generally, resulted in price decrease. However, if the global
demand of sugar exceeds global supply, prices will generally
increase.
The USDA, in its November 2017
report highlights, in the graph immediately below, the fact that
sugar prices have fallen in response to record production. The
second graph shows the increased exports out of the European Union
as a result of regulatory changes.
If
the futures market is in a state of backwardation (i.e., when the
price of sugar in the future is expected to be less than the
current price), the Fund will buy later-to-expire contracts for a
lower price than the sooner-to-expire contracts that it sells.
Hypothetically, and assuming no changes to either prevailing sugar
prices or the price relationship between immediate delivery,
soon-to-expire contracts and later-to-expire contracts, the value
of a contract will rise as it approaches expiration. If the futures
market is in contango, the Fund will buy later-to-expire contracts
for a higher price than the sooner-to-expire contracts that it
sells. Hypothetically, and assuming no other changes to either
prevailing sugar prices or the price relationship between the spot
price, soon-to-expire contracts and later-to-expire contracts, the
value of a contract will fall as it approaches expiration.
Historically, the sugar futures markets have experienced periods of
both contango and backwardation. Frequently, whether contango or
backwardation exists is a function, among other factors, of the
seasonality of the sugar market and the sugar harvest cycle. All
other things being equal, a situation involving prolonged periods
of contango may adversely impact the returns of the Funds;
conversely a situation involving prolonged periods of backwardation
may positively impact the returns of the
Funds.
The Wheat
Market
Wheat is used to produce flour,
the key ingredient for breads, pasta, crackers and many other food
products, as well as several industrial products such as starches
and adhesives. Wheat by-products are used in livestock feeds. Wheat
is the principal food grain produced in the United States, and the
United States’ output of wheat is typically exceeded only by
that of China, the European Union, the former Soviet nations, known
as the FSU-12, including the Ukraine, and India. The United States
Department of Agriculture (“USDA”) estimates that for
2017-18, the principal global producers of wheat will be the EU,
the former Soviet nations known as the FSU-12, China, India, the
United States, Australia and Canada. The U.S. generates
approximately 6% of the global production, with approximately 56%
of that being exported. For 2017-18, based on the January 2018 USDA
report, global consumption of 742 MMT is estimated to be slightly
lower than production of 757 MMT. If the global supply of wheat
exceeds global demand, this may have an adverse impact on the price
of wheat. The USDA publishes weekly, monthly, quarterly and annual
updates for U.S. domestic and worldwide wheat production and
consumption. These reports are available on the USDA’s
website, www.usda.gov, at no charge.
There are several types of wheat
grown in the U.S., which are classified in terms of color,
hardness, and growing season. CBOT Wheat Futures Contracts call for
delivery of #2 soft red winter wheat, which is generally grown in
the eastern third of the United States, but other types and grades
of wheat may also be delivered (Grade #1 soft red winter wheat,
Hard Red Winter, Dark Northern Spring and Northern Spring wheat may
be delivered at 3 cents premium per bushel over the contract price
and #2 soft red winter wheat, Hard Red Winter, Dark Northern Spring
and Northern Spring wheat may be delivered at the contract price.)
Winter wheat is planted in the fall and is harvested in the late
spring or early summer of the following year, while spring wheat is
planted in the spring and harvested in late summer or fall of the
same year. Standard Wheat Futures Contracts trade on the CBOT in
units of 5,000 bushels, although 1,000 bushel
“mini-wheat” Wheat Futures Contracts also trade. There
are five months each year in which CBOT Wheat Futures Contracts
expire: March, May, July, September and
December.
If the futures market is in a
state of backwardation (i.e., when the price of wheat in the future
is expected to be less than the current price), the Fund will buy
later-to-expire contracts for a lower price than the
sooner-to-expire contracts that it sells. Hypothetically, and
assuming no changes to either prevailing wheat prices or the price
relationship between immediate delivery, soon-to-expire contracts
and later-to-expire contracts, the value of a contract will rise as
it approaches expiration. If the futures market is in contango, the
Fund will buy later-to-expire contracts for a higher price than the
sooner-to-expire contracts that it s
ells. Hypothetically, and
assuming no other changes to either prevailing wheat prices or the
price relationship between the spot price, soon-to-expire contracts
and later-to-expire contracts, the value ofa contract will fall as
it approaches expiration. His
torically, the wheat futures
markets have experienced periods of both contango and
backwardation. Frequently, whether contango or backwardation exists
is a function, among other factors, of the seasonality of the wheat
market and the wheat harvest cycle. All other things being equal, a
situation involving prolonged periods of contango may adversely
impact the returns of the Fund; conversely a situation involving
prolonged periods of backwardation may positively impact the
returns of the Fund.
The
price per bushel of wheat in the United States is primarily a
function of both U.S. and global production, as well as U.S. and
global demand. The graph below shows the USDA published price per
bushel by month for the period January 2007 to November
2017.
On January 12, 2018, the USDA released its monthly World
Agricultural Supply and Demand Estimates (WASDE) for the Crop Year
2017-18. The exhibit below provides a summary of historical and
current information for United States wheat
production.
Competitive
Environment
Investors may choose among
several options when considering an investment in agricultural
commodities. For instance, an investor may choose to invest
directly in commodity futures, although such an investment
generally requires significant capital. Additionally, there
are a variety of commodity index funds which include baskets of
commodity interests; these funds invest in a range of commodity
interests, although some are weighted toward, or invest solely in,
agricultural commodities. Finally, there are exchange-traded
notes which are credit instruments, some of which may invest or
mirror investments in agricultural
commodities.
The
Sponsor’s Operations
The Sponsor established the Trust
and caused the Trust to establish the first series, the Corn Fund,
which commenced offering its Shares to the public on June 9, 2010.
Three additional series, namely the Sugar Fund, the Soybean Fund
and the Wheat Fund, commenced offering of shares in September 2011
and the Teucrium Agricultural Fund commenced operation on March 28,
2012. Aside from establishing these series, 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.
The Trust and the Funds do not
have any employees or officers. Any persons acting as agents
of the Trust or the Funds do so as employees or officers of the
Sponsor.
Under the Trust Agreement, the
Sponsor is solely responsible for the management, and conducts or
directs the conduct of the business of the Trust, the Funds, and
any other Fund 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 firms designated as
“Authorized Purchasers” and to manage the Funds’
investments, including to evaluate the credit risk of futures
commission merchants 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 Funds’ 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 providing 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
Funds.
The Sponsor maintains websites on
behalf of each of the Funds. The total portfolio composition of
each Fund is disclosed on the Fund’s website each business
day that the NYSE Arca is open for trading. The website disclosure
of portfolio holdings is made daily and includes, as applicable,
the name and value of each Commodity Futures Contract held and
those that are pending, and the amount of cash and cash equivalents
held in the Fund’s portfolio. Each Fund’s website also
includes the NAV, the 4 p.m. Bid/Ask Midpoint as reported by the
NYSE Arca, the last trade price as reported by the NYSE Arca, the
shares outstanding, the shares available for issuance, and the
shares created or redeemed on that day. The prospectus, Monthly
Statement of Account, Quarterly Performance of the Midpoint versus
the NAV, and the Roll Dates, as well as Form 10-Qs, Form 10-Ks, and
other SEC filings for that Fund, are also posted on the website.
Each Fund’s website is publicly accessible at no charge. The
website for CORN is
www.teucriumcornfund.com
; for
CANE is
www.teucriumcanefund.com;
for
SOYB is
www.teucriumsoybfund.com;
for
WEAT is
www.teucriumweatfund.com
; and
for TAGS is
www.teucriumtagsfund.com
. The
website address for the Sponsor is
www.teucrium.com
.
The Sponsor receives a fee as
compensation for services performed under the Trust Agreement,
except in the case of TAGS where there is no such fee. The
Sponsor’s fees accrue daily and are paid monthly at an annual
rate of 1.00% of the average daily net assets of each Fund. In
addition, each Fund is also generally responsible for other ongoing
fees, costs and expenses of its operations, including brokerage
fees and SEC registration fees, and legal, printing, accounting,
custodial, administration and transfer agency costs, although the
Sponsor has borne or will bear the costs and expensesrelated to the
initial offer and sale of Shares. The Funds will generally bear the
costs and expenses associated with filing a new registration
statement for each Fund every three years, unless the Sponsor
waives all or part of such costs and expenses. The Sponsor may
choose to waive, for a period of time and at its discretion, the
collection of the Sponsor Fee or certain other fees for any of the
Funds. Certain aggregate expenses common to all 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 and redeem 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, which are included in the related
line item in the combined statements of
operations.
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
Trust and the Funds, which are primarily the cost of performing
accounting and financial reporting, regulatory compliance, and
trading activities that are directly attributable to the Trust and
the Funds. For the period ended December 31, such expenses, which
are primarily included as distribution and marketing fees, totaled
$2,196,388 in 2017, $1,825,552 in 2016, and $1,601,237 in 2015; of
these amounts, $453,736 in 2017, $457,658 in 2016, and $138,262 in
2015 were waived by the Sponsor.
All asset-based fees and expenses
for the Funds are calculated on the prior day’s net
assets.
The Sponsor has an information
technology plan (the “IT Plan”) in place which is part
of the internal controls of the Trust and the Funds. The IT Plan is
tested by both the management of the Sponsor and by the independent
external auditor as a part of their internal control audit over the
financial reporting of the Trust and the Funds. The IT Plan also
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 the IT plans of key service providers is part of the
Sponsor’s disaster recovery and business continuity planning.
The Sponsor provides regular training to all employees of the
Sponsor regarding cybersecurity topics, in addition to real-time
dissemination of information regarding cybersecurity matters as
needed. The IT plan is reviewed and updated as needed, but at a
minimum on an annual basis.
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 50% of the Sponsor’s Class A
membership interests.
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 will have 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 assumed 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, which position includes
the functions previously performed by the Treasurer of the Sponsor
and administers the Sponsor’s regulatory compliance programs.
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 Officers of the Sponsor, two
of whom are also Class A members of the Sponsor, are the
following:
Sal Gilbertie
has
been the President of the Sponsor since its inception and its Chief
Investment Officer since September 2011, was approved by the NFA as
a principal of the Sponsor on September 23, 2009 and was registered
as an associated person of the Sponsor on November 10, 2009.
He maintains his main business office at 65 Adams Road, Easton,
Connecticut 06612. Effective July 16, 2012, Mr. Gilbertie was
registered with the NFA as the Branch Manager for this
location. Since October 18, 2010, Mr. Gilbertie has been an
associated person of the Distributor under the terms of the
Securities Activities and Services Agreement (“SASA”)
between the Sponsor and the Distributor. Additional
information regarding the SASA can be found in the section of this
disclosure document entitled “Plan of
Distribution.” From October 2005 until December 2009,
Mr. Gilbertie was employed by Newedge USA, LLC, an FCM and
broker-dealer registered with the CFTC and the SEC, where he headed
the Renewable Fuels/Energy Derivatives OTC Execution Desk and was
an active futures contract and over-the-counter derivatives trader
and market maker in multiple classes of commodities. (Between
January 2008 and October 2008, he also held a comparable position
with Newedge Financial, Inc., an FCM and an affiliate of Newedge
USA, LLC.) From October 1998 until October 2005, Mr.
Gilbertie was principal and co-founder of Cambial Asset Management,
LLC, an adviser to two private funds that focused on equity
options, and Cambial Financing Dynamics, a private boutique
investment bank. While at Cambial Asset Management, LLC and
Cambial Financing Dynamics, Mr. Gilbertie served as principal and
managed the day-to-day activities of the business and the portfolio
of both companies. Mr. Gilbertie is 57 years
old.
Dale Riker
has been
the Secretary of the Sponsor since January 2010, and its Chief
Executive Officer since September 2011, was approved by the NFA as
a principal of the Sponsor on October 29, 2009 and was registered
as an associated person of the Sponsor on February 17, 2010.
He maintains his main business office at 115 Christina Landing
Drive, Unit 2004, Wilmington, DE 19801 and is responsible
for the overall strategic direction of the Sponsor and has
general control of its business. Mr. Riker was Treasurer of
the Sponsor from its inception until September
2011. From February 2005 to December 2012, Mr. Riker was
the President of Cambial Emerging Markets LLC, a consulting company
specializing in emerging market equity investment. As
President of Cambial Emerging Markets LLC, Mr. Riker had
responsibility for business strategy, planning and
operations. From July 1996 to February 2005, Mr. Riker was a
private investor. Mr. Riker is married to the Chief Financial
Officer, Chief Accounting Officer and Chief Compliance Officer of
the Sponsor, Barbara Riker. Mr. Riker is 60 years
old.
Barbara Riker
began
working for the Sponsor in July 2010 providing accounting and
compliance support. She has been the Chief Financial Officer, Chief
Accounting Officer and Chief Compliance Officer for Teucrium since
September 2011, was approved by the NFA as a principal of the
Sponsor on October 19, 2011, and has a background in finance,
accounting, investor relations, corporate communications and
operations. She maintains her main business office at
115 Christina Landing Drive, Unit 2004, Wilmington, DE
19801. From September 1980 to February 1993, Ms. Riker
worked in various financial capacities for Pacific Telesis
Group, the California-based Regional Bell Operating Company, and
its predecessors. In February 1993, with the spin-off of
AirTouch Communications from Pacific Telesis Group, Ms. Riker was
selected to lead the Investor Relations team for the global mobile
phone operator. In her capacity as Executive Director
– Investor Relations and Corporate Communications from
February 1993 to June 1995, AirTouch completed its initial public
offering and was launched as an independent publicly-traded
company. In June 1995, she was named Chief Financial Officer of
AirTouch International and, in addition to her other duties, served
on the board of several of the firm’s joint ventures, both
private and public, across Europe. In June 1997, Ms.
Riker moved into an operations capacity as the District General
Manager for AirTouch Paging’s San Francisco
operations. In February 1998 she was named Vice
President and General Manager of AirTouch Cellular for Arizona and
New Mexico. Ms. Riker retired in July 1999, coincident
with the purchase of AirTouch by Vodafone PLC and remained retired
until she began working for the Sponsor. Ms. Riker
graduated with a Bachelor of Science in Business Administration
from Cal State – East Bay in 1980. Ms. Riker is
married to the Chief Executive Officer of the Sponsor, Dale Riker.
Ms. Riker is 59 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 has primary responsibility
for the Trade Operations for the Funds. He maintains his main
business office at 13520 Excelsior Blvd., Minnetonka, MN
55345. Mr. Kahler was registered as an Associated Person of
the Sponsor on November 25, 2011, approved as a Branch Manager of
the Sponsor on March 16, 2012 and approved by the NFA as a
Principal of the Sponsor on May 16, 2012. 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
in 1992 and is 50 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. Riker 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. In addition, each
of the three Class A members of the Sponsor are registered with the
CFTC as associated persons of the Sponsor and are NFA associate
members. GFI Group LLC is a principal for the Sponsor under CFTC
Rules due to its ownership of certain non-voting securities of the
Sponsor.
The Custodian
and Administrator
In its capacity as the
Fund’s custodian, the Custodian, currently U.S. Bank, N.A.,
holds the Funds’ securities, cash and/or cash equivalents
pursuant to a custodial agreement. U.S. Bancorp Fund
Services, LLC (“USBFS”), an entity affiliated with U.S.
Bank, N.A., is the registrar and transfer agent for the
Funds. In addition, USBFS also serves as Administrator for
the Fund, performing certain administrative and accounting services
and preparing certain SEC and CFTC reports on behalf of the
Fund. For these services, the Fund pays fees to the Custodian
and USBFS set forth in the table entitled “Contractual Fees
and Compensation Arrangements with the Sponsor and Third-Party
Service Providers.”
The Custodian is located at 1555
North RiverCenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department. The
principal address for U.S. Bancorp Fund Services, LLC
(“USBFS”) is 615 E. Michigan Street, Milwaukee, WI
53202.
The
Distributor
The Funds employ Foreside Fund
Services, LLC as the Distributor for the Funds. The Distributor
receives, for its services as distributor for the Funds, a fee at
an annual rate of 0.01% of each Underlying Fund’s average
daily net assets, and an annual fee of $100,000 in the aggregate
for all of the Funds. These fees are set forth in the
table entitled “Fees and Compensation Arrangements with the
Sponsor and Non-Affiliated Service
Providers.”
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. 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 and a member of
the Financial Industry Regulatory Authority
(“FINRA”).
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.
Under the Trust Agreement, the
duty and authority to manage the business affairs of the Trust, and
of all of the funds that are a series of the Trust, including
control of the Fund and the Underlying Funds, is vested solely with
the Sponsor, which the Sponsor may delegate as provided for in the
Trust Agreement. 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. As the Trustee has no authority over the operation of
the Trust, the Trustee itself is not registered in any capacity
with the CFTC.
The Clearing
Brokers
In 2014 and 2013, Newedge USA,
LLC (“Newedge USA”) served as the Funds’ futures
commission merchant (“FCM”) and primary clearing broker
to execute and clear the Funds’ futures transactions and
provide other brokerage-related services. In 2014, the Funds
introduced the use of Jefferies LLC (“Jefferies”), for
the execution and clearing of the Funds’ futures and options,
if any, on futures transactions. On January 2, 2015, Newedge USA,
LLC (“Newedge USA”) merged with and into SG Americas
Securities, LLC (“SG”), with the latter as the
surviving entity.
On February 6, 2015 Jefferies LLC
(“Jefferies”) became the Funds’ FCM and primary
clearing broker. All futures contracts held by SG were transferred
to Jefferies on that date. As of February 23, 2015 all residual
cash balances held at SG had been transferred to Jefferies and the
balance in all SG accounts was $0.
Effective June 3, 2015, ED&F
Man Capital Markets Inc. (“ED&F Man”) replaced
Jefferies as the Funds’ FCM and the clearing broker to
execute and clear the Funds’ futures and provide other
brokerage-related services, other than services for TAGS. As of
June 4, 2015, all futures contracts and residual cash balances held
at Jefferies had been transferred to ED&F Man and the balance
in all Jefferies accounts was $0.
ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of the
NFA. ED&F Man is also registered as a broker/dealer
with the U.S. Securities and Exchange Commission and is a member of
the FINRA. ED&F Man is a clearing member of ICE
Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile
Exchange, New York Mercantile Exchange, and all other major United
States commodity exchanges. There has been no material civil,
administrative, or criminal proceedings pending, on appeal, or
concluded against E D & F Man Capital Markets Inc. or its
principals in the past five (5) years. For a list of concluded
actions, please go to
http://www.nfa.futures.org/basicnet/welcome.aspx
. This
link will take you to the Welcome Page of the NFA’s
Background Affiliation Status Information Center
(“BASIC”). At this page, there is a box where you can
enter the NFA ID of ED&F Man Capital Markets Inc. (0002613) and
then click “Go”. You will be transferred to the
NFA’s information specific to ED&F Man Capital Markets
Inc. Under the heading “Regulatory Actions”, click
“details” and you will be directed to the full list of
regulatory actions brought by the CFTC and
exchanges.
The Bank of New York Mellon
Capital Markets is the broker for some, but not all, of the equity
transactions related to the purchase and sale of the Underlying
Funds for TAGS.
Contractual Fees and Compensation Arrangements with the Sponsor and
Third-Party Service Providers
|
Service
Provider
|
|
Compensation
Paid by the Funds
|
|
Teucrium Trading, LLC,
Sponsor
|
|
1.00% of average net assets
annually
|
|
U.S. Bank N.A.,
Custodian
U.S. Bancorp Fund Services,
Transfer Agent, Fund Accountant and Fund
Administrator
|
|
For custody services:
0.0075% of average gross assets up to $1 billion, and .0050% of
average gross assets over $1 billion, annually, plus certain
per-transaction charges
For Transfer Agency, Fund
Accounting and Fund Administration services, based on the total
assets for all the Funds in the Trust: 0.06% of average gross
assets on the first $250 million, 0.05% on the next $250 million,
0.04% on the next $500 million and 0.03% on the balance over $1
billion annually.
A combined minimum annual fee of
$64,500 for custody, transfer agency, accounting and administrative
services is assessed per Fund.
|
|
Foreside Fund Services, LLC,
Distributor
|
|
The Distributor receives a fee of
0.01% of each Fund’s average daily net assets and an
aggregate annual fee of $100,000 for all Funds, along with certain
expense reimbursements currently estimated at $3,000 per year
related to these services.
Under the Securities Activities
and Service Agreement (the “SASA”), the Distributor
receives compensation from the fund for its activities on behalf of
all the Funds. The fees paid to the Distributor pursuant to
the SASA for the offerings of the Funds are not expected to exceed
a combined $40,000 per year. In addition, the Distributor receives
certain expense reimbursements relating to the registration,
continuing education and other administrative expenses of the
Registered Representatives in relation to the Funds. These
expense reimbursements are estimated not to exceed $25,000 per
year.
|
|
ED&F Man Capital Markets,
Inc.
|
|
$4.50 per half-turn Futures
Contract purchase or sale for corn, soybeans, wheat and
sugar.
|
|
Wilmington Trust Company,
Trustee
|
|
$3,300 annually for the
Trust
|
Asset-based fees are calculated
on a daily basis (accrued at 1/365 of the applicable percentage of
NAV on that day) and paid on a monthly basis. NAV is
calculated by taking the current market value of the Fund’s
total assets and subtracting any liabilities.
For each of the contractual
agreements discussed above, the expense recognized in 2017 by the
Trust and each Fund is detailed in the notes to the financial
statements included in Part II of this filing.
Form of
Shares
Registered Form
For all the Funds, Shares are
issued in registered form in accordance with the Trust
Agreement. USBFS has been appointed registrar and
transfer agent for the purpose of transferring Shares in
certificated form. USBFS keeps a record of all
Shareholders and holders of the Shares in certificated form in the
registry (Register). The Sponsor recognizes transfers of
Shares in certificated form only if done in accordance with the
Trust Agreement. The beneficial interests in such Shares
are held in book-entry form through participants and/or
accountholders in DTC.
Book Entry
For all Funds, 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 participant accounts in DTC will follow
the delivery practice applicable to securities eligible for
DTC’s Same-Day Funds Settlement System. Shares are
credited to DTC Participants securities accounts following
confirmation of receipt of payment.
DTC
DTC has advised us as
follows: It is a limited purpose trust company organized
under the laws of the State of New York and is a member of the
Federal Reserve System, a “clearing corporation” within
the meaning of the New York Uniform Commercial Code and a
“clearing agency” registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities
for DTC Participants and facilitates the clearance and settlement
of transactions between DTC Participants through electronic
book-entry changes in accounts of DTC
Participants.
Transfer of
Shares
For all Funds, 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.
Creation and
Redemption of Shares
The Funds 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 Funds or the
distribution by the Funds of the amount of cash equal to the
combined NAV of the number of Shares included in the baskets being
created or redeemed determined as of 4:00 p.m. New York time on the
day the order to create or redeem baskets is properly
received.
Authorized Purchasers are the
only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be (1) either
registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not
required to register as broker-dealers to engage in securities
transactions, 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 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 or
Authorized Purchaser. Authorized Purchasers pay a
transaction fee to the Sponsor for each order they place to create
one or more baskets and a fee per basket when they redeem
baskets.
Authorized Purchasers who make
deposits with a 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 investing directly in the Specified
Commodities or the Commodity Interest markets. Some
Authorized Purchasers or their affiliates may from time to time buy
or sell the Specified Commodity or Commodity Interests and may
profit in these instances.
Each Authorized Purchaser will be
required to be registered as a broker-dealer under the 1934 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
as it determines is 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.
Minimum Number of Shares
There are a minimum number of
baskets and associated shares specified for each Fund in the
Fund’s respective prospectus as amended from time to time.
Once the minimum number of baskets is reached, there can be no more
redemptions until there has been a creation basket. As of December
31, 2017, these minimum levels are as
follows:
CORN: 50,000 shares representing
2 baskets (3,875,004 shares outstanding as of December 31, 2017;
4,025,004
shares outstanding as of March 14, 2018)
SOYB: 50,000 shares representing
2 baskets (575,004 shares outstanding as of December 31, 2017;
850,004 shares outstanding as of March 14,
2018)
CANE: 50,000 shares representing
2 baskets (650,004 shares outstanding as of December 31, 2017;
925,004 shares outstanding as of March 14,
2018)
WEAT: 50,000 shares representing
2 baskets (10,250,004 shares outstanding as of December 31, 2017;
10,775,004 shares outstanding as of March 14,
2018)
TAGS: 50,000 shares representing
2 baskets (50,002 shares outstanding as of December 31, 2017;
50,002 shares outstanding as of March 14, 2018)
If a Fund has not more than the
minimum number of shares outstanding, this means that there can be
no redemptions of shares until there is a creation of shares or
unless the Sponsor has reason to believe that the placer of the
redemption order does in fact pos
sess all the outstanding Shares
in the Fund and can deliver them. When there can be no redemption
of shares, the price of the Fund, as represented by the bid and the
ask, compared to the NAV may diverge more than would be the case if
redemptions could occur.
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 for each of the
Funds.
The Flow of
Shares
Calculating
the Net Asset Value
The NAV of each Fund is
calculated by:
●
Taking the current market value
of its total assets, and
●
Subtracting any
liabilities.
The Administrator calculates the
NAV of each Fund once each trading day. It calculates NAV as
of the earlier of the close of the New York Stock Exchange or 4:00
p.m., New York time. The NAV for a particular trading day
will be released after 4:15 p.m., New York
time.
In determining the value of the
Futures Contracts for each Fund, the Administrator uses the closing
price on the exchange on which the commodity is traded, commonly
referred to as the settlement price. The time of settlement
for each exchange is determined by that exchange and may change
from time to time. The current settlement time for each
exchange can be found at the appropriate website which
are:
1) for the CBOT (CORN, SOYB and
WEAT)
http://www.cmegroup.com/trading_hours/commodities-hours.html;
2) for ICE (CANE)
http://www.theice.com/productguide/Search.shtml?tradingHours=.
The Administrator determines the
value of all other investments for each Fund as of the earlier of
the close of the New York Stock Exchange or 4:00 p.m., New York
time, in accordance with the current Services Agreement between the
Administrator and the Trust.
The value of over-the-counter
Commodity Interests will be determined based on the value of the
commodity or Futures Contract underlying such Commodity Interest,
except that a fair value may be determined if the Sponsor believes
that a Fund is subject to significant credit risk relating to the
counterparty to such Commodity Interest. For purposes of
financial statements and reports, the Sponsor will recalculate the
NAV of a specific Fund where necessary to reflect the “fair
value” of a Futures Contract when the Futures Contract of
such Fund closes at its price fluctuation limit for the day.
Treasury Securities held by the Fund are valued by the
Administrator using values received from recognized third-party
vendors (such as Reuters) and dealer quotes. The NAV includes
any unrealized profit or loss on open Commodity Interests and any
other credit or debit accruing to each Fund but unpaid or not
received by the Fund.
In addition, in order to provide
updated information relating to the Funds for use by investors and
market professionals, the NYSE Arca calculates and disseminates
throughout the trading day an updated indicative fund
value for each Fund. 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 Commodity
Interests during the trading day. Changes in the value of
Treasury Securities and cash equivalents will not be 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 for each Fund. The NAV is calculated only once at the
end of each trading day.
The indicative fund value is
disseminated on a per share basis every 15 seconds during regular
NYSE Arca trading hours of 9:30 a.m., New York time, to 4:00 p.m.,
New York time. The CBOT and the ICE are generally open
for trading only during specified hours which vary by exchange and
may be adjusted by the exchange. However, the futures markets on
these exchanges do not currently operate twenty-four hours per
day. In addition, there may be some trading hours which may be
limited to electronic trading only. This means that there is a gap
in time at the beginning and the end of each day during which the
Fund’s Shares are traded on the NYSE Arca, when, for example,
real-time CBOT trading prices for Corn Futures Contracts traded on
such Exchange are not available. As a result, during those
gaps there will be no update to the indicative fund values. The
most current trading hours for each exchange may be found on the
website of that exchange as listed above.
The NYSE Arca disseminates the
indicative fund value through the facilities of CTA/CQ High Speed
Lines. In addition, the indicative fund value is published on
the NYSE Arca’s website and is available through on-line
information services such as Bloomberg and
Reuters.
Dissemination of the indicative
fund values 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 Shares of the Funds
on the NYSE Arca. Investors and market professionals are able
throughout the trading day to compare the market price of each Fund
and its indicative fund value. If the market price of the
Shares of a Fund 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 Procedures
On any business day, an
Authorized Purchaser may place an order with the transfer agent to
create one or more baskets for a Fund. For purposes of
processing purchase and redemption orders, a “business
day” means any day other than a day when any of the NYSE
Arca, CBOT, ICE, or the New York Stock Exchange is closed for
regular trading. Purchase orders must be placed by noon
New York time or the close of regular trading on the New York Stock
Exchange, whichever is earlier for CANE and TAGS by 1:15pm New York
time or the close of regular trading on the New York Stock
Exchange, whichever is earlier for CORN, SOYB and
WEAT. The day on which the transfer agent and
Distributor receive a valid purchase order is referred to as the
purchase order date.
By placing a purchase order, an
Authorized Purchaser agrees to deposit Treasury Securities, cash,
commodity futures or shares of the Underlying Funds or a
combination thereof with the Trust, as described
below. Prior to the delivery of baskets for a purchase
order, the Authorized Purchaser must also have wired to the
Custodian 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
Treasury Securities, cash and/or commodity futures that is in the
same proportion to the total assets of the applicable 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 Treasury Securities, cash and/or commodity
futures, including the remaining maturities of the Treasury
Securities and portions of Treasury Securities, that may be
included in deposits to create baskets. If Treasury
Securities 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
account of that Fund with the Custodian the required amount of
securities, commodity futures and/or cash 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 will direct DTC to credit the
number of baskets ordered for the specific Fund to the Authorized
Purchaser’s DTC account on the Purchase Settlement
Date.
Because orders to purchase
baskets must be placed by noon or 1:15pm, New York time, depending
on the Fund, but the total payment required to create a basket
during the continuous offering period will not be determined until
4:00 p.m., New York time, on the date the purchase order is
received, Authorized Purchasers will not know the total amount of
the payment required to create a basket at the time they submit an
irrevocable purchase order for the basket. The
Fund’s NAV and the total amount of the payment required to
create a basket could rise or fall substantially between the time
an irrevocable purchase order is submitted and the time the amount
of the purchase price in respect thereof is
determined.
Rejection of Purchase Orders
The Sponsor acting by itself or
through the Distributor or transfer agent may reject a purchase
order or a Creation Basket Deposit if:
●
it
determines that, due to position limits or otherwise, investment
alternatives that will enable the Fund to meet its investment
objective are not available or practicable at that
time;
●
it
determines that the purchase order or the Creation Basket Deposit
is not in proper form;
●
it
believes that acceptance of the purchase order or the Creation
Basket Deposit would have adverse tax consequences to the Fund or
its Shareholders;
●
the
acceptance or receipt of the Creation Basket Deposit would, in the
opinion of counsel to the Sponsor, be unlawful;
●
circumstances outside the control
of the Sponsor, Distributor or transfer agent make it, for all
practical purposes, not feasible to process creations of
baskets;
●
there is a possibility that any
or all of the Benchmark Component Futures Contracts of the Fund on
the CBOT from which the NAV of the Fund is calculated will be
priced at a daily price limit restriction; or
●
if,
in the sole discretion of the Sponsor, the execution of such an
order would not be in the best interest of the Fund or its
Shareholders.
None of the Sponsor, Distributor
or transfer agent will be liable for the rejection of any purchase
order or Creation Basket Deposit.
In addition, the Sponsor may
reject a previously placed purchase order at any time prior to the
order cut-off time, if in the sole discretion of the Sponsor the
execution of such an order would not be in the best interest of a
Fund or its Shareholders.
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
Distributor to redeem one or more baskets. Redemption
orders must be placed by noon or 1:15 pm, New York time, depending
on the Fund, 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 transfer agent and
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 a Fund by the end of the
next business day following the effective date of the redemption
order for all funds other than TAGS or by the end of the third
business day for TAGS, or by the end of such later business day,
not to exceed three business days after the effective date of the
redemption order, as agreed to between the Authorized Purchaser,
transfer agent and the Distributor when the redemption order is
placed (the “Redemption Settlement
Date”). Prior to the delivery of the redemption
distribution for a redemption order, the Authorized Purchaser must
also have wired to the Sponsor’s account at the Custodian the
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
a Fund will consist of a transfer to the redeeming Authorized
Purchaser of an amount of securities, commodity futures and/or cash
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 Administrator, determines
the requirements for securities, commodity futures and/or cash,
including the remaining maturities of the Treasury Securities and
proportions of Treasury Securities and cash that may be included in
distributions to redeem baskets. If Treasury Securities
are to be included in a redemption distribution for orders placed
on a given business day, the Administrator will publish an estimate
of the redemption distribution composition as of the beginning of
such day.
Delivery of Redemption Distribution
The redemption distribution due
from 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
if the Sponsor receives the fee applicable to the extension of the
Redemption Settlement Date which the Sponsor may, from time to
time, determine and the remaining baskets to be redeemed are
credited to the Fund’s DTC account on such next business
day. Any further outstanding amount of the redemption
order shall be cancelled. Pursuant to information from
the Sponsor, the Custodian will also be authorized to deliver the
redemption distribution notwithstanding that the baskets to be
redeemed are not credited to the Fund’s DTC account by noon
New York time on the Redemption Settlement Date if the Authorized
Purchaser has collateralized its obligation to deliver the baskets
through DTC’s book entry-system on such terms as the Sponsor
may from time to time determine.
Suspension or Rejection of Redemption Orders
The Sponsor may, in its
discretion, suspend the right of redemption, or postpone the
redemption settlement date, (1) for any period during which the
NYSE Arca, CBOT or ICE is closed other than customary weekend or
holiday closings, or trading on the NYSE Arca or any of the
applicable exchanges, is suspended or restricted, (2) for any
period during which an emergency exists as a result of which
delivery, disposal or evaluation of Treasury Securities 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 applicable Fund on the exchange
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 a Fund’s assets at an appropriate
value to fund a redemption. If the Sponsor has
difficulty liquidating a Fund’s positions, e.g., because of a
market disruption event in the futures markets or an unanticipated
delay in the liquidation of a position in an over-the-counter
contract, it may be appropriate to suspend redemptions until such
time as such circumstances are rectified. None of the
Sponsor, the Distributor, or the transfer agent will be liable to
any person or in any way for any loss or damages that may result
from any such suspension or postponement.
Redemption orders must be made in
whole baskets. The Sponsor will reject a redemption order if the
order is not in proper form as described in the Authorized
Purchaser Agreement or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful. The Sponsor
may also reject a redemption order if the number of Shares being
redeemed would reduce the remaining outstanding Shares below the
minimum levels established or less, unless the Sponsor has reason
to believe that the placer of the redemption order does in fact
possess all the outstanding Shares and can deliver them. The
minimum number of shares for each Fund is presented above in the
section titled
Minimum Number of
Shares
.
Creation and Redemption Transaction Fees
To compensate the Sponsor for its
expenses in connection with the creation and redemption of baskets,
an Authorized Purchaser is required to pay a transaction fee to the
Sponsor. The fees for all Funds as of December 31, 2017 are a flat
$250 per creation or redemption order.
The transaction fees may be
reduced, increased or otherwise changed by the
Sponsor.
Tax Responsibility
Authorized Purchasers are
responsible for any transfer tax, sales or use tax, stamp tax,
recording tax, value added tax or similar tax or governmental
charge applicable to the creation or redemption of baskets,
regardless of whether or not such tax or charge is imposed directly
on the Authorized Purchaser, and agree to indemnify the Sponsor and
the Fund if they are required by law to pay any such tax, together
with any applicable penalties, additions to tax and interest
thereon.
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 Funds will continue to exist until
terminated in accordance with the Trust Agreement. The
Sponsor’s authority includes, without limitation, the right
to take the following actions:
●
To
enter into, execute, deliver and maintain contracts, agreements and
any other documents as may be in furtherance of the Trust’s
purpose or necessary or appropriate for the offer and sale of the
Shares and the conduct of Trust activities;
●
To
establish, maintain, deposit into, sign checks and otherwise draw
upon accounts on behalf of the Trust with appropriate banking and
savings institutions, and execute and accept any instrument or
agreement incidental to the Trust’s business and in
furtherance of its purposes;
●
To
supervise the preparation and filing of any registration statement
(and supplements and amendments thereto) for the
Fund;
●
To
adopt, implement or amend, from time to time, such disclosure and
financial reporting, information gathering and control policies and
procedures as are necessary or desirable to ensure compliance with
applicable disclosure and financial reporting obligations under any
applicable securities laws;
●
To
make any necessary determination or decision in connection with the
preparation of the Trust’s financial statements and
amendments thereto;
●
To
prepare, file and distribute, if applicable, any periodic reports
or updates that may be required under the 1934 Act, the Commodity
Exchange Act (the “CEA”) or rules and regulations
promulgated thereunder;
●
To
pay or authorize the payment of distributions to the Shareholders
and expenses of the Fund;
●
To
make any elections on behalf of the Trust under the Code, or any
other applicable U.S. federal or state tax law as the Sponsor shall
determine to be in the best interests of the Trust;
and
●
In
its sole discretion, to determine to admit an affiliate or
affiliates of the Sponsor as additional
Sponsors.
The Sponsor’s Obligations
In addition to the duties imposed
by the Delaware Trust Statute, under the Trust Agreement the
Sponsor has the following obligations as a sponsor of the
Trust:
●
Devote to the business and
affairs of the Trust such of its time as it determines in its
discretion (exercised in good faith) to be necessary for the
benefit of the Trust and the Shareholders of the
Fund;
●
Execute, file, record and/or
publish all certificates, statements and other documents and do any
and all other things as may be appropriate for the formation,
qualification and operation of the Trust and for the conduct of its
business in all appropriate jurisdictions;
●
Appoint and remove independent
public accountants to audit the accounts of the Trust and employ
attorneys to represent the Trust;
●
Use
its best efforts to maintain the status of the Trust as a statutory
trust for state law purposes and each Fund as a partnership for
U.S. federal income tax purposes;
●
Invest, reinvest, hold
uninvested, sell, exchange, write options on, lease, lend and,
subject to certain limitations set forth in the Trust Agreement,
pledge, mortgage, and hypothecate the estate of the Fund in
accordance with the purposes of the Trust and any registration
statement filed on behalf of the Fund;
●
Have fiduciary responsibility for
the safekeeping and use of the Trust’s assets, whether or not
in the Sponsor’s immediate possession or
control;
●
Enter into and perform agreements
with each Authorized Purchaser, receive from Authorized Purchasers
and process properly submitted purchase orders, receive Creation
Basket Deposits, deliver or cause the delivery of Creation Baskets
to the Depository for the account of the Authorized Purchaser
submitting a purchase order;
●
Receive from Authorized
Purchasers and process, or cause the Distributor or other Fund
service provider to process, properly submitted redemption orders,
receive from the redeeming Authorized Purchasers through the
Depository, and thereupon cancel or cause to be cancelled, Shares
corresponding to the Redemption Baskets to be
redeemed;
●
Interact with the Depository;
and
●
Delegate duties to one or more
administrators, as the Sponsor determines
To the extent that, at law
(common or statutory) or in equity, the Sponsor has duties
(including fiduciary duties) and liabilities relating thereto to
the Trust, or the Funds the Shareholders or to any other person,
the Sponsor will not be liable to the Trust or the Funds, the
Shareholders or to any other person for its good faith reliance on
the provisions of the Trust Agreement unless such reliance
constitutes gross negligence or willful misconduct on the part of
the Sponsor.
Liability and Indemnification
Under the Trust Agreement, the
Sponsor, the Trustee and their respective Affiliates (collectively,
“Covered Persons”) shall have no liability to the
Trust, the Fund, or to any Shareholder for any loss suffered by the
Trust or the Fund which arises out of any action or inaction of
such Covered Person if such Covered Person, in good faith,
determined that such course of conduct was in the best interest of
the Trust or the Fund and such course of conduct did not constitute
gross negligence or willful misconduct of such Covered
Person. Subject to the foregoing, neither the Sponsor
nor any other Covered Person shall be personally liable for the
return or repayment of all or any portion of the capital or profits
of any Shareholder or assignee thereof, it being expressly agreed
that any such return of capital or profits made pursuant to the
Trust Agreement shall be made solely from the assets of the
applicable Teucrium Fund without any rights of contribution from
the Sponsor or any other Covered Person. A Covered
Person shall not be liable for the conduct or willful misconduct of
any administrator or other delegatee selected by the Sponsor with
reasonable care, provided, however, that the Trustee and its
Affiliates shall not, under any circumstances be liable for the
conduct or willful misconduct of any administrator or other
delegatee or any other person selected by the Sponsor to provide
services to the Trust.
To the extent that, at law
(common or statutory) or in equity, the Sponsor has duties
(including fiduciary duties) and liabilities relating to the Trust,
the Funds, the shareholders of the Funds, or to any other person,
the Sponsor, acting under the Trust Agreement, shall not be liable
to the Trust, the Funds, the shareholders of the Funds or to any
other person for its good faith reliance on the provisions of the
Trust Agreement. The provisions of the Trust Agreement, to
the extent they restrict or eliminate the duties and liabilities of
the Sponsor otherwise existing at law or in equity, replace such
other duties and liabilities of the Sponsor.
The Trust Agreement also provides
that the Sponsor shall be indemnified by the Trust (or by a series
separately to the extent the matter in question relates to a single
series or disproportionately affects a specific series in relation
to other series) against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims sustained by
it in connection with its activities for the Trust, provided that
(i) the Sponsor was acting on behalf of or performing services for
the Trust and has determined, in good faith, that such course of
conduct was in the best interests of the Trust and such liability
or loss was not the result of gross
negligence, willful misconduct,
or a breach of the Trust Agreement on the part of the Sponsor and
(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, 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
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 Shareholders of
the Trust’s Series may be called by the Sponsor and will be
called by it upon the written request of Shareholders holding at
least 25% of the Shares of the Trust or a Fund, as applicable (not
including Shares acquired by the Sponsor through its initial
capital contribution), to vote on any matter with respect to which
Shareholders have a right to vote under the Trust
Agreement. The Sponsor shall deposit in the United
States mail or electronically transmit written notice to all
Shareholders of a Fund of the meeting and the purpose of the
meeting, which shall be held on a date not less than 30 nor more
than 60 days after the date of mailing of such notice, at a
reasonable time and place. When the meeting is being
requested by Shareholders, the notice of the meeting shall be
mailed or transmitted within 45 days after receipt of the written
request from Shareholders. Any notice of meeting shall
be accompanied by a description of the action to be taken at the
meeting. Shareholders may vote in person or by proxy at
any such meeting. Any action required or permitted to be
taken by Shareholders by vote may be taken without a meeting by
written consent setting forth the actions so taken. Such
written consents shall be treated for all purposes as votes at a
meeting. If the vote or consent of any Shareholder to
any action of the Trust, a Fund, the Funds or any Shareholder, as
contemplated by the Trust Agreement, is solicited by the Sponsor,
the solicitation shall be effected by notice to each Shareholder
given in the manner provided in accordance with the Trust
Agreement.
Voting Rights
Shareholders have very limited
voting rights. Specifically, the Trust Agreement
provides that shareholders of the Funds holding shares representing
at least a majority (over 50%) of the outstanding shares of the
Funds voting together as a single class (excluding shares acquired
by the Sponsor in connection with its initial capital contribution
to any Trust series) may vote to (i) continue the Trust by electing
a successor Sponsor as described above, and (ii) approve amendments
to the Trust Agreement that impair the right to surrender
Redemption Baskets for redemption. (Trustee consent to
any amendment to the Trust Agreement is required if the Trustee
reasonably believes that such amendment adversely affects any of
its rights, duties or liabilities.) In addition,
shareholders of the Funds holding shares representing seventy-five
percent (75%) of the outstanding shares of the Funds, voting
together as a single class (excluding shares acquired by the
Sponsor in connection with its initial capital contribution to any
Trust series) may vote to dissolve the Trust upon not less than
ninety (90) days’ notice to the
Sponsor. Shareholders have no voting rights with respect
to the Trust or a Fund except as expressly provided in the Trust
Agreement. For TAGS, fund Shareholders have no voting
rights with respect to shares of the Underlying Funds held by that
Fund.
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 a Fund’s assets. The Trust or a 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 a Fund shall
indemnify to the full extent permitted by law and the Trust
Agreement each Shareholder (excluding the Sponsor to the extent of
its ownership of any Shares acquired through its initial capital
contribution) against any claims of liability asserted against such
Shareholder solely because of its ownership of Shares (other than
for taxes on income from Shares for which such Shareholder is
liable).
Every written note, bond,
contract, instrument, certificate or undertaking made or issued by
the Sponsor on behalf of the Trust or a Fund shall give notice to
the effect that the same was executed or made by or on behalf of
the Trust or a Fund and that the obligations of such instrument are
not binding upon the Shareholders individually but are binding only
upon the assets and property of a Fund and no recourse may be had
with respect to the personal property of a Shareholder for
satisfaction of any obligation or claim.
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. Under the organizational documents of the Sponsor, Mr.
Sal Gilbertie and Mr. Dale Riker, in their respective capacities as
President and Chief Investment Officer of the Sponsor and Chief
Executive Officer and Secretary of the Sponsor, are obligated to
use commercially reasonable efforts to manage the Sponsor, devote
such amount of time to the Sponsor as would be consistent with
their roles in similarly placed commodity pool operators, and
remain active in managing the Sponsor until they are no longer
managing members of the Sponsor or the Sponsor dissolves. In
addition, the Sponsor expects that operating the Teucrium Funds
will generally constitute the principal and full-time business
activity of its principals, officers and employees.
Notwithstanding these obligations and expectations, the
Sponsor’s principals may be directors, officers or employees
of other entities, and may manage assets of other entities,
including the other Teucrium Funds, through the Sponsor or
otherwise. In particular, the principals could have a
conflict between their responsibilities to the Fund on the one hand
and to those other entities on the other. The Sponsor
believes that it currently has sufficient personnel, time, and
working capital to discharge its responsibilities to the Fund in a
fair manner and that these persons’ conflicts should not
impair their ability to provide services to the Fund.
However, it is not possible to quantify the proportion of their
time that the Sponsor’s personnel will devote to the Fund and
its management.
The Sponsor and its principals,
officers and employees may trade futures and related contracts for
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
rather than 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
their ability to influence matters such as amendment of the Trust
Agreement, change in the Fund’s basic investment policies, or
dissolution of the Fund or the Trust.
The Sponsor serves as the Sponsor
to the Teucrium Funds, and may in the future serve as the Sponsor
or investment adviser to commodity pools other than the Teucrium
Funds. The Sponsor may have a conflict to the extent that its
trading decisions for the Fund may be influenced by the effect they
would have on the other pools it manages. In addition, the
Sponsor may be required to indemnify the officers and directors of
the other pools, if the need for indemnification arises. This
potential indemnification will cause the Sponsor’s assets to
decrease. If the Sponsor’s other sources of income are
not sufficient to compensate for the indemnification, it could
cease operations, which could in turn result in Fund losses and/or
termination of the Fund.
If the Sponsor acquires knowledge
of a potential transaction or arrangement that may be an
opportunity for the Fund, it shall have no duty to offer such
opportunity to the Fund. The Sponsor will not be liable to
the Fund or the Shareholders for breach of any fiduciary or other
duty if Sponsor pursues such opportunity or directs it to another
person or does not communicate such opportunity to the Fund.
Neither the Fund nor any Shareholder has any rights or obligations
by virtue of the Trust Agreement, the trust relationship created
thereby, or this prospectus in such business ventures or the income
or profits derived from such business ventures. The pursuit
of such business ventures, even if competitive with the activities
of the Fund, will not be deemed wrongful or
improper.
Resolution of Conflicts Procedures
The Trust Agreement provides that
whenever a conflict of interest exists between the Sponsor or any
of its Affiliates, on the one hand, and the Trust, any shareholder
of a Trust series, or any other person, on the other hand, the
Sponsor shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such
conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of
bad faith by the Sponsor, the resolution, action or terms so made,
taken or provided by the Sponsor shall not constitute a breach of
the Trust Agreement or any other agreement contemplated therein or
of any duty or obligation of the Sponsor at law or in equity or
otherwise.
The Sponsor or any affiliate
thereof may engage in or possess an interest in other
profit-seeking or business ventures of any nature or description,
independently or with others, whether or not such ventures are
competitive with the Trust and the doctrine of corporate
opportunity, or any analogous doctrine, shall not apply to the
Sponsor. If the Sponsor acquires knowledge of a
potential transaction, agreement, arrangement or other matter that
may be an opportunity for the Trust, it shall have no duty to
communicate or offer such opportunity to the Trust, and the Sponsor
shall not be liable to the Trust or to the Shareholders for breach
of any fiduciary or other duty by reason of the fact that the
Sponsor pursues or acquires for, or directors such opportunity to,
another person or does not communicate such opportunity or
information to the Trust. Neither the Trust nor any
Shareholder shall have any rights or obligations by virtue of the
Trust Agreement or the trust relationship created thereby in or to
such independent ventures or the income or profits or losses
derived therefrom, and the pursuit of such ventures, even if
competitive with the activities of the Trust, shall not be deemed
wrongful or improper. Except to the extent expressly
provided in the Trust Agreement, the Sponsor may engage or be
interested in any financial or other transaction with the Trust,
the Shareholders or any affiliate of the Trust or the
Shareholders.
Regulatory
Considerations
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.
In addition, considerable
regulatory attention has been focused on non-traditional publicly
distributed investment pools such as the Funds. 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
Funds is impossible to predict, but could be substantial and
adverse.
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 self-regulatory organization 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 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. As noted above, 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 Funds, or the ability of a Fund to continue to implement its
investment strategy.
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 Funds, and might result in
the termination of a Fund if a successor sponsor is not elected
pursuant to the Trust Agreement. Neither the Trust nor the
Funds are required to be registered with the CFTC in any
capacity.
The Funds’ 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 self-regulatory organizations exercise regulatory and
supervisory authority over their member firms.
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”) was
enacted in response to the economic crisis of 2008 and 2009 and it
significantly altered the regulatory regime to which the securities
and commodities markets are subject. To date, the CFTC has issued
proposed or final versions of almost all of the rules it is
required to promulgate under the Dodd-Frank Act, and it continues
to issue proposed versions of additional rules that it has
authority to promulgate. Provisions of the new law include the
requirement that position limits be established on a wide range of
commodity interests, including agricultural, energy, and
metal-based commodity futures contracts, options on such futures
contracts and uncleared swaps that are economically equivalent to
such futures contracts and options (“Reference
Contracts”); new registration and recordkeeping requirements
for swap market participants; capital and margin requirements for
“swap dealers” and “major swap
participants,” as determined by the new law and applicable
regulations; reporting of all swap transactions to swap data
repositories; and the mandatory use of clearinghouse mechanisms for
sufficiently standardized swap transactions that were historically
entered into in the over-the-counter market, but are now designated
as subject to the clearing requirement; and margin requirements for
over-the-counter swaps that are not subject to the clearing
requirements.
The Dodd-Frank Act was intended
to reduce systemic risks that may have contributed to the 2008/2009
financial crisis. Since the first draft of what became the
Dodd-Frank Act, opponents have criticized the broad scope of the
legislation and, in particular, the regulations implemented by
federal agencies as a result. Since 2010, and most notably in 2015
and 2016, Republicans have proposed comprehensive legislation both
in the House and the Senate of the US Congress. These bills are
intended to pare back some of the provisions of the Dodd-Frank Act
of 2010 that critics view as overly broad, unnecessary to the
stability ofthe U.S. financial system, and inhibiting the growth of
the U.S. economy. Further, during the campaign and after taking
office, President Donald J. Trump has promised and issued several
executive orders intended to relieve the financial burden created
by the Dodd-Frank Act, although these executive orders only set
forth several general principles to be followed by the federal
agencies and do not mandate the wholesale repeal of the Dodd-Frank
Act. The scope of the effect that passage of new financial
reformlegislation could have on U.S. securities, derivatives and
commodities markets is not clear at this time because each federal
regulatory agency would have to promulgate new regulations to
implement such legislation. Nevertheless, regulatory reform may
have a significant impact on U.S.-regulated
entities.
Management believes that as of
December 31, 2017, it had fulfilled in a timely manner all
Dodd-Frank or other regulatory requirements to which it is
subject.
The Securities and Exchange
Commission made a final ruling on March 29, 2017 to adopt proposed
amendments to the Settlement Cycle Rule (Rule 15c6-1(a)) under the
Securities Exchange Act of 1934 to shorten the standard settlement
cycle for most broker-dealer transactions from three business days
after the trade date (T+3) to two business days after the trade
date (T+2). The effective date of the adopted amendments was May
30, 2017 with a resulting implementation date of September 5, 2017.
The amended rule prohibited broker-dealers from effecting or
entering into a contract for the purchase or sale of a security
(other than certain exempted securities) that provides for payment
of funds and delivery of securities later than the second business
day after the date of the contract, unless otherwise expressly
agreed to by the parties at the time of the transaction. The
products subject to the shortened settlement cycle include
equities, corporate bonds, municipal bonds, unit investment trusts,
and financial instruments comprised of these security types.
Shortening the settlement cycle is expected to yield benefits for
the industry and market participants including the further
reduction of credit, market, and liquidity risk, and as a result a
reduction in systemic risk, for U.S. market
participants.
Management successfully completed
all steps necessary to implement the rule on September 5,
2017.
Position
Limits, Aggregation Limits, Price Fluctuation
Limits
On December 16, 2016, the CFTC
issued a final rule to amend part 150 of the CFTC’s
regulations with respect to the policy for aggregation under the
CFTC’s position limits regime for futures and option
contracts on nine agricultural commodities (“the Aggregation
Requirements”). This final rule addressed the circumstances
under which market participants would be required to aggregate all
their positions, for purposes of the position limits, of all
positions in Reference Contracts of the 9 agricultural commodities
held by a single entity and its affiliates, regardless of whether
such positions exist on US futures exchanges, non-US futures
exchanges, or in over-the-counter swaps. An affiliate of a
market participant is defined as two or more persons acting
pursuant to an express or implied agreement or understanding.
The Aggregation Requirements became effective on February 14, 2017.
On August 10, 2017, the CFTC issued a No-Action Relief Letter No.
17-37 to clarify several provisions under Regulation 150.4,
regarding position aggregation filing requirements of market
participants. The Sponsor does not anticipate that this order will
have an impact on the ability of a Fund to meet its respective
investment objectives.
In addition, on December 30,
2016, the CFTC reproposed regulations that would establish revised
specific limits on speculative positions in futures contracts,
option contracts and swaps on 25 agricultural, energy and metals
commodities (the “Proposed Position Limit
Rules”).
The Proposed Position Limit Rules
were a reproposal and the CFTC has requested comments from the
public. It remains to be seen whether the Proposed Position Limit
Rules will become effective as the CFTC has proposed, as comments
could result in modifications to the proposed limits or
implementation could be delayed for other reasons. In general, the
Proposed Position Limit Rulesdo not appear to have a substantial or
adverse effect on the Funds. However, if the total net assets of a
Fund were to increase significantly from current levels, the
Position Limit Rules as proposed could negatively impact the
ability of a Fund to meet its respective investment objectives
through limits that may inhibit the Sponsor’s ability to sell
additional Creation Baskets of the Fund. However, it is not
expected that any Fund will reach asset levels that would cause
these position limits to be reached in the near
future.
In addition, the Proposed
Position Limit Rules state that the CFTC will review, and may
amend, the Position Limit Rules at a minimum every two years and
more often as deemed necessary. Such future amendments may affect a
Fund or Funds, and it may, at that time, be substantial and
adverse. By way of example, future amendments, in combination
with the Position Limit Rules, may negatively impact the ability of
the Fund to meet its respective investment objectives through
limits that may inhibit the Sponsor’s ability to sell
additional Creation Baskets of the Fund, if the total net assets of
a Fund grow significantly from current levels.
The futures exchanges, e.g. the
CME, may under the Proposed Position Limit Rules impose position
limits which are lower than those imposed by the CFTC. Such a limit
by an exchange on which a Fund trades futures contracts may
negatively and adversely impact the ability of the Fund to meet its
respective investment objectives through limits that may inhibit
the Sponsor’s ability to sell additional Creation Baskets of
the Fund. No such lower limits by an exchange are currently in
place.
The aggregate position limits
currently in place under the current position limits and the
Aggregation Requirements are as follows for each of the commodities
traded by the Funds:
|
Commodity
Future
|
Spot Month
Position Limit
|
All Month
Aggregate Position Limit
|
|
corn
|
600 contracts
|
33,000
contracts
|
|
soybeans
|
600 contracts
|
15,000
contracts
|
|
sugar
|
5,000
contracts
|
Only Accountability
Limits
|
|
wheat
|
600 contracts
|
12,000
contracts
|
The aggregate speculative
position limits currently as proposed in the Proposed Position
Limit Rules are as follows for each of the commodities traded by
the Funds:
|
Commodity
Future
|
Spot Month
Position Limit
|
All Month
Aggregate Position Limit
|
|
corn
|
600 contracts
|
62,400
contracts
|
|
soybeans
|
600 contracts
|
31,900
contracts
|
|
sugar
|
23,300
contracts
|
38,400
contracts
|
|
wheat
|
600 contracts
|
32,800
contracts
|
Accountability levels differ from
position limits in that they do not represent a fixed ceiling, but
rather a threshold above which a futures exchange may exercise
greater scrutiny and control over an investor’s
positions. If a Fund were to exceed an applicable
accountability level for investments in futures contracts, the
exchange will monitor the Fund’s exposure and may ask for
further information on its activities, including the total size of
all positions, investment and trading strategy, and the extent of
liquidity resources of the Fund. If deemed necessary by the
exchange, the Fund could be ordered to reduce its aggregate net
position back to the accountability
level.
In addition to position limits
and accountability levels, the exchanges set daily price
fluctuation limits on futures contracts. The daily price
fluctuation limit establishes the maximum amount that the price of
futures contracts may vary either up or down from the previous
day’s settlement price. Once the daily price
fluctuation limit has been reached in a particular futures
contract, no trades may be made at a price beyond that
limit.
As of May 1, 2014, the CME
replaced the fixed price fluctuation limits with variable price
limits for corn, soybeans and wheat. The change, which is now
effective and is described in the CME Group Special Executive
Report S-7038 and can be accessed at
http://www.cmegroup.com/tools-information/lookups/advisories/ser/SER-7038.html
.
Margin for
OTC Uncleared Swaps
During 2015 and 2016, the CFTC
and the US bank prudential regulators completed their rulemakings
under the Dodd-Frank Act on margin for uncleared over-the-counter
swaps (and option agreements that qualify as swaps). Margin
requirements went into effect for the largest swap entities in
September 2016 and went into effect for small financial entities in
March 2017. Under these regulations, swap dealers (such as
sell-side counterparties to swaps), major swap participants, and
financial end users (such as buy-side counterparties to swaps who
are not physical traders) are required in most instances, to post
and collect initial and variation margin, depending on the
regulatory classification of their counterparty. European and Asian
regulators are also implementing similar regulations, which were
scheduled to become effective on the same dates as the
US-promulgated rules. As a result of these requirements, additional
capital will be required to be committed to the margin accounts to
support transactions involving uncleared over-the-counter swaps
and, consequently, these transactions may become more expensive.
While the Funds currently do not generally engage in uncleared over
the counter swaps, to the extent they do so in the future, the
additional margin required to be posted could adversely impact the
profitability (if any) to the Funds from entering into these
transactions.
Books and
Records
The Trust keeps its books of
record and account at its office located at 115 Christina Landing
Drive, Unit 2004, Wilmington, DE 19801, or at the offices of USBFS,
the Administrator, located at 615 East Michigan Street, Milwaukee,
Wisconsin 53202, or such office, including of an administrative
agent, as it may subsequently designate upon notice. The
books of account of the Fund are open to inspection by any
Shareholder (or any duly constituted designee of a Shareholder) at
all times during the usual business hours of the Fund upon
reasonable advance notice to the extent such access is required
under CFTC rules and regulations. In addition, the Trust
keeps a copy of the Trust Agreement on file in its office which
will be available for inspection by any Shareholder at all times
during its usual business hours upon reasonable advance
notice.
SEC
Reports
The Sponsor makes available, free
of charge, on the website for each Fund, the annual reports on Form
10-K for the Trust, the quarterly reports on Form 10-Q for the
Trust, current reports on Form 8-K and amendments to these reports
as soon as reasonably practicable after these documents are filed
with, or furnished to, the SEC. The documents that the Trust has
filed with, or furnished to, the SEC may be found on the
Fund’s website under the heading “Fund
Information-Filings.” The website for CORN is
www.teucriumcornfund.com
; for
CANE is
www.teucriumcanefund.com
; for
SOYB is
www.teucriumsoybfund.com
; for
WEAT is
www.teucriumweatfund.com
; and
for TAGS is
www.teucriumtagsfund.com
.
These reports are also available from the SEC through that
agency’s website at: www.sec.gov and will be provided free of
charge in paper or electronically on request.
CFTC
Reports
The Sponsor makes available, free
of charge, on the website for each Fund, the monthly statements of
account required to be filed pursuant to Rule 4.22(h) under the
Commodity Exchange Act.
Intellectual
Property
On December 17, 2013 the Sponsor
was issued a patent on certain business methods and procedures used
with respect to the Funds.
The risk
factors should be read in conjunction with the other information
included in this annual report on Form 10-K, including
Management’s Discussion and Analysis of Financial Condition
and the Results of Operations, as well as the financial statements
and the related footnotes for the Trust and the
Funds.
The commodity interests in which
each of the Funds invests, and in which TAGS invests indirectly
through the Shares of the Underlying Funds, are referred to as
Commodity Interests and for each Fund individually as the specific
Commodity Interests, e.g. Corn Interests.
Additional information regarding
many of the risk areas outlined below can be found in the section
of this Form on 10-K entitled: Part I, Item 1. Business, which
precedes this section. A discussion of the global information for
each specific underlying commodity can be found in Part I, in the
section titled “Market Outlook.”
Risks Applicable to all Funds
There are Risks Related to Fund Structure and Operations of the
Funds
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,
a Fund generally does not distribute dividends to Shareholders. You
should not invest in a 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.
The Sponsor has consulted with
legal counsel, accountants and other advisers regarding the
formation and operation of the Trust and the Funds. No counsel has
been appointed to represent you in connection with the offering of
Shares. Accordingly, you should consult with your own legal, tax
and financial advisers regarding the desirability of an investment
in the Shares.
The Sponsor intends to re-invest
any income and realized gains of a Fund in additional Commodity
Interests, or Shares of the Underlying Funds in the case of TAGS,
rather than distributing cash to Shareholders. Although a Fund does
not intend to make cash distributions, 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 Commodity
Interests, corn for example, and where 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.
A Fund must pay 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, the Financial Industry Regulatory Authority
(“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. Each Fund also pays the fees and
expenses associated with the Trust’s tax accounting and
reporting requirements. Each Fund, excluding TAGS, is also
contractually obligated to pay a management fee to the Sponsor.
Such fees may be waived by the Sponsor at its discretion.
Accordingly, each Fund must have sufficient total net assets to be
able realize in actuality the total expense ratio filed in
regulatory filings.
A 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 elect within 90 days of the event to continue the Trust
and appoint a successor Sponsor. In addition, the Sponsor may
terminate a 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. However, no level
of losses will require the Sponsor to terminate a 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. Any expenses related to the operation of a Fund would
need to be paid by the Fund at the time of
termination.
To the extent that investors use
a Fund as a means of investing indirectly in a specific Commodity
Interest, there is the risk that the changes in the price of the
Fund’s Shares on the NYSE Arca will not closely track the
changes in spot price of that Commodity Interest. This could happen
if the price of Shares traded on the NYSE Arca does not correlate
with the Fund’s NAV, if the changes in the Fund’s NAV
do not correlate with changes in the Benchmark, or if the changes
in the Benchmark do not correlate with changes in the cash or spot
price of the specific Commodity Interest. This is a risk because if
these correlations are not sufficiently close, then investors may
not be able to use the Fund as a cost-effective way to invest
indirectly in the specific Commodity Interest, or the underlying
specific Commodity Interest in the case of TAGS, or as a hedge
against the risk of loss in commodity-related
transactions.
Only an Authorized Purchaser may
engage in creation or redemption transactions directly with the
Funds. The Funds have 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 Funds and no other Authorized
Purchaser is able to step forward to create or redeem Creation
Units, Fund sharesmay trade at a discount to NAV and possibly face
trading halts and/or delisting. In addition, a decision by a market
maker or lead market maker to step away from activities for a Fund,
particularly in times of market stress, could adversely affect
liquidity, the spread between the bid and ask quotes for the
Fund’s Shares, and potentially the price of the Shares. The
Sponsor can make no guarantees that participation by Authorized
Purchasers or market makers will continue.
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 Fund 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 Fund 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 any 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 each 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 a Fund shares will trade below, at
or above their NAV. Investors buying or selling Fund shares in the
secondary market will pay brokerage commissions or other charges
imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively
small amounts of shares. Trading volume of the shares of each Fund
could be affected by investors who trade significant quantities of
shares on any given business day. Such investors may or may not
file all SEC filings as required.
In addition, if interest rates
realized on cash balances were to decline, there is a risk that the
net investment ratio of the Funds may increase from the current
level.
None of the Funds are 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 arrangements between clearing
brokers and counterparties on the one hand and the Funds on the
other generally are terminable by the clearing brokers or
counterparty upon notice to the Funds. In addition, the agreements
between the Funds and their 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 Funds intend 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 Sponsor does not employ
trading advisors for the Funds; however, it reserves the right to
employ them in the future. The only advisor to the Funds is the
Sponsor. A lack of independent trading advisors may be
disadvantageous to the Funds because they will not receive the
benefit of their independent expertise.
The Sponsor’s trading
strategy is quantitative in nature, and it is possible that the
Sponsor will make errors in its implementation. The execution of
the quantitative strategy is subject to human error, such as
incorrect inputs into the Sponsor’s computer systems and
incorrect information provided to the Funds’ clearing
brokers. In addition, it is possible that a computer or software
program may malfunction and cause an error in computation. Any
failure, inaccuracy or delay in executing the Funds’
transactions could affect its ability to achieve its investment
objective. It could also result in decisions to undertake
transactions based on inaccurate or incomplete information. This
could cause substantial losses on transactions. The Sponsor is not
required to reimburse a Fund for any costs associated with an error
in the placement or execution of a trade in commodity futures
interests or shares of the Underlying Funds.
The Funds’ 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 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 Funds’
reputations, increased operational expenses and diversion of
technical resources.
The development of complex
computer and communications systems and new technologies may render
the existing computer and communications systems supporting the
Funds’ 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 continue effectively its trading
activities. The Funds’ future success may depend on the
Funds’ ability to respond to changing technologies on a
timely and cost-effective basis.
The Funds depend on the proper
and timely function of complex computer and communications systems
maintained and operated by the futures exchanges, brokers and other
data providers that the Sponsor uses to conduct trading activities.
Failure or inadequate performance of any of these systems could
adversely affect the Sponsor’s ability to complete
transactions, including its ability to close out positions, and
result in lost profit opportunities and significant losses on
commodity interest transactions. This could have a material adverse
effect on revenues and materially reduce the Funds’ 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 each Fund will closely track its
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 operations of the Funds, the
exchanges, brokers and counterparties with which the Funds do
business, and the markets in which the Funds do business could be
severely disrupted in the event of a major terrorist attack,
natural disaster, or the outbreak, continuation or expansion of war
or other hostilities. Global terrorist attacks, anti-terrorism
initiatives, and political unrest continue to fuel this
concern.
Failures or breaches of the
electronic systems of the Funds, the Sponsor, the Custodian or
mutual funds or other financial institutions in which the Funds
invest, or the Funds’ other service providers, market makers,
Authorized Purchasers, NYSE Arca, exchanges on which Futures
Contracts or Other Commodity Interests are traded or cleared, or
counterparties have the ability to cause disruptions and negatively
impact the Funds’ business operations, potentially resulting
in financial losses to a Fund and its shareholders. While the Funds
have 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
Funds cannot control the cyber security plans and systems of the
Custodian or mutual funds or other financial institutions in which
the Funds invest, or the Funds’ other service providers,
market makers, Authorized Purchasers, NYSE Arca, exchanges on which
Futures Contracts or Other Commodity Interests are traded or
cleared, or counterparties.
The Trust may, in its discretion,
suspend the right to redeem Shares of a Fund or postpone the
redemption settlement date: (1) for any period during which an
applicable exchange is closed other than customary weekend or
holiday closing, or trading is suspended or restricted; (2) for any
period during which an emergency exists as a result of which
delivery, disposal or evaluation of a Fund’s assets is not
reasonably practicable; (3) for such other period as the Sponsor
determines to be necessary for the protection of Shareholders; (4)
if there is a possibility that any or all of the Benchmark
Component Futures Contracts of a Fund on the specific exchange
where the Fund is traded and 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 a Fund or its
Shareholders. In addition, the Trust will reject a redemption order
if the order is not in proper form as described in the agreement
with the Authorized Purchaser or if the fulfillment of the order,
in the opinion of its counsel, might be unlawful. Any such
postponement, suspension or rejection could adversely affect a
redeeming Shareholder. For example, the resulting delay may
adversely affect the value of the Shareholder’s redemption
proceeds if the NAV of a Fund declines during the period of delay.
The Trust Agreement provides that the Sponsor and its designees
will not be liable for any loss or damage that may result from any
such suspension or postponement. A minimum number of baskets and
associated Shares are specified for each Fund in its prospectus and
in Part I, Item 1 of this document. Once that minimum number of
Shares outstanding is reached, there can be no further redemptions
until there has been a Creation Basket.
The Intraday Indicative Value
(“IIV”) and the Benchmark for each Fund are calculated
and disseminated by the NYSE Arca under an agreement between the
Sponsor and the NYSE Arca. Additionally, information may be
calculated and disseminated under similar agreements between the
Sponsor and other third-party entities. Although reasonable efforts
are taken to ensure the accuracy of the information disseminated
under this agreement, there may, from time to time, be
recalculations of previously released
information.
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, may
divert resources from the Fund, or may require the Sponsor to
change its proprietary software and other technology or enter into
royalty or licensing agreements. The Sponsor has a patent on
certain business methods and procedures used with respect to the
Funds. The Sponsor utilizes certain proprietary software. Any
unauthorized use of such proprietary software, business methods
and/or procedures could adversely affect the competitive advantage
of the Sponsor or the Funds and/or cause the Sponsor to take legal
action to protect its rights.
In managing and directing the
day-to-day activities and affairs of these Funds, the Sponsor
relies almost entirely on a small number of individuals, including
Mr. Sal Gilbertie, Mr. Dale Riker, Mr. Steve Kahler and Ms. Barbara
Riker. If Mr. Gilbertie, Mr. Riker, Mr. Kahler or Ms. Riker were to
leave or be unable to carry out their present responsibilities, it
may have an adverse effect on the management of the Funds. To the
extent that the Sponsor establishes additional commodity pools,
even greater demands will be placed on these
individuals.
The Sponsor was formed for the
purpose of managing the Trust, including all the 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 these Funds, the Funds would be terminated if a
replacement Sponsor could not be found.
You cannot be assured that the
Sponsor will be willing or able to continue to service each Fund
for any length of time. The Sponsor was formed for the purpose of
sponsoring the Funds 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 each Fund. If the Sponsor discontinues its
activities on behalf of a Fund, 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 Funds.
The Sponsor May Have Conflicts of Interest
The structure and operation of
the Funds may involve conflicts of interest. For example, a
conflict may arise because the Sponsor and its principals and
affiliates may trade for themselves. In addition, the Sponsor has
sole current authority to manage the investments and operations,
and the interests of the Sponsor may conflict with the
Shareholders’ best interests, including the authority of the
Sponsor to allocate expenses to and between the
Funds.
The Performance of Each Fund May Not Correlate with the Applicable
Benchmark
Each Fund has a limited operating
history, so there is limited performance history to serve as a
basis for you to evaluate an investment in the
Fund.
If a Fund is required to sell
Treasury Securities or 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 the specific commodity interest or
the commodity interests of the Underlying Funds in the case of
TAGS. The value of Treasury Securities and other debt securities
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 a Fund’s investments in Treasury
Securities and cash equivalents should minimize the interest rate
risk to which the Fund is subject, it is possible that the Treasury
Securities and cash equivalents held by the Fund will decline in
value.
The Sponsor’s trading
system is quantitative in nature, and it is possible that the
Sponsor may make errors. In addition, it is possible that a
computer or software program may malfunction and cause an error in
computation.
Increases in assets under
management may affect trading decisions. While all of the
Funds’ assets are currently at manageable levels, the Sponsor
does not intend to limit the amount of any Fund’s 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.
Each Fund seeks to have the
changes in its Shares’ NAV in percentage terms track changes
in the Benchmark in percentage terms, rather than profit from
speculative trading of the specific Commodity Interests, or the
commodity interests of the Underlying Funds in the case of
TAGS.
The Sponsor therefore endeavors
to manage each Fund so that the Fund’s assets are, unlike
those of many other commodity pools, not leveraged (i.e., so that
the aggregate amount of the Fund’s exposure to losses from
its investments in specific Commodity Interests at any time will
not exceed the value of the Fund’s assets). There is no
assurance that the Sponsor will successfully implement this
investment strategy. If the Sponsor permits a Fund to become
leveraged, you could lose all or substantially all of your
investment if the Fund’s trading positions suddenly turns
unprofitable. These movements in price may be the result of factors
outside of the Sponsor’s control and may not be anticipated
by the Sponsor.
The Sponsor cannot predict to
what extent the performance of the commodity interest will or will
not correlate to the performance of other broader asset classes
such as stocks and bonds. If the performance of a specific Fund
were to move more directly with the financial markets, 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 may
incur losses with respect to other asset classes. Variables such as
drought, floods, weather, embargoes, tariffs and other political
events may have a larger impact on commodity and Commodity
Interests prices than on traditional securities and broader
financial markets. These additional variables may create additional
investment risks that subject a 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 a
specific commodity, corn, for example, and prices of other
financial assets, such as stocks and bonds, are negatively
correlated. In the absence of negative correlation, a Fund cannot
be expected to be automatically profitable during unfavorable
periods for the stock market, or vice versa.
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 a 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.
The Shares of a Fund are limited
liability investments; Shareholders may not lose more than the
amount that they invest plus any profits recognized on their
investment. However, Shareholders could be required, as a matter of
bankruptcy law, to return to the estate of the Fund any
distribution they received at a time when the Fund was in fact
insolvent or in violation of its Trust
Agreement.
The price relationship between
the near month Commodity Futures Contract to expire and the
Benchmark Component Futures Contracts for each Fund, or the
Underlying Funds in the case of TAGS, will vary and may impact both
a Fund’s total return over time and the degree to which such
total return tracks the total return of the specific commodity
price indices. In cases in which the near month contract’s
price is lower than later-expiring contracts’ prices (a
situation known as “contango” in the futures markets),
then absent the impact of the overall movement in the commodity
specific prices the value of the Benchmark Component Futures
Contracts would tend to decline as they approach expiration which
could cause the Benchmark Component Futures Contracts, and
therefore the Fund’s total return, to track lower. In cases
in which the near month contract’s price is higher than
later-expiring contracts’ prices (a situation known as
“backwardation” in the futures markets), then absent
the impact of the overall movement in commodity specific prices,
the value of the Benchmark Component Futures Contracts would tend
to rise as they approach expiration.
While it is expected that the
trading prices of the Shares will fluctuate in accordance with the
changes in a Fund’s NAV, the prices of Shares may also be
influenced by various market factors, including but not limited to,
the number of shares of the Fund outstanding and the liquidity of
the underlying Commodity Interests. There is no guarantee that the
Shares will not trade at appreciable discounts from, and/or
premiums to, the Fund’s NAV. This could cause the changes in
the price of the Shares to substantially vary from the changes in
the spot price of the underlying commodity, even if a Fund’s
NAV was closely tracking movements in the spot price of that
commodity. If this occurs, you may incur a partial or complete loss
of your investment.
Investors, including those who
directly participate in the specific commodity market, may choose
to use a Fund as a vehicle to hedge against the risk of loss, and
there are risks involved in hedging activities. While hedging can
provide protection against an adverse movement in market prices, it
can also preclude a hedger’s opportunity to benefit from a
favorable market movement.
While it is not the current
intention of the Funds to take physical delivery of any Commodity
under its Commodity Interests, Commodity Futures Contracts are
traditionally physically-deliverable contracts, and, unless a
position was traded out of, it is possible to take or make delivery
under these and some Other Commodity Interests. Storage costs
associated with purchasing thespecific commodity could result in
costs and other liabilities that could impact the value of the
Commodity Futures Contracts or certain Other Commodity Interests.
Storage costs include the time value of money invested in the
physical commodity plus the actual costs of storing the commodity
less any benefits from ownership that are not obtained by the
holder of a futures contract. In general, Commodity Futures
Contracts have a one-month delay for contract delivery and the
pricing of back month contracts (the back month is any future
delivery month other than the spot month) includes storage costs.
To the extent that these storage costs change for the commodity
while a Fund holds the Commodity Interests, the value of the
Commodity Interests, and therefore the Fund’s NAV, may change
as well.
The design of each Fund’s
Benchmark is such that the Benchmark Component Futures Contracts
change throughout the year, and the Fund’s investments must
be rolled periodically to reflect the changing composition of the
Benchmark. For example, when the second-to-expire Commodity Futures
Contract becomes the first-to-expire contract, such contract will
no longer be a Benchmark Component Futures Contract and the
Fund’s position in it will no longer be consistent with
tracking the Benchmark. In the event of a commodity 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 the specific commodity prices of the Fund, the value of
the Benchmark Component Futures Contracts would tend to rise as
they approach expiration. As a result, a Fund may benefit because
it would be selling more expensive contracts and buying less
expensive ones on an ongoing basis. Conversely, using corn as an
example, in the event of a corn 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 corn prices the value of the
Benchmark Component Futures Contracts would tend to decline as they
approach expiration. As a result, the Fund’s total return may
be lower than might otherwise be
the case because it would be
selling less expensive contracts and buying more expensive ones.
The impact of backwardation and contango may lead the total return
of a Fund to vary significantly from the total return of other
price references, such as the spot price of the specific commodity.
In the event of a prolonged period of contango, and absent the
impact of rising or falling specific commodity prices, this could
have a significant negative impact on a Fund’s NAV and total
return.
The Sponsor may use spreads and
straddles as part of its overall trading strategy to closely follow
the Benchmark. There is a risk that a Fund’s NAV may not
closely track the change in its Benchmark. Spreads combine
simultaneous long and short positions in related futures contracts
that differ by commodity, by market or by delivery month (for
example, long April, short November). Spreads gain or lose value as
a result of relative changes in price between the long and short
positions. Spreads often reduce risk to investors because the
contracts tend to move up or down together. However, both legs of
the spread could move against an investor simultaneously, in which
case the spread would lose value. Certain types of spreads may face
unlimited risk, e.g., because the price of a futures contract
underlying a short position can increase by anunlimited amount and
the investor would have to take delivery or offset at that price. A
commodity straddle takes both long and short option position in the
same commodity in the same market and delivery month
simultaneously. The buyer of a straddle profits if either the long
or the short leg of the straddle moves further than the combined
cost of both options. The seller of the straddle profits if both
the long and short positions do not trade beyond a range equal to
the combined premium for selling both options. If the Sponsor were
to utilize a spread or straddle position and the position performed
differently than expected, the results could impact that
Fund’s tracking error. This could affect the Fund’s
investment objective of having its NAV closely track the Benchmark.
Additionally, a loss on the position would negatively impact the
Fund’s absolute return.
Position limits and daily price
fluctuation limits set by the CFTC and the exchanges have the
potential to cause tracking error, which could cause the price of
Shares of the Fund to substantially vary from the Benchmark and
prevent you from being able to effectively use the Fund as a way to
hedge against underlying commodity-related losses or as a way to
indirectly invest in the underlying commodity.
The Trust Structure and the Trust Agreement Provide Limited
Shareholder Rights
You will have no rights to
participate in the management of any of the Funds and will have to
rely on the duties and judgment of the Sponsor to manage the
Funds.
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 Funds are also not subject to certain investor
protection provisions of the Sarbanes Oxley Act of 2002 and the
NYSE Arca governance rules (for example, audit committee
requirements).
Each Fund is a series of a
Delaware statutory trust and not itself a legal entity separate
from the other 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 each Fund and account for each 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 any
Fund to the liabilities of one or more of the Funds and/or any
other Trust series created in the future.
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.
Rapidly Changing Regulation May Adversely Affect the Ability of the
Funds to Meet Their Investment Objectives
The regulation of futures
markets, futures contracts, and futures exchanges has historically
been comprehensive. The CFTC and the exchanges are authorized to
take extraordinary actions in the event of a market emergency
including, for example, the retroactive implementation of
speculative position limits, increased margin requirements, the
establishment of daily price limits and the suspension of trading
on an exchange or a trading facility.
The regulation of commodity
interest transactions in the United States is a rapidly changing
area of law and is subject to ongoing modification by governmental
and judicial action. Subsequent to the enactment of the Dodd-Frank
Act in 2010, swap agreements became fully regulated by the CFTC
under the amended Commodity Exchange Act and the CFTC’s
regulations thereunder. Considerable regulatory attention has been
focused on non-traditional investment pools that are publicly
distributed in the United States and that use trading in futures
and options as an investment strategy and not for hedging or price
discovery purposes, therefore altering traditional participation in
futures and swaps markets. 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
Funds, or the ability of a Fund to continue to implement its
investment strategy. In addition, various national governments
outside of the United States have expressed concern regarding the
disruptive effects of speculative trading in the commodities
markets and the need to regulate the derivatives markets in
general. The effect of any future regulatory change on the Funds is
impossible to predict but could be substantial and
adverse.
Further, President Donald J.
Trump has promised and issued several executive orders intended to
relieve the financial burden created by the Dodd-Frank Act,
although these executive orders only set forth several general
principles to be followed by the federal agencies and do not
mandate the wholesale repeal of the Dodd-Frank Act. The scope of
the effect that passage of new financial reform legislation could
have on U.S. securities, derivatives and commodities markets is not
clear at this time because each federal regulatory agency would
have to promulgate new regulations to implement such legislation.
These regulatory changes may affect the continued operation of the
Funds. For additional information regarding recent regulatory
developments that may impact the Funds or the Trust, refer to the
section entitled “Regulatory Considerations” section of
this document.
There Is No Assurance that There Will Be a Liquid Market for the
Shares of the Funds or the Funds’ Underlying Investments,
which May Mean that Shareholders May Not be Able to Sell Their
Shares at a Market Price Relatively Close to the
NAV
If a substantial number of
requests for redemption of Redemption Baskets are received by a
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.
A portion of a Fund’s
investments could be illiquid, which could cause large losses to
investors at any time or from time to time.
A Fund may not always be able to
liquidate its positions in its investments at the desired price. As
to futures contracts, it may be difficult to execute a trade at a
specific price when there is a relatively small volume of buy and
sell orders in a market. Limits imposed by futures exchanges or
other regulatory organizations, such as accountability levels,
position limits and price fluctuation limits, may contribute to a
lack of liquidity with respect to some exchange-traded commodity
Interests. In addition, over-the-counter contracts may be illiquid
because they are contracts between two parties and generally may
not be transferred by one party to a third party without the
counterparty’s consent. Conversely, a counterparty may give
its consent, but the Fund still may not be able to transfer an
over-the-counter Commodity Interest to a third party due to
concerns regarding the counterparty’s credit
risk.
The exchanges set daily price
fluctuation limits on futures contracts. The daily price
fluctuation limit establishes the maximum amount that the price of
futures contracts may vary either up or down from the previous
day’s settlement price. Once the daily price fluctuation
limit has been reached in a particular futures contract, no trades
may be made at a price beyond that limit.
On March 12, 2014, the CME
announced that, subject to CFTC approval, it would replace its
fixed price fluctuation limits with variable price limits. The
change was approved and went into effect May 1, 2014. Using corn as
an example, this change amended Appendix A, Chapter 10 (Corn
Futures), Section 10102.D (Trading Specifications – Daily
Price Limits) to read as follows:
Daily price limits for Corn
futures are reset every six months. The first reset date would be
the first trading day in May based on the following: Daily
settlement prices are collected for the nearest July contract over
45 consecutive trading days before and on the business day prior to
April 16th. The average price is calculated based on the collected
settlement prices and then multiplied by seven percent. The
resulting number rounded to the nearest 5 cents per bushel, or 20
cents per bushel, whichever is higher will be the new initial price
limits for Corn futures and will become effective on the first
trading day in May and will remain in effect through the last
trading day in October.
The second reset date would be
the first trading day in November based on the following: Daily
settlement prices are collected for the nearest December contract
over 45 consecutive trading days before and on the business day
prior to October 16th. The average price is calculated based on the
collected settlement prices and then multiplied by seven percent.
The resulting number, rounded to the nearest 5 cents per bushel, or
20 cents per bushel, whichever is higher, will be the new initial
price limits for Corn futures and will become effective on the
first trading day in November and will remain in effect through the
last trading day in next April.
There shall be no trading in Corn
futures at a price more than the initial price limit above or below
the previous day’s settlement price. Should two or more Corn
futures contract months within the first five listed non-spot
contracts (or the remaining contract month in a crop year, which is
the September contract) settle at limit, the daily price limits for
all contract months shall increase by 50 percent the next business
day, rounded up to the nearest 5 cents per bushel. If no Corn
futures contract month settles at the expanded limit the next
business day, daily price limits for all contract months shall
revert back to the initial price limit the following business day.
There shall be no price limits on the current month contract on or
after the second business day preceding the first day of the
delivery month.
A market disruption, such as a
foreign government taking political actions that disrupt the market
in its currency, its commodity production or exports, or in another
major export, can also make it difficult to liquidate a position.
Unexpected market illiquidity may cause major losses to investors
at any time or from time to time. In addition, no Fund intends at
this time to establish a credit facility, which would provide an
additional source of liquidity, but instead will rely only on the
Treasury Securities, cash and/or cash equivalents that it holds to
meet its liquidity needs. The anticipated large value of the
positions in a specific Commodity Interest that the Sponsor will
acquire or enter into for a Fund increases the risk of illiquidity.
Because Commodity Interests may be illiquid, a 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.
A Fund may invest in Other
Commodity Interests. To the extent that these Other Commodity
Interests are contracts individually negotiated between their
parties, they may not be as liquid as Commodity Futures Contracts
and will expose the Fund to credit risk that its counterparty may
not be able to satisfy its obligations to the
Fund.
The changing nature of the
participants in the commodity specific market will influence
whether futures prices are above or below the expected future spot
price. Producers of the specific commodity will typically seek to
hedge against falling commodity prices by selling Commodity Futures
Contracts. Therefore, if commodity producers become the predominant
hedgers in the futures market, prices of Commodity Futures
Contracts will typically be below expected future spot prices.
Conversely, if the predominant hedgers in the futures market are
the purchasers of the commodity, who purchase Commodity Futures
Contracts to hedge against a rise in prices, prices of the
Commodity Futures Contracts will likely be higher than expected
future spot prices. This can have significant implications for a
Fund when it is time to sell a Commodity Futures Contract that is
no longer a Benchmark Component Futures Contract and purchase a new
Commodity Futures Contract or to sell a Commodity Futures Contract
to meet redemption requests. A Fund may invest in Other Commodity
Interests. To the extent that these Other Commodity Interests are
contracts individually negotiated between their parties, they may
not be as liquid as Commodity Futures Contracts and will expose the
Fund to credit risk that its counterparty may not be able to
satisfy its obligations to the Fund.
A Fund’s NAV includes, in
part, any unrealized profits or losses on open swap agreements,
futures or forward contracts. Under normal circumstances, the NAV
reflects the quoted exchange settlement price of open futures
contracts on the date when the NAV is being calculated. In
instances when the quoted settlement price of a futures contract
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 future 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.
In the event that one or more
Authorized Purchasers that are actively involved in purchasing and
selling Shares cease to be so involved, the liquidity of the Shares
will likely decrease, which could adversely affect the market price
of the Shares and result in your incurring a loss on your
investment. In addition, a decision by a market maker or lead
market maker to cease activities for the Fund 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 for a Fund, market makers may be less willing to
purchase Shares of that Fund in the secondary market which may
limit your ability to sell Shares. There are a minimum number of
baskets and associated Shares specified for each Fund. Once the
minimum number of baskets is reached, there can be no more
redemptions by an Authorized Purchaser of that Fund until there has
been a Creation Basket. In such case, market makers may be less
willing to purchase Shares of that Fund from investors in the
secondary market, which may in turn limit the ability of
Shareholders of that Fund to sell their Shares in the secondary
market.
Trading in Shares of a Fund may
be halted due to market conditions or, in light of NYSE Arca rules
and procedures, for reasons that, in the 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. A Fund will be terminated if its Shares are
delisted.
There is Credit Risk Associated with the Operation of the Funds,
Service Providers and Counter-Parties Which May Cause an Investment
Loss
For all of the Funds except for
TAGS, the majority of each Fund’s assets are held in cash and
short-term cash equivalents with the Custodian or with one or more
alternate financial institutions unrelated to the Custodian (each,
a “Financial Institution”). Any cash or cash
equivalents invested by a Fund will be placed by the Sponsor in a
Financial Institution deemed by the Sponsor to be of investment
quality.
The Sponsor has the ability to
invest available cash in Commercial Paper with maturities of 90
days or less. Investments will be deemed by the Sponsor to be of
investment quality. There is a risk that the proceeds from the sale
of the Commercial Paper could be less than the purchase
price.
The insolvency of the Custodian,
any Financial Institution in which funds are deposited, or
Commercial Paper Issuer could result in a complete loss of a
Fund’s assets held by the Custodian or the Financial
Institution, which, at any given time, would likely comprise a
substantial portion of a Fund’s total assets. Assets
deposited with the Custodian or a Financial Institution will
generally exceed federally insured limits. For TAGS, the vast
majority of the Fund’s assets are held in Shares of the
Underlying Funds. The failure or insolvency of the Custodian or the
Financial Institution could impact the ability to access in a
timely manner TAGS’ assets held by the
Custodian.
Under CFTC regulations, a
clearing broker with respect to a Fund’s exchange-traded
Commodity 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 a 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. A 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
Commodity 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 a
Fund’s trades. For additional information regarding recent
regulatory developments that may impact the Funds or the Trust,
refer to the section entitled “Regulatory
Considerations” section of this document.
Commodity pools’ trading
positions in futures contracts or other commodity interests are
typically required to be secured by the deposit of margin funds
that represent only a small percentage of a futures
contract’s (or other commodity interest’s) entire
market value. This feature permits commodity pools to
“leverage” their assets by purchasing or selling
futures contracts (or other commodity interests) with an aggregate
notional amount in excess of the commodity pool’s assets.
While this leverage can increase a pool’s profits, relatively
small adverse movements in the price of a pool’s commodity
interests can cause significant losses to the pool. While the
Sponsor does not intend to leverage the Funds’ assets, it is
not prohibited from doing so under the Trust Agreement. If the
Sponsor were to cause or permit a Fund to become leveraged, you
could lose all or substantially all of your investment if the
Fund’s trading positions suddenly turns
unprofitable.
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 makerthat 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 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 or terminated.
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 be subject to changes in the future which may make it
uneconomical or impossible from the regulatory perspective to
utilize this mechanism by the Funds.
A portion of the Fund’s
assets may be used to trade over-the-counter Commodity Interests,
such as forward contracts or swaps. Currently, over-the-counter
contracts are typically traded on a principal-to-principal
non-cleared basis through dealer markets that are dominated by
major money center and investment banks and other institutions and
that prior to the passage of the Dodd-Frank Act had been
essentially unregulated by the CFTC, although this isan area of
pending, substantial regulatory change. The markets for
over-the-counter contracts will continue to rely upon the integrity
of market participants in lieu of the additional regulation imposed
by the CFTC on participants in the futures markets. To date, the
forward markets have been largely unregulated, except for
anti-manipulation and anti-fraud prohibitions, forward contracts
have been executed bi-laterally and, in general historically,
forward contracts have not been cleared or guaranteed by a third
party. On November 16, 2012, the Secretary of the Treasury issued a
final determination that exempts both foreign exchange swaps and
foreign exchange forwards from the definition of “swap”
and, by extension, additional regulatory requirements (such as
clearing and margin). The final determination does not extend to
other FX derivatives, such as FX options, certain currency swaps,
and non-deliverable forwards. While the Dodd-Frank Act and certain
regulations adopted thereunder are intended to provide additional
protections to participants in the over-the-counter market, the
lack of regulation in these markets could expose the Fund in
certain circumstances to significant losses in the event of trading
abuses or financial failure by participants. While increased
regulation of over-the-counter Commodity Interests is likely to
result from changes that are required to be effectuated by the
Dodd-Frank Act, there is no guarantee that such increased
regulation will be effective to reduce these
risks.
Each Fund faces the risk of
non-performance by the counterparties to the over-the-counter
contracts. Unlike in futures contracts, the counterparty to these
contracts is generally a single bank or other financial
institution, rather than a clearing organization backed by a group
of financial institutions. As a result, there will be greater
counterparty credit risk in these transactions. A counterparty may
not be able to meet its obligations to a Fund, in which case the
Fund could suffer significant losses on these contracts. If a
counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, a Fund may experience
significant delays in obtaining any recovery in a bankruptcy or
other reorganization proceeding. During any such period, the Fund
may have difficulty in determining the value of its contracts with
the counterparty, which in turn could result in the overstatement
or understatement of the Fund’s NAV. The Fund may eventually
obtain only limited recovery or no recovery in such
circumstances.
Over-the-counter contracts may
have terms that make them less marketable than Futures Contracts.
Over-the-counter contracts are less marketable because they are not
traded on an exchange, do not have uniform terms and conditions,
and are entered into based upon the creditworthiness of the parties
and the availability of credit support, such as collateral, and in
general, they are not transferable without the consent of the
counterparty. These conditions make such contracts less liquid than
standardized futures contracts traded on a commodities exchange and
diminish the ability to realize the full value of such contracts.
In addition, even if collateral is used to reduce counterparty
credit risk, sudden changes in the value of over-the-counter
transactions may leave a party open to financial risk due to a
counterparty default since the collateral held may not cover a
party’s exposure on the transaction in such situations. In
general, valuing OTC derivatives is less certain than valuing
actively traded financial instruments such as exchange traded
futures contracts and securities because the price and terms
on which such OTC derivatives are entered into or can be terminated
are individually negotiated, and those prices and terms may not
reflect the best price or terms available from other sources. In
addition, while market makers and dealers generally quote
indicative prices or terms for entering into or terminating OTC
contracts, they typically are not contractually obligated to do so,
particularly if they are not a party to the transaction. As a
result, it may be difficult to obtain an independent value for an
outstanding OTC derivatives transaction.
There are Risks Associated with Trading in International
Markets
A significant portion of the
Futures Contracts entered into by the Funds is traded on United
States exchanges. However, a portion of the Funds’ trades may
take place on markets or exchanges outside the United States. Some
non-U.S. markets present risks because they are not subject to the
same degree of regulation as their U.S. counterparts. None of the
CFTC, NFA, or any domestic exchange regulates activities of any
foreign boards of trade or exchanges, including the execution,
delivery and clearing of transactions, has the power to compel
enforcement of the rules of a foreign board of trade or exchange or
of any applicable non-U.S. laws. Similarly, the rights of market
participants, such as the Funds, in the event of the insolvency or
bankruptcy of a non-U.S. market or broker are also likely to be
more limited than in the case of U.S. markets or brokers. As a
result, in these markets, the Funds have less legal and regulatory
protection than it does when they trade domestically. Currently the
Funds do not place trades on any markets or exchanges outside of
the United States and do not anticipate doing so in the foreseeable
future. In some of these non-U.S. markets, the performance on a
futures contract is the responsibility of the counterparty and is
not backed by an exchange or clearing corporation and therefore
exposes the Funds to credit risk. Additionally, trading on non-U.S.
exchanges is subject to the risks presented by exchange controls,
expropriation, increased tax burdens and exposure to local economic
declines and political instability. An adverse development with
respect to any of these variables could reduce the profit or
increase the loss earned on trades in the affected international
markets.
The price of any non-U.S.
Commodity Interest and, therefore, the potential profit and loss on
such investment, may be affected by any variance in the foreign
exchange rate between the time the order is placed and the time it
is liquidated, offset or exercised. As a result, changes in the
value of the local currency relative to the U.S.dollar may cause
losses to a Fund even if the contract is profitable. The Funds
invest primarily in Commodity Interests that are traded or sold in
the United States. However, a portion of the trades for a Fund may
take place in markets and on exchanges outside the United States.
Some non-U.S. markets present risks because they are not subject to
the same degree of regulation as their U.S. counterparts. In some
of these non-U.S. markets, the performance on a contract is the
responsibility of the counterparty and is not backed by an exchange
or clearing corporation and therefore exposes a Fund to credit
risk. Trading in non-U.S. markets also leaves a Fund susceptible to
fluctuations in the value of the local currency against the U.S.
dollar.
The
CFTC’s implementation of its regulations under the
Dodd-Frank Act may further affect the ability of the Funds to enter
into foreign exchange contracts and to hedge its exposure to
foreign exchange loss.
Some non-U.S. exchanges also may
be in a more developmental stage so that prior price histories may
not be indicative of current price dynamics. In addition, a Fund
may not have the same access to certain positions on foreign
trading exchanges as do local traders, and the historical market
data on which the Sponsor bases its strategies may not be as
reliable or accessible as it is for U.S.
exchanges.
The Funds are Treated as Partnerships for Tax Purposes which Means
that There May be a Lack of Certainty as to Tax Treatment for an
Investor’s Gains and Losses
Cash or property will be
distributed at the sole discretion of the Sponsor, and the Sponsor
currently does not intend to make cash or other distributions with
respect to Shares. You will be required to pay U.S. federal income
tax and, in some cases, state, local, or foreign income tax, on
your allocable share of a 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.
Due to the application of the
assumptions and conventions applied by a 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.
The Funds are treated as
partnerships for United States federal income tax purposes. The
U.S. tax rules pertaining to entities taxed as partnerships are
complex and their application to publicly traded partnerships such
as the Funds are in many respects uncertain. The Funds 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 Internal Revenue Code of 1986, as amended (the
“Code”) and applicable Treasury Regulations, however,
and it is possible that the U.S. Internal Revenue Service (the
“IRS”) will successfully challenge our allocation
methods and require us to reallocate items of income, gain,
deduction, loss or credit in a manner that
advers
ely affects you. If this occurs,
you may be required to file an amended tax return and to pay
additional taxes plus deficiency interest.
Under new procedures and rules
that are effective for taxable years beginning after December 31,
2017, the IRS may, instead of collecting the tax from Shareholders,
collect any underpayment of tax (including interest and penalties)
from a Fund. As a result, any such tax assessment would 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 at
issue.
The
Trust h
as received an opinion of counsel that, under current
U.S. federal income tax laws, the Funds will be treated as
partnerships that are not taxable as corporations for U.S. federal
income tax purposes, provided that (i) at least 90 percent of each
Fund’s annual gross income consists of “qualifying
income” as defined in the Code, (ii) the Funds are organized
and operated in accordance with their governing agreements and
applicable law, and (iii) the Funds do not elect to be taxed as
corporations for federal income tax purposes. Although the Sponsor
anticipates that the Funds have satisfied and will continue to
satisfy the “qualifying income” requirement for all of
their taxable years, that result cannot be assured. The Funds have
not requested and will not request any ruling from the IRS with
respect to their classification as partnerships not taxable as
corporations for federal income tax purposes. If the IRS were to
successfully assert that the Funds are taxable as corporations for
federal income tax purposes in any taxable year, rather than
passing through their income, gains, losses and deductions
proportionately to Shareholders, each Fund would be subject to tax
on its net income for the year at corporate tax rates. In addition,
although the Sponsor does not currently intend to make
distributions with respect to Shares, any distributions would be
taxable to Shareholders as divide
nd income. Taxation of the Funds as corporations
could materially reduce the after-tax return on an investment in
Shares and could substantially reduce the value of your
Shares.
Legislative, regulatory or
administrative changes could be enacted or promulgated at any time,
either prospectively or with retroactive effect, and may adversely
affect the Funds and their Shareholders. Tax legislation informally
known as the Tax Cuts and Jobs Act of 2017 (the “2017 Tax
Cuts and Jobs Act”) was signed into law on December 22, 2017,
generally effective for taxable years beginning on or after January
1, 2018. In addition to modifying income tax rates for individuals
and corporations, the 2017 Tax Cuts and Jobs Act made certain
changes to the tax treatment for pass-through entities, such as the
Funds. Please consult a tax advisor regarding the implications of
the 2017 Tax Cuts and Jobs Act on an investment in Shares of the
Funds.
Risks Specific to the Teucrium Corn Fund
Investors may choose to use the
Fund as a means of investing indirectly in corn, and there are
risks involved in such investments. The risks and hazards that are
inherent in corn production may cause the price of corn to
fluctuate widely. Price movements for corn are influenced by, among
other things: weather conditions, crop failure, production
decisions, governmental policies, changing demand, the corn harvest
cycle, and various economic and monetary events. Corn production is
also subject to U.S. federal, state and local regulations that
materially affect operations.
The price movements for corn are
influenced by, among other things, weather conditions, crop
disease, transportation difficulties, various planting, growing and
harvesting problems, governmental policies, changing demand, and
seasonal fluctuations in supply. More generally, commodity prices
may be influenced by economic and monetary events such as changes
in interest rates, changes in balances of payments and trade, U.S.
and international inflation rates, currency valuations and
devaluations, U.S. and international economic events, and changes
in the philosophies and emotions of market participants. Because
the Fund invests primarily in interests in a single commodity, it
is not a diversified investment vehicle, and therefore may be
subject to greater volatility than a diversified portfolio of
stocks or bonds or a more diversified commodity
pool.
The Fund is subject to the risks
and hazards of the corn market because it invests in Corn
Interests. The risks and hazards that are inherent in the corn
market may cause the price of corn to fluctuate widely. If the
changes in percentage terms of the Fund’s Shares accurately
track the percentage changes in the Benchmark or the spot price of
corn, then the price of its Shares will fluctuate
accordingly.
The price and availability of
corn is influenced by economic and industry conditions, including
but not limited to supply and demand factors such as: crop disease
and infestation (including, but not limited to, Leaf Blight, Ear
Rot and Root Rot); transportation difficulties; various planting,
growing, or harvesting problems; and severe weather conditions
(particularly during the spring planting season and the fall
harvest) such as drought, floods, or frost that are difficult to
anticipate and which cannot be controlled. Demand for corn in the
United States to produce ethanol has also been a significant
factor affecting the price of corn. In turn, demand for ethanol has
tended to increase when the price of gasoline has increased and has
been significantly affected by United States governmental policies
designed to encourage the production of ethanol. Recent changes in
government policy have the potential to reduce the demand for
ethanol over the next several years. Additionally, demand for corn
is affected by changes in consumer tastes, national, regional and
local economic conditions, and demographic trends. Finally, because
corn is often used as an ingredient in livestock feed, demand for
corn is subject to risks associated with the outbreak of livestock
disease.
Corn production is subject to
United States federal, state, and local policies and regulations
that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties,
subsidies, incentives, acreage control, and import and export
restrictions on agricultural commodities and commodity products,
can influence the planting of certain crops, the location and size
of crop production, the volume and types of imports and exports,
the availability and competitiveness of feedstocks as raw
materials, and industry profitability. Additionally, corn
production is affected by laws and regulations relating to, but not
limited to, the sourcing, transporting, storing, and processing
ofagricultural raw materials as well as the transporting, storing
and distributing of related agricultural products. U.S. corn
producers also must comply with various environmental laws and
regulations, such as those regulating the use of certain
pesticides, and local laws that regulate the production of
genetically modified crops. In addition, international trade
disputes can adversely affect agricultural commodity trade flows by
limiting or disrupting trade between countries or
regions.
Seasonal fluctuations in the
price of corn may cause risk to an investor because of the
possibility that Share prices will be depressed because of the corn
harvest cycle. In the United States, the corn market is normally at
its weakest point, and corn prices are lowest, shortly before and
during the harvest (between September and November), due to the
high supply of corn in the market. Conversely, corn prices are
generally highest during the winter and spring (between December
and May), when farmer-owned corn has largely beensold and used.
Seasonal corn market peaks generally occur after planting is
complete in May or June, and again as harvest begins around August.
These normal market conditions are, however, often influenced by
weather patterns, and domestic and global economic conditions,
among other factors, and any specific year may not necessarily
follow the traditional seasonal fluctuations described above. In
the futures market, these seasonal fluctuations are typically
reflected in contracts expiring in the relevant season (e.g.,
contracts expiring during the harvest season are typically priced
lower than contracts expiring in the winter and spring). Thus,
seasonal fluctuations could result in an investor incurring losses
upon the sale of Fund Shares, particularly if the investor needs to
sell Shares when the Benchmark Component Futures Contracts are, in
whole or part, Corn Futures Contracts expiring in the
fall.
The CFTC and U.S. designated
contract markets such as the CBOT have established position limits
on the maximum net long or net short futures contracts in commodity
interests that any person or group of persons under common trading
control (other than as a hedge, which an investment by the Fund is
not) may hold, own or control. For example, the current position
limit for aggregate investments at any one time in U.S. exchange
traded Corn Futures Contracts, non-U.S. exchange Corn Futures
Contracts, and over-the-counter corn swaps are 600 spot month
contracts, 33,000 contracts expiring in any other non-spot single
month, or 33,000 cumulative totals for all non-spot months. These
position limits are fixed ceilings that the Fund would not be able
to exceed without specific CFTC authorization.
All of these limits may
potentially cause a tracking error between the price of the Shares
and the Benchmark. This may in turn prevent you from being able to
effectively use the Fund as a way to hedge against corn-related
losses or as a way to indirectly invest in
corn.
The Fund does not intend to limit
the size of the offering and will attempt to expose substantially
all of its proceeds to the corn market utilizing Corn Interests. If
the Fund encounters position limits, accountability levels, or
price fluctuation limits for Corn Futures Contracts on the CBOT, it
may then, if permitted under applicable regulatory requirements,
purchase Other Corn Interests and/or Corn Futures Contracts listed
on foreign exchanges. However, the Corn Futures Contracts available
on such foreign exchanges may have different underlying sizes,
deliveries, and prices. In addition, the Corn Futures Contracts
available on these exchanges may be subject to their own position
limits and accountability levels. In any case, notwithstanding the
potential availability of these instruments in certain
circumstances, position limits could force the Fund to limit the
number of Creation Baskets that it sells.
Risks Specific to the Teucrium Soybean Fund
Investors may choose to use the
Fund as a means of investing indirectly in soybeans, and there are
risks involved in such investments. The risks and hazards that are
inherent in soybean production may cause the price of soybeans to
fluctuate widely. Global price movements for soybeans are
influenced by, among other things: weather conditions, crop
failure, production decisions, governmental policies, changing
demand, the soybean harvest cycle, and various economic and
monetary events. Soybean production is also subject to domestic and
foreign regulations that materially affect
operations.
As discussed in more detail
below, price movements for soybeans are influenced by, among other
things, weather conditions, crop disease, transportation
difficulties, various planting, growing and harvesting problems,
governmental policies, changing demand, and seasonal fluctuations
in supply. More generally, commodity prices may be influenced by
economic and monetary events such as changes in interest rates,
changes in balances of payments and trade, U.S. and international
inflation rates, currency valuations and devaluations, U.S. and
international economic events, and changes in the philosophies and
emotions of market participants. Because the Fund invests primarily
in interests in a single commodity, it is not a diversified
investment vehicle, and therefore may be subject to greater
volatility than a diversified portfolio of stocks or bonds or a
more diversified commodity pool.
The Fund is subject to the risks
and hazards of the soybean market because it invests in Soybean
Interests. The risks and hazards that are inherent in the soybean
market may cause the price of soybeans to fluctuate widely. If the
changes in percentage terms of the Fund’s Shares accurately
track the percentage changes in the Benchmark or the spot price of
soybeans, then the price of its Shares will fluctuate
accordingly.
The price and availability of
soybeans is influenced by economic and industry conditions,
including but not limited to supply and demand factors such as:
crop disease; weed control; water availability; various planting,
growing, or harvesting problems;severe weather conditions such as
drought, floods, heavy rains, frost, or natural disasters that are
difficult to anticipate and which cannot be controlled;
uncontrolled fires, including arson; challenges in doing business
with foreign companies; legal and regulatory restrictions;
transportation costs; interruptions in energy supply; currency
exchange rate fluctuations; and political and economic instability.
Additionally, demand for soybeans is affected by changes in
international, national, regional and local economic conditions,
and demographic trends. The increased production of soybean crops
in South America and the rising demand for soybeans in emerging
nations such as China and India have increased competition in the
soybean market.
The supply of soybeans could be
reduced by the spread of soybean rust. Soybean rust is a wind-borne
fungal disease that attacks soybeans. Although soybean rust can be
killed with chemicals, chemical treatment increases production
costs for farmers.
Soybean production is subject to
United States and foreign policies and regulations that materially
affect operations. Governmental policies affecting the agricultural
industry, such as taxes, tariffs, duties, subsidies, incentives,
acreage control, and import and export restrictions on agricultural
commodities and commodity products, can influence the planting of
certain crops, the location and size of crop production, the volume
and types of imports and exports, and industry profitability.
Additionally, soybean production is affected by laws and
regulations relating to, but not limited to, the sourcing,
transporting, storing and processing of agricultural raw materials
as well as the transporting, storing and distributing of related
agricultural products. Soybean producers also may need to comply
with various environmental laws and regulations, such as those
regulating the use of certain pesticides. In addition,
international trade disputes can adversely affect agricultural
commodity trade flows by limiting or disrupting trade between
countries or regions.
Because processing soybean oil
can create trans-fats, the demand for soybean oil may decrease due
to heightened governmental regulation of trans-fats or trans-fatty
acids. The U.S. Food and Drug Administration currently requires
food manufacturers to disclose levels of trans-fats contained in
their products, and various local governments have enacted or are
considering restrictions on the use of trans-fats in restaurants.
Several food processors have either switched or indicated an
intention to switch to oil products with lower levels of trans-fats
or trans-fatty acids.
In recent years, there has been
increased global interest in the production of biofuels as
alternatives to traditional fossil fuels and as a means of
promoting energy independence. Soybeans can be converted into
biofuels such as biodiesel. Accordingly, the soybean market has
become increasingly affected by demand for biofuels and related
legislation.
The costs related to soybean
production could increase and soybean supply could decrease as a
result of restrictions on the use of genetically modified soybeans,
including requirements to segregate genetically modified soybeans
and the products generated from them from other soybean
products.
Seasonal fluctuations in the
price of soybeans may cause risk to an investor because of the
possibility that Share prices will be depressed because of the
soybean harvest cycle. In the futures market, fluctuations are
typically reflected in contracts expiring in the harvest season
(i.e., contracts expiring during the fall are typically priced
lower than contracts expiring in the winter and spring). Thus,
seasonal fluctuations could result in an investor incurring losses
upon the sale of Fund Shares, particularly if the investor needs to
sell Shares when the Benchmark Component Futures Contracts are, in
whole or part, Soybean Futures Contracts expiring in the
fall.
The CFTC and U.S. designated
contract markets have established position limits on the maximum
net long or net short futures contracts in commodity interests that
any person or group of persons under common trading control (other
than as a hedge, which an investment by the Fund is not) may hold,
own or control. For example, the current position limit for
aggregate investments atany one time in U.S. exchange traded
Soybean Futures Contracts, non-U.S. exchange Soybean Futures
Contracts, and over-the-counter soybean swaps are 600 spot month
contracts, 15,000 contracts expiring in any other single non-spot
month, or 15,000 cumulative totals for all non-spot months. These
position limits are fixed ceilings that the Fund would not be able
to exceed without specific CFTC authorization.
All of these limits may
potentially cause a tracking error between the price of the Shares
and the Benchmark. This may in turn prevent you from being able to
effectively use the Fund as a way to hedge against soybean-related
losses or as a way to indirectly invest in
soybeans.
If the Fund encounters position
limits or price fluctuation limits for Soybean Futures Contracts on
the CBOT, it may then, if permitted under applicable regulatory
requirements, purchase Other Soybean Interests and/or Soybean
Futures Contracts listed on foreign exchanges. However, the Soybean
Futures Contracts available on such foreign exchanges may have
different underlying sizes, deliveries, and prices. In addition,
the Soybean Futures Contracts available on these exchanges may be
subject to their own position limits or similar restrictions. In
any case, notwithstanding the potential availability of these
instruments in certain circumstances, position limits could force
the Fund to limit the number of Creation Baskets that it
sells.
Risks Specific to the Teucrium Sugar Fund
Investors may choose to use the
Fund as a means of investing indirectly in sugar, and there are
risks involved in such investments. The risks and hazards that are
inherent in sugar production may cause the price of sugar to
fluctuate widely. Global price movements for sugar are influenced
by, among other things: weather conditions, crop failure,
production decisions, governmental policies, changing demand, the
sugar harvest cycle, and various economic and monetary events.
Sugar production is also subject to domestic and foreign
regulations that materially affect operations.
As discussed in more detail below
price movements for sugar are influenced by, among other things,
weather conditions, crop disease, transportation difficulties,
various planting, growing and harvesting problems, governmental
policies, changing demand, and seasonal fluctuations in supply.
More generally, commodity prices may be influenced by economic and
monetary events such as changes in interest rates, changes in
balances of payments and trade, U.S. and international inflation
rates, currency valuations and devaluations, U.S. and international
economic events, and changes in the philosophies and emotions of
market participants. Because the Fund invests primarily in
interests in a single commodity, it is not a diversified investment
vehicle, and therefore may be subject to greater volatility than a
diversified portfolio of stocks or bonds or a more diversified
commodity pool.
The Fund is subject to the risks
and hazards of the world sugar market because it invests in Sugar
Interests. The two primary sources for the production of sugar are
sugarcane and sugar beets, both of which are grown in various
countries around the world. The risks and hazards that are inherent
in the world sugar market may cause the price of sugar to fluctuate
widely. If the changes in percentage terms of the Fund’s
Shares accurately track the percentage changes in the Benchmark or
the spot price of sugar, then the price of its Shares will
fluctuate accordingly.
The global price and availability
of sugar is influenced by economic and industry conditions,
including but not limited to supply and demand factors such as:
crop disease; weed control; water availability; various planting,
growing, or harvesting problems; severe weather conditions such as
drought, floods, or frost that are difficult to anticipate and
which cannot be controlled; uncontrolled fires, including arson;
challenges in doing business with foreign companies; legal and
regulatory restrictions; fluctuation of shipping rates; currency
exchange rate fluctuations; and political and economic instability.
Global demand for sugar to produce ethanol has also been a
significant factor affecting the price of sugar. Additionally,
demand for sugar is affected by changes in consumer tastes,
national, regional and local economic conditions, and demographic
trends. The spread of consumerism and the rising affluence of
emerging nations such as China and India have created demand for
sugar. An influx of people in developing countries moving from
rural to urban areas may create more disposable income to be spent
on sugar products and might also reduce sugar production in rural
areas on account of worker shortages, all of which would result in
upward pressure on sugar prices. On the other hand, public health
concerns regarding obesity, heart disease and diabetes,
particularly in developed countries, may reduce demand for sugar.
In light of the time it takes to grow sugarcane and sugar beets and
the cost of new facilities for processing these crops, it may not
be possible to increase supply quickly or in a cost-effective
manner in response to an increase in demand for
sugar.
Sugar production is subject to
United States and foreign policies and regulations that materially
affect operations. Governmental policies affecting the agricultural
industry, such as taxes, tariffs, duties, subsidies, incentives,
acreage control, and import and export restrictions on agricultural
commodities and commodity products, can influence the planting of
certain crops, the location and size of crop production, the volume
and types of imports and exports, and industry profitability. Many
foreign countries subsidize sugar production, resulting in lower
prices, but this has led other countries, including the United
States, to impose tariffs and import restrictions on sugar imports.
Sugar producers also may need to comply with various environmental
laws and regulations, such as those regulating the use of certain
pesticides.
Seasonal fluctuations in the
price of sugar may cause risk to an investor because of the
possibility that Share prices will be depressed because of the
sugar harvest cycle. In the futures market, contracts expiring
during the harvest season are typically priced lower than contracts
expiring in the winter and spring. While the sugar harvest seasons
varies from country to country, prices of Sugar Futures Contracts
tend to be lowest in the late spring and early summer and again in
early autumn of the Northern Hemisphere, reflecting the varied
harvest seasons in Brazil, India, and Thailand the world’s
leading producers and exporters of sugarcane. Thus, seasonal
fluctuations could result in an investor incurring losses upon the
sale of Fund Shares, particularly if the investor needs to sell
Shares when the Benchmark Component Futures Contracts are, in whole
or part, Sugar Futures Contracts expiring in the Northern
Hemisphere’s late spring, early summer, or early
autumn.
U.S. designated contract markets
such as the ICE Futures and the NYMEX have established position
limits and accountability levels on the maximum net long or net
short Sugar Futures Contracts that any person or group of persons
under common trading control may hold, own or control. The CFTC has
not currently set position limits for Sugar Futures Contracts, and
the ICE Futures and the NYMEX have established position limits only
on spot month Sugar No. 11 Futures Contracts. For example, the ICE
Futures’ position limit for Sugar No. 11 Futures Contracts is
5,000 spot month contracts, whereas the NYMEX Sugar No. 11 Futures
limit is 1,000 spot month contracts, generally applicable only
during the last month before expiration. All Sugar Futures
Contracts held under the control of the Sponsor, including those
held by any future series of the Trust, will be aggregated in
determining the application of these position limits. However,
because spot month contracts are not Benchmark Component Futures
Contracts and the Fund’s roll strategy calls for the sale of
all spot month Sugar No.11 Futures Contracts prior to the time the
position limits would become applicable, it is unlikely that
position limits on Sugar Futures Contracts will come into
play.
In contrast to position limits,
accountability levels are not fixed ceilings, but rather thresholds
above which an exchange may exercise greater scrutiny and control
over an investor, including by imposing position limits on the
investor. For example, the current ICE Futures-established
accountability level for investments in Sugar No. 11 Futures
Contracts for any one month is 10,000, and the accountability level
for all combined months is 15,000. (The current accountability
level for Sugar No. 11 Futures Contracts traded on the NYMEX is
9,000 for any one month, and 9,000 for all combined months. Even
though accountability levels are not fixed ceilings, the Fund does
not intend to invest in Sugar Futures Contracts in excess of any
applicable accountability levels.
All of these limits may
potentially cause a tracking error between the price of the Shares
and the Benchmark. This may in turn prevent you from being able to
effectively use the Fund as a way to hedge against sugar-related
losses or as a way to indirectly invest in
sugar.
If the Fund encounters
accountability levels, position limits, or price fluctuation limits
for Sugar Futures Contracts on ICE Futures, it may then, if
permitted under applicable regulatory requirements, purchase Other
Sugar Interests and/or Sugar Futures Contracts listed on the NYMEX
or foreign exchanges. However, the Sugar Futures Contracts
available on such foreign exchanges may have different underlying
sizes, deliveries, and prices. In addition, the Sugar Futures
Contracts available on these exchanges may be subject to their own
position limits and accountability levels. In any case,
notwithstanding the potential availability of these instruments in
certain circumstances, position limits could force the Fund to
limit the number of Creation Baskets that it
sells.
Risks Specific to the Teucrium Wheat Fund
Investors may choose to use the
Fund as a means of investing indirectly in wheat, and there are
risks involved in such investments. The risks and hazards that are
inherent in wheat production may cause the price of wheat to
fluctuate widely. Price movements for wheat are influenced by,
among other things: weather conditions, crop failure, production
decisions, governmental policies, changing demand, the wheat
harvest cycle, and various economic and monetary events. Wheat
production is also subject to U.S. federal, state and local
regulations that materially affect operations.
As discussed in more detail
below, price movements for wheat are influenced by, among other
things, weather conditions, crop disease, transportation
difficulties, various planting, growing and harvesting problems,
governmental policies, changing demand, and seasonal fluctuations
in supply. More generally, commodity prices may be influenced by
economic and monetary events such as changes in interest rates,
changes in balances of payments and trade, U.S. and international
inflation rates, currency valuations and devaluations, U.S. and
international economic events, and changes in the philosophies and
emotions of market participants. Because the Fund invests primarily
in interests in a single commodity, it is not a diversified
investment vehicle, and therefore may be subject to greater
volatility than a diversified portfolio of stocks or bonds or a
more diversified commodity pool.
The Fund is subject to the risks
and hazards of the wheat market because it invests in Wheat
Interests. The risks and hazards that are inherent in the wheat
market may cause the price of wheat to fluctuate widely. If the
changes in percentage terms of the Fund’s Shares accurately
track the percentage changes in the Benchmark or the spot price of
wheat, then the price of its Shares will fluctuate
accordingly.
The price and availability of
wheat is influenced by economic and industry conditions, including
but not limited to supply and demand factors such as: crop disease;
weed control; water availability; various planting, growing, or
harvesting problems; severe weather conditions such as drought,
floods, or frost that are difficult to anticipate and which cannot
be controlled. Demand for food products made from wheat flour is
affected by changes in consumer tastes, national, regional and
localeconomic conditions, and demographic trends. More
specifically, demand for such food products in the United States is
relatively unaffected by changes in wheat prices or disposable
income, but is closely tied to tastes and preferences. For example,
in recent years the increase in the popularity of low-carbohydrate
diets caused the consumption of wheat flour to decrease rapidly
before rebounding somewhat after 2005. Export demand for wheat
fluctuates yearly, based largely on crop yields in the importing
countries.
Wheat production is subject to
United States federal, state and local policies and regulations
that materially affect operations. Governmental policies affecting
the agricultural industry, such as taxes, tariffs, duties,
subsidies, incentives, acreage control, and import and export
restrictions on agricultural commodities and commodity products,
can influence the planting of certain crops, the location and size
of crop production, the volume and types of imports and exports,
the availability and competitiveness of feedstocks as raw
materials, and industry profitability. Additionally, wheat
production is affected by laws and regulations relating to, but not
limited to, the sourcing, transporting, storing and processing of
agricultural raw materials aswell as the transporting, storing and
distributing of related agricultural products. U.S. wheat producers
also must comply with various environmental laws and regulations,
such as those regulating the use of certain pesticides, and local
laws that regulate the production of genetically modified crops. In
addition, international trade disputes can adversely affect
agricultural commodity trade flows by limiting or disrupting trade
between countries or regions.
Seasonal fluctuations in the
price of wheat may cause risk to an investor because of the
possibility that Share prices will be depressed because of the
wheat harvest cycle. In the United States, the market for winter
wheat, the type of wheat upon which CBOT Wheat Futures Contracts
are based, is at its lowest point, and wheat prices are lowest,
shortly before and during the harvest (in the spring or early
summer), due to the high supply of wheat in the market. Conversely,
winter wheat prices are generally highest in the fall or early
winter, when the wheat harvested that year has largely been sold
and used. In the futures market, these seasonal fluctuations are
typically reflected in contracts expiring in the relevant season
(e.g., contracts expiring during the harvest season are typically
priced lower than contracts expiring in the fall and early winter).
Thus, seasonal fluctuations could result in an investor incurring
losses upon the sale of Fund Shares, particularly if the investor
needs to sell Shares when the Benchmark Component Futures Contracts
are, in whole or part, Wheat Futures Contracts expiring in the
spring.
Position limits and daily price
fluctuation limits set by the CFTC and the exchanges have the
potential to cause tracking error, which could cause the price of
Shares to substantially vary from the Benchmark and prevent you
from being able to effectively use the Fund as a way to hedge
against wheat-related losses or as a way to indirectly invest in
wheat.
The CFTC and U.S. designated
contract markets such as the CBOT have established position
limits on the maximum net long or net short futures contracts in
commodity interests that any person or group of persons under
common trading control (other than as a hedge, which an investment
by the Fund is not) may hold, own or control. For example, the
current position limit for aggregate investments at any one time in
U.S. exchange traded Wheat Futures Contracts, non-U.S. exchange
linked Wheat Futures Contracts, and over-the-counter wheat swaps
are 600 spot month contracts, 12,000 contracts expiring in any
other single month, or cumulative 12,000 total for all months.
These position limits are fixed ceilings that the Fund would not be
able to exceed without specific CFTC
authorization.
If the Fund encounters position
limits, accountability levels, or price fluctuation limits for
Wheat Futures Contracts on the CBOT, it may then, if permitted
under applicable regulatory requirements, purchase Other Wheat
Interests and/or Wheat Futures Contracts listed on foreign
exchanges. However, the Wheat Futures Contracts available on such
foreign exchanges may have different underlying sizes, deliveries,
and prices. In addition, the Wheat Futures Contracts available on
these exchanges may be subject to their own position limits and
accountability levels. In any case, notwithstanding the potential
availability of these instruments in certain circumstances,
position limits could force the Fund to limit the number of
Creation Baskets that it sells.
There are no unresolved staff
comments.
Not
applicable.
Within the past 5 years of the
date of this filing, there have been no material administrative,
civil or criminal actions against the Sponsor, the Trust or any of
the Funds, or any principal or affiliate of any of them. This
includes any actions pending, on appeal, concluded, threatened, or
otherwise known to them.
Not
applicable.
The principal trading market for
the shares of CORN, SOYB, CANE, WEAT and TAGS is the NYSE
Arca.
Price Range of
Shares
The following tables set forth
the range of reported high and low closing prices of the shares for
each Fund as reported on the NYSE Arca for the fiscal year ended
December 31, 2017 and 2016.
The following table sets forth
the range of reported high and low closing prices of the shares of
the Teucrium Corn Fund (symbol “CORN”) as reported on
the NYSE Arca:
|
Fiscal Year
Ended December 31, 2017
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2017
|
|
$
|
20.04
|
|
$
|
18.61
|
|
June 30, 2017
|
|
$
|
19.63
|
|
$
|
18.37
|
|
September 30,
2017
|
|
$
|
19.99
|
|
$
|
17.13
|
|
December 31,
2017
|
|
$
|
17.53
|
|
$
|
16.57
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2016
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
|
$
|
21.78
|
|
$
|
20.12
|
|
June 30, 2016
|
|
$
|
23.60
|
|
$
|
20.21
|
|
September 30,
2016
|
|
$
|
20.31
|
|
$
|
17.71
|
|
December 31,
2016
|
|
$
|
19.71
|
|
$
|
18.45
|
The following table sets forth
the range of reported high and low closing prices of the shares of
the Teucrium Soybean Fund (symbol “SOYB”) as reported
on the NYSE Arca:
|
Fiscal Year
Ended December 31, 2017
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2017
|
|
$
|
20.19
|
|
$
|
18.12
|
|
June 30, 2017
|
|
$
|
18.37
|
|
$
|
17.34
|
|
September 30,
2017
|
|
$
|
19.55
|
|
$
|
17.57
|
|
December 31,
2017
|
|
$
|
18.87
|
|
$
|
17.76
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2016
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
|
$
|
18.13
|
|
$
|
17.06
|
|
June 30, 2016
|
|
$
|
21.62
|
|
$
|
17.96
|
|
September 30,
2016
|
|
$
|
21.14
|
|
$
|
18.16
|
|
December 31,
2016
|
|
$
|
20.12
|
|
$
|
18.47
|
The following table sets forth
the range of reported high and low closing prices of the shares of
the Teucrium Sugar Fund (symbol “CANE”) as reported on
the NYSE Arca:
|
Fiscal Year
Ended December 31, 2017
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2017
|
|
$
|
14.20
|
|
$
|
11.87
|
|
June 30, 2017
|
|
$
|
11.83
|
|
$
|
9.00
|
|
September 30,
2017
|
|
$
|
10.40
|
|
$
|
9.31
|
|
December 31,
2017
|
|
$
|
10.00
|
|
$
|
8.88
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2016
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
|
$
|
11.31
|
|
$
|
8.69
|
|
June 30, 2016
|
|
$
|
13.33
|
|
$
|
9.84
|
|
September 30,
2016
|
|
$
|
15.04
|
|
$
|
12.52
|
|
December 31,
2016
|
|
$
|
15.02
|
|
$
|
12.23
|
The following table sets forth
the range of reported high and low closing prices of the shares of
the Teucrium Wheat Fund (symbol “WEAT”) as reported on
the NYSE Arca:
|
Fiscal Year
Ended December 31, 2017
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2017
|
|
$
|
7.58
|
|
$
|
6.86
|
|
June 30, 2017
|
|
$
|
7.83
|
|
$
|
6.64
|
|
September 30,
2017
|
|
$
|
8.29
|
|
$
|
6.40
|
|
December 31,
2017
|
|
$
|
6.55
|
|
$
|
5.81
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2016
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
|
$
|
9.33
|
|
$
|
8.56
|
|
June 30, 2016
|
|
$
|
9.59
|
|
$
|
8.25
|
|
September 30,
2016
|
|
$
|
8.18
|
|
$
|
7.05
|
|
December 31,
2016
|
|
$
|
7.47
|
|
$
|
6.71
|
The following table sets forth
the range of reported high and low closing prices of the shares of
the Teucrium Agricultural Fund (symbol “TAGS”) as
reported on the NYSE Arca:
|
Fiscal Year
Ended December 31, 2017
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2017
|
|
$
|
27.45
|
|
$
|
24.71
|
|
June 30, 2017
|
|
$
|
24.80
|
|
$
|
22.92
|
|
September 30,
2017
|
|
$
|
25.53
|
|
$
|
22.14
|
|
December 31,
2017
|
|
$
|
22.90
|
|
$
|
21.20
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended December 31, 2016
|
|
High
|
|
Low
|
||
|
Quarter
Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
|
$
|
27.08
|
|
$
|
24.52
|
|
June 30, 2016
|
|
$
|
30.00
|
|
$
|
25.35
|
|
September 30,
2016
|
|
$
|
28.15
|
|
$
|
25.88
|
|
December 31,
2016
|
|
$
|
27.50
|
|
$
|
24.29
|
Change in Net
Asset Value per Share
The graphs below reflect the
change in net asset value (“NAV”) per share for each
year during which a Fund has been in operation. For the first
year of operation, the graph reflects the change from the NAV per
share from the initial price at the commencement of operations to
the price on December 31 for that year-ended. For all other
years, the change is from December 31 of the preceding year to
December 31 of that year.
Holders of the
Funds
The table below sets forth the
approximate number of shareholders for each Fund of the Trust as of
December 31, 2017.
|
Fund
|
Approximate
Number of Shareholders
|
|
CORN
|
6,047
|
|
SOYB
|
1,093
|
|
CANE
|
844
|
|
WEAT
|
4,611
|
|
TAGS
|
98
|
Use of
Proceeds
The original registration
statement on Form S-1 registering 30,000,000 common units, or
“Shares,” of the Teucrium Corn Fund (File No.
333-162033) was declared effective on June 7, 2010. A second
registration statement on Form S-1 (File No. 333-187463) which
replaced the original registration statement was declared effective
on April 30, 2013 and a third (File No. 333-210010) was declared
effective on April 29, 2016. From June 9, 2010 (the commencement of
operations) through December 31, 2017, 15,675,000 Shares of
the Fund were sold at an aggregate offering price of $481,635,681.
The Fund paid fees to Foreside Fund Services, LLC for its services
to the Fund from June 9, 2010 (the commencement of operations)
through December 31, 2017 in an amount equal to $821,482, resulting
in net offering proceeds of $480,814,199. The offering proceeds
were invested in corn futures contracts and cash and cash
equivalents in accordance with the Fund’s investment
objective stated in the prospectus.
The original registration
statement on Form S-1 registering 10,000,000 common units, or
“Shares,” of Teucrium Soybean Fund (File No.
333-167590) was declared effective on June 17, 2011. A second
registration statement on Form S-1 (File No. 333-196210) which
replaced the original registration statement was declared effective
on June 30, 2014. From September 19, 2011 (the commencement of the
offering) through December 31, 2017, 3,075,000 Shares of the Fund
were sold at an aggregate offering price of $63,999,114. The
Fund paid fees to Foreside Fund Services, LLC for its services
to the Fund through December 31, 2017 in an amount equal to
$86,851, resulting in net offering proceeds
of $63,912,263. The offering proceeds were invested in
soybean futures contracts and cash and cash equivalents in
accordance with the Fund’s investment objective stated in the
prospectus.
The original registration
statement on Form S-1 registering 10,000,000 common units, or
“Shares,” of Teucrium Sugar Fund (File No. 333-167585)
was declared effective on June 17, 2011. A second registration
statement on Form S-1 (File No. 333-196211) which replaced the
original registration statement was declared effective on June 30,
2014. From September 19, 2011 (the commencement of the offering)
through December 31, 2017, 2,025,000 Shares of the Fund were sold
at an aggregate offering price of $26,440,621. The Fund
paid fees to Foreside Fund Services, LLC for its services to
the Fund through December 31, 2017 in an amount equal to $39,806,
resulting in net offering proceeds
of $26,400,815. The offering proceeds were
invested in sugar futures contracts and cash and cash equivalents
in accordance with the Fund’s investment objective stated in
the prospectus.
The original registration
statement on Form S-1 registering 10,000,000 common units, or
“Shares,” of Teucrium Wheat Fund (File No. 333-167591)
was declared effective on June 17, 2011. A second registration
statement on Form S-1 (File No. 333-196209) which replaced the
original registration statement was declared effective on June 30,
2014. A third registration statement on Form S-1 (File No.
333-212481) which registered a total of 25,350,000 shares was
declared effective on July 15, 2016. From September 19, 2011 (the
commencement of the offering) through December 31, 2017, 16,875,000
Shares of the Fund were sold at an aggregate offering price of
$156,176,360. The Fund paid fees to Foreside Fund
Services, LLC for its services to the Fund through December 31,
2017 in an amount equal to $215,544, resulting in net offering
proceeds of $155,960,816. The offering
proceeds were invested in wheat futures contracts and cash and cash
equivalents in accordance with the Fund’s investment
objective stated in the prospectus.
The original registration
statement on Form S-1 registering 5,000,000 common units, or
“Shares,” of Teucrium Agricultural Fund (File No.
333-173691) was declared effective on February 10, 2012. A second
registration statement on Form S-1 (File No. 333-201953) which
replaced the original registration statement was declared effective
on April 30, 2015. From March 28, 2012 (the commencement of the
offering) through December 31, 2017, 350,000 Shares of the Fund
were sold at an aggregate offering price of $17,706,578. The Fund
paid fees to Foreside Fund Services, LLC for its services to the
Fund through December 31, 2017 in an amount equal to $8,851,
resulting in net offering proceeds of $17,697,727. The offering
proceeds were invested in Shares of the Underlying Funds and cash
and cash equivalents in accordance with the Fund’s investment
objective stated in the prospectus.
Issuer
Purchases of Equity Securities
The Sponsor, the Trust or any
Fund do not purchase shares directly from shareholders; however,
the information below details for the current period, October 1 to
December 31, 2017, by month and for the year ended December 31,
2017, the share purchases in connection with the redemption of
baskets by Authorized Purchasers.
Issuer
Purchases of CORN Shares:
|
|
|
|
|
|
|
|
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
Total Number of
Shares
|
|
(or Approximate
Dollar
|
|
|
|
|
|
|
|
|
Purchased as
Part
|
|
Value) of Shares
that
|
|
|
|
Total Number
of
|
|
Average Price
|
|
of Publicly
Accounced
|
|
May Yet Be
Purchased
|
|
|
Period
|
|
Shares
Purchased
|
|
Paid per
Share
|
|
Plans or
Programs
|
|
Under the Plans or
Programs
|
|
|
October 1, 2017 to October 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
November 1, 2017 to November 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
December 1, 2017 to December 31,
2017
|
|
50,000
|
|
$
|
16.84
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017 to December 31,
2017
|
|
1,350,000
|
|
$
|
19.09
|
|
N/A
|
|
N/A
|
Issuer
Purchases of SOYB Shares:
|
|
|
|
|
|
|
|
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
Total Number of
Shares
|
|
(or Approximate
Dollar
|
|
|
|
|
|
|
|
|
Purchased as
Part
|
|
Value) of Shares
that
|
|
|
|
Total Number
of
|
|
Average Price
|
|
of Publicly
Accounced
|
|
May Yet Be
Purchased
|
|
|
Period
|
|
Shares
Purchased
|
|
Paid per
Share
|
|
Plans or
Programs
|
|
Under the Plans or
Programs
|
|
|
October 1, 2017 to October 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
November 1, 2017 to November 31,
2017
|
|
450,000
|
|
$
|
18.13
|
|
N/A
|
|
N/A
|
|
December 1, 2017 to December 31,
2017
|
|
525,000
|
|
$
|
18.12
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017 to December 31,
2017
|
|
1,200,000
|
|
$
|
18.23
|
|
N/A
|
|
N/A
|
Issuer
Purchases of WEAT Shares:
|
|
|
|
|
|
|
|
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
Total Number of
Shares
|
|
(or Approximate
Dollar
|
|
|
|
|
|
|
|
|
Purchased as
Part
|
|
Value) of Shares
that
|
|
|
|
Total Number
of
|
|
Average Price
|
|
of Publicly
Accounced
|
|
May Yet Be
Purchased
|
|
|
Period
|
|
Shares
Purchased
|
|
Paid per
Share
|
|
Plans or
Programs
|
|
Under the Plans or
Programs
|
|
|
October 1, 2017 to October 31,
2017
|
|
575,000
|
|
$
|
6.50
|
|
N/A
|
|
N/A
|
|
November 1, 2017 to November 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
December 1, 2017 to December 31,
2017
|
|
75,000
|
|
$
|
5.93
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017 to December 31,
2017
|
|
4,175,000
|
|
$
|
7.46
|
|
N/A
|
|
N/A
|
Issuer
Purchases of CANE Shares:
|
|
|
|
|
|
|
|
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
Total Number of
Shares
|
|
(or Approximate
Dollar
|
|
|
|
|
|
|
|
|
Purchased as
Part
|
|
Value) of Shares
that
|
|
|
|
Total Number
of
|
|
Average Price
|
|
of Publicly
Accounced
|
|
May Yet Be
Purchased
|
|
|
Period
|
|
Shares
Purchased
|
|
Paid per
Share
|
|
Plans or
Programs
|
|
Under the Plans or
Programs
|
|
|
October 1, 2017 to October 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
November 1, 2017 to November 31,
2017
|
|
-
|
|
$
|
-
|
|
N/A
|
|
N/A
|
|
December 1, 2017 to December 31,
2017
|
|
225,000
|
|
$
|
8.96
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017 to December 31,
2017
|
|
700,000
|
|
$
|
10.07
|
|
N/A
|
|
N/A
|
Dividends
Neither the Trust nor any Fund
has made, and there are no plans to make any cash distributions to
shareholders.
Financial Highlights for the
Teucrium Corn Fund (for the years ended December 31, 2017, 2016,
2015, 2014 and 2013).
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|||||
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|||||
|
Net assets
|
|
$
|
64,901,479
|
|
|
$
|
73,213,541
|
|
|
$
|
61,056,223
|
|
|
$
|
108,459,507
|
|
|
$
|
47,499,620
|
|
|
Net realized and unrealized loss
on futures contracts
|
|
$
|
(5,984,276
|
)
|
|
$
|
(6,991,163
|
)
|
|
$
|
(14,193,913
|
)
|
|
$
|
(4,449,213
|
)
|
|
$
|
(13,252,851
|
)
|
|
Net Loss
|
|
$
|
(7,715,090
|
)
|
|
$
|
(9,564,067
|
)
|
|
$
|
(17,183,472
|
)
|
|
$
|
(7,947,064
|
)
|
|
$
|
(16,269,132
|
)
|
|
Weighted-average shares
outstanding
|
|
|
3,714,045
|
|
|
|
3,598,843
|
|
|
|
3,243,223
|
|
|
|
3,460,141
|
|
|
|
1,169,662
|
|
|
Net loss per
share
|
|
$
|
(2.02
|
)
|
|
$
|
(2.47
|
)
|
|
$
|
(5.38
|
)
|
|
$
|
(4.02
|
)
|
|
$
|
(13.70
|
)
|
|
Net loss per weighted average
share
|
|
$
|
(2.08
|
)
|
|
$
|
(2.66
|
)
|
|
$
|
(5.30
|
)
|
|
$
|
(2.30
|
)
|
|
$
|
(13.91
|
)
|
|
Cash and cash equivalents at end
of year
|
|
$
|
63,139,461
|
|
|
$
|
69,072,284
|
|
|
$
|
57,110,089
|
|
|
$
|
106,858,496
|
|
|
$
|
42,405,220
|
|
Financial Highlights for the
Teucrium Soybean Fund (for the years ended December 31, 2017, 2016,
2015, 2014, and 2013).
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|||||
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|||||
|
Net assets
|
|
$
|
10,264,025
|
|
|
$
|
12,882,100
|
|
|
$
|
6,502,552
|
|
|
$
|
11,956,149
|
|
|
$
|
4,016,972
|
|
|
Net realized and unrealized
(loss) gain on futures contracts
|
|
$
|
(785,113
|
)
|
|
$
|
1,507,050
|
|
|
$
|
(1,301,212
|
)
|
|
$
|
(366,913
|
)
|
|
$
|
(10,938
|
)
|
|
Net (Loss)
Income
|
|
$
|
(1,115,780
|
)
|
|
$
|
1,094,528
|
|
|
$
|
(1,517,824
|
)
|
|
$
|
(582,405
|
)
|
|
$
|
(393,523
|
)
|
|
Weighted-average shares
outstanding
|
|
|
717,607
|
|
|
|
623,023
|
|
|
|
386,237
|
|
|
|
251,648
|
|
|
|
257,127
|
|
|
Net (loss) income per
share
|
|
$
|
(1.23
|
)
|
|
$
|
1.74
|
|
|
$
|
(3.45
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
(1.18
|
)
|
|
Net (loss) income per weighted
average share
|
|
$
|
(1.55
|
)
|
|
$
|
1.76
|
|
|
$
|
(3.93
|
)
|
|
$
|
(2.31
|
)
|
|
$
|
(1.53
|
)
|
|
Cash, cash equivalents and
restricted cash at end of year
|
|
$
|
9,942,185
|
|
|
$
|
12,377,999
|
|
|
$
|
6,080,440
|
|
|
$
|
11,505,788
|
|
|
$
|
3,765,791
|
|
Financial Highlights for the
Teucrium Sugar Fund (for the years ended December 31, 2017, 2016,
2015, 2014, and 2013).
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|||||
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|||||
|
Net assets
|
|
$
|
6,363,710
|
|
|
$
|
5,513,971
|
|
|
$
|
5,508,663
|
|
|
$
|
2,661,212
|
|
|
$
|
2,468,403
|
|
|
Net realized and unrealized
(loss) gain on futures contracts
|
|
$
|
(2,171,724
|
)
|
|
$
|
1,457,243
|
|
|
$
|
(411,880
|
)
|
|
$
|
(451,965
|
)
|
|
$
|
(506,016
|
)
|
|
Net (Loss)
Income
|
|
$
|
(2,290,088
|
)
|
|
$
|
1,349,263
|
|
|
$
|
(475,806
|
)
|
|
$
|
(502,562
|
)
|
|
$
|
(542,436
|
)
|
|
Weighted-average shares
outstanding
|
|
|
674,456
|
|
|
|
507,654
|
|
|
|
373,018
|
|
|
|
195,963
|
|
|
|
161,031
|
|
|
Net (loss) income per
share
|
|
$
|
(3.18
|
)
|
|
$
|
2.95
|
|
|
$
|
(1.81
|
)
|
|
$
|
(2.27
|
)
|
|
$
|
(3.71
|
)
|
|
Net (loss) income per weighted
average share
|
|
$
|
(3.40
|
)
|
|
$
|
2.66
|
|
|
$
|
(1.28
|
)
|
|
$
|
(2.56
|
)
|
|
$
|
(3.37
|
)
|
|
Cash, cash equivalents and
restricted cash at end of year
|
|
$
|
5,929,275
|
|
|
$
|
5,090,599
|
|
|
$
|
5,075,248
|
|
|
$
|
2,489,338
|
|
|
$
|
2,366,377
|
|
Financial Highlights for the
Teucrium Wheat Fund (for the years ended December 31, 2017, 2016,
2015, 2014, and 2013).
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|||||
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|||||
|
Net assets
|
|
$
|
61,416,019
|
|
|
$
|
62,344,759
|
|
|
$
|
26,529,260
|
|
|
$
|
22,263,457
|
|
|
$
|
7,048,087
|
|
|
Net realized and unrealized loss
on futures contracts
|
|
$
|
(3,979,575
|
)
|
|
$
|
(11,628,525
|
)
|
|
$
|
(7,200,826
|
)
|
|
$
|
(1,070,987
|
)
|
|
$
|
(2,061,837
|
)
|
|
Net Loss
|
|
$
|
(5,589,587
|
)
|
|
$
|
(13,111,481
|
)
|
|
$
|
(8,137,705
|
)
|
|
$
|
(1,748,035
|
)
|
|
$
|
(2,447,578
|
)
|
|
Weighted-average shares
outstanding
|
|
|
9,594,936
|
|
|
|
5,340,851
|
|
|
|
2,470,483
|
|
|
|
1,408,223
|
|
|
|
379,525
|
|
|
Net loss per
share
|
|
$
|
(0.90
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(2.12
|
)
|
|
$
|
(6.41
|
)
|
|
Net loss per weighted average
share
|
|
$
|
(0.58
|
)
|
|
$
|
(2.45
|
)
|
|
$
|
(3.29
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(6.45
|
)
|
|
Cash, cash equivalents, and
restricted cash at end of year
|
|
$
|
58,932,231
|
|
|
$
|
58,931,911
|
|
|
$
|
24,601,701
|
|
|
$
|
21,568,368
|
|
|
$
|
6,451,639
|
|
Financial Highlights for the
Teucrium Agricultural Fund (for the year ended December 31, 2017,
2016, 2015, 2014 and 2013.
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|||||
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|||||
|
Net assets
|
|
$
|
1,137,639
|
|
|
$
|
1,316,370
|
|
|
$
|
1,329,390
|
|
|
$
|
1,652,749
|
|
|
$
|
1,896,442
|
|
|
Net realized and unrealized loss
on securities
|
|
$
|
(172,534
|
)
|
|
$
|
(6,231
|
)
|
|
$
|
(316,182
|
)
|
|
$
|
(234,501
|
)
|
|
$
|
(529,472
|
)
|
|
Net Loss
|
|
$
|
(178,731
|
)
|
|
$
|
(13,020
|
)
|
|
$
|
(323,359
|
)
|
|
$
|
(243,693
|
)
|
|
$
|
(540,279
|
)
|
|
Weighted-average shares
outstanding
|
|
|
50,002
|
|
|
|
50,002
|
|
|
|
50,002
|
|
|
|
50,002
|
|
|
|
50,002
|
|
|
Net loss per
share
|
|
$
|
(3.58
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(6.46
|
)
|
|
$
|
(4.88
|
)
|
|
$
|
(10.81
|
)
|
|
Net loss per weighted average
share
|
|
$
|
(3.57
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(6.47
|
)
|
|
$
|
(4.87
|
)
|
|
$
|
(10.81
|
)
|
|
Cash equivalents at end of
year
|
|
$
|
2,474
|
|
|
$
|
2,360
|
|
|
$
|
1,815
|
|
|
$
|
1,647
|
|
|
$
|
2,880
|
|
The following discussion should
be read in conjunction with the financial statements and the notes
thereto of the Teucrium Commodity Trust and all of the Funds which
are series of the Trust included elsewhere in the annual report on
Form 10-K.
This annual report on Form 10-K,
including this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” contains
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 filing
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,
operations of the Funds, the Sponsor’s plans and references
to the future success of a Fund or the Funds 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. Consequently, all the
forward-looking statements made in this filing 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 operations of the Funds or the value of the Shares of the
Funds.
Trust
Overview
The business and operations of
the Trust and each Fund are described above under Part I, Item I
entitled “Business.”
Critical
Accounting Policies
The Trust’s critical
accounting policies for all the Funds are as
follows:
1.
Preparation of the financial
statements and related disclosures in conformity with U.S.
generally-accepted accounting principles (“GAAP”)
requires the application of appropriate accounting rules and
guidance, as well as the use of estimates, and requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, revenue and expense and related
disclosure of contingent assets and liabilities during the
reporting period of the combined financial statements and
accompanying notes. The Trust’s application of these policies
involves judgments and actual results may differ from the estimates
used.
2.
The
Sponsor has determined that the valuation of Commodity Interests
that are not traded on a U.S. or internationally recognized futures
exchange (such as swaps and other over-the-counter contracts)
involves a critical accounting policy. The values which are used by
the Funds for futures contracts will be provided by the commodity
broker who will use market prices when available, while
over-the-counter contracts will be valued based on the present
value of estimated future cash flows that would be received from or
paid to a third party in settlement of these derivative contracts
prior to their delivery date. Values will be determined on a daily
basis.
3.
Commodity futures contracts held
by the Funds are recorded on the trade date. All such transactions
are recorded on the identified cost basis and marked to market
daily. Unrealized appreciation or depreciation on commodity futures
contracts are reflected in the statement of operations as the
difference betweenthe original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statement of
operations. Interest on cash equivalents and deposits are
recognized on the accrual basis. The Funds earn interest on funds
held at the custodian or other financial institutions at prevailing
market rates for such investments.
4.
Cash and cash equivalents are
cash held at financial institutions in demand-deposit accounts or
highly-liquid investments with original maturity dates of three
months or less at inception. The Funds reported cash equivalents in
the statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Funds have a
substantial portion of its assets on deposit with banks. Assets
deposited with financial institutions may, at times, exceed
federally insured limits.
5.
The
use of fair value to measure financial instruments, with related
unrealized gains or losses recognized in earnings in each period is
fundamental to the Trust’s financial statements. In
accordance with GAAP, fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (i.e.,
the “exit price”) in an orderly transaction between
market participants at the measurement date.
In determining fair value, the
Trust uses various valuation approaches. In accordance with GAAP, a
fair value hierarchy for inputs is used in measuring fair value
that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are those that market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Trust.
Unobservable inputs reflect the Trust’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels: a) Level 1 - Valuations based on unadjusted quoted prices
in active markets for identical assets or liabilities that the
Trust has the ability to access. Valuation adjustments and block
discounts are not applied to Level 1 securities and financial
instruments. Since valuations are based on quoted prices that are
readily and regularly available in an active market, valuation of
these securities and financial instruments does not entail a
significant degree of judgment, b) Level 2 - Valuations based on
quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly,
and c) Level 3 - Valuations based on inputs that are unobservable
and significant to the overall fair value measurement. See the
notes within the financial statements for further
information.
The Funds and the Trust record
their derivative activities at fair value. Gains and losses from
derivative contracts are included in the statement of operations.
Derivative contracts include futures contracts related to commodity
prices. Futures, which are listed on a national securities
exchange, such as the CBOT or the New York Mercantile Exchange
(“NYMEX”), or reported on another national market, are
generally categorized in Level 1 of the fair value hierarchy. OTC
derivatives contracts (such as forward and swap contracts) which
may be valued using models, depending on whether significant inputs
are observable or unobservable, are categorized in Levels 2 or 3 of
the fair value hierarchy.
6.
Brokerage commissions on all open
commodity futures contracts are accrued on a full-turn
basis.
7.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Funds’
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Funds’ trading,
the Funds (and not its shareholders personally) are subject to
margin calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated, and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
8.
Due
from/to broker for investments in financial instruments are
securities transactions pending settlement. The Trust and TAGS are
subject to credit risk to the extent any broker with whom it
conducts business is unable to fulfill contractual obligations on
its behalf. The management of the Trust and the Funds monitors the
financial condition of such brokers and does not anticipate any
losses from these counterparties. Since the inception of the Fund,
the principal broker through which the Trust and TAGS clear
securities transactions for TAGS is the Bank of New York Mellon
Capital Markets.
9.
The
investment objective of TAGS is to have the daily changes in
percentage terms of the Net Asset Value (“NAV”) of its
common units (“Shares”) reflect the daily changes in
percentage terms of a weighted average (the “Underlying Fund
Average”) of the NAVs per share of four other commodity pools
that are series of the Trust and are sponsored by the Sponsor: the
Teucrium Corn Fund, the Teucrium Wheat Fund, the Teucrium Soybean
Fund and the Teucrium Sugar Fund (collectively, the
“Underlying Funds”). The Underlying Fund Average will
have a weighting of 25% to each Underlying Fund, and the
Fund’s assets will be rebalanced, generally on a daily basis,
to maintain the approximate 25% allocation to each Underlying Fund.
As such, TAGS will buy, sell and hold as part of its normal
operations shares of the four Underlying Funds. The Trust excludes
the shares of the other series of the Trust owned by the Teucrium
Agricultural Fund from its statements of assets and liabilities.
The Trust excludes the net change in unrealized appreciation or
depreciation on securities owned by the Teucrium Agricultural Fund
from its statements of operations. Upon the sale of the Underlying
Funds by the Teucrium Agricultural Fund, the Trust includes any
realized gain or loss in its statements of changes in net
assets.
10.
For
tax purposes, the Funds will be treated as partnerships. Therefore,
the Funds do not record a provision for income taxes because the
partners report their share of a Fund’s income or loss on
their income tax returns. The financial statements reflect the
Funds’ transactions without adjustment, if any, required for
income tax purposes.
11.
For
commercial paper, the Funds use the effective interest method for
calculating the actual interest rate in a period based on the
amount of a financial instrument's book value at the beginning of
the accounting period. Accretion on these investments are
recognized on the effective interest method in U.S. dollars and
recognized in cash equivalents. All discounts on purchase prices of
debt securities are accreted over the life of the respective
security.
Results of
Operations
The discussion below addresses
the material changes in the results of operations for the year
ended December 31, 2017 compared to the years ended December 31,
2016 and 2015. CORN, SOYB, CANE WEAT and TAGS operated for the
entirety of all periods discussed below.
Total expenses for the current
and comparative periods are presented both gross and net of any
expenses waived or paid by the Sponsor that would have been
incurred by the Funds (“expenses waived by the
Sponsor”). For all expenses waived in 2015, 2016 and 2017,
the Sponsor has determined that no reimbursement will be sought in
future periods. “Total expenses, net”, which is after
the impact of any expenses waived by or reimbursed to the Sponsor,
are presented in the same manner as previously reported. There is,
therefore, no impact to or change in the net gain or net loss in
any period for the Trust and each Fund as a result of this change
in presentation.
In accordance with ASU 2016-18
issued by the FASB, the presentation of restricted cash on the
financial statements beginning with this filing is updated to be
included in “Cash and Cash Equivalents” on the
Statements of Assets and Liabilities and the Statements of Cash
Flows, and as specified in the Notes to the Financial Statements
under “Cash, cash equivalents and restricted cash”.
This presentation did not have a material impact on the financial
statements and disclosures of the Trust and the Funds. Effective
October 2017, for all funds the balance for restricted cash held in
custody at the Bank of New York Mellon was $0.
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, including services directly attributable to the Fund such as
accounting, financial reporting, regulatory compliance and trading
activities, which the Sponsor elected not to outsource. In
addition, the Funds, except for TAGS which has no such fee, are
contractually obligated to pay a monthly management fee to the
Sponsor, based on average daily net assets, at a rate equal to
1.00% per annum.
The Fund generally 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, the Financial Industry Regulatory Authority
(“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. Each Fund also pays its portion of the fees
and expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to
all 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 and redeem 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, which are
included in the related line item in the statements of operations.
A portion of these aggregate common expenses are related to
services provided by the Sponsor or related parties of principals
of the Sponsor; these are necessary services to the Funds, which
are primarily the cost of performing accounting and financial
reporting, regulatory compliance, and trading activities that are
directly attributable to the Funds and are, primarily, included as
distribution and marketing fees on the statements of
operations. These amounts, for the Trust and for each Fund,
are detailed in the notes to the financial statements included in
Part II of this filing.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Funds or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. Expenses paid by the Sponsor and Management fees
waived by the Sponsor are, if applicable, presented as waived
expenses in the statements of operations for each
Fund.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. In addition,
effective on the Conversion Date, U.S. Bancorp Fund Services, LLC
(“USBFS”), a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank, N.A. and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
The Sponsor stated in the Forms
10-Q filed on August 10, 2015 and November 9, 2015, in addition to
other documents filed with the Securities and Exchange Commission,
that it did not anticipate any material change to the expenses for
any Fund, net of expenses waived by the Sponsor, as a result of the
servicing conversion to USBFS and U.S. Bank, N.A. For the periods
after the Conversion Date presented in this filing, any change in
custodian fees and expenses resulting from the change in
Administrator and Custodian, net of amounts waived by the Sponsor,
are not considered by Management to be
material.
For the period January 1, 2017 to
December 31, 2017, the Funds, in total, recorded an increase in
expenses, gross and net of any expenses waived by the Sponsor, over
what had been recorded in 2016. For the year ending December 31,
2017, total expenses gross of any waived expenses, were $6,580,718,
while total expenses, net were $5,551,819. For the year 2016,
these were, $6,146,659 and $5,308,644, respectively. For
2015, these were $5,416,644 and $4,435,961, respectively. The
increase in expenses for the period 2017 compared to 2016, gross of
any waived expenses, was $434,059 which was driven principally by:
1) a $231,655 or 18% increase in management fees paid to the
Sponsor; 2) a $310,402 or 14% increase in distribution and
marketing fees; and 3) a $2,862 or 2% increase in brokerage
commissions due to an increase in contracts purchased and rolled.
These increases by category, were partially offset by: 1) a
($63,920) or 4% decrease in professional fees related to auditing,
legal and tax preparation fees; 2) a ($11,930) or 11% decrease in
business permits and licenses; 3) a ($13,642) or 4% decrease in
custodian fees and expenses; and 4) a ($12,828) or 4% decrease in
general and administrative expenses. Total expenses, net
of expenses waived by the Sponsor, increased by $243,175 for 2017
compared to 2016 due to the increase in gross expenses, which was
partially offset by an increase of $190,884 in expenses waived by
the Sponsor.
For the year ended December 31,
2017, no reimbursement to the Sponsor will be sought in any future
period for expenses that have been identified as waived by the
Sponsor.
Teucrium Corn Fund
The Teucrium Corn Fund commenced
investment operations on June 9, 2010. The investment
objective of the Corn Fund is to have the daily changes in
percentage terms of the Shares’ NAV reflect the daily changes
in percentage terms of a weighted average of the closing settlement
prices for three futures contracts for corn (“Corn Futures
Contracts”) that are traded on the Chicago Board of Trade
(“CBOT”), specifically (1) the second-to-expire CBOT
Corn Futures Contract, weighted 35%, (2) the third-to-expire CBOT
Corn Futures Contract, weighted 30%, and (3) the CBOT Corn Futures
Contract expiring in the December following the expiration month of
the third-to-expire contract, weighted 35%. On December 31, 2017,
the Corn Fund held a total of 3,509 CBOT Corn Futures contracts
with a notional value of $64,903,800. Of these, $1,060 contracts
had an asset fair value of $120,487, while 2,449 contracts had a
liability fair value of $1,962,050. The weighting of the notional
value of the contracts was weighted as follows: (1) 35% to the
MAY18 contracts, the second-to-expire CBOT Corn Futures Contract,
(2) 30% to JUL18 CBOT contracts, the third-to-expire CBOT Corn
Futures Contract, and (3) 35% to DEC18 CBOT contracts, the CBOT
Corn Futures Contract expiring in the December following the
expiration month of the third-to-expire
contract.
The benchmark for the Fund is the
Teucrium Corn Index (TCORN) which is defined as: A weighted average
of daily changes in the closing settlement prices of (1) the
second-to-expire Corn Futures Contract traded on the CBOT, weighted
35%, (2) the third-to-expire CBOT Corn Futures Contract, weighted
30%, and (3) the CBOT Corn Futures Contract expiring in the
December following the expiration month of third-to-expire
contract, weighted 35%. To convert to an index, 100 is set to
$25, the opening day price of CORN
.
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TCORN for two periods. One period is
December 31, 2016 compared to December 31, 2017. The second
period is from the commencement of operations to December 31, 2017.
The Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the
NAV do include the impacts of both expenses and interest
income.
|
Period
|
Change in NAV
per share
|
Change in
Market Price
|
Change in the
Benchmark (TCORN)
|
|
December 31, 2016 to December 31,
2017
|
-10.78%
|
-10.38%
|
-8.47%
|
|
June 10, 2010 to December 31,
2017
|
-35.20%
|
-34.99%
|
-10.67%
|
For
the Year Ended December 31, 2017 Compared to the Years Ended
December 31, 2016 and 2015
On December 31, 2017, the Fund
had 3,875,004 shares outstanding and net assets of
$64,901,479. This is in comparison to 3,900,004 shares
outstanding and net assets of $73,213,541 on December 31, 2016 and
2,875,004 shares outstanding with net assets of $61,056,223 on
December 31, 2015. Shares outstanding decreased by 25,000 or
1% for the period of 2017 when compared to 2016. This slight
decrease was, in the opinion of management, due to the slight
increase in global ending stocks for 2017/18 compared to the
2016/17 crop year. Ending stocks is the amount of corn that will
available at the end of the crop year, given the estimated
beginning stocks, productions and usage. In total, the Fund
issued 1,325,000 shares and purchased 1,350,000 shares, in 2017, as
part of creation and redemption baskets. For the period 2017
compared to 2015, there was an increase in shares outstanding of
1,000,000 or 35%. In total, in 2016, the Fund issued 2,875,000
shares and purchased 1,850,000 shares as part of creation and
redemption baskets.
Total net assets for the Fund
were $64,901,479 on December 31, 2017, compared to $73,213,541 on
December 31, 2016 and $61,056,223 on December 31, 2015. The Net
Asset Values (“NAV”) per share related to these
balances were $16.75, $18.77 and $21.24 respectively. When
comparing December 31, 2017 with 2016, there was a decrease in
total net assets of 11%, driven by a decrease in the NAV per share
of ($2.02) or 11%. When comparing December 31, 2017 with 2015,
there was an increase in total net assets of 6%, driven by a
combination of an increase in the number of shares outstanding of
1,000,000 or 35% and a change in the NAV per share which decreased
by ($4.49) or 21%. The closing prices per share for 2017, 2016 and
2015, as reported by the NYSE Arca, were $16.77, $18.71 and $21.22,
respectively. The change from December 31, 2017 over prior
years was a 10% decrease from 2016 and a 21% decrease from
2015.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2017 and serves to illustrate the relative changes of these
components.
The total loss for the year ended
December 31, 2017 was ($5,205,716) resulting primarily from the net
change in realized loss on commodity futures contracts totaling
($5,603,513), and by a net change in unrealized depreciation of
commodity futures contracts of ($380,763). Total loss was
($6,594,484) in 2016, and ($14,047,008) in 2015. Realized gain or
loss on trading of commodity futures contracts is a function of: 1)
the change in the price of the particular contracts sold as part of
a “roll” in contracts as the nearest to expire
contracts are exchanged for the appropriate contact given the
investment objective of the fund, 2) the change in the price of
particular contracts sold in relation to redemption of shares, 3)
the gain or loss associated with rebalancing trades which are made
to ensure conformance to the benchmark and 4) the number of
contracts held and then sold for either circumstance
aforementioned. Unrealized gain or loss on trading of
commodity futures contracts is a function of the change in the
price of contracts held on the final date of the period versus the
purchase price for each contract and the number of contracts held
in each contract month. The Sponsor has a static benchmark as
described above and trades futures contracts to adhere to that
benchmark and to adjust for the creation or redemption of
shares.
Interest income for year ended
December 31, 2017, 2016, and 2015, respectively, was $778,560,
$396,679, and $146,905. This increase year-over-year was the
result of the Sponsor investing, at times, a portion of the
available cash for the Fund in alternative demand-deposit savings
accounts beginning in the second quarter of 2015, these accounts
had higher overnight deposit rates. More recently, effective
October 3, 2017, the Fund invested in investment grade commercial
paper with maturities of ninety days or less. Both investments
provided a higher rate than were available in money market products
that had been utilized solely in the past. In addition,
effective in December 2015, December 2016 and March, June and
December 2017, interest rates paid on cash balances of the Fund
increased in light of the increases in the Federal Funds rate.
These higher levels of interest rates are expected to continue in
2018, absent any decreases in the Federal Funds
rate.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2017 were
$2,918,936; total expenses for 2016 were $3,411,916 and $3,232,532
in 2015. This represents a ($492,980) or 14% decrease for 2017 over
2016 and an ($313,596) or 10% decrease for 2017 over
2015. The decrease for 2017 over 2016 was driven by: 1)
a ($415,753) or 40% decrease in professional fees related to
auditing, legal and tax preparation fees; and 2) a ($36,509) or 5%
decrease in management fee paid to the Sponsor as a result of lower
average net assets; 3) a ($29,465) or 16% decrease in custodian
fees and expenses; 4) a ($17,398) or 12% decrease in general and
administrative expenses; and 5) a ($17,025) or 18% decrease in
brokerage commissions due to a decrease in contracts purchased and
rolled. These decreases were offset partially by: 1) a $16,139 or
1% increase in distribution and marketing fees; and 2) a $8,364 or
50% increase in business permits and licenses. The decreases in
operating expenses were due to expense controls under taken by the
Sponsor and lower average net asset balance relative to the other
Funds.
The decrease for 2017 over 2015
was driven by a decrease in all expense categories except brokerage
commissions, which increased by $38,450 or 93% due to a increase in
contracts purchased and rolled. The decreases were: 1) a ($97,134)
or 12% in the management fee paid to the Sponsor as a result of
lower average net assets; 2) a ($112,269) or 15% decrease in
professional fees related to auditing, legal and tax preparation
fees; 3) a ($22,573) or 2% decrease in distribution and marketing
fees; 4) a ($33,277) or 18% in custodian fees and expenses; 5) a
($1,601) or 6% decrease in business permits and licenses; 6) a
($80,956) or 39% decrease in general and administrative expenses;
and 7) a ($4,236) or 9% decrease in other expenses. The decreases
in operating expenses were due to expense controls under taken by
the Sponsor and lower average net asset balance relative to the
other Funds. The total expense ratio gross of expenses waived by
the Sponsor for these years was 4.28% in 2017, 4.74% in 2016, and
4.15% in 2015. The management fee is calculated at an annual rate
of 1% of the Fund’s daily average net
assets.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Fund or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. For the year ended December 31, 2017, the
Sponsor waived fees of $409,562; the Sponsor has determined that no
reimbursement will be sought in future periods for those expenses
which have been waived for the year. The Sponsor permanently
waived $442,333 of expenses in 2016 and $96,068 in
2015.
Total expenses net of expenses
waived by the Sponsor and reimbursement to the Sponsor for
previously waived expenses (“Total expenses, net”) for
2017, 2016 and 2015 were $2,509,374, $2,969,583, and $3,136,464
respectively. The total expense ratio net of expenses waived by the
Sponsor periods was 3.68% in 2017, 4.13% in 2016 and 4.03% in 2015.
Net investment loss, which includes the impact of expenses and
interest income, was 2.54% in 2017, 3.58% in 2016, and 3.84% in
2015.
Other than the management fee to
the Sponsor and the brokerage commissions, most of the expenses
incurred by the Fund are associated with the day-to-day operation
of the Fund and the necessary functions related to regulatory
compliance. These are generally based on contracts, which
extend for some period of time and up to one year, or commitments
regardless of the level of assets under management. The
structure of the Fund and the nature of the expenses are such that
as total net assets grow, there is a scalability of expenses that
may allow the total expense ratio to be reduced. However, if total
net assets for the Fund fall, the total expense ratio of the Fund
will increase unless additional reductions are made by the Sponsor
to the daily expense accrual. The Sponsor can elect to adjust the
daily expense accruals at its discretion based on market conditions
and other Fund considerations.
Net cash used in the Fund’s
operating activities during the year was ($5,335,851) in 2017,
($9,759,190) in 2016 and ($17,532,410) in 2015. In 2017, proceeds
from the sale of shares were $25,173,968 in 2017, representing
1,325,000 shares while payments for redemptions were $25,770,940,
representing 1,350,000 shares. In 2016, proceeds from the sale of
shares were $57,591,933, representing 2,875,000 shares while
payments for redemptions were $35,870,548, representing 1,850,000
shares. In 2015, proceeds from the sale of shares were
$8,538,198, representing 350,000 shares while payments for
redemptions were $38,758,010, representing 1,550,000
shares.
The seasonality patterns for corn
futures prices are impacted by a variety of factors. These include,
but are not limited to, the harvest in the fall, the planting
conditions in the spring, and the weather throughout the critical
germination and growing periods. Prices for corn futures
areaffected by the availability and demand for substitute
agricultural commodities, including soybeans and wheat, and the
demand for corn as an additive for fuel, through the production of
ethanol. The price of corn futures contracts is also influenced by
global economic conditions, including the demand for exports to
other countries. Such factors will impact the performance of the
Fund and the results of operations on an ongoing basis. The Sponsor
cannot predict the impact of such factors.
Teucrium Soybean Fund
The Teucrium Soybean Fund
commenced investment operations on September 19, 2011. The
investment objective of the Fund is to have the daily changes in
percentage terms of the Shares’ Net Asset Value
(“NAV”) reflect the daily changes in percentage terms
of a weighted average of the closing settlement prices for three
futures contracts for soybeans (“Soybean Futures
Contracts”) that are traded on the Chicago Board of Trade
(“CBOT”). Except as described in the following
paragraph, the three Soybean Futures Contracts will be: (1)
second-to-expire CBOT Soybean Futures Contract, weighted 35%, (2)
the third-to-expire CBOT Soybean Futures Contract, weighted 30%,
and (3) the CBOT Soybean Futures Contract expiring in
the November following the expiration month of the
third-to-expire contract, weighted 35%, except the CBOT soybean
futures contracts expiring in August and September will not be part
of the Teucrium Soybean Fund’s Benchmark because of the less
liquid market for these Futures Contracts. On December 31, 2017,
the Fund held a total of 212 CBOT soybean futures contracts with a
notional value of $10,281,788.
These contracts had a
liability fair value of $448,063. The weighting of the notional
value of the contracts was weighted as follows: (1) 35% to MAR18
CBOT contracts, (2) 30% to MAY18 CBOT contracts, and (3) 35% to
NOV18 CBOT contracts.
The benchmark for the Fund is the
Teucrium Soybean Index (TSOYB) which is defined as: A weighted
average of daily changes in the closing settlement prices of (1)
second-to-expire CBOT Soybean Futures Contract, weighted 35%, (2)
the third-to-expire CBOT Soybean Futures Contract, weighted 30%,
and (3) the CBOT Soybean Futures Contract expiring in
the November following the expiration month of the
third-to-expire contract, weighted 35%, except the CBOT soybean
futures contracts expiring in August and September will not be part
of the Teucrium Soybean Fund’s Benchmark because of the less
liquid market for these Futures Contracts. During the period when
the Excluded Contracts are the second-to-expire and third-to-expire
Soybean Futures Contract, the fourth-to-expire and fifth-to-expire
Soybean Futures Contracts will take the place of the
second-to-expire and third-to-expire Soybean Futures Contracts,
respectively, as Benchmark Component Futures
Contracts. Similarly, when the August Contract is the
third-to-expire Soybean Futures Contract, the fifth-to-expire
Soybean Futures Contract will take the place of the August Contract
as a Benchmark Component Futures Contract, and when the September
Contract is the second-to-expire Soybean Futures Contract, the
third-to-expire and fourth-to-expire Soybean Futures Contracts will
be Benchmark Component Futures Contracts. To convert to an
index, 100 is set to $25, the opening day price of SOYB
.
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TSOYB for two periods. One period is
December 31, 2016 compared to December 31, 2017. The second
period is from the commencement of operations to December 31, 2017.
The Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the
NAV do include the impacts of both expenses and interest
income.
|
Period
|
Change in
NAV
per
share
|
Change
in
Market
Price
|
Change in the
Benchmark (TSOYB)
|
|
December 31, 2016 to December 31,
2017
|
-6.47%
|
-6.38%
|
-4.10%
|
|
September 19, 2011 to December
31, 2017
|
-27.62%
|
-28.71%
|
-2.21%
|
For
the Year Ended December 31, 2017 Compared to the Years Ended
December 31, 2016 and 2015
On December 31, 2017, the Fund
had 575,004 shares outstanding and net assets of $10,264,025.
This is in comparison to 675,004 shares outstanding and net assets
of $12,882,100 on December 31, 2016 and 375,004 shares outstanding
with net assets of $6,502,552 on December 31, 2015. Shares
outstanding decreased by 100,000 or 15% for the period of 2017 when
compared to 2016. This decrease was, in the opinion of
management, due to the stronger than expected competition from
Argentina and Brazil and record high ending stocks estimated for
the 2017/18 crop year. Ending stocks is the amount of soybeans that
will available at the end of the crop year, given the estimated
beginning stocks, productions and usage. In total, the Fund issued
1,100,000 shares and purchased 1,200,000 shares as part of creation
and redemption baskets in 2017. For the period 2017 compared to
2015, there was an increase in shares outstanding of 200,000 or
53%. In total, the Fund issued 500,000 shares and purchased
200,000 shares as part of creation and redemption baskets, in
2016.
Total net assets for the Fund
were $10,264,025 on December 31, 2017, compared to $12,882,100 on
December 31, 2016 and $6,502,552 on December 31, 2015. The Net
Asset Values (“NAV”) per share related to these
balances were $17.85, $19.08 and $17.34 respectively. When
comparing December 31, 2017 with 2016, there was a decrease in
total net assets of 20%, which was driven by a combination of a
decrease in total shares outstanding of 15% and a decrease in the
NAV per share of ($1.23) or 6%. When comparing December 31,
2017 with 2015, there was an increase in total net assets of 58%,
which was driven by a combination of an increase in the number of
shares outstanding of 53% and an increase in the NAV per share of
$0.51 or 3%. The closing prices per share for 2017, 2016 and 2015,
as reported by the NYSE Arca, were $17.88, $19.10 and $17.33,
respectively. The change from December 31, 2017 over prior
years was a 6% decrease from 2016 and a 3% increase from
2015.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2017 and serves to illustrate the relative changes of these
components.
Total loss for the year ended
December 31, 2017 was ($632,168) resulting from the net change in
realized gain on commodity futures contracts totaling $8,425 and a
change in unrealized depreciation on commodity futures contracts of
($793,538). Total income (loss) was $1,572,207 in 2016 and
($1,288,083) in 2015. Realized gain or loss on trading of commodity
futures contracts is a function of: 1) the change in the price of
the particular contracts sold as part of a “roll” in
contracts as the nearest to expire contracts are exchanged for the
appropriate contact given the investment objective of the fund, 2)
the change in the price of particular contracts sold in relation to
redemption of shares, 3) the gain or loss associated with
rebalancing trades which are made to ensure conformance to the
benchmark and 4) the number of contracts held and then sold for
either circumstance aforementioned. Unrealized gain or loss
on trading of commodity futures contracts is a function of the
change in the price of contracts held on the final date of the
period versus the purchase price for each contract and the number
of contracts held in each contract month. The Sponsor has a
static benchmark as described above and trades futures contracts to
adhere to that benchmark and to adjust for the creation or
redemption of shares.
Interest income for the year
ended December 31, 2017, 2016, and 2015, respectively, was
$152,945, $65,157 and $13,129. This increase year-over-year was the
result of the Sponsor investing, at times, a portion of the
available cash for the Fund in alternative demand-deposit savings
accounts beginning in the second quarter of 2015. These
accounts had higher overnight deposit rates than were available in
money market products that had been utilized solely in the past. In
addition, effective in December 2015, December 2016 and March, June
and December 2017, interest rates paid on cash balances of the Fund
increased in light of the increases in the Federal Funds rate.
These higher levels of interest rates are expected to continue in
2018, absent any decreases in the Federal Funds
rate.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2017 were
$610,101; total expenses for 2016 were $546,593 and $534,350 in
2015. This represents a $63,508 or 12% increase for 2017 over 2016
and a $75,751 or 14% increase for 2017 over 2015. The increase for
2017 over 2016 was driven by: 1) a $14,619 or 12% increase in
management fee paid to the Sponsor due to higher average net
assets; 2) a $65,694 or 58% increase in professional fees related
to auditing, legal and tax preparation fees; and 3) a $6,955 or
462% increase in brokerage commissions due to an increase in
contracts purchased and rolled. These were partially offset by
decreases of: 1) a ($8,171) or 4% decrease in distribution and
marketing expenses; 2) a ($6,406) or 19% decrease in custodian fees
and expenses; 3) a ($783) or 4% decrease in business permits and
licenses; 4) a ($7,978) or 25% decrease in general and
administrative expenses; and 5) a ($422) or 4% decrease in other
expenses. The increases year over year were generally due to higher
average net assets year over year.
The increase for 2017 over 2015
was driven by increases in all expense categories period over
period except for custodian fees and expenses. Increases were: 1) a
$59,696 or 81% increase in management fee paid to the Sponsor due
to higher average net assets; 2) a $30,795 or 21% increase in
professional fees related to auditing, legal and tax preparation
fees; 3) a $92,735 or 79% increase in distribution and marketing
fees;4) a $2,628 or 12% increase in general and administrative
expenses; 5) a $2,419 or 40% increase in brokerage commissions due
to an increase in contracts purchased and rolled; and 6) a $5,224
or 117% increase in other expenses. These were partially offset by
a ($118,643) or 81% decrease in custodian fees and expenses as a
result of the servicing conversion to USBFS and U.S. Bank, N.A. The
increases year over year were generally due to higher average net
assets relative to other funds. The total expense ratio gross of
expenses waived by the Sponsor for these years was 4.59% in 2017,
4.61% in 2016, and 7.31% in 2015. The management fee is calculated
at an annual rate of 1% of the Fund’s daily average net
assets.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Fund or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. For the year ended December 31, 2017, the
Sponsor waived fees of $126,489; the Sponsor has determined that no
reimbursement will be sought in future periods for those expenses
which have been waived for the year. The Sponsor permanently
waived $68,914 of expenses in 2016 and $304,609 in
2015.
Total expenses net of expenses
waived by the Sponsor (“Total expenses, net”) for 2017,
2016 and 2015 were $483,612, $477,679 and $229,741 respectively.
The total expense ratio net of expenses waived by the Sponsor was
3.63% in 2017, 4.03% in 2016 and 3.14% in 2015. Net investment
loss, which includes the impact of expenses and interest income,
was 2.48% in 2017, 3.48% in 2016, and 2.96% in
2015.
Other than the management fee to
the Sponsor and the brokerage commissions, most of the expenses
incurred by the Fund are associated with the day-to-day operation
of the Fund and the necessary functions related to regulatory
compliance. These are generally based on contracts, which
extend for some period of time and up to one year, or commitments
regardless of the level of assets under management. The
structure of the Fund and the nature of the expenses are such that
as total net assets grow, there is a scalability of expenses that
may allow the total expense ratio to be reduced. However, if total
net assets for the Fund fall, the total expense ratio of the Fund
will increase unless additional reductions are made by the Sponsor
to the daily expense accrual. The Sponsor can elect to adjust the
daily expense accruals at its discretion based on market conditions
and other Fund considerations.
Net cash used in the Fund’s
operating activities during 2017 was ($933,519). Net cash provided
by (used in) operating activities by the Fund was $1,012,539 in
2016 and ($1,489,575) in 2015. In 2017, proceeds from the sale of
shares were $20,374,923 representing 1,100,000 shares while
payments for the redemption of shares were $21,877,218 representing
1,200,000 shares. In 2016, proceeds from the sale of shares were
$9,190,140 representing 500,000 shares while payments for the
redemption of shares were $3,905,120 representing 200,000 shares.
In 2015, proceeds from the sale of shares were $2,478,439
representing 125,000 shares while payments for the redemption of
shares were $6,414,212 representing 325,000
shares.
The seasonality patterns for
soybean futures prices are impacted by a variety of factors. These
include, but are not limited to, the harvest in the fall, the
planting conditions in the spring, and the weather throughout the
critical germination and growing periods. Prices for soybean
futures are affected by the availability and demand for substitute
agricultural commodities, including corn and wheat. The price of
soybean futures contracts is also influenced by global economic
conditions, including the demand for exports to other countries.
Such factors will impact the performance of the Fund and the
results of operations on an ongoing basis. The Sponsor cannot
predict the impact of such factors.
Teucrium Sugar Fund
The Teucrium Sugar Fund commenced
investment operations on September 19, 2011. The investment
objective of the Fund is to have the daily changes in percentage
terms of the Shares’ Net Asset Value (“NAV”)
reflect the daily changes in percentage terms of a weighted average
of the closing settlement prices for three futures contracts for
sugar (“Sugar Futures Contracts”) that are traded on
ICE Futures US (“ICE Futures”), specifically: (1) the
second-to-expire Sugar No. 11 Futures Contract (a “Sugar No.
11 Futures Contract”), weighted 35%, (2) the third-to-expire
Sugar No. 11 Futures Contract, weighted 30%, and (3) the Sugar No.
11 Futures Contract expiring in the March following the expiration
month of the third-to-expire contract, weighted 35%. On December
31, 2017, the Fund held a total of 373 ICE sugar futures contracts
with a notional value of $6,371,859. Of these, 247 had an asset
fair value of $184,319, while 126 contracts had a liability fair
value of $67,133. The weighting of the notional value of the
contracts was weighted as follows: (1) 35% to the MAY18 ICE No 11
contracts, (2) 30% to the JUL18 ICE No 11 contracts, and (3) 35% to
the MAR19 ICE No 11 contracts.
The benchmark for the Fund is the
Teucrium Sugar Index (TCANE) which is defined as: A weighted
average of daily changes in the closing settlement prices (1) the
second-to-expire Sugar No. 11 Futures Contract (a “Sugar No.
11 Futures Contract”), weighted 35%, (2) the third-to-expire
Sugar No. 11 Futures Contract, weighted 30%, and (3) the Sugar No.
11 Futures Contract expiring in the March following the expiration
month of the third-to-expire contract, weighted 35%. To
convert to an index, 100 is set to $25, the opening day price of
CANE
.
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TCANE for two periods. One period is
December 31, 2016 compared to December 31, 2017. The second
period is from the commencement of operations to December 31, 2017.
The Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the
NAV do include the impacts of both expenses and interest
income.
|
Period
|
Change in NAV
per share
|
Change in
Market Price
|
Change in the
Benchmark (TCANE)
|
|
December 31, 2016 to December 31,
2017
|
-24.54%
|
-24.76%
|
-23.22%
|
|
September 19, 2011 to December
31, 2017
|
-61.29%
|
-61.75%
|
-52.82%
|
For
the Year Ended December 31, 2017 Compared to the Years Ended
December 31, 2016 and 2015
On December 31, 2017, the Fund
had 650,004 shares outstanding and net assets of $6,363,710.
This is in comparison to 425,004 shares outstanding and net assets
of $5,513,971 on December 31, 2016 and 550,004 shares outstanding
with net assets of $5,508,663 on December 31, 2015. Shares
outstanding increased by 225,000 or 53% for the period of 2017 when
compared to 2016. This increase was, in the opinion of management,
due to the low price of sugar and record world demand relative to
recent years, which accelerated investor interest. In 2017, the
Fund issued 925,000 shares and purchased 700,000 shares as part of
creation and redemption baskets, in 2017. In 2016, the Fund issued
250,000 shares and purchased 375,000 shares as part of creation and
redemption baskets. For the period 2017 compared to 2015, there was
an increase in shares outstanding of 100,000 or 18%. In 2015,
the Fund issued 375,000 shares and purchased 50,000 shares as part
of creation and redemption baskets.
Total net assets for the Fund
were $6,363,710 on December 31, 2017, compared to $5,513,971 on
December 31, 2016 and $5,508,663 on December 31, 2015. The Net
Asset Values (“NAV”) per share related to these
balances were $9.79, $12.97 and $10.02 respectively. When comparing
December 31, 2017 with 2016, there was an increase in total net
assets of 15%, driven by a combination of an increase in total
shares outstanding of 225,000 or 53% and bya change in the NAV per
share which decreased by ($3.18) or 25%. When comparing December
31, 2017 with 2015, there was an increase in total net assets of
16%, driven by a increase in total shares outstanding of 18%, which
was offset by an decrease in the NAV per share of ($0.23) or
2%. The closing prices per share for 2017, 2016 and 2015, as
reported by the NYSE Arca, were $9.78, $13.00 and $10.06,
respectively. The change from December 31, 2017 over prior
years was a 25% decrease from 2016 and a 3% decrease from
2015.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2017 and serves to illustrate the relative changes of these
components.
Total loss for the year ended
December 31, 2017 was ($2,092,835) resulting primarily from the
realized loss on commodity futures contracts totaling ($2,435,305)
and a gain generated by the net change in unrealized appreciation
on commodity futures contracts of $263,581. Total income (loss) was
$1,489,291 in 2016 and ($404,210) in 2015. Realized gain or loss on
trading of commodity futures contracts is a function of: 1) the
change in the price of the particular contracts sold as part of a
“roll” in contracts as the nearest to expire contracts
are exchanged for the appropriate contact given the investment
objective of the fund, 2) the change in the price of particular
contracts sold in relation to redemption of shares, 3) the gain or
loss associated with rebalancing trades which are made to ensure
conformance to the benchmark and 4) the number of contracts held
and then sold for either circumstance aforementioned.
Unrealized gain or loss on trading of commodity futures contracts
is a function of the change in the price of contracts held on the
final date of the period versus the purchase price for each
contract and the number of contracts held in each contract
month. The Sponsor has a static benchmark as described above
and trades futures contracts to adhere to that benchmark and to
adjust for the creation or redemption of
shares.
Interest income for year ended
December 31, 2017, 2016, and 2015, respectively, was $78,889,
$32,048 and $7,670. This increase year-over-year was the
result of the Sponsor investing, at times, a portion of the
available cash for the Fund in alternative demand-deposit savings
accounts beginning in the second quarter of 2015. These
accounts had higher overnight deposit rates than were available in
money market products that had been utilized solely in the past. In
addition, effective in December 2015, December 2016 and March, June
and December 2017, interest rates paid on cash balances of the Fund
increased in light of the increases in the Federal Funds rate.
These higher levels of interest rates are expected to continue in
2018, absent any decreases in the Federal Funds
rate.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2017 were
$326,587; total expenses for 2016 were $288,309 and $327,823 in
2015. This represents a $38,278 or 13% increase for 2017 over 2016
and a ($1,236) or 0% decrease for 2017 over 2015. The increase for
2017 over 2016 was driven by increases of: 1) a $14,485 or 26%
increase in management fee paid to the Sponsor due to higher
average net assets; 2) a $16,357 or 35% increase in professional
fees related to auditing, legal and tax preparation fees; 3) a
$10,654 or 9% increase in distribution and marketing fees;4) a $463
or 2% increase in custodian fees and expenses;and 5) a $1,844 or
21% increase in brokerage commissions due to an increase in
contracts purchased and rolled. These were partially offset by
decreases of: 1) a ($3,030) or 17% decrease general and
administrative expenses; 2) a ($1,182) or 6% decrease in business
permits and licenses; and 3) a ($1,313) or 21% decrease in other
expense. The increases year over year were generally due to higher
average net assets relative to the other Funds.
The increase for 2017 over 2015
was driven by increases in all expense categories period over
period except for professional fees and custodian fees and
expenses. Increases were: 1) a $35,276 or 99% increase in
management fee paid to the Sponsor due to higher average net
assets; 2) a $70,429 or 126% increase in distribution and marketing
fees; 3) a $1,616 or 10% increase in business permits and license
fees; 4) a $5,780 or 66% increase in general and administrative
expenses; 5) a $6,525 or 163% increase in brokerage commissions
brokerage commissions due to an increase in contracts purchased and
rolled; and 7) a $2,197 or 80% increase in other expenses. These
were partially offset by: 1) a ($2,352) or 4% decrease in
professional fees related to auditing, legal and tax preparation
fees; and 2) a ($120,707) or 86% decrease in custodian fees and
expenses as a result of the servicing conversion to USBFS and U.S.
Bank, N.A. The increases year over year were generally due to
higher average net assets. The total expense ratio gross of
expenses waived by the Sponsor for these years was 4.62% in 2017,
4.72% in 2016, and 9.16% in 2015. The management fee is calculated
at an annual rate of 1% of the Fund’s daily average net
assets.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Fund or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. For the year ended December 31, 2017, the
Sponsor waived fees of $129,334; the Sponsor has determined that no
reimbursement will be sought in future periods for those expenses
which have been waived for the year. The Sponsor permanently
waived $148,281 of expenses in 2016 and $256,227 in
2015.
Total expenses net of expenses
waived by the Sponsor (“Total expenses, net”) for 2017,
2016 and 2015 were $197,253, $140,028 and $71,596, respectively.
The total expense ratio net of expenses waived by the Sponsor
periods was 2.79% in 2017, 2.29% in 2016 and 2.00% in 2015. Net
investment loss, which includes the impact of expenses and interest
income, was 1.68% in 2017, 1.77% in 2016 and 1.79% in
2015.
Other than the management fee to
the Sponsor and the brokerage commissions, most of the expenses
incurred by the Fund are associated with the day-to-day operation
of the Fund and the necessary functions related to regulatory
compliance. These are generally based on contracts, which
extend for some period of time and up to one year, or commitments
regardless of the level of assets under management. The
structure of the Fund and the nature of the expenses are such that
as total net assets grow, there is a scalability of expenses that
may allow the total expense ratio to be reduced. However, if total
net assets for the Fund fall, the total expense ratio of the Fund
will increase unless additional reductions are made by the Sponsor
to the daily expense accrual. The Sponsor can elect to adjust the
daily expense accruals at its discretion based on market conditions
and other Fund considerations.
Net cash used in the Fund’s
operating activities during the 2017 was ($2,301,151). Net cash
provided by (used in) operating activities by the Fund was
$1,359,306 in 2016 and ($737,347) in 2015. In 2017, proceeds from
the sale of shares were $10,190,950 representing 925,000 shares
while payments for the redemption of shares were $7,051,123
representing 700,000 shares. In 2016, proceeds from the sale of
shares were $2,805,578 representing 250,000 shares while payments
for the redemption of shares were $4,149,533 representing 375,000
shares. In 2015, proceeds from the sale of shares was $3,767,602
representing 375,000 while payments for the redemption of shares
were $444,345 representing 50,000 shares.
Teucrium Wheat Fund
The Teucrium Wheat Fund commenced
investment operations on September 19, 2011. The investment
objective of the Fund is to have the daily changes in percentage
terms of the Shares’ Net Asset Value reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”), specifically: (1) the
second-to-expire CBOT Wheat Futures Contract, weighted 35%, (2) the
third-to-expire CBOT Wheat Futures Contract, weighted 30%, and (3)
the CBOT Wheat Futures Contract expiring in the December following
the expiration month of the third-to-expire contract, weighted 35%.
On December 31, 2017, the Fund held a total of 2,682 CBOT wheat
futures contracts with a notional value of $61,430,113. Of these,
813 had an asset fair value of $604,475, while 1,869 contracts had
a liability fair value of $3,200,525. The weighting of the notional
value of the contracts was weighted as follows: (1) 35% to MAY18
CBOT contracts, (2) 30% to JUL18 CBOT contracts, and (3) 35% to
DEC18 CBOT contracts.
The benchmark for the Fund is the
Teucrium Wheat Index (TWEAT) which is defined as: A weighted
average of daily changes in the closing settlement prices of (1)
the second-to-expire Wheat Futures Contract traded on the CBOT,
weighted 35%, (2) the third-to-expire CBOT Wheat Futures Contract,
weighted 30%, and (3) the CBOT Wheat Futures Contract expiring in
the December following the expiration month of third-to-expire
contract, weighted 35%. To convert to an index, 100 is set to
$25, the opening day price of WEAT
.
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TWEAT for two periods. One period is
December 31, 2016 compared to December 31, 2017. The second
period is from the commencement of operations to December 31, 2017.
The Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the
NAV do include the impacts of both expenses and interest
income.
|
Period
|
Change in NAV
per share
|
Change in
Market Price
|
Change in the
Benchmark (TWEAT)
|
|
December 31, 2016 to December 31,
2017
|
-13.02%
|
-12.79%
|
-10.86%
|
|
September 19, 2011 to December
31, 2017
|
-75.54%
|
-75.87%
|
-66.58%
|
For
the Year Ended December 31, 2017 Compared to the Years Ended
December 31, 2016 and 2015
On December 31, 2017, the Fund
had 10,250,004 shares outstanding and net assets of
$61,416,019. This is in comparison to 9,050,004 shares
outstanding and net assets of $62,344,759 on December 31, 2016 and
2,900,000 shares outstanding with net assets of $26,529,260 on
December 31, 2015. Shares outstanding increased by 1,200,000
or 13% for the period of 2017 when compared to 2016. This
increase was, in the opinion of management, due to the low price of
wheat relative to recent years which accelerated investor interest.
In 2017, the Fund issued 5,375,000 shares and purchased 4,175,000
shares as part of creation and redemption baskets. In 2016, the
Fund issued 6,475,000 shares and purchased 325,000 shares as part
of creation and redemption baskets. For the period 2017 compared to
2015, there was an increase in shares outstanding of 7,350,000
shares or 253%. In 2015, the Fund issued 1,675,000 shares and
purchased 525,000 shares as part of creation and redemption
baskets.
Total net assets for the Fund
were $61,416,019 on December 31, 2017, compared to $62,344,759 on
December 31, 2016 and $26,529,260 on December 31, 2015. The Net
Asset Values (“NAV”) per share related to these
balances were $5.99, $6.89 and $9.15 respectively. When comparing
December 31, 2017 with 2016, the net assets decreased by 1%, which
was driven by a combination of an increase in the number of shares
outstanding of 13%, offset by a change in the NAV per share which
decreased by ($0.90) or 13%. When comparing December 31, 2017
with 2015, there was an increase in total net assets of 132%,
driven by a combination of an increase in total shares outstanding
of 253%, which was partially offset by a decrease in the NAV per
share of ($3.16) or 35%. The closing prices per share for
2017, 2016 and 2015, as reported by the NYSE Arca, were $6.00,
$6.88 and $9.14, respectively. The change from December 31,
2017 over prior years was a 13% decrease from 2016 and a 34%
decrease from 2015.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2017 and serves to illustrate the relative changes of these
components.
The total loss for the year ended
December 31, 2017 was ($3,234,218) resulting primarily from the net
change in realized loss on commodity futures contracts totaling
($5,305,113), and by a net change in unrealized appreciation of
commodity futures contracts of $1,325,538. Total loss was
($11,396,927) in 2016, and ($7,146,717) in 2015. Realized gain or
loss on trading of commodity futures contracts is a function of: 1)
the change in the price of the particular contracts sold as part of
a “roll” in contracts as the nearest to expire
contracts are exchanged for the appropriate contact given the
investment objective of the fund, 2) the change in the price of
particular contracts sold in relation to redemption of shares, 3)
the gain or loss associated with rebalancing trades which are made
to ensure conformance to the benchmark and 4) the number of
contracts held and then sold for either circumstance
aforementioned. Unrealized gain or loss on trading of
commodity futures contracts is a function of the change in the
price of contracts held on the final date of the period versus the
purchase price for each contract and the number of contracts held
in each contract month. The Sponsor has a static benchmark as
described above and trades futures contracts to adhere to that
benchmark and to adjust for the creation or redemption of
shares.
Interest income for year ended
December 31, 2017, 2016, and 2015, respectively, was $745,357,
$231,598 and $54,109. This increase year-over-year was the
result of the Sponsor investing, at times, a portion of the
available cash for the Fund in alternative demand-deposit savings
accounts beginning in the second quarter of 2015, these accounts
had higher overnight deposit rates. More recently, effective
October 3, 2017, the Fund invested in investment grade commercial
paper with maturities of ninety days or less. Both investments
provided a higher rate than were available in money market products
that had been utilized solely in the past. In addition,
effective in December 2015, December 2016 and March, June and
December 2017, interest rates paid on cash balances of the Fund
increased in light of the increases in the Federal Funds rate.
These higher levels of interest rates are expected to continue in
2018, absent any decreases in the Federal Funds
rate.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2017 were
$2,678,613; total expenses for 2016 were $1,854,582 and $1,121,704
in 2015. This represents a $824,031 or 44% increase for 2017 over
2016 and a $1,556,909 or 139% increase for 2017 over 2015. The
increase for 2017 over 2016 was driven by: 1) a $239,060 or 58%
increase in management fee paid to the Sponsor due to higher
average net assets; 2) a $266,767 or 84% increase in professional
fees related to auditing, legal and tax preparation fees; 3) a
$292,861 or 38% increase in distribution and marketing fees; 4) a
$22,242, or 18% increase in custodian fees and expenses; 5) a
$15,713 or 17% increase in general and administrative expenses; and
6) a $11,311 or 23% increase in brokerage commissions due to an
increase in contracts purchased and rolled. These were partially
offset by decreases of: 1) a ($18,383) or 47% in custodian fees and
expenses; and 2) a ($5,540) or 13% decrease in other expenses. The
increases year over year were generally due to higher average net
assets relative to other funds.
The increase for 2017 over 2015
was driven by increases in all expense categories period over
period except custodian fees and expenses. Increases were: 1) a
$399,610 or 157% increase in management fee paid to the Sponsor due
to higher average net assets; 2) a $372,533 or 175% increase in
professional fees related to auditing, legal and tax preparation
fees; 3) a $696,133 or 186% increase in distribution and marketing
fees; 4) a $6,930 or 50% increase in business permits and license
fees; 5) a $41,345 or 63% increase in in general and administrative
expenses; 6) a $38,959 or 189% increase in brokerage commissions
due to an increase in contracts purchased and rolled; and 7) a
$30,075 or 412% increase in other expenses. This was partially
offset by a decrease of ($28,676) or 17% in custodian fees and
expenses. The increases year over year were generally due to higher
average net assets relative to other funds. The total expense ratio
gross of expenses waived by the Sponsor for these years was 4.09%
in 2017, 4.47% in 2016, and 4.40% in 2015. The management fee is
calculated at an annual rate of 1% of the Fund’s daily
average net assets.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Fund or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. For the year ended December 31, 2017, the
Sponsor waived fees of $323,244; the Sponsor has determined that no
reimbursement will be sought in future periods for those expenses
which have been waived for the year. The Sponsor permanently waived
$140,028 of expenses in 2016 and $130,716 in
2015.
Total expenses net of expenses
waived by the Sponsor and reimbursement to the Sponsor for
previously waived expenses (“Total expenses, net”) for
2017, 2016 and 2015 were $2,355,369, $1,714,554, and $990,988
respectively. The total expense ratio net of expenses waived by the
Sponsor periods was 3.60% in 2017, 4.13% in 2016 and 3.89% in 2015.
Net investment loss, which includes the impact of expenses and
interest income, was 2.46% in 2017, 3.57% in 2016, and 3.67% in
2015.
Other than the management fee to
the Sponsor and the brokerage commissions, most of the expenses
incurred by the Fund are associated with the day-to-day operation
of the Fund and the necessary functions related to regulatory
compliance. These are generally based on contracts, which
extend for some period of time and up to one year, or commitments
regardless of the level of assets under management. The
structure of the Fund and the nature of the expenses are such that
as total net assets grow, there is a scalability of expenses that
may allow the total expense ratio to be reduced. However, if total
net assets for the Fund fall, the total expense ratio of the Fund
will increase unless additional reductions are made by the Sponsor
to the daily expense accrual. The Sponsor can elect to adjust the
daily expense accruals at its discretion based on market conditions
and other Fund considerations.
Net cash used in the Fund’s
operating activities during the period was ($4,660,527) in 2017,
($14,596,770) in 2016 and ($9,370,175) in 2015. In 2017, proceeds
from the sale of shares were $35,809,657 representing 5,375,000
shares while payments for redemption of shares were $31,148,810
representing 4,175,000 shares. In 2016, proceeds from the sale of
shares were $51,690,600 representing 6,475,000 shares while
payments for redemption of shares were $2,763,620 representing
325,000 shares. In 2015, proceeds from the sale of shares were
$18,019,705 representing 1,675,000 shares while payments for the
redemption of shares were $5,616,197 representing 525,000
shares.
The seasonality patterns for
wheat futures prices are impacted by a variety of factors. These
include, but are not limited to, the harvest in the fall, the
planting conditions in the spring, and the weather throughout the
critical germination and growing periods. Prices for wheat futures
are affected by the availability and demand for substitute
agricultural commodities, including corn andsoybeans. The price of
wheat futures contracts is also influenced by global economic
conditions, including the demand for exports to other countries.
Such factors will impact the performance of the Fund and the
results of operations on an ongoing basis. The Sponsor cannot
predict the impact of such factors.
Teucrium Agricultural Fund
The Teucrium Agricultural Fund
commenced operation on March 28, 2012. On April 22, 2011, an
initial registration statement was filed with the Securities and
Exchange Commission (“SEC”). On February 10, 2012, the
Fund’s initial registration of 5,000,000 shares on Form S-1
was declared effective by the U.S. Securities and Exchange
Commission (“SEC”). On March 28, 2012, the Fund listed
its shares on the NYSE Arca under the ticker symbol
“TAGS.” On the business day prior to that, the Fund
issued 300,000 shares in exchange for $15,000,000 at the
Fund’s initial NAV of $50 per share. The Fund also commenced
investment operations on March 28, 2012 by purchasing shares of the
Underlying Funds. On December 31, 2011, the Fund had two
shares outstanding, which were owned by the
Sponsor.
The investment objective of the
Fund is to have the daily changes in percentage terms of the Net
Asset Value (“NAV”) of its common units
(“Shares”) reflect the daily changes in percentage
terms of a weighted average (the “Underlying Fund
Average”) of the NAVs per share of four other commodity pools
that are series of the Trust and are sponsored by the Sponsor: the
Teucrium Corn Fund (“CORN”), the Teucrium Wheat Fund
(“WEAT”), the Teucrium Soybean Fund
(“SOYB”) and the Teucrium Sugar Fund
(“CANE”) (collectively, the “Underlying
Funds”). The Underlying Fund Average will have a
weighting of 25% to each Underlying Fund, and the Fund’s
assets will be rebalanced, generally on a daily basis, to maintain
the approximate 25% allocation to each Underlying
Fund. The Fund does not intend to invest directly in
futures contracts (“Futures Contracts”), although it
reserves the right to do so in the future, including if an
Underlying Fund ceases operations.
The investment objective of each
Underlying Fund is to have the daily changes in percentage terms of
its shares’ NAV reflect the daily changes in percentage terms
of a weighted average of the closing settlement prices for certain
Futures Contracts for the commodity specified in the Underlying
Fund’s name. (This weighted average is referred to
herein as the Underlying Fund’s “Benchmark,” the
Futures Contracts that at any given time make up an Underlying
Fund’s Benchmark are referred to herein as the Underlying
Fund’s “Benchmark Component Futures Contracts,”
and the commodity specified in the Underlying Fund’s name is
referred to herein as its “Specified
Commodity.”) Specifically, the Teucrium Corn
Fund’s Benchmark is: (1) the second-to-expire Futures
Contract for corn traded on the Chicago Board of Trade
(“CBOT”), weighted 35%, (2) the third-to-expire CBOT
corn Futures Contract, weighted 30%, and (3) the CBOT corn Futures
Contract expiring in the December following the expiration month of
the third-to-expire contract, weighted 35%. The Teucrium
Wheat Fund’s Benchmark is: (1) the second-to-expire CBOT
wheat Futures Contract, weighted 35%, (2) the third-to-expire CBOT
wheat Futures Contract, weighted 30%, and (3) the CBOT wheat
Futures Contract expiring in the December following the expiration
month of the third-to-expire contract, weighted 35%. The
Teucrium Soybean Fund’s Benchmark is: (1) the
second-to-expire CBOT soybean Futures Contract, weighted 35%, (2)
the third-to-expire CBOT soybean Futures Contract, weighted 30%,
and (3) the CBOT soybean Futures Contract expiring in the November
following the expiration month of the third-to-expire contract,
weighted 35%, except that CBOT soybean Futures Contracts expiring
in August and September will not be part of the Teucrium Soybean
Fund’s Benchmark because of the less liquid market for these
Futures Contracts. The Teucrium Sugar Fund’s
Benchmark is: (1) the second-to-expire Sugar No. 11 Futures
Contract traded on ICE Futures US (“ICE Futures”),
weighted 35%, (2) the third-to-expire ICE Futures Sugar No. 11
Futures Contract, weighted 30%, and (3) the ICE Futures Sugar No.
11 Futures Contract expiring in the March following the expiration
month of the third-to-expire contract, weighted
35%.
On December 31, 2017, the Fund
held: 1) 17,158 shares of CORN with a fair value of $287,376; 2)
47,737 shares of WEAT with a fair value of $286,031; 3) 15,331
shares of SOYB with a fair value of $273,664; and 4) 29,524 shares
of CANE with a fair value of $289,049. The weighting on
December 31, 2017 was 25% to CORN, 25% to WEAT, 25% to SOYB and 25%
to CANE.
|
The benchmark for the Fund is the
Teucrium Agricultural Index (TTAGS) which is defined as: A weighted
average of the daily changes in percentage terms of the
Shares’ NAV reflect the daily changes in percentage terms of
a weighted average (the “Underlying Fund Average”) of
the NAVs per share of four other commodity pools that are series of
the Trust and are sponsored by the Sponsor: the Teucrium Corn Fund,
the Teucrium Wheat Fund, the Teucrium Soybean Fund and the Teucrium
Sugar Fund (collectively, the “Underlying Funds”). The
Fund seeks to achieve its investment objective by investing under
normal market conditions in the publicly-traded shares of each
Underlying Fund so that the Underlying Fund Average will have a
weighting of 25% to each Underlying Fund, and the Fund’s
assets will be rebalanced, generally on a daily basis, to maintain
the approximate 25% allocation to each Underlying Fund. To convert
to an index, 100 is set to $50 the opening day price of
TAGS
.
|
The chart below shows the percent
change in the NAV per share for the Fund, the market price of the
Fund shares, represented by the closing price of the Fund on the
NYSE Arca or the mid-point of the 4 pm bid and ask if no closing
price is available, and TTAGS for two periods. One period is
December 31, 2016 compared to December 31, 2017. The second
period is from the commencement of operations to December 31, 2017.
The Benchmark does not reflect any impact of expenses, which would
generally reduce the Fund’s NAV, or interest income, which
would generally increase the NAV. The actual results for the
NAV do include the impacts of both expenses and interest
income.
|
Period
|
Change in NAV
per share
|
Change in
Market Price
|
Change in the
Benchmark (TTAGS)
|
|
December 31, 2016 to December 31,
2017
|
-13.58%
|
-13.94%
|
-13.25%
|
|
March 28, 2012 to December 31,
2017
|
-54.00%
|
-55.48%
|
-52.46%
|
For
the Year Ended December 31, 2017 Compared to the Years Ended
December 31, 2016 and 2015
On December 31, 2017, 2016 and
2015, the Fund had 50,002 shares outstanding. The net assets
of the Fund were $1,137,639 in 2017, $1,316,370 in 2016, and
$1,329,390 in 2015. There were no shares issued or redeemed
in 2017, 2016 or 2015. Effective August 2, 2012, the Fund was at
50,002 shares outstanding which represents a minimum number of
shares and there could be no further redemptions until additional
shares are created.
Total net assets for the Fund
were $1,137,639 on December 31, 2017, compared to $1,316,370 on
December 31, 2016 and $1,329,390 on December 31, 2015. The Net
Asset Values (“NAV”) per share related to these
balances were $22.75, $26.33, and $26.59 respectively. When
comparing December 31, 2017 with 2016, there was a decrease in
total net assets of 14%, which was driven by a change in the NAV
per share which decreased by ($3.58) or 14%. When comparing
December 31, 2017 with 2015, there was an decrease in total net
assets of 14%, which was driven by a change in the NAV per share
which decreased by ($3.84) or 14%. The closing prices per share for
2017, 2016 and 2015, as reported by the NYSE Arca, were $22.10,
$25.68, and $26.47, respectively. The change from December
31, 2017 over prior years was a 14% decrease from 2016 and 17%
decrease from 2015.
The graph below shows the actual
shares outstanding, total net assets (or AUM) and net asset value
per share (NAV per share) for the Fund from inception to December
31, 2017 and serves to illustrate the relative changes of these
components.
Total loss for 2017 was
($172,520) resulting from the realized loss on the securities of
the Underlying Funds totaling ($238,398) and a gain generated by
the unrealized appreciation on the securities of the Underlying
Funds of $65,864. Total loss for the period in 2016 and 2015 was
($6,220) and ($316,186), respectively. Realized gain or loss on the
securities of the Underlying Funds is a function of: 1) the change
in the price of particular contracts sold in relation to redemption
of shares, and 2) the gain or loss associated with rebalancing
trades which are made to ensure conformance to the benchmark.
Unrealized gain or loss on the securities of the Underlying Funds
is a function of the change in the price of shares held on the
final date of the period versus the purchase price for each and the
number held. The Sponsor has a static benchmark as described
above and trades futures contracts to adhere to that benchmark and
to adjust for the creation or redemption of
shares.
Total expenses gross of expenses
waived by the Sponsor (“Total expenses”) for 2017 were
$46,481; total expenses for 2016 were $45,259 and $200,236 in 2015.
This represents a $1,222 or 3% increase for 2017 over 2016 and a
($153,755) or 77% decrease for 2017 over 2015. The increase
for 2017 over 2016 was driven principally by: 1) a $3,015 or 25%
increase in professional fees related to auditing, legal and tax
preparation fees; and 2) a $67 or 12% increase in other
expenses. There were decreases in all other categories due to
lower average net assets relative to the other Funds. There
were decreases in all expense categories when comparing 2017 versus
2015. These decreases were driven principally by: 1) a ($9,926) or
40% decrease in professional fees related to auditing, legal
and tax preparation fees; 2) a ($131,875) or 98% decrease in
custodian fees and expenses as a result of the servicing conversion
to USBFS and U.S. Bank, N.A.; and 3) a ($6,993) or 80% decrease in
general and administrative expenses. All other expense categories
also decreased slightly. The total expense ratio gross of expenses
waived by the Sponsor for these years was 3.74% in 2017, 3.33% in
2016, and 13.97% in 2015.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Fund. This election
is subject to change by the Sponsor, at its discretion. For the
year ended December 31, 2017, the Sponsor waived fees of $40,270;
the Sponsor has determined that no reimbursement will be sought in
future periods for those expenses which have been waived for the
year. The Sponsor permanently waived $38,459 of expenses in
2016 and $193,063 in 2015.
Total expenses net of expenses
waived by the Sponsor (“Total expenses, net”) for 2017,
2016 and 2015 were $6,211, $6,800, and $7,173 respectively. The
total expense ratio net of expenses waived by the Sponsor for these
periods was 0.50% in 2017, 0.50% in 2016 and 0.50% in
2015.
Other than the brokerage
commissions, most of the expenses incurred by the Fund are
associated with the day-to-day operation of the Fund and the
necessary functions related to regulatory compliance. These
are generally based on contracts, which extend for some period of
time and up to one year, or commitments regardless of the level of
assets under management. The structure of the Fund and the nature
of the expenses are such that as total net assets grow, there is a
scalability of expenses that may allow the net expense ratio to be
reduced. As the Sponsor has initiated a percentage based daily
expense accrual for the Fund, even if total net assets for the Fund
fall, the total expense ratio of the Fund will not increase.
The Sponsor can elect to adjust the daily expense accruals at its
discretion based on market conditions and other Fund
considerations.
Net cash provided by the
Fund’s operating activities during the period was $114 in
2017, $545 in 2016, and $168 in 2015. There were no proceeds from
creation baskets or payments for redemption baskets in 2017, 2016
or in 2015.
Benchmark Performance
The Funds are new and have a
limited operating history. Investing in Commodity Interests
subjects the Funds to the risks of the underlying commodity market,
and this could result in substantial fluctuations in the price of
each Fund’s Shares. Unlike mutual funds, the Funds generally
will not distribute dividends to Shareholders. Investors may choose
to use the Funds as a means of investing indirectly in the
underlying commodity, and there are risks involved in such
investments. The Sponsor has limited experience operating a
commodity pool. Investors may choose to use the Funds as vehicles
to hedge against the risk of loss, and there are risks involved in
hedging activities.
During the period from January 1,
2017 through December 31, 2017, the average daily change in the NAV
of each Fund was within plus/minus 10 percent of the average daily
change in the Benchmark of the Fund, as stated in the prospectus
for each Fund.
Frequency
Distribution of Premiums and Discounts
Description
The frequency distribution charts
below present information about the difference between the daily
market price for Shares of each Fund and the Fund’s reported
Net Asset Value per share. The amount that a Fund’s market
price is above the reported NAV is called the premium. The amount
that a Fund’s market price is below the reported NAV is
called the discount. The market price is determined using the
midpoint between the highest bid and the lowest offer on the
listing exchange, as of the time that a Fund’s NAV is
calculated (usually 4:00 p.m., New York time). The horizontal axis
of the chart shows the premium or discount expressed in basis
points. The vertical axis indicates the number of trading days in
the period covered by the chart. Each bar in the chart shows the
number of trading days in which a Fund traded within the
premium/discount range indicated. The charts are also
available on the website for each Fund on a quarterly
basis.
*A unit that is equal to 1/100th
of 1% and is used to denote the change in a financial
instrument.
NEITHER THE
PAST PERFORMANCE OF A FUND NOR THE PRIOR INDEX LEVELS AND CHANGES,
POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE
FUND’S FUTURE PERFORMANCE
CORN
The performance data above for
the Teucrium Corn Fund represents past performance. Past
performance is not a guarantee of future results. Investment return
and value of the Fund’s Shares will fluctuate so that an
investor’s Shares, when sold, may be worth more or less than
their original cost. Performance may be lower or higher than
performance data quoted.
SOYB
The performance data above for
the Teucrium Soybean Fund represents past performance. Past
performance is not a guarantee of future results. Investment return
and value of the Fund’s Shares will fluctuate so that an
investor’s Shares, when sold, may be worth more or less than
their original cost. Performance may be lower or higher than
performance data quoted.
CANE
The performance data above for
the Teucrium Sugar Fund represents past performance. Past
performance is not a guarantee of future results. Investment return
and value of the Fund’s Shares will fluctuate so that an
investor’s Shares, when sold, may be worth more or less than
their original cost. Performance may be lower or higher than
performance data quoted.
WEAT
The performance data above for
the Teucrium Wheat Fund represents past performance. Past
performance is not a guarantee of future results. Investment return
and value of the Fund’s Shares will fluctuate so that an
investor’s Shares, when sold, may be worth more or less than
their original cost. Performance may be lower or higher than
performance data quoted.
TAGS
The performance data above for
the Teucrium Agricultural Fund represents past performance. Past
performance is not a guarantee of future results. Investment return
and value of the Fund’s Shares will fluctuate so that an
investor’s Shares, when sold, may be worth more or less than
their original cost. Performance may be lower or higher than
performance data quoted.
Beginning August 2, 2012 and
through December 31, 2017, TAGS has 50,002 shares currently
outstanding; this represents the minimum number of shares and,
thus, no shares can be redeemed until additional shares have been
created. This situation has, over the past 12 months,
generated a situation in which the spread between bid/ask midpoint
at 4pm and the NAV falls outside of the “1 to 49” or
“-1 to -49” range. The situation does not affect
the actual NAV of the Fund.
Off Balance Sheet Financing
As of December 31, 2017, neither
the Trust nor any of the Funds has any loan guarantees, credit
support or other off-balance sheet arrangements of any kind other
than agreements entered into in the normal course of business,
which may include indemnification provisions relating to certain
risks service providers undertake in performing services which are
in the best interests of the Funds. While the exposure of
each Fund under these indemnification provisions cannot be
estimated, they are not expected to have a material impact on the
financial positions of each Fund.
Liquidity and Capital Resources
The Funds do not anticipate
making use of borrowings or other lines of credit to meet their
obligations. The Funds meet their liquidity needs in
the normal course of business from the proceeds of the sale of
their investments from the cash, cash equivalents and/or the
Treasuries Securities that they intend to hold, and/or from the fee
waivers provided by the Sponsor. The Funds’ liquidity needs
include: redeeming their shares, providing margin deposits for
existing Futures Contracts or the purchase of additional Futures
Contracts, posting collateral for over-the-counter Commodity
Interests, and paying expenses.
The Funds generate cash primarily
from (i) the sale of Creation Baskets and (ii) interest earned on
cash and cash equivalents. Generally, all of the net assets of
the Funds are allocated to trading in Commodity
Interests. Most of the assets of the Funds are held in
cash and/or cash equivalents. The percentage that such assets
bear to the total net assets will vary from period to period as the
market values of the Commodity Interests change. Interest
earned on interest-bearing assets of a Fund are paid to that
Fund.
The investments of a Fund in
Commodity Interests are subject to periods of illiquidity because
of market conditions, regulatory considerations and other
reasons. For example, U.S. futures exchanges limit the
fluctuations in the prices of certain Futures Contracts during a
single day by regulations referred to as “daily
limits.” During a single day, no trades may be
executed at prices beyond the daily limit. Once the
price of such a Futures Contract has increased or decreased by an
amount equal to the daily limit, positions in the contracts can
neither be taken nor liquidated unless the traders are willing to
effect trades at or within the limit. Such market
conditions could prevent the Fund from promptly liquidating a
position in Futures Contracts.
Market Risk
Trading in Commodity Interests
such as Futures Contracts will involve the Funds entering into
contractual commitments to purchase or sell specific amounts of
commodities at a specified date in the future. The gross
or face amount of the contracts is expected to significantly exceed
the future cash requirements of each Fund as each Fund intends to
close out any open positions prior to the contractual expiration
date. As a result, each Fund’s market risk is the
risk of loss arising from the decline in value of the contracts,
not from the need to make delivery under the
contracts. The Funds consider the “fair
value” of derivative instruments to be the unrealized gain or
loss on the contracts. The market risk associated with
the commitment by the Funds to purchase a specific commodity will
be limited to the aggregate face amount of the contacts
held.
The exposure of the Funds to
market risk will depend on a number of factors including the
markets for the specific commodity, the volatility of interest
rates and foreign exchange rates, the liquidity of the
commodity-specific Interest markets and the relationships among the
contracts held by each Fund.
Credit Risk
When any of the Funds enter into
Commodity Interests, it will be exposed to the credit risk that the
counterparty will not be able to meet its
obligations. For purposes of credit risk, the
counterparty for the Futures Contracts traded on the CBOT, NYMEX,
and ICE is the clearinghouse associated with those
exchanges. In general, clearinghouses are backed by
their members who may be required to share in the financial burden
resulting from the nonperformance of one of their members, which
should significantly reduce credit risk. Some foreign
exchanges are not backed by their clearinghouse members but may be
backed by a consortium of banks or other financial
institutions. Unlike in the case of exchange-traded
futures contracts, the counterparty to an over-the-counter
Commodity Interest contract is generally a single bank or other
financial institution. As a result, there will be
greater counterparty credit risk in over-the-counter
transactions. There can be no assurance that any
counterparty, clearinghouse, or their financial backers will
satisfy their obligations to any of the Funds.
The Funds may engage in off
exchange transactions broadly called an “exchange for
risk” transaction, also referred to as an “exchange for
swap.” For purposes of the Dodd-Frank Act and related CFTC
rules, an “exchange for risk” transaction is treated as
a “swap.” An “exchange for risk”
transaction, sometimes referred to as an “exchange for
swap” or “exchange of futures for risk,” is a
privately negotiated and simultaneous exchange of a futures
contract position for a swap or other over-the-counter instrument
on the corresponding commodity. An exchange for risk
transaction can be used by the Funds as a technique to avoid taking
physical delivery of a commodity futures contract, corn for
example, in that a counterparty will take the Fund’s position
in a Corn Futures Contract into its own account in exchange for a
swap that does not by its terms call for physical delivery.
The Funds will become subject to the credit risk of a counterparty
when it acquires an over-the-counter position in an exchange for
risk transaction. The Fund may use an “exchange for
risk” transaction in connection with the creation and
redemption of shares. These transactions must be carried out only
in accordance with the rules of the applicable exchange where the
futures contracts trade.
The Sponsor will attempt to
manage the credit risk of each Fund by following certain trading
limitations and policies. In particular, each Fund
intends to post margin and collateral and/or hold liquid assets
that will be equal to approximately the face amount of the
Interests it holds. The Sponsor will implement
procedures that will include, but will not be limited to, executing
and clearing trades and entering into over-the-counter transactions
only with parties it deems creditworthy and/or requiring the
posting of collateral by such parties for the benefit of each Fund
to limit its credit exposure.
The CEA requires all FCMs, such
as the 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 self-regulatory organizations are monitoring the activities
of FCMs in a thorough manner.
Effective February 6, 2015, the
Sponsor transferred all futures contracts from Societe Generale SA
to Jefferies Group LLC (“Jefferies”) and Jefferies
served as the FCM for the Funds, as discussed in Part I of this
filing. On April 9, 2015, Jefferies announced that it had
entered into a definitive agreement to have Societe Generale SA
acquire the assets of its futures unit, including its FCM
operations. Effective June 3, 2015, ED&F Man Capital
Markets Inc. (“ED&F Man”) replaced Jefferies as the
Funds’ FCM and the clearing broker to execute and clear the
Funds’ futures and provide other brokerage-related
services.
The Funds, other than TAGS, will
generally retain cash positions of approximately 94% of total net
assets; this balance represents the total net assets less the
initial margin requirements held by the FCM. These cash assets are
either: 1) deposited by the Sponsor in demand deposit accounts of
financial institutions which are deemed by the Sponsor to be of
investment level quality, 2) held in a money-market fund which is
deemed to be a cash equivalent under the most recent SEC
definition, or 3) held in a cash equivalent with a maturity of 90
days or less that is deemed by the Sponsor to be of investment
level quality.
Trading in Commodity Interests
such as Futures Contracts will involve the Funds entering into
contractual commitments to purchase or sell specific amounts of
commodities at a specified date in the future. The gross
or face amount of the contracts is expected to significantly exceed
the future cash requirements of each Fund as each Fund intends to
close out any open positions prior to the contractual expiration
date. As a result, each Fund’s market risk is the
risk of loss arising from the decline in value of the contracts,
not from the need to make delivery under the
contracts. The Funds consider the “fair
value” of derivative instruments to be the unrealized gain or
loss on the contracts. The market risk associated with
the commitment by the Funds to purchase a specific commodity will
be limited to the aggregate face amount of the contacts
held.
The exposure of the Funds to
market risk will depend primarily on the market price of the
specific commodities held by the Fund. The market price of the
commodities depends in part on the volatility of interest rates and
foreign exchange rates and the liquidity of the commodity-specific
markets.
TAGS is subject to the risks of
the commodity-specific futures contracts of the Underlying Funds as
the fair value of its holdings is based on the NAV of each of the
Underlying Funds, each of which is directly impacted by the factors
discussed above.
The tables below present a
quantitative analysis of hypothetical impact of price decreases and
increases in each of the commodity futures contracts held by each
of the Funds, or the Underlying Funds in the case of TAGS, on the
actual holdings and NAV per share as of December 31, 2017. For
purposes of this analysis, all futures contracts held by the Funds
and the Underlying Funds are assumed to change by the same
percentage. In addition, the cash held by the Funds and any
management fees paid to the Sponsor are assumed to remain constant
and not impact the NAV per share. There may be very slight and
immaterial differences, due to rounding, in the tables presented
below.
Quantitative
Risk Analysis
CORN:
|
|
December 31, 2017 as Reported
|
10% Decrease
|
15% Decrease
|
20% Decrease
|
10% Increase
|
15% Increase
|
20% Increase
|
||
|
Holdings as of December 31, 2017
|
Number
of Contracts Held
|
Closing
Price
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
|
CBOT Corn Futures MAY18
|
1,265
|
$
3.5900
|
$
22,706,750
|
$
20,436,075
|
$
19,300,738
|
$
18,165,400
|
$
24,977,425
|
$
26,112,763
|
$
27,248,100
|
|
CBOT Corn Futures JUL18
|
1,060
|
$
3.6725
|
$
19,464,250
|
$
17,517,825
|
$
16,544,613
|
$
15,571,400
|
$
21,410,675
|
$
22,383,888
|
$
23,357,100
|
|
CBOT Corn Futures DEC18
|
1,184
|
$
3.8400
|
$
22,732,800
|
$
20,459,520
|
$
19,322,880
|
$
18,186,240
|
$
25,006,080
|
$
26,142,720
|
$
27,279,360
|
|
Total CBOT Corn Futures
|
|
|
$
64,903,800
|
$
58,413,420
|
$
55,168,231
|
$
51,923,040
|
$
71,394,180
|
$
74,639,371
|
$
77,884,560
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
3,875,004
|
3,875,004
|
3,875,004
|
3,875,004
|
3,875,004
|
3,875,004
|
3,875,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value per Share attributable directly to CBOT Corn
Futures
|
|
|
$
16.75
|
$
15.07
|
$
14.24
|
$
13.40
|
$
18.42
|
$
19.26
|
$
20.10
|
|
Total Net Asset Value per Share as reported
|
|
|
$
16.75
|
|
|
|
|
|
|
|
Change in the Net Asset Value per Share
|
|
|
|
$
(1.67)
|
$
(2.51)
|
$
(3.35)
|
$
1.67
|
$
2.51
|
$
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change in the Net Asset Value per Share
|
|
|
|
-10.00%
|
-15.00%
|
-20.00%
|
10.00%
|
15.00%
|
20.00%
|
SOYB:
|
|
December 31, 2017 as Reported
|
10% Decrease
|
15% Decrease
|
20% Decrease
|
10% Increase
|
15% Increase
|
20% Increase
|
||
|
Holdings as of December 31, 2017
|
Number
of Contracts Held
|
Closing
Price
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
|
CBOT Soybean Futures MAR18
|
75
|
$
9.6175
|
$
3,606,563
|
$
3,245,906
|
$
3,065,578
|
$
2,885,250
|
$
3,967,219
|
$
4,147,547
|
$
4,327,875
|
|
CBOT Soybean Futures MAY18
|
63
|
$
9.7300
|
$
3,064,950
|
$
2,758,455
|
$
2,605,208
|
$
2,451,960
|
$
3,371,445
|
$
3,524,693
|
$
3,677,940
|
|
CBOT Soybean Futures NOV18
|
74
|
$
9.7575
|
$
3,610,275
|
$
3,249,248
|
$
3,068,734
|
$
2,888,220
|
$
3,971,303
|
$
4,151,816
|
$
4,332,330
|
|
Total CBOT Soybean
Futures
|
|
|
$
10,281,788
|
$
9,253,609
|
$
8,739,520
|
$
8,225,430
|
$
11,309,967
|
$
11,824,056
|
$
12,338,145
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
575,004
|
575,004
|
575,004
|
575,004
|
575,004
|
575,004
|
575,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value per Share attributable directly to CBOT Soybean
Futures
|
|
|
$
17.88
|
$
16.09
|
$
15.20
|
$
14.30
|
$
19.67
|
$
20.56
|
$
21.46
|
|
Total Net Asset Value per Share as reported
|
|
|
$
17.85
|
|
|
|
|
|
|
|
Change in the Net Asset Value per Share
|
|
|
|
$
(1.79)
|
$
(2.68)
|
$
(3.58)
|
$
1.79
|
$
2.68
|
$
3.58
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change in the Net Asset Value per Share
|
|
|
|
-10.02%
|
-15.03%
|
-20.03%
|
10.02%
|
15.03%
|
20.03%
|
CANE:
|
|
December 31, 2017 as Reported
|
10% Decrease
|
15% Decrease
|
20% Decrease
|
10% Increase
|
15% Increase
|
20% Increase
|
||
|
Holdings as of December 31, 2017
|
Number
of Contracts Held
|
Closing
Price
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
|
ICE #11 Sugar Futures MAY18
|
113
|
$
0.1502
|
$
2,237,379
|
$
2,013,641
|
$
1,901,772
|
$
1,789,903
|
$
2,461,117
|
$
2,572,986
|
$
2,684,855
|
|
ICE #11 Sugar Futures JUL18
|
114
|
$
0.1504
|
$
1,920,307
|
$
1,728,276
|
$
1,632,261
|
$
1,536,246
|
$
2,112,338
|
$
2,208,353
|
$
2,304,369
|
|
ICE #11 Sugar Futures MAR19
|
126
|
$
0.1569
|
$
2,214,173
|
$
1,992,756
|
$
1,882,047
|
$
1,771,338
|
$
2,435,590
|
$
2,546,299
|
$
2,657,007
|
|
Total ICE #11 Sugar
Futures
|
|
|
$
6,371,859
|
$
5,734,673
|
$
5,416,080
|
$
5,097,487
|
$
7,009,045
|
$
7,327,638
|
$
7,646,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
650,004
|
650,004
|
650,004
|
650,004
|
650,004
|
650,004
|
650,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value per Share attributable directly to ICE #11 Sugar
Futures
|
|
|
$
9.80
|
$
8.82
|
$
8.33
|
$
7.84
|
$
10.78
|
$
11.27
|
$
11.76
|
|
Total Net Asset Value per Share as reported
|
|
|
$
9.79
|
|
|
|
|
|
|
|
Change in the Net Asset Value per Share
|
|
|
|
$
(0.98)
|
$
(1.47)
|
$
(1.96)
|
$
0.98
|
$
1.47
|
$
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change in the Net Asset Value per Share
|
|
|
|
-10.01%
|
-15.02%
|
-20.03%
|
10.01%
|
15.02%
|
20.03%
|
WEAT:
|
|
December 31, 2017 as Reported
|
10% Decrease
|
15% Decrease
|
20% Decrease
|
10% Increase
|
15% Increase
|
20% Increase
|
||
|
Holdings as of December 31, 2017
|
Number
of Contracts Held
|
Closing
Price
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
Notional
Amount
|
|
CBOT Wheat Futures MAY18
|
976
|
$
4.4025
|
$
21,484,200
|
$
19,335,780
|
$
18,261,570
|
$
17,187,360
|
$
23,632,620
|
$
24,706,830
|
$
25,781,040
|
|
CBOT Wheat Futures JUL18
|
813
|
$
4.5325
|
$
18,424,613
|
$
16,582,151
|
$
15,660,921
|
$
14,739,690
|
$
20,267,074
|
$
21,188,304
|
$
22,109,535
|
|
CBOT Wheat Futures DEC18
|
893
|
$
4.8200
|
$
21,521,300
|
$
19,369,170
|
$
18,293,105
|
$
17,217,040
|
$
23,673,430
|
$
24,749,495
|
$
25,825,560
|
|
Total CBOT Wheat Futures
|
|
|
$
61,430,113
|
$
55,287,101
|
$
52,215,596
|
$
49,144,090
|
$
67,573,124
|
$
70,644,629
|
$
73,716,135
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
10,250,004
|
10,250,004
|
10,250,004
|
10,250,004
|
10,250,004
|
10,250,004
|
10,250,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value per Share attributable directly to CBOT Wheat
Futures
|
|
|
$
5.99
|
$
5.39
|
$
5.09
|
$
4.79
|
$
6.59
|
$
6.89
|
$
7.19
|
|
Total Net Asset Value per Share as reported
|
|
|
$
5.99
|
|
|
|
|
|
|
|
Change in the Net Asset Value per Share
|
|
|
|
$
(0.60)
|
$
(0.90)
|
$
(1.20)
|
$
0.60
|
$
0.90
|
$
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change in the Net Asset Value per Share
|
|
|
|
-10.01%
|
-15.01%
|
-20.01%
|
10.01%
|
15.01%
|
20.01%
|
TAGS:
|
|
December 31, 2017 as Reported
|
10% Decrease
|
15% Decrease
|
20% Decrease
|
10% Increase
|
15% Increase
|
20% Increase
|
||
|
Holdings as of December 31, 2017
|
Number
of Shares Held
|
Closing
NAV
|
Fair
Value
|
Fair
Value
|
Fair
Value
|
Fair
Value
|
Fair
Value
|
Fair
Value
|
Fair
Value
|
|
Teucrium Corn Fund
|
17,158
|
$
16.7488
|
$
287,376
|
$
258,638
|
$
244,270
|
$
229,901
|
$
316,114
|
$
330,482
|
$
344,851
|
|
Teucrium Soybean Fund
|
15,331
|
$
17.8504
|
$
273,664
|
$
246,298
|
$
232,615
|
$
218,932
|
$
301,031
|
$
314,714
|
$
328,397
|
|
Teucrium Sugar Fund
|
29,524
|
$
9.7903
|
$
289,049
|
$
260,144
|
$
245,691
|
$
231,239
|
$
317,954
|
$
332,406
|
$
346,859
|
|
Teucrium Wheat Fund
|
47,737
|
$
5.9918
|
$
286,031
|
$
257,428
|
$
243,126
|
$
228,824
|
$
314,634
|
$
328,935
|
$
343,237
|
|
Total value of shares of the
Underlying Funds
|
|
|
$
1,136,120
|
$
1,022,508
|
$
965,702
|
$
908,896
|
$
1,249,733
|
$
1,306,537
|
$
1,363,344
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
50,002
|
50,002
|
50,002
|
50,002
|
50,002
|
50,002
|
50,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value per Share attributable directly to shares of the
Underlying
Funds
|
|
$
22.72
|
$
20.45
|
$
19.31
|
$
18.18
|
$
24.99
|
$
26.13
|
$
27.27
|
|
|
Total Net Asset Value per Share as reported
|
|
|
$
22.75
|
|
|
|
|
|
|
|
Change in the Net Asset Value per Share
|
|
|
|
$
(2.27)
|
$
(3.41)
|
$
(4.54)
|
$
2.27
|
$
3.41
|
$
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change in the Net Asset Value per Share
|
|
|
|
-9.99%
|
-14.98%
|
-19.97%
|
9.99%
|
14.98%
|
19.97%
|
Qualitative
Risk Analysis
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussedbelow, adverse price changes
in the futures contract may result in margin requirements that
greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Funds’
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Funds’ trading,
the Funds (and not their shareholders personally) are subject to
margin calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated, and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
The Dodd-Frank Act requires the
CFTC, the SEC and the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Farm Credit System and the
Federal Housing Finance Agency (collectively, the “Prudential
Regulators”) to establish “both initial and variation
margin requirements on all swaps that are not cleared by a
registered clearing organization” (i.e., uncleared or
over-the-counter swaps). The proposed rules would require swap
dealers and major swap participants to collect both variation and
initial margin from counterparties known as “financial
end-users” such as the Funds or Underlying Funds and in
certain circumstances require these swap dealers or major swap
participants to post variation margin or initial margin to the
Funds or Underlying Funds. The CFTC and the Prudential Regulators
finalized these rules in 2016 and compliance became necessary in
September 2016.
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 futures position which is then settled on
the same business day as a cleared futures transaction by the FCMs.
The Fund will become subject to the credit risk of the market
specialist/market maker until the EFRP is settled within the
business day, which is typically 7 hours or less. The Fund reports
all activity related to EFRP transactions under the procedures and
guidelines of the CFTC and the exchanges on which the futures are
traded.
The Funds, other than TAGS, will
generally retain cash positions of approximately 95% of total net
assets; this balance represents the total net assets less the
initial margin requirements discussed above. These cash assets are
either: 1) deposited by the Sponsor in demand deposit accounts of
financial institutions which are rated in the highest short-term
rating category by a nationally recognized statistical rating
organization or deemed by the Sponsor to be of comparable quality;
2) held in short-term Treasury Securities; or 3) held in a
money-market fund which is deemed to be a cash equivalent under the
most recent SEC definition.
See Index to Financial Statements
for a list of the financial statements being filed
herein.
The Sponsor, on behalf of the
Teucrium Commodity Trust and each of the Funds that is a series of
the Trust, assessed the effectiveness of both the Trust’s and
each Fund’s internal control over financial reporting as of
December 31, 2017. In making this assessment, it used the
criteria in the Internal Control – Integrated framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013. Based on the assessment, management of
the Sponsor believes that, as of December 31, 2017, the internal
control over financial reporting of both the Trust and each of the
Fund that is a series of the Trust is
effective.
None.
Disclosure Controls and Procedures
The Trust and each Fund maintains
disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Trust’s periodic
reports filed or submitted under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) is recorded,
processed, summarized and reported within the time period specified
in the SEC’s rules and forms for the Trust and each Fund
thereof.
Management of the Sponsor of the
Funds (“Management”), including Dale Riker, the
Sponsor’s Principal Executive Officer and Barbara Riker, the
Sponsor’s Principal Financial Officer, who perform functions
equivalent to those of a principal executive officer and principal
financial officer of the Trust if the Trust had any officers, have
evaluated the effectiveness of the design and operation of the
Trust’s and each Fund’s disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this report,
and, based upon that evaluation, concluded that the Trust’s
and each Fund’s disclosure controls and procedures were
effective as of the end of such period, to ensure that information
the Trust is required to disclose in the reports that it files or
submits with the SEC under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
SEC’s rules and forms, and to ensure that information
required to be disclosed by the Trust in the reports that it files
or submits under the Exchange Act is accumulated and communicated
to management of the Sponsor, as appropriate, to allow timely
decisions regarding required disclosure. The scope of the
evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures covers the Trust, as well as
separately for each Fund that is a series of the
Trust.
The certifications of the Chief
Executive Officer and Chief Financial Officer are applicable to
each Fund individually as well as the Trust as a
whole.
Management’s Annual Report on Internal Control over Financial
Reporting
Management of the Sponsor, on
behalf of the Trust and each Fund are responsible for establishing
and maintaining adequate internal control over financial reporting.
The Trust and each Fund’s internal control system is designed
to provide reasonable assurance to the Sponsor regarding the
preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation.
Management of the Sponsor,
including Dale Riker, Principal Executive Officer of the Sponsor,
and Barbara Riker, Principal Financial Officer of the Sponsor, who
perform functions equivalent to those of a principal executive
officer and principal financial officer of the Trust if the Trust
had any officers, assessed the effectiveness of the Trust’s
and each Fund’s internal control over financial reporting as
of December 31, 2017. In making this assessment, it used
the criteria in the Internal Control – Integrated framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013
.
Based on the assessment, Management believes that, as of
December 31, 2017, the internal control over financial
reporting is effective for the Trust and each Fund thereof.
Grant Thornton, the public accounting firm that audited the
financial statement included herein for the year-ended 2017, has
issued an attestation report on the Trust and each Fund’s
internal control over financial reporting for that
period.
Changes in Internal Control over Financial
Reporting
There has been no change in the
Trust’s or the Funds’ internal controls over the
financial reporting (as defined in the Rules 13a-15(f) and
15d-15(f) of the Exchange Act) that occurred during the
Trust’s last fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Trust’s or the
Funds’ internal control over financial
reporting.
Not
applicable.
The Trust has no directors,
officers or employees and is managed by the Sponsor, Teucrium
Trading, LLC. The Sponsor is managed by the officers of
the Sponsor under its Limited Liability Company
Agreement. A discussion concerning the officers of the
Sponsor is incorporated herein under Item 1 of this
report.
Code of Ethics
The Sponsor has adopted
a Code of Business Conduct and Ethics (the “Code
of Ethics”) which applies to all of its
officers (including senior financial officers) and employees;
the Sponsor’s Code of Ethics covers all officers and
employees that manage the Trust and the Funds. A printed copy
of the Code of Ethics is available to any person free of
charge, upon request, by contacting the Sponsor
at:
Teucrium Trading,
LLC
115 Christina Landing
Drive
Unit 2004
Wilmington, DE
19801
Phone: (302)
543-5977
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the
Exchange Act requires directors and executive officers of the
Sponsor and persons who are beneficial owners of at least 10% a
Fund’s Shares to file with the SEC an Initial Statement of
Beneficial Ownership of Securities on Form 3 within ten calendar
days of first becoming a director, executive officer or beneficial
owner of at least 10% of a Fund’s Shares and a Statement of
Changes in Beneficial Ownership of Securities on Form 4 within two
business days of a subsequent acquisition or disposition of Shares
of a Fund and, unless all reportable transactions were previously
reported on Form 3 or Form 4, an Annual Statement of Changes in
Beneficial Ownership of Securities on Form 5 within 45 days after
the Trust’s fiscal year-end. For the year ended
December 31, 2017, based solely on a review of the Section 16(a)
reports furnished to the Trust and written representation by the
Trust’s Section 16(a) reporting persons, to the best
knowledge of the Sponsor, all such filings have been made within
these prescribed timeframes.
The Trust does not directly
compensate any of the executive officers of the
Sponsor. The executive officers of the Sponsor are
compensated by the Sponsor for the work they perform on behalf of
the Trust. The Trust does not set the amount or form of
any portion of, the compensation paid to the executive officers by
the Sponsor. Each of the series of the Trust, except for TAGS, is
obligated to pay a management fee to the Sponsor at an annualized
rate of 1.00% of average daily net assets. The Sponsor has the
right to elect to waive the management fee for any Fund; that
election may be changed by the Sponsor. For 2017, the Funds
recognized $1,540,701 in management fees to the Sponsor. In
addition to the management fee, each Fund reimburses the Sponsor
for expenses related to the operation of the Fund. These related
party expenses are discussed in the Notes to the Financial
Statements for the Trust and each Fund in Part II of this
filing.
a.
Security Ownership of Certain Beneficial
Owners.
The following table sets forth information with
respect to each person known to own beneficially more than 5% of
the outstanding shares of any series in the Trust as of December
31, 2017, based on information known to the
Sponsor.
|
(1)
Title of
Class
|
(2)
Name and
Address of Beneficial Owner
|
(3)
Amount and
Nature of Beneficial Ownership
|
(4)
Percent of
Class
|
|
SOYB
|
Chang-Chen
Koo
San Marino CA,
91108
|
40,000 common
units(1)
|
6.96%
|
|
CANE
|
Chang-Chen
Koo
San Marino CA,
91108
|
177,639 common
units(1)
|
27.33%
|
|
CANE
|
Kenneth E.
Weg
Naples FL,
34103
|
90,000 common
units(1)
|
13.85%
|
|
TAGS
|
Hunting Hill Equity Arbitrage,
420 Lexington Avenue,
New York, NY
10170
|
13,822 common
units(1)
|
27.64%
|
|
TAGS
|
Interactive Investor Services
LTD, Exchange Court Duncombe Street, Leeds
UK
|
4,500 common
units(1)
|
9.00%
|
|
TAGS
|
Jane Street Capital LLC, 1 New
York Plaza Floor 33,
New York, NT
10004
|
3,508 common
units(1)
|
7.02%
|
|
TAGS
|
Susquehanna Capital Group, 401
City Line Avenue,
Suite 220, Bala Cynwyd PA
19004
|
2,999 common
units(1)
|
6.00%
|
(1) These individuals and
entities have not filed any public reports with the
SEC.
b.
Security Ownership of
Management
The following table sets forth
information regarding the beneficial ownership of shares by the
executive officers of the Sponsor as of December 31, 2017.
Except as listed, no other executive officer of the Sponsor is a
beneficial owner of shares of any series of the
Trust.
|
(1)
Title of
Class
|
(2)
Name of
Beneficial Owner
|
(3)
Amount and
nature of Beneficial Ownership
|
(4)
Percent of
Class
|
|
CORN
|
Sal Gilbertie
|
401 common
units
|
*
|
|
SOYB
|
Sal Gilbertie
|
100 common
units
|
*
|
|
CANE
|
Sal Gilbertie
|
500 common
units
|
*
|
|
WEAT
|
Sal Gilbertie
|
200 common
units
|
*
|
|
TAGS
|
Sal Gilbertie
|
1,800 common
units
|
3.60%
|
|
TAGS
|
Dale Riker
|
200 common
units(1)
|
*
|
(1) Units are held by an entity
controlled by Mr. Riker.
* Less than
1%.
c.
Change in Control.
Neither the Sponsor nor the
Trustee knows of any arrangements which may subsequently result in
a change in the control of the Trust.
Neither the Trust or the Funds
entered into any transaction in excess of $120,000 in which any
related person had a direct or indirect material interest and the
Trust and the Funds do not propose to enter into any such
transaction.
Fees paid by the Trust for
services performed by Grant Thornton, for the years ended December
31, 2017 and December 31, 2016 were:
|
|
|
Year
Ended
|
|
Year
Ended
|
||
|
|
|
December 31,
2017
|
|
December 31,
2016
|
||
|
Audit fees -
Grant Thornton
|
|
$
|
492,975
|
|
$
|
427,350
|
The Sponsor approved all services
provided by Grant Thornton above. The Sponsor preapproves all audit
and non-audit services, if any, of the Trust’s independent
registered public accounting firm, including all engagement fees
and terms.
The following exhibits are filed
as part of this report as required under Item 601 of Regulation
S-K:
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
(13)
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
(13)
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension
Calculation Linkbase (13)
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Definition Linkbase
(13)
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label
Linkbase (13)
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension
Presentation Linkbase (13)
|
(1)
Previously filed as like-numbered exhibit to
Post-Effective Amendment No. 1 to Registration Statement No.
333-162033, filed on October 22, 2010 and incorporated by reference
herein.
(2)
Previously filed as like-numbered exhibit
to Registration Statement No. 333-162033, filed on September 21,
2009 and incorporated by reference
herein
.
(3)
Previously filed as like-numbered exhibit to
Pre-Effective Amendment No. 1 to Registration Statement No.
333-167590, filed on March 9, 2011 and incorporated by reference
herein.
(4) Previously filed as Exhibit 3.3 to
Registration Statement No. 333-173691, filed on April 25, 2011 and
incorporated by reference herein.
(5) Previously filed as Exhibit 10.2 to
Post-Effective Amendment No. 1 to Registration Statement No.
333-162033, filed on October 22, 2010 and incorporated by reference
herein.
(6)
Previously filed as Exhibit 10.2(1) to
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund, filed on November 1, 2011 and incorporated herein by
reference.
(7)
Previously filed as Exhibit 10.2(2) to
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund, filed on November 1, 2011 and incorporated by reference
herein.
(8)
Previously filed as Exhibit 10.2(3) to
Registrant’s Current Report on Form 8-K for the Teucrium Corn
Fund, filed on November 1, 2011 and incorporated by reference
herein.
(9)
Previously filed as like-numbered exhibit to Pre-Effective
Amendment No. 1 to Registration Statement No. 333-173691, filed on
December 5, 2011.
(10) Previously
filed as Exhibit 10.5 to Pre-Effective Amendment No.1 to
Registration Statement No. 333-187463, filed on April 26,
2013.
(11) Previously filed as Exhibit to 10.9 to
Registration Statement No. 333-201953, filed on February 9, 2015
and incorporated by reference herein.
(12) Previously filed as like-numbered exhibit to
Registrant’s Report on Form 10-K for the fiscal year ended
December 31, 2015, filed on March 16, 2016.
(13) Filed
herein.
TEUCRIUM COMMODITY
TRUST
FINANCIAL
STATEMENTS AS OF DECEMBER 31, 2017
Index to
Financial Statements
|
Documents
|
|
Page
|
|
TEUCRIUM COMMODITY
TRUST
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-2
|
|
Combined Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-4
|
|
Combined Schedules of Investments
at December 31, 2017 and 2016
|
|
F-5
|
|
Combined Statements of Operations
for the years ended December 31, 2017, 2016 and
2015
|
|
F-7
|
|
Combined Statements of Changes in
Net Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-8
|
|
Combined Statements of Cash Flows
for the years ended December 31, 2017, 2016 and
2015
|
|
F-9
|
|
Notes to Combined Financial
Statements
|
|
F-10
|
|
|
|
|
|
TEUCRIUM CORN
FUND
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-25
|
|
Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-27
|
|
Schedules of Investments at
December 31, 2017 and 2016
|
|
F-28
|
|
Statements of Operations for the
years ended December 31, 2017, 2016 and 2015
|
|
F-30
|
|
Statements of Changes in Net
Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-31
|
|
Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
|
F-32
|
|
Notes to Financial
Statements
|
|
F-33
|
|
|
|
|
|
TEUCRIUM SOYBEAN
FUND
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-46
|
|
Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-48
|
|
Schedules of Investments at
December 31, 2017 and 2016
|
|
F-49
|
|
Statements of Operations for the
years ended December 31, 2017, 2016 and 2015
|
|
F-51
|
|
Statements of Changes in Net
Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-52
|
|
Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
|
F-53
|
|
Notes to Financial
Statements
|
|
F-54
|
|
|
|
|
|
TEUCRIUM SUGAR
FUND
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-67
|
|
Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-69
|
|
Schedules of Investments at
December 31, 2017 and 2016
|
|
F-70
|
|
Statements of Operations for the
years ended December 31, 2017, 2016 and 2015
|
|
F-72
|
|
Statements of Changes in Net
Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-73
|
|
Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
|
F-74
|
|
Notes to Financial
Statements
|
|
F-75
|
|
|
|
|
|
TEUCRIUM WHEAT
FUND
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-88
|
|
Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-90
|
|
Schedules of Investments at
December 31, 2017 and 2016
|
|
F-91
|
|
Statements of Operations for the
years ended December 31, 2017, 2016 and 2015
|
|
F-93
|
|
Statements of Changes in Net
Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-94
|
|
Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
|
F-95
|
|
Notes to Financial
Statements
|
|
F-96
|
|
|
|
|
|
TEUCRIUM AGRICULTURAL
FUND
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
F-109
|
|
Statements of Assets and
Liabilities at December 31, 2017 and 2016
|
|
F-111
|
|
Schedules of Investments at
December 31, 2017 and 2016
|
|
F-112
|
|
Statements of Operations for the
years ended December 31, 2017, 2016 and 2015
|
|
F-114
|
|
Statements of Changes in Net
Assets for the years ended December 31, 2017, 2016 and
2015
|
|
F-115
|
|
Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
|
F-116
|
|
Notes to Financial
Statements
|
|
F-117
|
Report of
Independent Registered Public Accounting Firm
To the Sponsor
of
Teucrium
Commodity Trust
Opinion on the financial
statements
We have audited the accompanying
combined statements of assets and liabilities of Teucrium Commodity
Trust (a Delaware statutory Trust) (the “Trust”),
including the combined schedules of investments, as of December 31,
2017 and 2016, the related combined statements of operations,
changes in net assets, and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Trust as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Trusts’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Trust’s management. Our
responsibility is to express an opinion on the Trust’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Trust in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as the
Trust’s auditor since 2014.
New York, New
York
March 16,
2018
Report
of Independent Registered Public Accounting
Firm
To the Sponsor
of
Teucrium
Commodity Trust
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Commodity Trust (a
Delaware statutory Trust) (the “Trust”) as of December
31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In
our opinion, the Trust maintained, in all material respects,
effective internal control over financial reporting as of December
31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the combined
financial statements of the Trust as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Trust’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Trust’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Trust
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A trust’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A trust’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the trust; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
trust are being made only in accordance with authorizations of
management and directors of the trust; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the trust’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRANT THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM
COMMODITY TRUST
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash and cash
equivalents
|
$
137,945,626
|
$
145,323,469
|
|
Restricted
cash
|
-
|
151,684
|
|
Interest
receivable
|
255
|
708
|
|
Other assets
|
6,748
|
27,135
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
909,281
|
542,647
|
|
Due from
broker
|
9,987,671
|
13,782,616
|
|
Total
equity in trading accounts
|
10,896,952
|
14,325,263
|
|
Total assets
|
$
148,849,581
|
$
159,828,259
|
|
|
|
|
|
Liabilities
|
|
|
|
Management fee payable to
Sponsor
|
125,149
|
129,201
|
|
Other
liabilities
|
99,909
|
15,916
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
5,677,771
|
5,725,955
|
|
Total
liabilities
|
5,902,829
|
5,871,072
|
|
|
|
|
|
Net
Assets
|
$
142,946,752
|
$
153,957,187
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
COMMODITY TRUST
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2017
|
Description:
Assets
|
Fair
Value
|
Percentage of
Net Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$2,874)
|
$
2,874
|
0.00
%
|
2,874
|
|
Blackrock FedFund - Institutional
Class (cost $140)
|
140
|
0.00
|
140
|
|
Total money market
funds
|
$
3,014
|
0.00
%
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Commercial
Paper
|
|
|
|
|
Boston Scientific Corporation
1.709% (cost: $4,992,208 due 1/16/2018)
|
$
4,996,458
|
3.50
%
|
5,000,000
|
|
Canadian Natural Resources
Limited 1.759% (cost: $4,990,034 due 1/31/2018)
|
4,992,708
|
3.49
|
5,000,000
|
|
E. I. du Pont de Nemours and
Company 1.67% (cost: $4,981,556 due 3/5/2018)
|
4,985,474
|
3.49
|
5,000,000
|
|
Enbridge Energy Partners, L.P.
2.198% (cost: $4,976,980 due 3/5/2018)
|
4,980,918
|
3.48
|
5,000,000
|
|
Equifax Inc. 1.709% (cost:
$4,987,958 due 1/5/2018)
|
4,999,056
|
3.50
|
5,000,000
|
|
Ford Motor Credit Company LLC
1.407% (cost: $4,982,500 due 1/10/2018)
|
4,998,250
|
3.50
|
5,000,000
|
|
Glencore Funding LLC 1.424%
(cost: $4,982,496 due 1/17/2018)
|
4,996,854
|
3.50
|
5,000,000
|
|
HP Inc. 1.648% (cost: $4,992,028
due 1/22/2018)
|
4,995,216
|
3.49
|
5,000,000
|
|
Oneok, Inc. 1.749% (cost:
$4,994,684 due 1/5/2018)
|
4,999,034
|
3.50
|
5,000,000
|
|
VW Credit, Inc. 1.61% (cost:
$4,980,000 due 3/6/2018)
|
4,985,778
|
3.49
|
5,000,000
|
|
Total Commercial Paper (total
cost: $49,860,444)
|
49,929,746
|
34.94
|
|
|
Total Cash
Equivalents
|
$
49,932,760
|
34.94
%
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures JUL18 (1,060
contracts)
|
$
120,487
|
0.08
%
|
$
19,464,250
|
|
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAY18 (133
contracts)
|
94,539
|
0.07
|
2,237,379
|
|
ICE sugar futures JUL18 (114
contracts)
|
89,780
|
0.06
|
1,920,307
|
|
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures JUL18 (813
contracts)
|
604,475
|
0.42
|
18,424,613
|
|
Total commodity futures
contracts
|
$
909,281
|
0.63
%
|
$
42,046,549
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures MAY18 (1,265
contracts)
|
$
821,825
|
0.57
%
|
$
22,706,750
|
|
CBOT corn futures DEC18 (1,184
contracts)
|
1,140,225
|
0.80
|
22,732,800
|
|
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAR18 (75
contracts)
|
174,063
|
0.12
|
3,606,563
|
|
CBOT soybean futures MAY18 (63
contracts)
|
152,338
|
0.11
|
3,064,950
|
|
CBOT soybean futures NOV18 (74
contracts)
|
121,662
|
0.09
|
3,610,275
|
|
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAR19 (126
contracts)
|
67,133
|
0.05
|
2,214,173
|
|
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures MAY18 (976
contracts)
|
1,182,225
|
0.83
|
21,484,200
|
|
CBOT wheat futures DEC18 (893
contracts)
|
2,018,300
|
1.41
|
21,521,300
|
|
Total commodity futures
contracts
|
$
5,677,771
|
3.98
%
|
$
100,941,011
|
|
|
|
|
|
|
Exchange-traded
funds*
|
|
|
Shares
|
|
Teucrium Corn
Fund
|
$
287,376
|
0.20
%
|
17,158
|
|
Teucrium Soybean
Fund
|
273,664
|
0.19
|
15,331
|
|
Teucrium Sugar
Fund
|
289,049
|
0.20
|
29,524
|
|
Teucrium Wheat
Fund
|
286,031
|
0.20
|
47,737
|
|
Total exchange-traded funds (cost
$1,790,621)
|
$
1,136,120
|
0.79
%
|
|
*The Trust eliminates the shares
owned by the Teucrium Agricultural Fund from its combined
statements of assets and liabilities due to the fact that these
represent holdings of the Underlying Funds owned by the Teucrium
Agricultural Fund, which are included as shares outstanding of the
Underlying Funds.
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM COMMODITY
TRUST
COMBINED
SCHEDULE OF INVESTMENTS
December 31,
2016
|
Description:
Assets
|
Fair
Value
|
Percentage of
Net Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity
Institutional Money Market Funds - Government Portfolio (cost
$1,412,423)
|
$
1,412,423
|
0.92
%
|
1,412,423
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAR17 (90
contracts)
|
$
107,125
|
0.07
%
|
$
4,518,000
|
|
CBOT soybean
futures NOV17 (91 contracts)
|
250,375
|
0.16
|
4,501,088
|
|
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAR18 (93
contracts)
|
185,147
|
0.12
|
1,935,293
|
|
Total commodity futures
contracts
|
$
542,647
|
0.35
%
|
$
10,954,381
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures MAY17 (1,438
contracts)
|
$
50,713
|
0.03
%
|
$
25,704,250
|
|
CBOT corn futures JUL17 (1,207
contracts)
|
576,650
|
0.37
|
21,982,488
|
|
CBOT corn futures DEC17
(1,347contracts)
|
833,437
|
0.54
|
25,593,000
|
|
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAY17 (76
contracts)
|
12,025
|
0.01
|
3,847,500
|
|
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAY17 (89
contracts)
|
105,829
|
0.07
|
1,918,840
|
|
ICE sugar futures JUL17 (79
contracts)
|
225,713
|
0.15
|
1,667,848
|
|
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures MAY17 (1,037
contracts)
|
1,011,350
|
0.66
|
21,802,925
|
|
CBOT wheat futures JUL17 (861
contracts)
|
213,963
|
0.14
|
18,694,463
|
|
CBOT wheat futures DEC17 (939
contracts)
|
2,696,275
|
1.75
|
21,831,750
|
|
Total commodity futures
contracts
|
$
5,725,955
|
3.72
%
|
$
143,043,064
|
|
|
|
|
|
|
Exchange-traded
funds*
|
|
|
Shares
|
|
Teucrium
Corn Fund
|
$
323,979
|
0.21
%
|
17,258
|
|
Teucrium
Soybean Fund
|
315,486
|
0.20
|
16,531
|
|
Teucrium
Sugar Fund
|
342,822
|
0.22
|
26,424
|
|
Teucrium
Wheat Fund
|
331,267
|
0.22
|
48,087
|
|
Total exchange-traded funds (cost
$2,033,919)
|
$
1,313,554
|
0.85
%
|
|
*The Trust eliminates the shares
owned by the Teucrium Agricultural Fund from its combined
statements of assets and liabilities due to the fact that these
represent holdings of the Underlying Funds owned by the Teucrium
Agricultural Fund, which are included as shares outstanding of the
Underlying Funds.
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
COMMODITY TRUST
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized gain
(loss) on trading of commodity futures
contracts:
|
|
|
|
|
Realized
loss on commodity futures contracts
|
$
(13,335,506
)
|
$
(16,163,531
)
|
$
(15,729,142
)
|
|
Net
change in unrealized appreciation or depreciation on commodity
futures contracts
|
414,818
|
508,136
|
(7,378,689
)
|
|
Interest
income
|
1,755,765
|
725,493
|
221,809
|
|
Total
loss
|
(11,164,923
)
|
(14,929,902
)
|
(22,886,022
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
1,540,701
|
1,309,046
|
1,143,253
|
|
Professional
fees
|
1,476,719
|
1,540,639
|
1,197,938
|
|
Distribution and marketing
fees
|
2,598,296
|
2,287,894
|
1,763,168
|
|
Custodian fees and
expenses
|
346,295
|
359,937
|
779,473
|
|
Business permits and licenses
fees
|
93,026
|
104,956
|
88,529
|
|
General and administrative
expenses
|
273,423
|
286,251
|
311,620
|
|
Brokerage
commissions
|
158,207
|
155,345
|
71,854
|
|
Other
expenses
|
94,051
|
102,591
|
60,809
|
|
Total
expenses
|
6,580,718
|
6,146,659
|
5,416,644
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(1,028,899
)
|
(838,015
)
|
(980,683
)
|
|
|
|
|
|
|
Total expenses,
net
|
5,551,819
|
5,308,644
|
4,435,961
|
|
|
|
|
|
|
Net
loss
|
$
(16,716,742
)
|
$
(20,238,546
)
|
$
(27,321,983
)
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
COMMODITY TRUST
COMBINED
STATEMENTS OF CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net loss
|
$
(16,716,742
)
|
$
(20,238,546
)
|
$
(27,321,983
)
|
|
Capital
transactions
|
|
|
|
|
Issuance
of Shares
|
91,549,498
|
121,278,251
|
32,803,944
|
|
Redemption
of Shares
|
(85,848,091
)
|
(46,688,821
)
|
(51,232,764
)
|
|
Net
change in the cost of the Underlying Funds
|
4,900
|
4,816
|
318
|
|
Total capital
transactions
|
5,706,307
|
74,594,246
|
(18,428,502
)
|
|
|
|
|
|
|
Net change in
net assets
|
(11,010,435
)
|
54,355,700
|
(45,750,485
)
|
|
|
|
|
|
|
Net assets,
beginning of period
|
153,957,187
|
99,601,487
|
145,351,972
|
|
|
|
|
|
|
Net assets,
end of period
|
$
142,946,752
|
$
153,957,187
|
$
99,601,487
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
COMMODITY TRUST
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net loss
|
$
(16,716,742
)
|
$
(20,238,546
)
|
$
(27,321,983
)
|
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
Net change in unrealized
appreciation or depreciation on commodity futures
contracts
|
(414,818
)
|
(508,136
)
|
7,378,689
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Due
from broker
|
3,794,945
|
(1,992,193
)
|
(8,824,417
)
|
|
Interest
receivable
|
453
|
68
|
9,219
|
|
Other
assets
|
20,387
|
696,315
|
(130,874
)
|
|
Due
to broker
|
-
|
-
|
(60,805
)
|
|
Management
fee payable to Sponsor
|
(4,052
)
|
46,338
|
(48,962
)
|
|
Other
liabilities
|
83,993
|
7,767
|
(130,524
)
|
|
Net
cash used in operating activities
|
(13,235,834
)
|
(21,988,387
)
|
(29,129,657
)
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
Proceeds
from sale of Shares
|
91,549,498
|
121,278,251
|
32,803,944
|
|
Redemption
of Shares
|
(85,848,091
)
|
(46,688,821
)
|
(53,228,949
)
|
|
Net
change in cost of the Underlying Funds
|
4,900
|
4,816
|
318
|
|
Net
cash provided by (used in) financing activities
|
5,706,307
|
74,594,246
|
(20,424,687
)
|
|
|
|
|
|
|
Net change in
cash, cash equivalents, and restricted
cash
|
(7,529,527
)
|
52,605,859
|
(49,554,344
)
|
|
Cash, cash
equivalents, and restricted cash, beginning of
period
|
145,475,153
|
92,869,294
|
142,423,637
|
|
Cash, cash
equivalents, and restricted cash end of period
|
$
137,945,626
|
$
145,475,153
|
$
92,869,293
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO
FINANCIAL STATEMENTS
December 31,
2017
Note 1 – Organization and Operation
Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust organized on
September 11, 2009, is a series trust consisting of five series:
Teucrium Corn Fund (“CORN”), Teucrium Sugar Fund
(“CANE”), Teucrium Soybean Fund (“SOYB”),
Teucrium Wheat Fund (“WEAT”), and Teucrium Agricultural
Fund (“TAGS”). All these series of the Trust are
collectively referred to as the “Funds” and singularly
as the “Fund.” Each Fund is a commodity pool that is a
series of the Trust. The Funds issue common units, called the
“Shares,” representing fractional undivided beneficial
interests in a Fund. The Trust and the Funds operate pursuant
to the Trust’s Second Amended and Restated Declaration of
Trust and Trust Agreement (the “Trust
Agreement”). Two additional series, the Teucrium
Natural Gas Fund (“NAGS”) and the Teucrium WTI Crude
Oil Fund (“CRUD”) commenced operations in 2011; these,
however, ceased trading and were deregistered effective with the
close of trading on December 18, 2014. Liquidation of NAGS and CRUD
was completed prior to December 31, 2014 and the Form 15 was filed
on January 9, 2015.
On June 5, 2010, the initial Form
S-1 for CORN was declared effective by the U.S. Securities and
Exchange Commission (“SEC”). On June 8, 2010, four
Creation Baskets for CORN were issued representing 200,000 shares
and $5,000,000. CORN began trading on the New York Stock Exchange
(“NYSE”) Arca on June 9, 2010. On April 29, 2016, a
second subsequent registration statement for CORN was declared
effective by the SEC.
On June 17, 2011, the initial
Forms S-1 for CANE, SOYB, and WEAT were declared effective by the
SEC. On September 16, 2011, two Creation Baskets were issued for
each Fund, representing 100,000 shares and $2,500,000, for CANE,
SOYB, and WEAT. On September 19, 2011, CANE, SOYB, and
WEAT started trading on the NYSE Arca. On June 30, 2014, subsequent
registration statements for CANE, SOYB and WEAT were declared
effective by the SEC. On July 15, 2016, a subsequent registration
statement for WEAT was declared effective. This registration
statement for WEAT registered an additional 24,050,000
shares.
On May 1, 2017, a subsequent
registration statement for SOYB and CANE was declared effective by
the SEC.
On February 10, 2012, the initial
Form S-1 for TAGS was declared effective by the SEC. On March 27,
2012, six Creation Baskets for TAGS were issued representing
300,000 shares and $15,000,000. TAGS began trading on the NYSE Arca
on March 28, 2012. On April 30, 2015, a subsequent registration
statement for TAGS was declared effective by the
SEC.
The Sponsor is a member of the
National Futures Association (the "NFA") and became a commodity
pool operator ("CPO") registered with the Commodity Futures Trading
Commission (the "CFTC") effective November 10,
2009. The Sponsor registered as a
Commodity Trading Advisor ("CTA") with the NFA effective September
8, 2017.
The specific investment objective
of each Fund and information regarding the organization and
operation of each Fund are included in each Fund’s financial
statements and accompanying notes, as well as in other sections of
this Form 10-K filing. In general, the investment objective of each
Fund is to have the daily changes in percentage terms of its
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for certain Futures Contracts for the commodity
specified for that Fund. The investment objective of
TAGS is to have the daily changes in percentage terms of NAV of its
common units (“Shares”) reflect the daily changes in
percentage terms of a weighted average (the “Underlying Fund
Average”) of the NAVs per share of four other commodity pools
that are series of the Trust and are sponsored by the Sponsor:
CORN, WEAT, SOYB, and CANE (collectively, the “Underlying
Funds”). The Underlying Fund Average will have a
weighting of 25% to each Underlying Fund, and the Fund’s
assets will be rebalanced to maintain the approximate 25%
allocation to each Underlying Fund.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC in its capacity as the Sponsor
(“Sponsor”) may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
Note 2 – Principal Contracts and
Agreements
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. The principal
business address for U.S. Bank N.A. is 1555 North Rivercenter
Drive, Suite 302, Milwaukee, Wisconsin 53212. U.S. Bank N.A. is a
Wisconsin state chartered bank subject to regulation by the Board
of Governors of the Federal Reserve System and the Wisconsin State
Banking Department. The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”) is 615 E. Michigan Street,
Milwaukee, WI 53202. In addition, effective on the Conversion Date,
USBFS, a wholly owned subsidiary of U.S. Bank, commenced serving as
administrator for each Fund, performing certain administrative and
accounting services and preparing certain SEC reports on behalf of
the Funds, and also became the registrar and transfer agent for
each Fund’s Shares. For such services, U.S. Bank and USBFS
will receive an asset-based fee, subject to a minimum annual
fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the first $250
million, 0.05% on the next $250 million, 0.04% on the next $500
million and 0.03% on the balance over $1 billion annually. A
combined minimum annual fee of up to $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund. For the year ended December 31, 2015, such expenses include
both the fees for the Bank of New York Mellon and USBFS. For the
years ended December 31, the Funds recognized $346,295 in 2017,
$359,937 in 2016, and $779,473 in 2015, respectively, for
these services, which is recorded in custodian fees and expenses on
the combined statements of operations; of these expenses $43,464 in
2017, $61,735 in 2016, and $538,688 in 2015 were waived by the
Sponsor.
The Sponsor employs Foreside Fund
Services, LLC (“Foreside” or the
“Distributor”) as the Distributor for the Funds. The
Distribution Services Agreement among the
Distributor and the Sponsor 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 Financial Industry
Regulatory Authority (“FINRA”) rules. For its services
as the Distributor, Foreside receives a fee of 0.01% of the
Fund’s average daily net assets and an aggregate annual fee
of $100,000 for all Teucrium Funds, along with certain expense
reimbursements. For its services under the SASA, Foreside receives
a fee of $5,000 per registered representative and $1,000 per
registered location. For the years ended December 31, the Funds
recognized $184,118 in 2017, $147,940 in 2016, and $149,080 in
2015, respectively, for these services, which is recorded in
distribution and marketing fees on the combined statements of
operations; of these expenses $48,147 in 2017, $19,815 in 2016, and
$10,251 in 2015 were waived by the
Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015,
Newedge USA, LLC (“Newedge USA”)
merged with and into SG Americas
Securities, LLC (“SG”), with the latter as
the surviving entity. On February 6, 2015
Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was $0.
Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and residual
cash balances held at Jefferies had been transferred to ED&F
Man and the balance in all Jefferies accounts was
$0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of the
NFA. ED&F Man is also registered as a broker/dealer
with the U.S. Securities and Exchange Commission and is a member of
the FINRA. ED&F Man is a clearing member of ICE
Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile
Exchange, New York Mercantile Exchange, and all other major United
States commodity exchanges. For Corn, Soybean, Sugar and
Wheat Futures Contracts ED&F Man, Jefferies and SG were
paid $8.00 per round turn in 2015. Effective January 1, 2016,
ED&F Man, increased the per round-term charge for futures
contracts commission to $9.00. For the years ended December 31, the
Funds recognized $158,207 in 2017, $155,345 in 2016, and
$71,854 in 2015, respectively, for these services, which is
recorded in brokerage commissions on the combined statement of
operations; of these expenses $0 in 2017, $0 in 2016, and $30,000
in 2015 was waived by the Sponsor.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. The Funds recognized $3,072 for these
services in 2017, $3,039 in 2016 and $3,002 in 2015, which is
recorded in business permits and licenses fees on the combined
statements of operations; of this expense $1,515 in 2017, $3,039 in
2016, and $557 in 2015 were waived by the
Sponsor.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying financial
statements have been prepared on a combined basis in conformity
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) as detailed in the Financial
Accounting Standards Board’s Accounting Standards
Codification and include the accounts of the Trust, CORN, CANE,
SOYB, WEAT and TAGS. Refer to the accompanying separate financial
statements for each Fund for more detailed information. For the
periods represented by the financial statements herein the
operations of the Trust contain the results of CORN, NAGS, CRUD,
SOYB, CANE, WEAT, and TAGS except for eliminations for TAGS as
explained below for the months during which each Fund was in
operation.
In accordance with ASU 2016-18
issued by the Financial Accounting Standards Board ("FASB"), the
presentation of cash and cash equivalents and restricted cash is
disaggregated by line item on the combined statements of assets and
liabilities and sum to the total amount of cash, cash equivalents,
and restricted cash at the end of the corresponding period shown on
the combined statements of cash flows. This update in presentation
did not have a material impact on the financial statements and
disclosures of the Trust and the Funds.
Given the investment objective of
TAGS as described in Note 1 above, TAGS will buy, sell and hold, as
part of its normal operations, shares of the four Underlying Funds.
The Trust eliminates the shares of the other series of the Trust
owned by the Teucrium Agricultural Fund from its combined
statements of assets and liabilities. The Trust eliminates the net
change in unrealized appreciation or depreciation on securities
owned by the Teucrium Agricultural Fund from its combined
statements of operations. The combined statements of changes in net
assets and cash flows present a net presentation of the purchases
and sales of the Underlying Funds of TAGS.
Revenue Recognition
Commodity futures contracts are
recorded on the trade date. All such transactions are recorded on
the identified cost basis and marked to market daily. Unrealized
appreciation or depreciation on commodity futures contracts are
reflected in the statements of assets and liabilities as the
difference between the original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statements of
operations. Interest on cash equivalents and deposits with the
Futures Commission Merchant are recognized on the accrual basis.
The Funds earn interest on its assets denominated in U.S. dollars
on deposit with the Futures Commission Merchant. In addition, the
Funds earn interest on funds held at the custodian at prevailing
market rates for such investments.
Beginning in October 2017, the
Sponsor began investing a portion of cash in commercial paper,
which is deemed a cash equivalent based on the rating and duration
of contracts as described in the notes to the financial statements
and reflected in cash and cash equivalents on the combined
statements of assets and liabilites and in cash, cash equivalents
and restricted cash on the combined statements of cash flows.
Accretion on these investments are recognized using the effective
interest method in U.S. dollars and included in interest income on
the combined statements of operations.
Brokerage Commissions
Brokerage commissions on all open
commodity futures contracts are accrued on the trade date and on a
full-turn basis.
Income Taxes
The Trust, as a Delaware
statutory trust, is considered a trust for federal tax purposes and
is, thus, a pass through entity. For United States federal income
tax purposes, the Funds will be treated as partnerships. Therefore,
the Funds do not record a provision for income taxes because the
shareholders report their share of a Fund’s income or loss on
their income tax returns. The financial statements reflect the
Funds’ transactions without adjustment, if any, required for
income tax purposes.
The Funds are required to
determine whether a tax position is more likely than not to be
sustained upon examination by the applicable taxing authority,
including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The Funds
file income tax returns in the U.S. federal jurisdiction, and may
file income tax returns in various U.S. states and foreign
jurisdictions. For all tax years 2014 to 2017, the Funds remain
subject to income tax examinations by major taxing authorities. The
tax benefit recognized is measured as the largest amount of benefit
that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. De-recognition of a tax benefit
previously recognized results in the Funds recording a tax
liability that reduces net assets. Based on their analysis, the
Funds have determined that they have not incurred any liability for
unrecognized tax benefits as of and for the years ended December
31, 2017, 2016, 2015, and 2014. However, the Funds’
conclusions regarding this policy may be subject to review and
adjustment at a later date based on factors including, but not
limited to, ongoing analysis of and changes to tax laws,
regulations, and interpretations thereof.
The Funds will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016 and 2015.
The Funds may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Funds’ management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months. In the opinion of the Sponsor,
the 2017 Tax Cuts and Jobs Act, will not have a significant impact
on the Trust or the Funds and did not have a significant impact on
the financial statements of the Trust and the
Funds.
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets from each Fund. The amount of the
proceeds required to purchase a Creation Basket will be equal to
the NAV of the shares in the Creation Basket determined as of 4:00
p.m. New York time on the day the order to create the basket is
properly received.
Authorized Purchasers may redeem
shares from each Fund only in blocks of shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
Each Fund receives or pays the
proceeds from shares sold or redeemed within three business days
after the trade date of the purchase or redemption. The amounts due
from Authorized Purchasers are reflected in the statements of
assets and liabilities as receivable for shares sold. Amounts
payable to Authorized Purchasers upon redemption are reflected in
the statements of assets and liabilities as payable for shares
redeemed.
There are a minimum number of
baskets and associated shares specified for each Fund in the
Fund’s respective prospectus, as amended from time to time.
Once the minimum number of baskets is reached, there can be no more
redemptions until there has been a creation basket. These minimum
levels are as follows:
CORN: 50,000 shares representing
2 baskets
SOYB: 50,000 shares representing
2 baskets
CANE: 50,000 shares representing
2 baskets
WEAT: 50,000 shares representing
2 baskets
TAGS: 50,000 shares representing
2 baskets (at minimum level as of December 31, 2017, 2016 and
2015)
Cash, Cash Equivalents, and Restricted
Cash
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Trust reported its cash equivalents in the
combined statements of assets and liabilities at market value, or
at carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. Each Fund that is a
series of the Trust has the balance
of its cash equivalents on
deposit with financial institutions. The Trust had a balance of
$3,014 and $1,412,423 in money market funds at December 31, 2017
and December 31, 2016, respectively; these balances are included in
cash and cash equivalents on the combined statements of assets and
liabilities. Effective in the second quarter 2015, the Sponsor
invested a portion of the available cash for the Funds in
alternative demand-deposit savings accounts, which is classified as
cash and not as cash equivalents. The Funds had a balance of
$88,013,073 and $143,915,277 in demand-deposit savings accounts on
December 31, 2017 and December 31, 2016, respectively. Assets
deposited with the bank may, at times, exceed federally insured
limits.
Effective in the fourth quarter
2017, the Sponsor invested a portion of the available cash for the
Funds in investment grade commercial paper with durations of 90
days or less, which is classified as a cash equivalent and is not
FDIC insured. The Funds had a balance of $49,929,746 in commercial
paper contracts on December 31, 2017. The above changes resulted in
a reduction in the balance held in money market and demand-deposit
savings accounts, respectively.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. Per the
amended agreement between the Sponsor and The Bank of New York
Mellon dated August 14, 2015, certain cash amounts for each Fund,
except
in the
case of TAGS, are to remain at The Bank of New York Mellon until
amounts for services and early termination fees are paid. The
amended agreement allows for payments for such amounts owed to be
made through December 31, 2017. Cash balances that are held in
custody at The Bank of New York Mellon under this amended agreement
are reflected as restricted cash on the financial statements of the
Trust and Funds. The following table provides a reconciliation of
cash and cash equivalents, and restricted cash reported within the
combined statements of assets and liabilities that sum to the total
of the same such amounts shown in the combined statements of cash
flows.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash and cash
equivalents
|
$
137,945,626
|
$
145,323,469
|
$
92,561,610
|
|
Restricted
cash
|
-
|
151,684
|
307,683
|
|
Total cash, cash equivalents, and
restricted cash shown in the combined statements of cash
flows
|
$
137,945,626
|
$
145,475,153
|
$
92,869,293
|
Due from/to Broker
The
amount recorded by the Trust for the amount due from
and to
the clearing broker includes, but is not limited to, cash held by
the broker, amounts payable to the clearing broker related to open
transactions and payables for commodities futures accounts
liquidating to an equity balance on the clearing broker’s
records.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Funds’
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Funds’ trading,
the Funds (and not their shareholders personally) are subject to
margin calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated, and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Payable/Receivable for Securities
Purchased/Sold
Due from/to broker for
investments in securities are securities transactions pending
settlement. The Trust and the Funds are subject to credit risk to
the extent any broker with whom it conducts business is unable to
fulfill contractual obligations on its behalf. The management of
the Trust and the Funds monitors the financial condition of such
brokers and does not anticipate any losses from these
counterparties. Since the inception of the Fund, the principal
broker through which the Trust and TAGS clear securities
transactions for TAGS is the Bank of New York Mellon Capital
Markets.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
The Fund’s
sponsor, Teucrium Trading, LLC (the
“Sponsor”), is responsible for investing the assets of
the Funds in accordance with the objectives and policies of each
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 Trust and the Funds. In
addition, the Sponsor elected not to outsource services directly
attributable to the Trust and the Funds such as,
certain
aspects of
accounting, financial reporting, regulatory compliance and trading
activities. In addition, the Funds, except for TAGS which has no
such fee, are contractually obligated to pay a monthly management
fee to the Sponsor, based on average daily net assets, at a rate
equal to 1.00% per annum.
The Funds pay for all brokerage
fees, taxes and other expenses, including licensing fees for the
use of intellectual property, registration or other fees paid to
the SEC, FINRA, formerly the National Association of Securities
Dealers, or any other regulatory agency in connection with the
offer and sale of subsequent Shares, after its initial
registration, and all legal, accounting, printing and other
expenses associated therewith. The Funds also pay the fees and
expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to all
Funds within the Trust are allocated by the Sponsor to the
respective Fund based on activity drivers deemed most appropriate
by the Sponsor for such expenses, including but not limited to
relative assets under management and creation and redeem 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, which are included in the related line item in the
combined statements of operations. 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
Trust and the Funds, which are primarily the cost of performing
accounting and financial reporting, regulatory compliance, and
trading activities that are directly attributable to the Trust and
the Funds. For the years ended December 31, the Funds recognized
$2,196,388 in 2017, $1,825,552 in 2016, and $1,601,237 in
2015, respectively, for these services, which are primarily
recorded in distribution and marketing fees on the combined
statements of operations, of these expenses, $453,736 in 2017,
$457,658 in 2016, and $138,262 in 2015 were waived by the
Sponsor. All asset-based fees and expenses for the Funds are
calculated on the prior day’s net assets.
The Sponsor has the ability to
elect to pay certain expenses on behalf of the Funds or waive the
management fee. This election is subject to change by the Sponsor,
at its discretion. Expenses paid by the Sponsor and Management fees
waived by the Sponsor are, if applicable, presented as waived
expenses in the statements of operations for each
Fund.
For the year ended December 31,
2017 there were $1,028,899 of expenses that were on the combined
statements of operations of the Trust as expenses that were waived
by the Sponsor. These were specifically: $409,562 for CORN,
$126,489 for SOYB, $129,334 for CANE, $323,244 for WEAT, and
$40,270 for TAGS. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2016, there were $838,015 of expenses that were on the
combined statements of operations of the Trust as expenses that
were waived by the Sponsor. These were specifically: $442,333 for
CORN, $68,914 for SOYB, $148,281 for CANE,
$140,028 for WEAT, and $38,459 for TAGS. The Sponsor has
determined that there would be no recovery sought for these amounts
in any future period.
For the year ended December 31,
2015 there were $980,683 of expenses that were on the combined
statements of operations of the Trust as expenses that were waived
by the Sponsor. These were specifically: $96,068 for
CORN, $304,609 for SOYB, $256,227 for CANE,
$130,716 for WEAT, and $193,063 for TAGS. The Sponsor has
determined that there would be no recovery sought for these amounts
in any future period.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of the revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value - Definition and Hierarchy
In accordance with U.S. GAAP,
fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Trust uses various valuation approaches. In accordance with U.S.
GAAP, a fair value hierarchy for inputs is used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are those that
market participants would use in pricing the asset or liability
based on market data obtained from sources independent of the
Trust. Unobservable inputs reflect the Trust’s assumptions
about the inputs market participants would use in pricing the asset
or liability developed based on the best information available in
the circumstances. The fair value hierarchy is categorized into
three levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Trust has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1 futures
contracts held by CORN, SOYB, CANE and WEAT, the securities of the
Underlying Funds held by TAGS, and any other securities held by any
Fund, together referenced throughout this filing as
“financial instruments.” Since valuations are
based on quoted prices that are readily and regularly available in
an active market, valuation of these securities does not entail a
significant degree of judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial
instrument to financial instrument and is affected
by a wide variety of factors including, the type of financial
instrument, whether the financial instrument is new and
not yet established in the marketplace, and other characteristics
particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more
judgment. Those estimated values do not necessarily represent the
amounts that may be ultimately realized due to the occurrence of
future circumstances that cannot be reasonably determined. Because
of the inherent uncertainty of valuation, those estimated values
may be materially higher or lower than the values that would have
been used had a ready market for the financial
instruments existed. Accordingly, the degree of judgment
exercised by the Fund in determining fair value is greatest
for financial instruments categorized in Level 3. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy, within
which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Trust’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Trust uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market
dislocation, the observability of prices and inputs may be reduced
for many financial instruments. This condition could cause a
financial instrument to be reclassified to a lower level
within the fair value hierarchy. For instance, when Corn Futures
Contracts on the Chicago Board of Trade (“CBOT”) are
not actively trading due to a “limit-up” or
‘limit-down” condition, meaning that the change in the
Corn Futures Contracts has exceeded the limits established, the
Trust and the Fund will revert to alternative verifiable sources of
valuation of its assets. When such a situation exists on a quarter
close, the Sponsor will calculate the NAV on a particular day using
the Level 1 valuation, but will later recalculate the NAV for the
impacted Fund based upon the valuation inputs from these
alternative verifiable sources (Level 2 or Level 3) and will report
such NAV in its applicable financial statements and
reports.
On December 31, 2017 and 2016, in
the opinion of the Trust, the reported value at the close of the
market for each commodity contract fairly reflected the value of
the futures and no alternative valuations were required. The
determination is made as of the settlement of the futures contracts
on the last day of trading for the reporting period. In making the
determination of a Level 1 or Level 2 transfer, the Funds consider
the average volume of the specific underlying futures contracts
traded on the relevant exchange for the years being
reported.
For the years ended December 31,
2017 and 2016, the Funds did not have any significant transfers
between any of the levels of the fair value
hierarchy.
The Funds and the Trust record
their derivative activities at fair value. Gains and losses from
derivative contracts are included in the statements of operations.
Derivative contracts include futures contracts related to commodity
prices. Futures, which are listed on a national securities
exchange, such as the CBOT and the ICE, or reported on another
national market, are generally categorized in Level 1 of the fair
value hierarchy. OTC derivatives contracts (such as forward and
swap contracts), which may be valued using models, depending on
whether significant inputs are observable or unobservable, are
categorized in Levels 2 or 3 of the fair value
hierarchy.
Investments in the securities of
the Underlying Funds are freely traded and listed on the NYSE Arca.
These investments are valued at the NAV of the Underlying Fund as
of the valuation date as calculated by the administrator based on
the exchange-quoted prices of the commodity futures contracts held
by the Underlying Fund.
Expenses
Expenses are recorded using the
accrual method of accounting.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Funds
.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Funds
.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Funds.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Funds
.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the Funds
.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. The Sponsor elected to early adopt ASU 2016-18
for the year ending December 31, 2017 and the adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Funds.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Funds
.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance. The amendments
in this update are effective for fiscal years beginning after
December 15, 2017. The Sponsor elected to early adopt ASU 2016-15
for the year ending December 31, 2017 and the adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Funds.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Funds record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2014-09 and 2015-14. Therefore, these standards
are not expected to have a material impact on the financial
statements and disclosures of the Trust or the Funds
.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Funds record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Funds
.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Funds.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Funds.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Funds.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Funds.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Funds.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Funds.
Note 4 – Fair Value Measurements
The Trust’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Trust’s
significant accounting policies in Note 3. The following table
presents information about the Trust’s assets and liabilities
measured at fair value as of December 31, 2017 and December 31,
2016:
December 31,
2017
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Cash
Equivalents
|
$
49,932,760
|
$
-
|
$
-
|
$
49,932,760
|
|
Commodity Futures
Contracts
|
|
|
|
|
|
Corn futures
contracts
|
120,487
|
-
|
-
|
120,487
|
|
Sugar futures
contracts
|
184,319
|
-
|
-
|
184,319
|
|
Wheat futures
contracts
|
604,475
|
-
|
-
|
604,475
|
|
Total
|
$
50,842,041
|
$
-
|
$
-
|
$
50,842,041
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Commodity Futures
Contracts
|
|
|
|
|
|
Corn futures
contracts
|
$
1,962,050
|
$
-
|
$
-
|
$
1,962,050
|
|
Soybeans futures
contracts
|
448,063
|
-
|
-
|
448,063
|
|
Sugar futures
contracts
|
67,133
|
-
|
-
|
67,133
|
|
Wheat futures
contracts
|
3,200,525
|
-
|
-
|
3,200,525
|
|
Total
|
$
5,677,771
|
$
-
|
$
-
|
$
5,677,771
|
December 31,
2016
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Cash
Equivalents
|
$
1,412,423
|
$
-
|
$
-
|
$
1,412,423
|
|
Commodity Futures
Contracts
|
|
|
|
|
|
Soybeans futures
contracts
|
357,500
|
-
|
-
|
357,500
|
|
Sugar futures
contracts
|
185,147
|
-
|
-
|
185,147
|
|
Total
|
$
1,955,070
|
$
-
|
$
-
|
$
1,955,070
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Commodity Futures
Contracts
|
|
|
|
|
|
Corn futures
contracts
|
$
1,460,800
|
$
-
|
$
-
|
$
1,460,800
|
|
Soybeans futures
contracts
|
12,025
|
-
|
-
|
12,025
|
|
Sugar futures
contracts
|
331,542
|
-
|
-
|
331,542
|
|
Wheat futures
contracts
|
3,921,588
|
-
|
-
|
3,921,588
|
|
Total
|
$
5,725,955
|
$
-
|
$
-
|
$
5,725,955
|
For the years ended December 31,
2017 and 2016, the Funds did not have any significant transfers
between any of the levels of the fair value
hierarchy.
See the
Fair Value - Definition and Hierarchy
section in Note 4 above for an explanation of the transfers into
and out of each level of the fair value
hierarchy.
Note 5 – Derivative Instruments and Hedging
Activities
In the normal course of business,
the Funds utilize derivative contracts in connection with its
proprietary trading activities. Investments in derivative contracts
are subject to additional risks that can result in a loss of all or
part of an investment. The Funds’ derivative activities and
exposure to derivative contracts are classified by the following
primary underlying risks: interest rate, credit, commodity price,
and equity price risks. In addition to its primary underlying
risks, the Funds are also subject to additional counterparty risk
due to inability of its counterparties to meet the terms of their
contracts. For the years ended December 31, 2017 and 2016, the
Funds invested only in commodity futures contracts specifically
related to each Fund.
Futures Contracts
The Funds are subject to
commodity price risk in the normal course of pursuing their
investment objectives. A futures contract represents a commitment
for the future purchase or sale of an asset at a specified price on
a specified date.
The purchase and sale of futures
contracts requires margin deposits with a FCM. Subsequent payments
(variation margin) are made or received by each Fund each day,
depending on the daily fluctuations in the value of the contract,
and are recorded as unrealized gains or losses by each Fund.
Futures contracts may reduce the Funds’ exposure to
counterparty risk since futures contracts are exchange-traded; and
the exchange’s clearinghouse, as the counterparty to all
exchange-traded futures, guarantees the futures against
default.
The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from the FCM’s proprietary activities. A customer’s
cash and other equity deposited with an FCM are considered
commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s
insolvency, recovery may be limited to each Fund’s pro rata
share of segregated customer funds available. It is possible that
the recovery amount could be less than the total of cash and other
equity deposited.
The following table discloses
information about offsetting assets and liabilities presented in
the statements of assets and liabilities to enable users of these
financial statements to evaluate the effect or potential effect of
netting arrangements for recognized assets and liabilities. These
recognized assets and liabilities are presented as defined in FASB
ASU No. 2011-11 “Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities” and subsequently clarified
in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying
the Scope of Disclosures about Offsetting Assets and
Liabilities.”
The following table also
identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of December 31, 2017 and
2016.
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i-ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn futures
contracts
|
$
120,487
|
$
-
|
$
120,487
|
$
120,487
|
$
-
|
$
-
|
|
Sugar futures
contracts
|
$
184,319
|
$
-
|
$
184,319
|
$
67,133
|
$
-
|
$
117,186
|
|
Wheat futures
contracts
|
$
604,475
|
$
-
|
$
604,475
|
$
604,475
|
$
-
|
$
-
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i-ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
Not Offset in the Statement of Assets and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn futures
contracts
|
$
1,962,050
|
$
-
|
$
1,962,050
|
$
120,487
|
$
1,841,563
|
$
-
|
|
Soybeans futures
contracts
|
$
448,063
|
$
-
|
$
448,063
|
$
-
|
$
448,063
|
$
-
|
|
Sugar futures
contracts
|
$
67,133
|
$
-
|
$
67,133
|
$
67,133
|
$
-
|
$
-
|
|
Wheat futures
contracts
|
$
3,200,525
|
$
-
|
$
3,200,525
|
$
604,475
|
$
2,596,050
|
$
-
|
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i-ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
Not Offset in the Statement of Assets and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Soybeans futures
contracts
|
$
357,500
|
$
-
|
$
357,500
|
$
12,025
|
$
-
|
$
345,475
|
|
Sugar futures
contracts
|
$
185,147
|
$
-
|
$
185,147
|
$
185,147
|
$
-
|
$
-
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i-ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
Not Offset in the Statement of Assets and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn futures
contracts
|
$
1,460,800
|
$
-
|
$
1,460,800
|
$
-
|
$
1,460,800
|
$
-
|
|
Soybeans futures
contracts
|
$
12,025
|
$
-
|
$
12,025
|
$
12,025
|
$
-
|
$
-
|
|
Sugar futures
contracts
|
$
331,542
|
$
-
|
$
331,542
|
$
185,147
|
$
146,395
|
$
-
|
|
Wheat futures
contracts
|
$
3,921,588
|
$
-
|
$
3,921,588
|
$
-
|
$
3,921,588
|
$
-
|
The following is a summary of
realized and net change in unrealized gains (losses) of the
derivative instruments utilized by the Trust:
Year ended
December 31, 2017
|
Primary
Underlying Risk
|
Realized (Loss) Gain on
Commodity
Futures
Contracts
|
Net Change in Unrealized
Depreciation or Appreciation on Commodity Futures
Contracts
|
|
Commodity
Price
|
|
|
|
Corn futures
contracts
|
$
(5,603,513
)
|
$
(380,763
)
|
|
Soybeans futures
contracts
|
8,425
|
(793,538
)
|
|
Sugar futures
contracts
|
(2,435,305
)
|
263,581
|
|
Wheat futures
contracts
|
(5,305,113
)
|
1,325,538
|
|
Total commodity futures
contracts
|
$
(13,335,506
)
|
$
414,818
|
Year ended
December 31, 2016
|
|
Realized (Loss) Gain on
|
Net Change in Unrealized
Appreciation or Depreciation on
|
|
Primary Underlying Risk
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
price
|
|
|
|
Corn futures
contracts
|
$
(9,438,913
)
|
$
2,447,750
|
|
Soybean futures
contracts
|
939,088
|
567,962
|
|
Sugar futures
contracts
|
1,967,694
|
(510,451
)
|
|
Wheat futures
contracts
|
(9,631,400
)
|
(1,997,125
)
|
|
Total commodity futures
contracts
|
$
(16,163,531
)
|
$
508,136
|
Year ended
December 31, 2015
|
|
Realized Loss
on
|
Net Change in Unrealized
Appreciation or Depreciation on
|
|
Primary Underlying Risk
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
price
|
|
|
|
Corn futures
contracts
|
$
(8,533,650
)
|
$
(5,660,263
)
|
|
Soybean futures
contracts
|
(1,355,738
)
|
54,526
|
|
Sugar futures
contracts
|
(1,279,891
)
|
868,011
|
|
Wheat futures
contracts
|
(4,559,863
)
|
(2,640,963
)
|
|
Total commodity futures
contracts
|
$
(15,729,142
)
|
$
(7,378,689
)
|
Volume of Derivative Activities
The average notional market value
categorized by primary underlying risk for all futures contracts
held was $153.9 million in 2017, $132.4 million in 2016, and
$108.8 million in 2015.
Expenses incurred in organizing
of the Trust and the initial offering of the shares, including
applicable SEC registration fees, were borne directly by the
Sponsor for the Funds and will be borne directly by the Sponsor for
any series of the Trust which is not yet operating or will be
issued in the future. The Trust will not be obligated to reimburse
the Sponsor.
The following are the net assets
and shares outstanding of each Fund that is a series of the Trust
and, thus, in total, comprise the combined net assets of the
Trust:
December 31,
2017
|
|
Outstanding Shares
|
Net
Assets
|
|
Teucrium Corn
Fund
|
3,875,004
|
$
64,901,479
|
|
Teucrium Soybean
Fund
|
575,004
|
10,264,025
|
|
Teucrium Sugar
Fund
|
650,004
|
6,363,710
|
|
Teucrium Wheat
Fund
|
10,250,004
|
61,416,019
|
|
Teucrium Agricultural
Fund:
|
|
|
|
Net assets including the
investment in the Underlying Funds
|
50,002
|
1,137,639
|
|
Less: Investment in the
Underlying Funds
|
|
(1,136,120
)
|
|
Net for the Fund in the combined
net assets of the Trust
|
|
1,519
|
|
Total
|
|
$
142,946,752
|
December 31,
2016
|
|
Outstanding Shares
|
Net
Assets
|
|
Teucrium Corn
Fund
|
3,900,004
|
$
73,213,541
|
|
Teucrium Soybean
Fund
|
675,004
|
12,882,100
|
|
Teucrium Sugar
Fund
|
425,004
|
5,513,971
|
|
Teucrium Wheat
Fund
|
9,050,004
|
62,344,759
|
|
Teucrium Agricultural
Fund:
|
|
|
|
Net assets including the
investment in the Underlying Funds
|
50,002
|
1,316,370
|
|
Less: Investment in the
Underlying Funds
|
|
(1,313,554
)
|
|
Net for the Fund in the combined
net assets of the Trust
|
|
2,816
|
|
Total
|
|
$
153,957,187
|
The detailed information for the
subscriptions and redemptions, and other financial information for
each Fund that is a series of the Trust are included in the
accompanying financial statements of each Fund.
Note 8 – Subsequent Events
Management has evaluated the
financial statements for the period-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Trust and Funds other than
those noted below:
CORN:
Effective January 2, 2018, the Sponsor established a demand deposit
account for CORN at Mascoma Savings Bank.
SOYB: Effective January 2, 2018,
the Sponsor established a demand deposit account for SOYB at
Mascoma Savings Bank.
Beginning in the first quarter on
2018, the Sponsor established an account at Morgan Stanley for SOYB
for the purposes of investing a portion of available assets in
commercial paper as described in the prospectus supplement dated
January 16, 2018.
The total net assets of the Fund
increased by $5,744,847 or 56% the period from December 31, 2017
through March 14, 2018. This was driven by a 48% increase in the
shares outstanding and a 5% increase in the net asset value per
share.
CANE: Effective January 2, 2018,
the Sponsor established a demand deposit account for CANE at
Mascoma Savings Bank.
Beginning in the first quarter on
2018, the Sponsor established an account at Morgan Stanley for CANE
for the purposes of investing a portion of available assets in
commercial paper as described in the prospectus supplement dated
January 16, 2018.
The total net assets of the Fund
increased by $1,523,512 or 24% the period from December 31, 2017
through March 14, 2018. This was driven by a 42% increase in the
shares outstanding and a 13% decrease in the net asset value per
share.
WEAT: Effective January 2, 2018,
the Sponsor established a demand deposit account for WEAT at
Mascoma Savings Bank.
TAGS: Nothing to
Report
Report of
Independent Registered Public Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Corn Fund
Opinion on the financial
statements
We have audited the accompanying
statements of assets and liabilities of Teucrium Corn Fund (the
“Fund”), including the schedules of investments, as of
December 31, 2017 and 2016, the related statements of operations,
changes in net assets, and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Fund as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Fund’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as the
Fund’s auditor since 2014.
New York, New
York
March 16,
2018
Report
of Independent Registered Public Accounting
Firm
To the Sponsor and Shareholders
of
Teucrium
Corn Fund
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Corn Fund (the
“Fund”) as of December 31, 2017, based on criteria
established in the 2013
Internal
Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Fund maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
the 2013
Internal
Control—Integrated Framework
issued by
COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
financial statements of the Fund as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Fund’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A fund’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A fund’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the fund; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
fund are being made only in accordance with authorizations of
management and directors of the fund; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the fund’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRANT THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM CORN
FUND
STATEMENTS OF
ASSETS AND LIABILITIES
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash and cash
equivalents
|
$
63,139,461
|
$
69,072,284
|
|
Interest
receivable
|
73
|
339
|
|
Other assets
|
2,772
|
10,451
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
120,487
|
-
|
|
Due from
broker
|
3,703,896
|
5,664,656
|
|
Total
equity in trading accounts
|
3,824,383
|
5,664,656
|
|
Total assets
|
66,966,689
|
74,747,730
|
|
|
|
|
|
Liabilities
|
|
|
|
Management fee payable to
Sponsor
|
55,432
|
65,165
|
|
Other
liabilities
|
47,728
|
8,224
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
1,962,050
|
1,460,800
|
|
Total
liabilities
|
2,065,210
|
1,534,189
|
|
|
|
|
|
Net
assets
|
$
64,901,479
|
$
73,213,541
|
|
|
|
|
|
Shares
outstanding
|
3,875,004
|
3,900,004
|
|
|
|
|
|
Net asset
value per share
|
$
16.75
|
$
18.77
|
|
|
|
|
|
Market value
per share
|
$
16.77
|
$
18.71
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM CORN
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost $100)
|
$
100
|
0.00
%
|
100
|
|
Blackrock FedFund - Institutional
Class (cost $70)
|
70
|
0.00
|
70
|
|
Total money market
funds
|
$
170
|
0.00
%
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Commercial
Paper
|
|
|
|
|
Boston Scientific Corporation
1.709% (cost: $2,496,104 due 1/16/2018)
|
$
2,498,229
|
3.85
%
|
2,500,000
|
|
Canadian Natural Resources
Limited 1.759% (cost: $2,495,017 due 1/31/2018)
|
2,496,354
|
3.85
|
2,500,000
|
|
E. I. du Pont de Nemours and
Company 1.67% (cost: $2,490,778 due 3/5/2018)
|
2,492,737
|
3.84
|
2,500,000
|
|
Enbridge Energy Partners, L.P.
2.198% (cost: $2,488,490 due 3/5/2018)
|
2,490,459
|
3.84
|
2,500,000
|
|
Equifax Inc. 1.709% (cost:
$2,493,979 due 1/5/2018)
|
2,499,528
|
3.85
|
2,500,000
|
|
Ford Motor Credit Company LLC
1.407% (cost: $2,491,250 due 1/10/2018)
|
2,499,125
|
3.85
|
2,500,000
|
|
Glencore Funding LLC 1.424%
(cost: $2,491,248 due 1/17/2018)
|
2,498,427
|
3.85
|
2,500,000
|
|
HP Inc. 1.648% (cost: $2,496,014
due 1/22/2018)
|
2,497,608
|
3.85
|
2,500,000
|
|
Oneok, Inc. 1.749% (cost:
$2,497,342 due 1/5/2018)
|
2,499,517
|
3.85
|
2,500,000
|
|
VW Credit, Inc. 1.61% (cost:
$2,490,000 due 3/6/2018)
|
2,492,889
|
3.84
|
2,500,000
|
|
Total Commercial Paper (total
cost: $24,930,222)
|
$
24,964,873
|
38.47
%
|
|
|
Total Cash
Equivalents
|
$
24,965,043
|
38.47
%
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures JUL18 (1,060
contracts)
|
$
120,487
|
0.19
%
|
$
19,464,250
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures MAY18 (1,265
contracts)
|
$
821,825
|
1.27
%
|
$
22,706,750
|
|
CBOT corn futures DEC18 (1,184
contracts)
|
1,140,225
|
1.76
|
22,732,800
|
|
Total commodity futures
contracts
|
$
1,962,050
|
3.03
%
|
$
45,439,550
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM CORN
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2016
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$692,293)
|
$
692,293
|
0.95
%
|
692,293
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States corn futures
contracts
|
|
|
|
|
CBOT corn futures MAY17 (1,438
contracts)
|
$
50,713
|
0.07
%
|
$
25,704,250
|
|
CBOT corn futures JUL17 (1,207
contracts)
|
576,650
|
0.79
|
21,982,488
|
|
CBOT corn futures DEC17 (1,347
contracts)
|
833,437
|
1.14
|
25,593,000
|
|
Total commodity futures
contracts
|
$
1,460,800
|
2.00
%
|
$
73,279,738
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM CORN
FUND
STATEMENTS OF
OPERATIONS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized (loss)
gain on trading of commodity futures contracts:
|
|
|
|
|
Realized loss
on commodity futures contracts
|
$
(5,603,513
)
|
$
(9,438,913
)
|
$
(8,533,650
)
|
|
Net change in unrealized
depreciation or appreciation on commodity futures
contracts
|
(380,763
)
|
2,447,750
|
(5,660,263
)
|
|
Interest
income
|
778,560
|
396,679
|
146,905
|
|
Total
loss
|
(5,205,716
)
|
(6,594,484
)
|
(14,047,008
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
682,674
|
719,183
|
779,808
|
|
Professional
fees
|
633,381
|
1,049,134
|
745,650
|
|
Distribution
and marketing fees
|
1,177,003
|
1,160,864
|
1,199,576
|
|
Custodian fees
and expenses
|
153,987
|
183,452
|
187,264
|
|
Business
permits and licenses fees
|
25,251
|
16,887
|
26,852
|
|
General and
administrative expenses
|
125,534
|
142,932
|
206,490
|
|
Brokerage
commissions
|
79,700
|
96,725
|
41,250
|
|
Other
expenses
|
41,406
|
42,739
|
45,642
|
|
Total
expenses
|
2,918,936
|
3,411,916
|
3,232,532
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(409,562
)
|
(442,333
)
|
(96,068
)
|
|
|
|
|
|
|
Total
expenses, net
|
2,509,374
|
2,969,583
|
3,136,464
|
|
|
|
|
|
|
Net
loss
|
$
(7,715,090
)
|
$
(9,564,067
)
|
$
(17,183,472
)
|
|
|
|
|
|
|
Net loss per
share
|
$
(2.02
)
|
$
(2.47
)
|
$
(5.38
)
|
|
Net loss per weighted average
share
|
$
(2.08
)
|
$
(2.66
)
|
$
(5.30
)
|
|
Weighted average shares
outstanding
|
3,714,045
|
3,598,843
|
3,243,223
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM CORN
FUND
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net loss
|
$
(7,715,090
)
|
$
(9,564,067
)
|
$
(17,183,472
)
|
|
Capital
transactions
|
|
|
|
|
Issuance of
Shares
|
25,173,968
|
57,591,933
|
8,538,198
|
|
Redemption of
Shares
|
(25,770,940
)
|
(35,870,548
)
|
(38,758,010
)
|
|
Total capital
transactions
|
(596,972
)
|
21,721,385
|
(30,219,812
)
|
|
Net change in net
assets
|
(8,312,062
)
|
12,157,318
|
(47,403,284
)
|
|
|
|
|
|
|
Net assets,
beginning of period
|
$
73,213,541
|
$
61,056,223
|
$
108,459,507
|
|
|
|
|
|
|
Net assets,
end of period
|
$
64,901,479
|
$
73,213,541
|
$
61,056,223
|
|
|
|
|
|
|
Net asset
value per share at beginning of period
|
$
18.77
|
$
21.24
|
$
26.62
|
|
|
|
|
|
|
Net asset
value per share at end of period
|
$
16.75
|
$
18.77
|
$
21.24
|
|
|
|
|
|
|
Creation of
Shares
|
1,325,000
|
2,875,000
|
350,000
|
|
Redemption of
Shares
|
1,350,000
|
1,850,000
|
1,550,000
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM CORN
FUND
STATEMENTS OF
CASH FLOWS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net
loss
|
$
(7,715,090
)
|
$
(9,564,067
)
|
$
(17,183,472
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Net change in unrealized
depreciation or appreciation on commodity futures
contracts
|
380,763
|
(2,447,750
)
|
5,660,263
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Due from
broker
|
1,960,760
|
1,741,282
|
(5,792,163
)
|
|
Interest
receivable
|
266
|
40
|
6,950
|
|
Other
assets
|
7,679
|
494,901
|
(67,356
)
|
|
Management fee
payable to Sponsor
|
(9,733
)
|
11,436
|
(45,069
)
|
|
Other
liabilities
|
39,504
|
4,968
|
(111,563
)
|
|
Net cash used
in operating activities
|
(5,335,851
)
|
(9,759,190
)
|
(17,532,410
)
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
Proceeds from sale of
Shares
|
25,173,968
|
57,591,933
|
8,538,198
|
|
Redemption of
Shares
|
(25,770,940
)
|
(35,870,548
)
|
(40,754,195
)
|
|
Net cash (used
in) provided by financing activities
|
(596,972
)
|
21,721,385
|
(32,215,997
)
|
|
|
|
|
|
|
Net change in
cash and cash equivalents
|
(5,932,823
)
|
11,962,195
|
(49,748,407
)
|
|
Cash and cash
equivalents, beginning of period
|
69,072,284
|
57,110,089
|
106,858,496
|
|
Cash and cash
equivalents, end of period
|
$
63,139,461
|
$
69,072,284
|
$
57,110,089
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO FINANCIAL
STATEMENTS
December 31,
2017
Note 1 – Organization and Operation
Teucrium Corn Fund (referred to
herein as “CORN,” or the “Fund”) is a
commodity pool that is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust formed on
September 11, 2009. The Fund issues common units, called the
“Shares,” representing fractional undivided beneficial
interests in the Fund. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their Net Asset Value
(“NAV”) to “Authorized Purchasers” through
Foreside Fund Services, LLC, which is the distributor for the Fund
(the “Distributor”). Authorized Purchasers sell such
Shares, which are listed on the New York Stock Exchange
(“NYSE”) Arca under the symbol “CORN,” to
the public at per-Share offering prices that 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 corn interests. The
Fund’s Shares trade in the secondary market on the NYSE Arca
at prices that are lower or higher than their NAV per
Share.
The investment objective of CORN
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for corn (“Corn
Futures Contracts”) that are traded on the Chicago Board of
Trade (“CBOT”):
CORN
Benchmark
|
CBOT Corn
Futures Contract
|
Weighting
|
|
Second to
expire
|
35%
|
|
Third to
expire
|
30%
|
|
December following the third to
expire
|
35%
|
The Fund commenced investment
operations on June 9, 2010 and has a fiscal year ending on December
31. The Fund’s sponsor is Teucrium Trading, LLC (the
“Sponsor”). The Sponsor is responsible for the
management of the Fund.
The Sponsor is a member of the
National Futures Association (the "NFA") and became a commodity
pool operator ("CPO") registered with the Commodity Futures Trading
Commission (the "CFTC") effective November 10,
2009. The Sponsor registered as a
Commodity Trading Advisor ("CTA") with the NFA effective September
8, 2017.
On June 5, 2010, the Fund’s
initial registration of 30,000,000 shares on Form S-1 was declared
effective by the U.S. Securities and Exchange Commission
(“SEC”). On June 9, 2010, the Fund listed its shares on
the NYSE Arca under the ticker symbol “CORN.” On the
day prior to that, the Fund issued 200,000 shares in exchange for
$5,000,000 at the Fund’s initial NAV of $25 per share. The
Fund also commenced investment operations on June 9, 2010 by
purchasing commodity futures contracts traded on the CBOT. On April
29, 2016, a second subsequent registration statement for CORN was
declared effective by the SEC.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor
(“Sponsor”), may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
Note 2 – Principal Contracts and
Agreements
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Fund. The principal
business address for U.S. Bank N.A. is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department.
The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”) is 615 E.
Michigan Street, Milwaukee, WI, 53202. In addition, effective on
the Conversion Date, USBFS, a wholly owned subsidiary of U.S.
Bank, commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the
first $250 million, 0.05% on the next $250 million, 0.04% on the
next $500 million and 0.03% on the balance over $1 billion
annually. A combined minimum annual fee of up to $64,500 for
custody, transfer agency, accounting and administrative services is
assessed per Fund. For the years ended December 31, the Fund
recognized $153,987 in 2017, $183,452 in 2016, and $187,264 in
2015, respectively, for these services, which is recorded in
custodian fees and expenses on the statements of operations; of
this expense $11,607 in 2017, $44,442 in 2016, and $57,714 in 2015
were waived by the Sponsor.
The Sponsor employs Foreside Fund
Services, LLC (“Foreside” or the
“Distributor”) as the Distributor for the Funds. The
Distribution Services Agreement among the Distributor and the
Sponsor 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
Financial Industry Regulatory Authority (“FINRA”)
rules. For its services as the Distributor, Foreside receives a fee
of 0.01% of the Fund’s average daily net assets and an
aggregate annual fee of $100,000 for all Teucrium Funds, along with
certain expense reimbursements. For its services under
the SASA, Foreside receives a fee of $5,000 per registered
representative and $1,000 per registered location. For the years
ended December 31, the Fund recognized $81,940 in 2017,
$76,491 in 2016, and $95,978 in 2015, respectively, for these
services, which is recorded in distribution and marketing fees on
the statements of operations; of this expense $20,150 in 2017,
$12,779 in 2016 and $0 in 2015 were waived by the
Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015,
Newedge USA, LLC (“Newedge USA”)
merged with and into SG Americas
Securities, LLC (“SG”), with the latter as
the surviving entity. On February 6, 2015
Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was $0.
Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and residual
cash balances held at Jefferies had been transferred to ED&F
Man and the balance in all Jefferies accounts was
$0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of
the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a
clearing member of ICE Futures U.S., Inc., Chicago Board of Trade,
Chicago Mercantile Exchange, New York Mercantile Exchange, and all
other major United States commodity exchanges. For Corn,
Soybean, Sugar and Wheat Futures Contracts ED&F Man,
Jefferies and SG were paid $8.00 per round turn in
2015. Effective January 1, 2016, ED&F Man, increased the
per round-term charge for futures contracts commission to $9.00.
For the years ended December 31, the Fund recognized $79,700 in
2017, $96,725 in 2016, and $41,250 in 2015, respectively, for
these services, which is recorded in brokerage commission on the
statements of operations; of this expense $0 in 2017, $0 in 2016,
and $18,000 in 2015 were waived by the
Sponsor.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. For the years ended December 31, the Fund
recognized $1,311 in 2017, $1,550 in 2016, and $1,560 in 2015,
respectively, for these services, which is recorded in business
permits and licenses fees on the statements of operations; of this
expense $1,311 in 2017, $1,550 in 2016, and $0 in 2015 were waived
by the Sponsor.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) as detailed in the Financial Accounting
Standards Board’s Accounting Standards
Codification.
Revenue Recognition
Commodity futures contracts are
recorded on the trade date. All such transactions are recorded on
the identified cost basis and marked to market daily. Unrealized
appreciation or depreciation on commodity futures contracts are
reflected in the statements of assets and liabilities as the
difference between the original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statements of
operations. Interest on cash equivalents and deposits with the
Futures Commission Merchant are recognized on the accrual basis.
The Fund earns interest on its assets denominated in U.S. dollars
on deposit with the Futures Commission Merchant. In addition, the
Fund earns interest on funds held at the custodian at prevailing
market rates for such investments.
Beginning in October 2017, the Sponsor began investing a portion of cash in commercial paper, which is deemed a cash equivalent based on the rating and duration of contracts as described in the notes to the financial statements and reflected in cash and cash equivalents on the statements of assets and liabilities and statements of cash flows. Accretion on these investments are recognized using the effective interest method in U.S. dollars and included in interest income on the statements of operations.
Brokerage Commissions
Brokerage commissions on all open
commodity futures contracts are accrued on the trade date and on a
full-turn basis.
Income Taxes
For United States federal income
tax purposes, the Fund will be treated as a partnership. The Fund
does not record a provision for income taxes because the
shareholders report their share of the Fund’s income or loss
on their income tax returns. The financial statements reflect the
Fund’s transactions without adjustment, if any, required for
income tax purposes.
The Fund is required to determine
whether a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. The Fund files an income tax
return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. For all
tax years 2014 to 2017, the Fund remains subject to income tax
examinations by major taxing authorities. The tax benefit
recognized is measured as the largest amount of benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate settlement. De-recognition of a tax benefit previously
recognized results in the Fund recording a tax liability that
reduces net assets. Based on its analysis, the Fund has determined
that it has not incurred any liability for unrecognized tax
benefits as of and for the years ended December 31, 2017, 2016,
2015, and 2014. However, the Fund’s conclusions regarding
this policy may be subject to review and adjustment at a later date
based on factors including, but not limited to, ongoing analysis of
and changes to tax laws, regulations, and interpretations
thereof.
The Fund will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016, and 2015.
The Fund may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Fund’s management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months.
In
the opinion of the Sponsor, the 2017 Tax Cuts and Jobs Act, will
not have a significant impact on the Fund and did not have a
significant impact on the financial statements of the
Fund.
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 shares from CORN.
The amount of the proceeds required to purchase a Creation Basket
will be equal to the NAV of the shares in the Creation Basket
determined as of 4:00 p.m. New York time on the day the order to
create the basket is properly received.
Authorized Purchasers may redeem
shares from the Fund only in blocks of 25,000 shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
The Fund receives or pays the
proceeds from shares sold or redeemed within three business days
after the trade date of the purchase or redemption. The amounts due
from Authorized Purchasers are reflected in the Fund’s
statements of assets and liabilities as receivable for shares sold.
Amounts payable to Authorized Purchasers upon redemption are
reflected in the Fund’s statements of assets and liabilities
as payable for shares redeemed.
As outlined in the most recent
Form S-3 filing, 50,000 shares represents two Redemption Baskets
for the Fund and a minimum level of shares.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among
the shareholders of the Fund in proportion to the number of shares
each shareholder holds as of the close of each
month.
Cash and Cash Equivalents
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Fund reported its cash equivalents in the
statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Fund has these
balances of its cash equivalents on deposit with banks. The Fund
had a balance of $170 and $692,293 in money market funds at
December 31, 2017 and December 31, 2016, respectively; these
balances are included in cash and cash equivalents on the
statements of assets and liabilities. Effective in the second
quarter 2015, the Sponsor invested a portion of the available cash
for the Fund in alternative demand-deposit savings accounts, which
is classified as cash and not as a cash equivalent. The Fund
had a balance of $38,174,688 and $68,382,027 in demand-deposit
savings accounts on December 31, 2017 and December 31, 2016
respectively. Assets deposited with the bank may, at times,
exceed federally insured limits.
Effective in the fourth quarter
2017, the Sponsor invested a portion of the available cash for the
Funds in investment grade commercial paper with durations of 90
days or less, which is classified as a cash equivalent and is not
FDIC insured; these balances are included in cash and cash
equivalents on the statements of assets and liabilities. The Fund
had a balance of $24,964,873 in commercial paper contracts on
December 31, 2017. The above changes resulted in a reduction in the
balance held in money market funds and demand-deposit savings
accounts, respectively.
Due from/to Broker
The amount recorded by the Fund
for the amount due from and to the clearing broker includes, but is
not limited to, cash held by the broker, amounts payable to the
clearing broker related to open transactions and payables for
commodities futures accounts liquidating to an equity balance on
the clearing broker’s records.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Fund’s
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Fund’s trading,
the Fund (and not its shareholders personally) is subject to margin
calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Calculation of Net Asset Value
The Fund’s NAV is
calculated by:
●
Taking the current market value
of its total assets and
●
Subtracting any
liabilities
The administrator, USBFS,
calculates the NAV of the Fund once each trading day. It calculates
the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. The NAV for a particular trading day is released after
4:15 p.m. New York time.
In determining the value of Corn
Futures Contracts, the administrator uses the CBOT closing price.
The administrator determines the value of all other Fund
investments as of the earlier of the close of the NYSE or 4:00 p.m.
New York time. The value of over-the-counter corn interests is
determined based on the value of the commodity or futures contract
underlying such corn interest, except that a fair value may be
determined if the Sponsor believes that the Fund is subject to
significant credit risk relating to the counterparty to such corn
interest. 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.
Treasury securities held by the Fund are valued by the
administrator using values received from recognized third-party
vendors and dealer quotes. NAV includes any unrealized profit or
loss on open corn interests and any other income or expense
accruing to the Fund but unpaid or not received by the
Fund.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
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
Trust and the Funds. In addition, the Sponsor elected not to
outsource services directly attributable to the Trust and the
Funds, such as certain aspects of accounting, financial reporting,
regulatory compliance and trading activities. In addition, 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 Fund generally pays for all
brokerage fees, taxes and other expenses, including licensing fees
for the use of intellectual property, registration or other fees
paid to the SEC, FINRA, formerly the National Association of
Securities Dealers, or any other regulatory agency in connection
with the offer and sale of subsequent Shares after its initial
registration and all legal, accounting, printing and other expenses
associated therewith. The Fund also pays its portion of the fees
and expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to
all 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 and redeem 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, which are included in the related line item in the
statements of operations. 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
Funds, which are primarily the cost of performing accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund. For the
years ended December 31, the Fund recognized $998,194 in 2017,
$936,695 in 2016, and $1,034,163 in 2015, respectively, for
these expenses, which are primarily recorded in distribution and
marketing fees on the statements of operations; of these amounts
$215,815 in 2017, $275,884 in 2016, and $20,000 in 2015 were
waived by the Sponsor. All asset-based fees and expenses for the
Funds are calculated on the prior day’s net
assets.
For the year ended December 31,
2017 there were $409,562 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2016 there were $442,333 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2015 there were $96,068 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of the revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value - Definition and Hierarchy
In accordance with U.S. GAAP,
fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Fund uses various valuation approaches. In accordance with GAAP, a
fair value hierarchy for inputs is used in measuring fair value
that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are those that market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
financial instruments. Since valuations are based on quoted prices
that are readily and regularly available in an active market,
valuation of these financial instruments does not entail a
significant degree of judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial
instrument to financial instrument and is affected by a
wide variety of factors including, the type of financial
instrument, whether the financial instrument is new and not
yet established in the marketplace, and other characteristics
particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more
judgment. Those estimated values do not necessarily represent the
amounts that may be ultimately realized due to the occurrence of
future circumstances that cannot be reasonably determined. Because
of the inherent uncertainty of valuation, those estimated values
may be materially higher or lower than the values that would have
been used had a ready market for the financial
instruments existed. Accordingly, the degree of judgment
exercised by the Fund in determining fair value is greatest for
financial instruments categorized in Level 3. In certain
cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy, within
which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Fund’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Fund uses prices and inputs that are current as of the measurement
date, including during periods of market dislocation. In periods of
market dislocation, the observability of prices and inputs may be
reduced for many securities. This condition could cause a financial
instrument to be reclassified to a lower level within the fair
value hierarchy. For instance, when Corn Futures Contracts on the
CBOT are not actively trading due to a “limit-up” or
limit-down” condition, meaning that the change in the Corn
Futures Contracts has exceeded the limits established, the Trust
and the Fund will revert to alternative verifiable sources of
valuation of its assets. When such a situation exists on a quarter
close, the Sponsor will calculate the Net Asset Value
(“NAV”) on a particular day using the Level 1
valuation, but will later recalculate the NAV for the impacted Fund
based upon the valuation inputs from these alternative verifiable
sources (Level 2 or Level 3) and will report such NAV in its
applicable financial statements and reports.
On December 31, 2017 and 2016, in
the opinion of the Trust and the Fund, the reported value of the
Corn Futures Contracts traded on the CBOT fairly reflected the
value of the Corn Futures Contracts held by the Fund, and no
adjustments were necessary. The determination is made as of the
settlement of the futures contracts on the last day of trading for
the reporting period. In making the determination of a Level 1 or
Level 2 transfer, the Fund considers the average volume of the
specific underlying futures contracts traded on the relevant
exchange for the years being reported.
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
The Fund records its derivative
activities at fair value. Gains and losses from derivative
contracts are included in the statements of operations. Derivative
contracts include futures contracts related to commodity prices.
Futures, which are listed on a national securities exchange, such
as the CBOT and the ICE, or reported on another national market,
are generally categorized in Level 1 of the fair value hierarchy.
OTC derivatives contracts (such as forward and swap contracts)
which may be valued using models, depending on whether significant
inputs are observable or unobservable, are categorized in Levels 2
or 3 of the fair value hierarchy.
Expenses
Expenses are recorded using the
accrual method of accounting.
Net Income (Loss) per Share
Net income (loss) per Share is
the difference between the NAV per unit at the beginning of each
period and at the end of each period. The weighted average number
of Shares outstanding was computed for purposes of disclosing net
income (loss) per weighted average Share. The weighted average
Shares are equal to the number of Shares outstanding at the end of
the period, adjusted proportionately for Shares created or redeemed
based on the amount of time the Shares were outstanding during such
period.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years.
The
Sponsor elected to early adopt ASU 2016-18 for the year ending
December 31, 2017 and the adoption did not have a material impact
on the financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance. The amendments
in this update are effective for fiscal years beginning after
December 15, 2017. The Sponsor elected to early adopt ASU 2016-15
for the year ending December 31, 2017 and the adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2014-09 and 2015-14. Therefore, these standards
are not expected to have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Fund record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Fund.
Note
4 – Fair Value Measurements
The Fund’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Fund’s significant
accounting policies in Note 3. The following table presents
information about the Fund’s assets and liabilities measured
at fair value as of December 31, 2017 and December 31,
2016:
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Cash
Equivalents
|
$
24,965,043
|
$
-
|
$
-
|
$
24,965,043
|
|
Corn Futures
Contracts
|
120,487
|
-
|
-
|
120,487
|
|
Total
|
$
25,085,530
|
$
-
|
$
-
|
$
25,085,530
|
|
|
|
|
|
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Corn Futures
Contracts
|
$
1,962,050
|
$
-
|
$
-
|
$
1,962,050
|
|
December 31,
2016
|
|
|
|
|
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Cash
equivalents
|
$
692,293
|
$
-
|
$
-
|
$
692,293
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Corn futures contracts
|
$
1,460,800
|
$
-
|
$
-
|
$
1,460,800
|
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
Note 5 - Derivative Instruments and Hedging
Activities
In the normal course of business,
the Fund utilizes derivative contracts in connection with its
proprietary trading activities. Investments in derivative contracts
are subject to additional risks that can result in a loss of all or
part of an investment. The Fund’s derivative activities and
exposure to derivative contracts are classified by the following
primary underlying risks: interest rate, credit, commodity price,
and equity price risks. In addition to its primary underlying
risks, the Fund is also subject to additional counterparty risk due
to inability of its counterparties to meet the terms of their
contracts. For the years ended December 31, 2017 and 2016, the
Fund invested only in commodity futures
contracts.
Futures Contracts
The Fund is subject to commodity
price risk in the normal course of pursuing its investment
objectives. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a
specified date.
The purchase and sale of futures
contracts requires margin deposits with a FCM. Subsequent payments
(variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract,
and are recorded as unrealized gains or losses by the Fund. Futures
contracts may reduce the Fund’s exposure to counterparty risk
since futures contracts are exchange-traded; and the
exchange’s clearinghouse, as the counterparty to all
exchange-traded futures, guarantees the futures against
default.
The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from the FCM’s proprietary activities. A customer’s
cash and other equity deposited with an FCM are considered
commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s
insolvency, recovery may be limited to the Fund’s pro rata
share of segregated customer funds available. It is possible that
the recovery amount could be less than the total of cash and other
equity deposited.
The following table discloses
information about offsetting assets and liabilities presented in
the statements of assets and liabilities to enable users of these
financial statements to evaluate the effect or potential effect of
netting arrangements for recognized assets and liabilities. These
recognized assets and liabilities are presented as defined in FASB
ASU No. 2011-11 “Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities” and subsequently clarified
in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying
the Scope of Disclosures about Offsetting Assets and
Liabilities.”
The following table also
identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of December 31, 2017 and
2016.
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn Futures
Contracts
|
$
120,487
|
$
-
|
$
120,487
|
$
120,487
|
$
-
|
$
-
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn Futures
Contracts
|
$
1,962,050
|
$
-
|
$
1,962,050
|
$
120,487
|
$
1,841,563
|
$
-
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Corn Futures
Contracts
|
$
1,460,800
|
$
-
|
$
1,460,800
|
$
-
|
$
1,460,800
|
$
-
|
The following is a summary of
realized and net change in unrealized gains (losses) of the
derivative instruments utilized by the Fund:
Year ended
December 31, 2017
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Corn futures
contracts
|
$
(5,603,513
)
|
$
(380,763
)
|
Year ended
December 31, 2016
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Corn futures
contracts
|
$
(9,438,913
)
|
$
2,447,750
|
Year ended
December 31, 2015
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Corn futures
contracts
|
$
(8,533,650
)
|
$
(5,660,263
)
|
Volume of Derivative Activities
The average notional market value
categorized by primary underlying risk for all futures contracts
held was $67.5 million in 2017, $71.6 million in 2016, and
$71 million in 2015.
Note 6 - Financial Highlights
The following table presents per
share performance data and other supplemental financial data for
the years ended December 31, 2017, 2016 and 2015. This information
has been derived from information presented in the financial
statements and is presented with total expenses gross of expenses
waived by the Sponsor and with total expenses net of expenses
waived by the Sponsor, as appropriate.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Per Share
Operation Performance
|
|
|
|
|
Net asset value at beginning of
period
|
$
18.77
|
$
21.24
|
$
26.62
|
|
Income (loss) from investment
operations:
|
|
|
|
|
Investment
income
|
0.21
|
0.11
|
0.05
|
|
Net realized and unrealized loss
on commodity futures contracts
|
(1.55
)
|
(1.75
)
|
(4.46
)
|
|
Total expenses,
net
|
(0.68
)
|
(0.83
)
|
(0.97
)
|
|
Net decrease in net asset
value
|
(2.02
)
|
(2.47
)
|
(5.38
)
|
|
Net asset value at end of
period
|
$
16.75
|
$
18.77
|
$
21.24
|
|
Total
Return
|
(10.76
)%
|
(11.63
)%
|
(20.21
)%
|
|
Ratios to
Average Net Assets (Annualized)
|
|
|
|
|
Total
expenses
|
4.28
%
|
4.74
%
|
4.15
%
|
|
Total expenses,
net
|
3.68
%
|
4.13
%
|
4.03
%
|
|
Net investment
loss
|
(2.54
)%
|
(3.58
)%
|
(3.84
)%
|
Effective in the third quarter
2015, the financial highlights per share data are calculated
consistent with the methodology used to calculate asset-based fees
and expenses. In prior periods, the financial highlights per share
data are calculated using the average of the daily shares
outstanding for the reporting period, which is inclusive of the
last day of the period. Any change in methodology was not material
to the ratios presented.
Note 7 – Quarterly Financial Data
(Unaudited)
The following summarized
quarterly financial information presents the results of operations
for the Teucrium Corn Fund and other data for three-month periods
ended March 31, June 30, September 30 and December 31, 2017 and
2016.
|
|
Three months
ended
March 31,
2017
|
Three months
ended
June 30,
2017
|
Three months
ended
September 30,
2017
|
Three months
ended
December 31,
2017
|
|
Total Income
(Loss)
|
$
1,369,398
|
$
910,237
|
$
(4,763,833
)
|
$
(2,721,518
)
|
|
Total
Expenses
|
724,668
|
762,626
|
729,672
|
701,970
|
|
Total Expenses,
net
|
689,668
|
628,806
|
633,836
|
557,064
|
|
Net Income
(Loss)
|
679,730
|
281,431
|
(5,397,669
)
|
(3,278,582
)
|
|
Net Income (Loss) per
share
|
$
0.24
|
$
0.08
|
$
(1.49
)
|
$
(0.85
)
|
|
|
Three months
ended
March 31,
2016
|
Three months
ended
June 30,
2016
|
Three months
ended
September 30,
2016
|
Three months
ended
December 31,
2016
|
|
Total
(Loss)
Income
|
$
(2,166,864
)
|
$
190,068
|
$
(5,440,285
)
|
$
822,595
|
|
Total
Expenses
|
773,352
|
700,320
|
878,103
|
1,060,142
|
|
Total Expenses,
net
|
773,352
|
700,320
|
743,942
|
751,969
|
|
Net
(Loss)
Income
|
(2,940,216
)
|
(510,252
)
|
(6,184,227
)
|
70,626
|
|
Net
(Loss)
Income per
share
|
$
(1.05
)
|
$
0.15
|
$
(1.63
)
|
$
0.06
|
Note 8 - Organizational and Offering Costs
Expenses incurred in organizing
of the Trust and the initial offering of the Shares of the Fund,
including applicable SEC registration fees were borne directly by
the Sponsor. The Fund is not obligated to reimburse these costs to
the Sponsor.
Note 9 – Subsequent Events
Management has evaluated the
financial statements for the year-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Fund other than those noted
below:
Effective January 2, 2018, the
Sponsor established a demand deposit account for CORN at Mascoma
Savings Bank.
Report of
Independent Registered Public Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Soybean Fund
Opinion on the financial
statements
We have audited the accompanying
statements of assets and liabilities of Teucrium Soybean Fund (the
“Fund”), including the schedules of investments, as of
December 31, 2017 and 2016, the related statements of operations,
changes in net assets, and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Fund as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Fund’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as
the Fund’s
auditor since 2014.
New York, New
York
March 16,
2018
Report
of Independent Registered Public Accounting
Firm
To the Sponsor and Shareholders
of
Teucrium
Soybean Fund
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Soybean Fund (the
“Fund”) as of December 31, 2017, based on criteria
established in the 2013
Internal
Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Fund maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
the 2013
Internal
Control—Integrated Framework
issued by
COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
financial statements of the Fund as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Fund’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A fund’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A fund’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the fund; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
fund are being made only in accordance with authorizations of
management and directors of the fund; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the fund’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRANT THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM SOYBEAN
FUND
STATEMENTS OF
ASSETS AND LIABILITIES
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash and cash
equivalents
|
$
9,942,185
|
$
12,300,383
|
|
Restricted
cash
|
-
|
77,616
|
|
Interest
receivable
|
22
|
38
|
|
Other assets
|
1,839
|
4,104
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
-
|
357,500
|
|
Due from
broker
|
789,636
|
170,973
|
|
Total
equity in trading accounts
|
789,636
|
528,473
|
|
Total assets
|
10,733,682
|
12,910,614
|
|
|
|
|
|
Liabilities
|
|
|
|
Management fee payable to
Sponsor
|
12,111
|
11,891
|
|
Other
liabilities
|
9,483
|
4,598
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
448,063
|
12,025
|
|
Total
liabilities
|
469,657
|
28,514
|
|
|
|
|
|
Net
assets
|
$
10,264,025
|
$
12,882,100
|
|
|
|
|
|
Shares
outstanding
|
575,004
|
675,004
|
|
|
|
|
|
Net asset
value per share
|
$
17.85
|
$
19.08
|
|
|
|
|
|
Market value
per share
|
$
17.88
|
$
19.10
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SOYBEAN
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost $100)
|
$
100
|
0.00
%
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAR18 (75
contracts)
|
$
174,063
|
1.70
%
|
$
3,606,563
|
|
CBOT soybean futures MAY18 (63
contracts)
|
152,338
|
1.48
|
3,064,950
|
|
CBOT soybean futures NOV18 (74
contracts)
|
121,662
|
1.19
|
3,610,275
|
|
Total commodity futures
contracts
|
$
448,063
|
4.37
%
|
$
10,281,788
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SOYBEAN
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2016
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$185,661)
|
$
185,661
|
1.44
%
|
185,661
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAR17 (90
contracts)
|
$
107,125
|
0.83
%
|
$
4,518,000
|
|
CBOT soybean futures NOV17 (91
contracts)
|
250,375
|
1.95
|
4,501,088
|
|
Total commodity futures
contracts
|
$
357,500
|
2.78
%
|
$
9,019,088
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States soybean futures
contracts
|
|
|
|
|
CBOT soybean futures MAY17 (76
contracts)
|
$
12,025
|
0.09
%
|
$
3,847,500
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SOYBEAN
FUND
STATEMENTS OF
OPERATIONS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized gain
(loss) on trading of commodity futures
contracts:
|
|
|
|
|
Realized gain
(loss) on commodity futures contracts
|
$
8,425
|
$
939,088
|
$
(1,355,738
)
|
|
Net change in
unrealized depreciation or appreciation on commodity futures
contracts
|
(793,538
)
|
567,962
|
54,526
|
|
Interest
income
|
152,945
|
65,157
|
13,129
|
|
Total
(loss) income
|
(632,168
)
|
1,572,207
|
(1,288,083
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
133,058
|
118,439
|
73,362
|
|
Professional
fees
|
179,081
|
113,387
|
148,286
|
|
Distribution
and marketing fees
|
209,915
|
218,086
|
117,180
|
|
Custodian fees
and expenses
|
28,109
|
34,515
|
146,752
|
|
Business
permits and licenses fees
|
17,505
|
18,288
|
16,608
|
|
General and
administrative expenses
|
24,282
|
32,260
|
21,654
|
|
Brokerage
commissions
|
8,462
|
1,507
|
6,043
|
|
Other
expenses
|
9,689
|
10,111
|
4,465
|
|
Total
expenses
|
610,101
|
546,593
|
534,350
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(126,489
)
|
(68,914
)
|
(304,609
)
|
|
|
|
|
|
|
Total
expenses, net
|
483,612
|
477,679
|
229,741
|
|
|
|
|
|
|
Net (loss)
income
|
$
(1,115,780
)
|
$
1,094,528
|
$
(1,517,824
)
|
|
|
|
|
|
|
Net (loss) income per
share
|
$
(1.23
)
|
$
1.74
|
$
(3.45
)
|
|
Net (loss) income per weighted
average share
|
$
(1.55
)
|
$
1.76
|
$
(3.93
)
|
|
Weighted average shares
outstanding
|
717,607
|
623,023
|
386,237
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SOYBEAN
FUND
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net (loss)
income
|
$
(1,115,780
)
|
$
1,094,528
|
$
(1,517,824
)
|
|
Capital
transactions
|
|
|
|
|
Issuance of
Shares
|
20,374,923
|
9,190,140
|
2,478,439
|
|
Redemption of
Shares
|
(21,877,218
)
|
(3,905,120
)
|
(6,414,212
)
|
|
Total capital
transactions
|
(1,502,295
)
|
5,285,020
|
(3,935,773
)
|
|
Net change in net
assets
|
(2,618,075
)
|
6,379,548
|
(5,453,597
)
|
|
|
|
|
|
|
Net assets,
beginning of period
|
$
12,882,100
|
$
6,502,552
|
$
11,956,149
|
|
|
|
|
|
|
Net assets,
end of period
|
$
10,264,025
|
$
12,882,100
|
$
6,502,552
|
|
|
|
|
|
|
Net asset
value per share at beginning of period
|
$
19.08
|
$
17.34
|
$
20.79
|
|
|
|
|
|
|
Net asset
value per share at end of period
|
$
17.85
|
$
19.08
|
$
17.34
|
|
|
|
|
|
|
Creation of
Shares
|
1,100,000
|
500,000
|
125,000
|
|
Redemption of
Shares
|
1,200,000
|
200,000
|
325,000
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SOYBEAN
FUND
STATEMENTS OF
CASH FLOWS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net (loss)
income
|
$
(1,115,780
)
|
$
1,094,528
|
$
(1,517,824
)
|
|
Adjustments to
reconcile net (loss) income to net cash (used in) provided by
operating activities:
|
|
|
|
|
Net change in
unrealized depreciation or appreciation on commodity futures
contracts
|
793,538
|
(567,962
)
|
(54,526
)
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Due from
broker
|
(618,663
)
|
433,693
|
97,434
|
|
Interest
receivable
|
16
|
13
|
735
|
|
Other
assets
|
2,265
|
45,514
|
(7,806
)
|
|
Management fee
payable to Sponsor
|
220
|
5,983
|
(4,538
)
|
|
Other
liabilities
|
4,885
|
770
|
(3,050
)
|
|
Net cash (used
in) provided by operating activities
|
(933,519
)
|
1,012,539
|
(1,489,575
)
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
Proceeds from sale of
Shares
|
20,374,923
|
9,190,140
|
2,478,439
|
|
Redemption of
Shares
|
(21,877,218
)
|
(3,905,120
)
|
(6,414,212
)
|
|
Net cash (used
in) provided by financing activities
|
(1,502,295
)
|
5,285,020
|
(3,935,773
)
|
|
|
|
|
|
|
Net change in
cash, cash equivalents, and restricted
cash
|
(2,435,814
)
|
6,297,559
|
(5,425,348
)
|
|
Cash, cash
equivalents, and restricted cash, beginning of
period
|
12,377,999
|
6,080,440
|
11,505,788
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
9,942,185
|
$
12,377,999
|
$
6,080,440
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO
FINANCIAL STATEMENTS
December 31,
2017
Note 1 – Organization and Operation
Teucrium Soybean Fund (referred
to herein as “SOYB” or the “Fund”) is a
commodity pool that is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust formed on
September 11, 2009. The Fund issues common units, called the
“Shares,” representing fractional undivided beneficial
interests in the Fund. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their Net Asset Value
(“NAV”) to “Authorized Purchasers” through
Foreside Fund Services, LLC, which is the distributor for the Fund
(the “Distributor”). Authorized Purchasers sell such
Shares, which are listed on the New York Stock Exchange
(“NYSE”) Arca under the symbol “SOYB,” to
the public at per-Share offering prices that 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 soybean interests. The
Fund’s Shares trade in the secondary market on the NYSE Arca
at prices that are lower or higher than their NAV per
Share.
The investment objective of SOYB
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for soybeans
(“Soybeans Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”):
SOYB
Benchmark
|
CBOT Soybeans
Futures Contract
|
Weighting
|
|
Second to expire (excluding
August & September)
|
35%
|
|
Third to expire (excluding August
& September)
|
30%
|
|
Expiring in the November
following the expiration of the third-to-expire
contract
|
35%
|
The Fund commenced investment
operations on September 19, 2011 and has a fiscal year ending
December 31. The Fund’s sponsor is Teucrium Trading, LLC (the
“Sponsor”). The Sponsor is responsible for the
management of the Fund. The Sponsor is a member of the National
Futures Association (the “NFA”) and became a commodity
pool operator registered with the Commodity Futures Trading
Commission (the “CFTC”) effective November 10, 2009.
The Sponsor registered as a Commodity Trading Advisor ("CTA") with
the NFA effective September 8, 2017.
On June 17, 2011, the
Fund’s initial registration of 10,000,000 shares on Form S-1
was declared effective by the SEC. On September 19, 2011, the Fund
listed its shares on the NYSE Arca under the ticker symbol
“SOYB.” On the business day prior to that, the Fund
issued 100,000 shares in exchange for $2,500,000 at the
Fund’s initial NAV of $25 per share. The Fund also commenced
investment operations on September 19, 2011 by purchasing soybean
commodity futures contracts traded on the CBOT. On December 31,
2010, the Fund had four shares outstanding, which were owned by the
Sponsor. On June 30, 2014, a subsequent registration statement for
SOYB was declared effective by the SEC. On May 1, 2017, a
subsequent registration statement for SOYB was declared effective
by the SEC.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor
(“Sponsor”), may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
Note 2 – Principal Contracts and
Agreements
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Fund. The principal
business address for U.S. Bank N.A. is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department.
The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”), is 615 E.
Michigan Street, Milwaukee, WI, 53202. In addition, effective on
the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the first $250
million, 0.05% on the next $250 million, 0.04% on the next $500
million and 0.03% on the balance over $1 billion annually. A
combined minimum annual fee of up to $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund. For the year ended December 31, 2015, such expenses include
both the fees for the Bank of New York Mellon and USBFS. For
the years ended December 31, the Fund recognized $28,109 in 2017,
$34,515 in 2016, and $146,752 in 2015, respectively, for these
services, which is recorded in custodian fees and expenses on the
statements of operations; of this expense $4,574 in 2017, $0 in
2016, and $146,752 in 2015 were waived by the
Sponsor.
The Sponsor and the Trust employ
Foreside Fund Services, LLC (“Foreside” or the
“Distributor”) as the Distributor for the Funds. 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 Financial Industry Regulatory Authority
(“FINRA”) rules. For its services as the Distributor,
Foreside receives a fee of 0.01% of the Fund’s average daily
net assets and an aggregate annual fee of $100,000 for all Teucrium
Funds, along with certain expense reimbursements. For its services
under the SASA, Foreside receives a fee of $5,000 per registered
representative and $1,000 per registered location. For the years
ended December 31, the Fund recognized $15,730 in 2017, $13,720 in
2016, and $11,704 in 2015, respectively, for these services, which
is recorded in distribution and marketing fees on the statements of
operations; of this expense $6,932 in 2017, $0 in 2016, and $6,242
in 2015 were waived by the Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015, Newedge USA, LLC (“Newedge
USA”) merged with and into SG Americas Securities, LLC
(“SG”), with the latter as the surviving entity. On
February 6, 2015 Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was
$0. Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and
residual cash balances held at Jefferies had been transferred
to ED&F Man and the balance in all Jefferies accounts was
$0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of
the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a
clearing member of ICE Futures U.S., Inc., Chicago Board of Trade,
Chicago Mercantile Exchange, New York Mercantile Exchange, and all
other major United States commodity exchanges. For Corn,
Soybean, Sugar and Wheat Futures Contracts ED&F Man,
Jefferies and SG were paid $8.00 per round turn in
2015. Effective January 1, 2016, ED&F Man, increased the
per round-term charge for futures contracts commission to $9.00.
For the years ended December 31, the Fund recognized $8,462 in
2017, $1,507 in 2016, and $6,043 in 2015, respectively, for these
services, which is recorded in brokerage commissions on the
statements of operations and was paid by the
Fund.
The sole Trustee of the Trust is
Wilmington Trust Company, a De
l
aware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. For the years ended December 31, the
Fund recognized $204 in 2017, $257 in 2016, and $403 in 2015,
respectively, for these services, which is recorded in business
permits and licenses fees on the statements of operations; of this
expense $204 in 2017, $257 in 2016, and $403 in 2015 was waived by
the Sponsor.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) as detailed in the Financial Accounting
Standards Board’s Accounting Standards
Codification.
In accordance
with ASU 2016-18 issued by the FASB, the presentation of cash and
cash equivalents and restricted cash is disaggregated by line item
on the statements of assets and liabilities and sum to the total
amount of cash, cash equivalents, and restricted cash at the end of
the corresponding period shown in the statements of cash flows.
This update in presentation did not have a material impact on the
financial statements and disclosures of the
Fund.
Revenue Recognition
Commodity futures contracts are
recorded on the trade date. All such transactions are recorded on
the identified cost basis and marked to market daily. Unrealized
appreciation or depreciation on commodity futures contracts are
reflected in the statements of assets and liabilities as the
difference between the original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statements of
operations. Interest on cash equivalents and deposits with the
Futures Commission Merchant are recognized on the accrual basis.
The Fund earns interest on its assets denominated in U.S. dollars
on deposit with the Futures Commission Merchant. In addition, the
Fund earns interest on funds held at the custodian at prevailing
market rates for such investments.
Brokerage Commissions
Brokerage commissions on all open
commodity futures contracts are accrued on the trade date and on a
full-turn basis.
Income Taxes
For United States federal income
tax purposes, the Fund will be treated as a partnership. The Fund
does not record a provision for income taxes because the
shareholders report their share of the Fund’s income or loss
on their income tax returns. The financial statements reflect the
Fund’s transactions without adjustment, if any, required for
income tax purposes.
The Fund is required to determine
whether a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. The Fund files an income tax
return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. For all
tax years 2014 to 2017, the Fund remains subject to income tax
examinations by major taxing authorities. The tax benefit
recognized is measured as the largest amount of benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate settlement. De-recognition of a tax benefit previously
recognized results in the Fund recording a tax liability that
reduces net assets. Based on its analysis, the Fund has determined
that it has not incurred any liability for unrecognized tax
benefits as of and for the years ended December 31, 2017, 2016,
2015, and 2014. However, the Fund’s conclusions regarding
this policy may be subject to review and adjustment at a later date
based on factors including, but not limited to, ongoing analysis of
and changes to tax laws, regulations, and interpretations
thereof.
The Fund will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016 and 2015.
The Fund may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Fund’s management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months.
In
the opinion of the Sponsor, the 2017 Tax Cuts and Jobs Act, will
not have a significant impact on the Fund and did not have a
significant impact on the financial statements of the
Fund.
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 shares from the
Fund. The amount of the proceeds required to purchase a Creation
Basket will be equal to the NAV of the shares in the Creation
Basket determined as of 4:00 p.m. New York time on the day the
order to create the basket is properly
received.
Authorized Purchasers may redeem
shares from the Fund only in blocks of 25,000 shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
The Fund receives or pays the
proceeds from shares sold or redeemed within three business days
after the trade date of the purchase or redemption. The amounts due
from Authorized Purchasers are reflected in the Fund’s
statements of assets and liabilities as receivable for shares sold.
Amounts payable to Authorized Purchasers upon redemption are
reflected in the Fund’s statements of assets and liabilities
as payable for shares redeemed.
As outlined in the most recent
Form S-1 filing, 50,000 shares represents two Redemption Baskets
for the Fund and a minimum level of shares.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among
the shareholders of the Fund in proportion to the number of shares
each shareholder holds as of the close of each
month.
Cash, Cash Equivalents, and Restricted
Cash
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Fund reported its cash equivalents in the
statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Fund has these
balances of its cash equivalents on deposit with banks. The Fund
had a balance of $100 and $185,661 in money market funds at
December 31, 2017 and December 31, 2016, respectively; these
balances are included in cash and cash equivalents on the
statements of assets and liabilities. Effective in the second
quarter 2015, the Sponsor invested a portion of the available cash
for the Fund in alternative demand-deposit savings accounts, which
is classified as cash and not as a cash equivalent. The Fund had a
balance of $9,942,111 and $12,115,082 in demand-deposit savings
accounts as of December 31, 2017 and December 31, 2016. This change
resulted in a reduction in the balance held in money market funds.
Assets deposited with the bank may, at times, exceed federally
insured limits.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. Per the
amended agreement between the Sponsor and The Bank of New York
Mellon dated August 14, 2015, certain cash amounts for each Fund,
except in the case of TAGS, are to remain at The Bank of New York
Mellon until amounts for services and early termination fees are
paid.
The
amended agreement allows for payments for such amounts owed to be
made through December 31, 2017. Cash balances that are held in
custody at The Bank of New York Mellon under this amended agreement
are reflected as restricted cash on the financial statements of the
Fund. The following table provides a reconciliation of cash and
cash equivalents, and restricted cash reported within the
statements of assets and liabilities that sum to the total of the
same such amounts shown in the statements of cash
flows.
|
|
Year
ended
|
|
Year
ended
|
|
Year
ended
|
|||
|
|
December 31,
2017
|
|
December 31,
2016
|
|
December 31,
2015
|
|||
|
Cash and cash
equivalents
|
$
|
9,942,185
|
|
$
|
12,300,383
|
|
$
|
5,937,824
|
|
Restricted
cash
|
|
-
|
|
|
77,616
|
|
|
142,616
|
|
Total cash, cash equivalents, and
restricted cash shown in the combined statements of cash
flows
|
$
|
9,942,185
|
|
$
|
12,377,999
|
|
$
|
6,080,440
|
Due from/to Broker
The amount recorded by the Fund
for the amount due from and to the clearing broker includes, but is
not limited to, cash held by the broker, amounts payable to the
clearing broker related to open transactions and payables for
commodities futures accounts liquidating to an equity balance on
the clearing broker’s records.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Fund’s
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Fund’s trading,
the Fund (and not its shareholders personally) is subject to margin
calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Calculation of Net Asset Value
The Fund’s NAV is
calculated by:
●
Taking the current market value
of its total assets and
●
Subtracting any
liabilities
The administrator, USBFS,
calculates the NAV of the Fund once each trading day. It calculates
the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. The NAV for a particular trading day is released after
4:15 p.m. New York time.
In determining the value of
Soybean Futures Contracts, the administrator uses the CBOT closing
price. The administrator determines the value of all other Fund
investments as of the earlier of the close of the NYSE or 4:00 p.m.
New York time. The value of over-the-counter soybean interests is
determined based on the value of the commodity or futures contract
underlying such soybean interest, except that a fair value may be
determined if the Sponsor believes that the Fund is subject to
significant credit risk relating to the counterparty to such
soybean interest. 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.
Treasury securities held by the Fund are valued by the
administrator using values received from recognized third-party
vendors and dealer quotes. NAV includes any unrealized profit or
loss on open soybean interests and any other income or expense
accruing to the Fund but unpaid or not received by the
Fund.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
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
Trust and the Funds. In addition, the Sponsor elected not to
outsource services directly attributable to the Trust and the
Funds, such as
certain aspects of
accounting, financial reporting, regulatory compliance and trading
activities. In addition, 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 Fund generally pays for all
brokerage fees, taxes and other expenses, including licensing fees
for the use of intellectual property, registration or other fees
paid to the SEC, FINRA, formerly the National Association of
Securities Dealers, or any other regulatory agency in connection
with the offer and sale of subsequent Shares after its initial
registration and all legal, accounting, printing and other expenses
associated therewith. The Fund also pays its portion of the fees
and expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to
all 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 and redeem 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, which are included in the related line item in the
statements of operations. 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
Funds, which are primarily the cost of performing accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund. For the years ended
December 31, the Fund recognized $183,076 in 2017, $169,614 in
2016, and $124,331 in 2015, respectively, such expenses, which
are primarily included as distribution and marketing fees on the
statements of operations; of these amounts $45,597 in 2017,
$10,720 in 2016, and $49,086 in 2015 were waived by the
Sponsor. All asset-based fees and expenses for the Funds are
calculated on the prior day’s net assets.
For the year ended December 31,
2017, there were $126,489 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2016, there were $68,914 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2015, there were $304,609 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of the revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value - Definition and Hierarchy
In accordance with U.S. GAAP,
fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Fund uses various valuation approaches. In accordance with U.S.
GAAP, a fair value hierarchy for inputs is used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are those that
market participants would use in pricing the asset or liability
based on market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
financial instruments. Since valuations are based on quoted prices
that are readily and regularly available in an active market,
valuation of these financial instruments does not entail a
significant degree of judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial
instrument to financial instrument and is affected
by a wide variety of factors including, the type of financial
instrument, whether the financial instrument is new and
not yet established in the marketplace, and other characteristics
particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more
judgment. Those estimated values do not necessarily represent the
amounts that may be ultimately realized due to the occurrence of
future circumstances that cannot be reasonably determined. Because
of the inherent uncertainty of valuation, those estimated values
may be materially higher or lower than the values that would have
been used had a ready market for the financial
instruments existed. Accordingly, the degree of judgment
exercised by the Fund in determining fair value is greatest
for financial instruments categorized in Level 3. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy, within
which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Fund’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Fund uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market
dislocation, the observability of prices and inputs may be reduced
for many financial instruments. This condition could cause a
financial instrument to be reclassified to a lower level
within the fair value hierarchy. When such a situation exists on a
quarter close, the Sponsor will calculate the NAV on a particular
day using the Level 1 valuation, but will later recalculate the NAV
for the impacted Fund based upon the valuation inputs from these
alternative verifiable sources (Level 2 or Level 3) and will report
such NAV in its applicable financial statements and
reports.
On December 31, 2017 and 2016, in
the opinion of the Trust and the Fund, the reported value of the
Soybean Futures Contracts traded on the CBOT fairly reflected the
value of the Soybean Futures Contracts held by the Fund, with no
adjustments necessary. The determination is made as of the
settlement of the futures contracts on the last day of trading for
the reporting period. In making the determination of a Level 1 or
Level 2 transfer, the Fund considers the average volume of the
specific underlying futures contracts traded on the relevant
exchange for the years being reported.
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
The Fund records its derivative
activities at fair value. Gains and losses from derivative
contracts are included in the statements of operations. Derivative
contracts include futures contracts related to commodity prices.
Futures, which are listed on a national securities exchange, such
as the CBOT and the ICE, or reported on another national market,
are generally categorized in Level 1 of the fair value hierarchy.
OTC derivatives contracts (such as forward and swap contracts)
which may be valued using models, depending on whether significant
inputs are observable or unobservable, are categorized in Levels 2
or 3 of the fair value hierarchy.
Expenses
Expenses are recorded using the
accrual method of accounting.
Net Income (Loss) per Share
Net income (loss) per Share is
the difference between the NAV per unit at the beginning of each
period and at the end of each period. The weighted average number
of Shares outstanding was computed for purposes of disclosing net
income (loss) per weighted average Share. The weighted average
Shares are equal to the number of Shares outstanding at the end of
the period, adjusted proportionately for Shares created or redeemed
based on the amount of time the Shares were outstanding during such
period.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years.
The
Sponsor elected to early adopt ASU 2016-18 for the year ending
December 31, 2017 and the adoption did not have a material impact
on the financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance. The amendments
in this update are effective for fiscal years beginning after
December 15, 2017. The Sponsor elected to early adopt ASU 2016-15
for the year ending December 31, 2017 and the adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2014-09 and 2015-14. Therefore, these standards
are not expected to have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Fund record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Fund.
Note 4 – Fair Value Measurements
The Fund’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Fund’s significant
accounting policies in Note 3. The following table presents
information about the Fund’s assets and liabilities measured
at fair value as of December 31, 2017 and December 31,
2016:
December 31, 2017
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Cash
Equivalents
|
$
100
|
$
-
|
$
-
|
$
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Soybeans futures
contracts
|
$
448,063
|
$
-
|
$
-
|
$
448,063
|
December 31,
2016
|
|
|
|
|
Balance as of
|
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
December 31,
2016
|
|
Cash
equivalents
|
$
185,661
|
$
—
|
$
—
|
$
185,661
|
|
Soybean futures
contracts
|
357,500
|
—
|
—
|
357,500
|
|
Total
|
$
543,161
|
$
—
|
$
—
|
$
543,161
|
|
|
|
|
|
Balance as of
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
December 31,
2016
|
|
Soybean futures
contracts
|
$
12,025
|
$
—
|
$
—
|
$
12,025
|
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
In the normal course of business,
the Fund utilizes derivative contracts in connection with its
proprietary trading activities. Investments in derivative contracts
are subject to additional risks that can result in a loss of all or
part of an investment. The Fund’s derivative activities and
exposure to derivative contracts are classified by the following
primary underlying risks: interest rate, credit, commodity price,
and equity price risks. In addition to its primary underlying
risks, the Fund is also subject to additional counterparty risk due
to inability of its counterparties to meet the terms of their
contracts. For years ended December 31, 2017 and 2016, the Fund
invested only in commodity futures contracts.
Futures Contracts
The Fund is subject to commodity
price risk in the normal course of pursuing its investment
objectives. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a
specified date.
The purchase and sale of futures
contracts requires margin deposits with a FCM. Subsequent payments
(variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract,
and are recorded as unrealized gains or losses by the Fund. Futures
contracts may reduce the Fund’s exposure to counterparty risk
since futures contracts are exchange-traded; and the
exchange’s clearinghouse, as the counterparty to all
exchange-traded futures, guarantees the futures against
default.
The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from the FCM’s proprietary activities. A customer’s
cash and other equity deposited with an FCM are considered
commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s
insolvency, recovery may be limited to the Fund’s pro rata
share of segregated customer funds available. It is possible that
the recovery amount could be less than the total of cash and other
equity deposited.
The following table discloses
information about offsetting assets and liabilities presented in
the statements of assets and liabilities to enable users of these
financial statements to evaluate the effect or potential effect of
netting arrangements for recognized assets and liabilities. These
recognized assets and liabilities are presented as defined in FASB
ASU No. 2011-11 “Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities” and subsequently clarified
in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying
the Scope of Disclosures about Offsetting Assets and
Liabilities.”
The following table also
identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of December 31, 2017 and
2016.
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Soybean Futures
Contracts
|
$
448,063
|
$
-
|
$
448,063
|
$
-
|
$
448,063
|
$
-
|
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Soybean Futures
Contracts
|
$
357,500
|
$
-
|
$
357,500
|
$
12,025
|
$
-
|
$
345,475
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Soybean Futures
Contracts
|
$
12,025
|
$
-
|
$
12,025
|
$
12,025
|
$
-
|
$
-
|
The following is a summary of
realized and net change in unrealized gains (losses) of the
derivative instruments utilized by the Fund:
Year ended
December 31, 2017
|
|
|
Net Change in Unrealized
|
|
|
Realized
Gain on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Soybean futures
contracts
|
$
8,425
|
$
(793,538
)
|
Year ended
December 31, 2016
|
|
|
Net Change in Unrealized
|
|
|
Realized Gain
on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Soybean futures
contracts
|
$
939,088
|
$
567,962
|
Year ended
December 31, 2015
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Appreciation
or Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Soybean futures
contracts
|
$
(1,355,738
)
|
$
54,526
|
Volume of Derivative Activities
The average notional market value
categorized by primary underlying risk for all futures contracts
held was $13.2 million in 2017, $12.1 million in 2016, and
$7.1 million in 2015.
Note 6 - Financial Highlights
The following table presents per
share performance data and other supplemental financial data for
the years ended December 31, 2017, 2016 and 2015. This information
has been derived from information presented in the financial
statements and is presented with total expenses gross of expenses
waived by the Sponsor and with total expenses net of expenses
waived by the Sponsor, as appropriate.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Per Share
Operation Performance
|
|
|
|
|
Net asset value at beginning of
period
|
$
19.08
|
$
17.34
|
$
20.79
|
|
Income (loss) from investment
operations:
|
|
|
|
|
Investment
income
|
0.21
|
0.10
|
0.03
|
|
Net realized and unrealized
(loss) gain on commodity futures contracts
|
(0.77
)
|
2.41
|
(2.89
)
|
|
Total expenses,
net
|
(0.67
)
|
(0.77
)
|
(0.59
)
|
|
Net (decrease) increase in net
asset value
|
(1.23
)
|
1.74
|
(3.45
)
|
|
Net asset value at end of
period
|
$
17.85
|
$
19.08
|
$
17.34
|
|
Total
Return
|
(6.45
)%
|
10.03
%
|
(16.59
)%
|
|
Ratios to
Average Net Assets (Annualized)
|
|
|
|
|
Total
expenses
|
4.59
%
|
4.61
%
|
7.31
%
|
|
Total expenses,
net
|
3.63
%
|
4.03
%
|
3.14
%
|
|
Net investment
loss
|
(2.48
)%
|
(3.48
)%
|
(2.96
)%
|
Effective in the third quarter
2015, the financial highlights per share data are calculated
consistent with the methodology used to calculate asset-based fees
and expenses. In prior periods, the financial highlights per share
data are calculated using the average of the daily shares
outstanding for the reporting period, which is inclusive of the
last day of the period. Any change in methodology was not material
to the ratios presented.
Note 7 – Quarterly Financial Data
(Unaudited)
The following summarized
quarterly financial information presents the results of operations
for the Teucrium Soybean Fund and other data for three-month
periods ended March 31, June 30, September 30 and December 31, 2017
and 2016.
|
|
Three months
ended
March 31,
2017
|
Three months
ended
June 30,
2017
|
Three months
ended
September 30,
2017
|
Three months
ended
December 31,
2017
|
|
Total (Loss)
Income
|
$
(462,474
)
|
$
98,980
|
$
257,072
|
$
(525,746
)
|
|
Total
Expenses
|
126,800
|
118,451
|
147,452
|
217,398
|
|
Total Expenses,
net
|
111,800
|
106,342
|
116,104
|
149,366
|
|
Net (Loss)
Income
|
(574,274
)
|
(7,362
)
|
140,968
|
(675,112
)
|
|
Net (Loss) Income per
share
|
$
(0.97
)
|
$
(0.01
)
|
$
0.23
|
$
(0.48
)
|
|
|
Three months
ended
March 31,
2016
|
Three months
ended
June 30,
2016
|
Three months
ended
September 30,
2016
|
Three months
ended
December 31,
2016
|
|
Total Income
(Loss)
|
$
456,077
|
$
2,124,042
|
$
(1,566,866
)
|
$
558,954
|
|
Total
Expenses
|
86,484
|
122,710
|
189,647
|
147,752
|
|
Total Expenses,
net
|
86,484
|
122,710
|
126,534
|
141,951
|
|
Net Income
(Loss)
|
369,593
|
2,001,332
|
(1,693,400
)
|
417,003
|
|
Net Income (Loss) per
share
|
$
0.68
|
$
3.35
|
$
(2.84
)
|
$
0.55
|
Note 8 - Organizational and Offering Costs
Expenses incurred in organizing
of the Trust and the initial offering of the Shares of the Fund,
including applicable SEC registration fees were borne directly by
the Sponsor. The Fund is not obligated to reimburse these costs to
the Sponsor.
Note 9 – Subsequent Events
Management has evaluated the
financial statements for the period-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Fund other than those noted
below:
Effective January 2, 2018, the
Sponsor established a demand deposit account for SOYB at Mascoma
Savings Bank.
Beginning in the first quarter on
2018, the Sponsor established an account at Morgan Stanley for SOYB
for the purpose of investing a portion of available assets in
commercial paper as described in the prospectus supplement dated
January 16, 2018.
The total net
assets of the Fund increased by $5,744,847 or 56% the period from
December 31, 2017 through March 14, 2018. This was driven by a 48%
increase in the shares outstanding and a 5% increase in the net
asset value per share.
Report of
Independent Registered Public Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Sugar Fund
Opinion on the financial
statements
We have audited the accompanying
statements of assets and liabilities of Teucrium Sugar Fund (the
“Fund”), including the schedules of investments, as of
December 31, 2017 and 2016, the related statements of operations,
changes in net assets, and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Fund as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Fund’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as the
Fund’s auditor since 2014.
New York, New
York
March 16,
2018
Report of Independent Registered Public
Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Sugar Fund
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Sugar Fund (the
“Fund”) as of December 31, 2017, based on criteria
established in the 2013
Internal
Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Fund maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
the 2013
Internal
Control—Integrated Framework
issued by
COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
financial statements of the Fund as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Fund’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A fund’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A fund’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the fund; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
fund are being made only in accordance with authorizations of
management and directors of the fund; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the fund’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRAN
T THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM SUGAR
FUND
STATEMENTS OF
ASSETS AND LIABILITIES
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash and cash
equivalents
|
$
5,929,275
|
$
5,016,531
|
|
Restricted
cash
|
-
|
74,068
|
|
Interest
receivable
|
47
|
51
|
|
Other assets
|
276
|
4,435
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
184,319
|
185,147
|
|
Due from
broker
|
327,885
|
565,281
|
|
Total
equity in trading accounts
|
512,204
|
750,428
|
|
Total assets
|
6,441,802
|
5,845,513
|
|
|
|
|
|
Liabilities
|
|
|
|
Management fee payable to
Sponsor
|
5,632
|
-
|
|
Other
liabilities
|
5,327
|
-
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
67,133
|
331,542
|
|
Total
liabilities
|
78,092
|
331,542
|
|
|
|
|
|
Net
assets
|
$
6,363,710
|
$
5,513,971
|
|
|
|
|
|
Shares
outstanding
|
650,004
|
425,004
|
|
|
|
|
|
Net asset
value per share
|
$
9.79
|
$
12.97
|
|
|
|
|
|
Market value
per share
|
$
9.78
|
$
13.00
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SUGAR
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost $100)
|
$
100
|
0.00
%
|
100
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAY18 (133
contracts)
|
$
94,539
|
1.49
%
|
$
2,237,379
|
|
ICE sugar futures JUL18 (114
contracts)
|
89,780
|
1.41
|
1,920,307
|
|
Total commodity futures
contracts
|
$
184,319
|
2.90
%
|
$
4,157,686
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAR19 (126
contracts)
|
$
67,133
|
1.05
%
|
$
2,214,173
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SUGAR
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2016
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$125,182)
|
$
125,182
|
2.27
%
|
125,182
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAR18 (93
contracts)
|
$
185,147
|
3.36
%
|
$
1,935,293
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States sugar futures
contracts
|
|
|
|
|
ICE sugar futures MAY17 (89
contracts)
|
$
105,829
|
1.92
%
|
$
1,918,840
|
|
ICE sugar futures JUL17 (79
contracts)
|
225,713
|
4.09
|
1,667,848
|
|
Total commodity futures
contracts
|
$
331,542
|
6.01
%
|
$
3,586,688
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SUGAR
FUND
STATEMENTS OF
OPERATIONS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized (loss)
gain on trading of commodity futures contracts:
|
|
|
|
|
Realized (loss)
gain on commodity futures contracts
|
$
(2,435,305
)
|
$
1,967,694
|
$
(1,279,891
)
|
|
Net change in
unrealized appreciation or deppreciation on commodity futures
contracts
|
263,581
|
(510,451
)
|
868,011
|
|
Interest
income
|
78,889
|
32,048
|
7,670
|
|
Total
(loss) income
|
(2,092,835
)
|
1,489,291
|
(404,210
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
70,762
|
56,277
|
35,486
|
|
Professional
fees
|
63,308
|
46,951
|
65,660
|
|
Distribution
and marketing fees
|
126,152
|
115,498
|
55,723
|
|
Custodian fees
and expenses
|
19,038
|
18,575
|
139,745
|
|
Business
permits and licenses fees
|
17,342
|
18,524
|
15,726
|
|
General and
administrative expenses
|
14,512
|
17,542
|
8,732
|
|
Brokerage
commissions
|
10,525
|
8,681
|
4,000
|
|
Other
expenses
|
4,948
|
6,261
|
2,751
|
|
Total
expenses
|
326,587
|
288,309
|
327,823
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(129,334
)
|
(148,281
)
|
(256,227
)
|
|
|
|
|
|
|
Total
expenses, net
|
197,253
|
140,028
|
71,596
|
|
|
|
|
|
|
Net (loss)
income
|
$
(2,290,088
)
|
$
1,349,263
|
$
(475,806
)
|
|
|
|
|
|
|
Net (loss) income per
share
|
$
(3.18
)
|
$
2.95
|
$
(1.81
)
|
|
Net (loss) income per weighted
average share
|
$
(3.40
)
|
$
2.66
|
$
(1.28
)
|
|
Weighted average shares
outstanding
|
674,456
|
507,654
|
373,018
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SUGAR
FUND
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net (loss)
income
|
$
(2,290,088
)
|
$
1,349,263
|
$
(475,806
)
|
|
Capital
transactions
|
|
|
|
|
Issuance of
Shares
|
10,190,950
|
2,805,578
|
3,767,602
|
|
Redemption of
Shares
|
(7,051,123
)
|
(4,149,533
)
|
(444,345
)
|
|
Total capital
transactions
|
3,139,827
|
(1,343,955
)
|
3,323,257
|
|
Net change in net
assets
|
849,739
|
5,308
|
2,847,451
|
|
|
|
|
|
|
Net assets,
beginning of period
|
$
5,513,971
|
$
5,508,663
|
$
2,661,212
|
|
|
|
|
|
|
Net assets,
end of period
|
$
6,363,710
|
$
5,513,971
|
$
5,508,663
|
|
|
|
|
|
|
Net asset
value per share at beginning of period
|
$
12.97
|
$
10.02
|
$
11.83
|
|
|
|
|
|
|
Net asset
value per share at end of period
|
$
9.79
|
$
12.97
|
$
10.02
|
|
|
|
|
|
|
Creation of
Shares
|
925,000
|
250,000
|
375,000
|
|
Redemption of
Shares
|
700,000
|
375,000
|
50,000
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM SUGAR
FUND
STATEMENTS OF
CASH FLOWS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net (loss)
income
|
$
(2,290,088
)
|
$
1,349,263
|
$
(475,806
)
|
|
Adjustments to
reconcile net (loss) income to net cash (used in) provided by
operating activities:
|
|
||
|
Net change in
unrealized appreciation or depreciation on commodity futures
contracts
|
(263,581
)
|
510,451
|
(868,011
)
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Due from
broker
|
237,396
|
(506,850
)
|
591,700
|
|
Interest
receivable
|
4
|
(2
)
|
124
|
|
Other
assets
|
4,159
|
7,507
|
14,077
|
|
Management fee
payable to Sponsor
|
5,632
|
-
|
-
|
|
Other
liabilities
|
5,327
|
(1,063
)
|
569
|
|
Net cash (used
in) provided by operating activities
|
(2,301,151
)
|
1,359,306
|
(737,347
)
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
Proceeds from sale of
Shares
|
10,190,950
|
2,805,578
|
3,767,602
|
|
Redemption of
Shares
|
(7,051,123
)
|
(4,149,533
)
|
(444,345
)
|
|
Net cash
provided by (used in) financing activities
|
3,139,827
|
(1,343,955
)
|
3,323,257
|
|
|
|
|
|
|
Net change in
cash, cash equivalents, and restricted
cash
|
838,676
|
15,351
|
2,585,910
|
|
Cash, cash
equivalents, and restricted cash, beginning of
period
|
5,090,599
|
5,075,248
|
2,489,338
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
5,929,275
|
$
5,090,599
|
$
5,075,248
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO FINANCIAL
STATEMENTS
December 31,
2017
Note 1 – Organization and Operation
Teucrium Sugar Fund (referred to
herein as “CANE” or the “Fund”) is a
commodity pool that is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust formed on
September 11, 2009. The Fund issues common units, called the
“Shares,” representing fractional undivided beneficial
interests in the Fund. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their Net Asset Value
(“NAV”) to “Authorized Purchasers” through
Foreside Fund Services, LLC, which is the distributor for the Fund
(the “Distributor”). Authorized Purchasers sell such
Shares, which are listed on the New York Stock Exchange
(“NYSE”) Arca under the symbol “CANE,” to
the public at per-Share offering prices that reflect, among other
factors, the trading price of the Shares on the NYSE Arca, the NAV
of the Fund at the time the Authorized Purchaser purchased the
Creation Baskets and the NAV at the time of the offer of the Shares
to the public, the supply of and demand for Shares at the time of
sale, and the liquidity of the markets for sugar interests. The
Fund’s Shares trade in the secondary market on the NYSE Arca
at prices that are lower or higher than their NAV per
Share.
CANE
Benchmark
|
ICE Sugar
Futures Contract
|
Weighting
|
|
Second to
expire
|
35%
|
|
Third to
expire
|
30%
|
|
Expiring in the March following
the expiration of the third-to-expire contract
|
35%
|
The Fund commenced investment
operations on September 19, 2011 and has a fiscal year ending
December 31. The Fund’s sponsor is Teucrium Trading, LLC (the
“Sponsor”). The Sponsor is responsible for the
management of the Fund. The Sponsor is a member of the National
Futures Association (the “NFA”) and became a commodity
pool operator registered with the Commodity Futures Trading
Commission (the “CFTC”) effective November 10, 2009.
The Sponsor registered as a Commodity Trading Advisor ("CTA") with
the NFA effective September 8, 2017.
On June 17, 2011, the
Fund’s initial registration of 10,000,000 shares on Form S-1
was declared effective by the U.S. Securities and Exchange
Commission (“SEC”). On September 19, 2011, the Fund
listed its shares on the NYSE Arca under the ticker symbol
“CANE.” On the business day prior to that, the Fund
issued 100,000 shares in exchange for $2,500,000 at the
Fund’s initial NAV of $25 per share. The Fund also commenced
investment operations on September 19, 2011 by purchasing commodity
futures contracts traded on ICE. On December 31, 2010, the Fund had
four shares outstanding, which were owned by the Sponsor. On June
30, 2014, a subsequent registration statement for CANE was declared
effective by the SEC.
On May 1, 2017, a subsequent
registration statement for CANE was declared effective by the
SEC.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor
(“Sponsor”), may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
Note 2 – Principal Contracts and
Agreements
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Fund. The principal
business address for U.S. Bank N.A. is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department.
The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”), is 615 E.
Michigan Street, Milwaukee, WI, 53202. In addition, effective on
the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the first $250
million, 0.05% on the next $250 million, 0.04% on the next $500
million and 0.03% on the balance over $1 billion annually. A
combined minimum annual fee of up to $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund. For the year ended December 31, 2015, such expenses
include both the fees for the Bank of New York Mellon and USBFS.
For the years ended December 31, the Fund recognized $19,038 in
2017, $18,575 in 2016, and $139,745 in 2015, respectively, for
these services, which is recorded in custodian fees and expenses on
the statements of operations; of this expense $13,246 in 2017,
$13,118 in 2016, and $139,745 in 2015 was waived by the
Sponsor.
The Sponsor and the Trust employ
Foreside Fund Services, LLC as the Distributor for the Funds. 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. For its services as the
Distributor, Foreside receives a fee of 0.01% of the Fund’s
average daily net assets and an aggregate annual fee of $100,000
for all Teucrium Funds, along with certain expense reimbursements.
For its services under the SASA, Foreside receives a fee of $5,000
per registered representative and $1,000 per registered location.
For the years ended December 31, the Fund recognized $9,947 in
2017, $8,094 in 2016, and $4,354 in 2015, respectively, for
these services, which is recorded in distribution and marketing
fees on the statements of operations; of this expense $5,473 in
2017, $5,535 in 2016, and $2,770 in 2015 was waived by the
Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015, Newedge USA, LLC (“Newedge
USA”) merged with and into SG Americas Securities, LLC
(“SG”), with the latter as the surviving entity. On
February 6, 2015 Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was
$0. Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and
residual cash balances held at Jefferies had been transferred to
ED&F Man and the balance in all Jefferies accounts was
$0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of
the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a
clearing member of ICE Futures U.S., Inc., Chicago Board of Trade,
Chicago Mercantile Exchange, New York Mercantile Exchange, and all
other major United States commodity exchanges. For Corn,
Soybean, Sugar and Wheat Futures Contracts ED&F Man,
Jefferies and SG were paid $8.00 per round turn in 2015 and
2014. Effective January 1, 2016, ED&F Man, increased the
per round-term charge for futures contracts commission to $9.00.
For the years ended December 31, the Fund recognized $10,525 in
2017, $8,681 in 2016, and $4,000 in 2015, respectively, for these
services, which is recorded in brokerage commissions on the
statements of operations; of this expense $0 in 2017, $0 in 2016,
and $4,000 in 2015 was waived by the Sponsor.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. For the years ended December 31, the
Fund recognized $192 in 2017, $133 in 2016, and $130 in 2015,
respectively, for these services, which is recorded in business
permits and licenses fees on the statements of operations; this
expense was paid for by the Fund in 2017 and waived by the Sponsor
in 2016 and 2015.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) as detailed in the Financial Accounting
Standards Board’s Accounting Standards
Codification.
In accordance with ASU 2016-18
issued by the FASB, the presentation of cash and cash equivalents
and restricted cash is disaggregated by line item on the statements
of assets and liabilities and sum to the total amount of cash, cash
equivalents, and restricted cash at the end of the corresponding
period shown in the statements of cash flows. This update in
presentation did not have a material impact on the financial
statements and disclosures of the Fund.
Revenue Recognition
Commodity futures contracts are
recorded on the trade date. All such transactions are recorded on
the identified cost basis and marked to market daily. Unrealized
appreciation or depreciation on commodity futures contracts are
reflected in the statements of assets and liabilities as the
difference between the original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statements of
operations. Interest on cash equivalents and deposits with the
Futures Commission Merchant are recognized on the accrual basis.
The Fund earns interest on its assets denominated in U.S. dollars
on deposit with the Futures Commission Merchant. In addition, the
Fund earns interest on funds held at the custodian at prevailing
market rates for such investments.
Brokerage Commissions
Brokerage commissions on all open
commodity futures contracts are accrued on the trade date and on a
full-turn basis.
Income
Taxes
For United States federal income
tax purposes, the Fund will be treated as a partnership. The Fund
does not record a provision for income taxes because the
shareholders report their share of the Fund’s income or loss
on their income tax returns. The financial statements reflect the
Fund’s transactions without adjustment, if any, required for
income tax purposes.
The Fund is required to determine
whether a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. The Fund files an income tax
return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. For all
tax years 2014 to 2017, the Fund remains subject to income tax
examinations by major taxing authorities. The tax benefit
recognized is measured as the largest amount of benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate settlement. De-recognition of a tax benefit previously
recognized results in the Fund recording a tax liability that
reduces net assets. Based on its analysis, the Fund has determined
that it has not incurred any liability for tax benefits as of and
for the years ended December 31, 2017, 2016, 2015, and 2014.
However, the Fund’s conclusions regarding this policy may be
subject to review and adjustment at a later date based on factors
including, but not limited to, ongoing analysis of and changes to
tax laws, regulations, and interpretations
thereof.
The Fund will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016 and 2015.
The Fund may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Fund’s management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months.
In
the opinion of the Sponsor, the 2017 Tax Cuts and Jobs Act, will
not have a significant impact on the Fund and did not have a
significant impact on the financial statements of the
Fund.
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 shares from the
Fund. The amount of the proceeds required to purchase a Creation
Basket will be equal to the NAV of the shares in the Creation
Basket determined as of 4:00 p.m. New York time on the day the
order to create the basket is properly
received.
Authorized Purchasers may redeem
shares from the Fund only in blocks of 25,000 shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
The Fund receives or pays the
proceeds from shares sold or redeemed within three business days
after the trade date of the purchase or redemption. The amounts due
from Authorized Purchasers are reflected in the Fund’s
statements of assets and liabilities as receivable for shares sold.
Amounts payable to Authorized Purchasers upon redemption are
reflected in the Fund’s statements of assets and liabilities
as payable for shares redeemed.
As outlined in the most recent
Form S-1 filing, 50,000 shares represents two Redemption Baskets
for the Fund and a minimum level of shares.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among
the shareholders of the Fund in proportion to the number of shares
each shareholder holds as of the close of each
month.
Cash, Cash Equivalents, and Restricted
Cash
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Fund reported its cash equivalents in the
statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Fund has these
balances of its cash equivalents on deposit with banks. The Fund
had a balance of $100 and $125,182 in money market funds at
December 31, 2017 and December 31, 2016, respectively; these
balances are included in cash and cash equivalents on the
statements of assets and liabilities. Effective in the second
quarter 2015, the Sponsor invested a portion of the available cash
for the Fund in alternative demand-deposit savings accounts, which
is classified as cash and not as a cash equivalent. The Fund had a
balance of $5,929,221 and $4,891,490 in a demand-deposit savings
account on December 31, 2017 and December 31, 2016. This change
resulted in a reduction in the balance held in money market
funds. Assets deposited with financial in
stitutions, at times, exceed
federally insured limits.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. Per the
amended agreement between the Sponsor and The Bank of New York
Mellon dated August 14, 2015, certain cash amounts for each Fund,
except in the case of TAGS, are to remain at The Bank of New York
Mellon until amounts for services and early termination fees are
paid.
The
amended agreement allows for payments for such amounts owed to be
made through December 31, 2017. Cash balances that are held in
custody at The Bank of New York Mellon under this amended agreement
are reflected as restricted cash on the financial statements of the
Fund. The following table provides a reconciliation of cash and
cash equivalents, and restricted cash reported within the
statements of assets and liabilities that sum to the total of the
same such amounts shown in the statements of cash
flows.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash and cash
equivalents
|
$
5,929,275
|
$
5,016,531
|
$
4,932,791
|
|
Restricted
cash
|
-
|
74,068
|
142,457
|
|
Total cash, cash equivalents, and
restricted cash shown in the combined statements of cash
flows
|
$
5,929,275
|
$
5,090,599
|
$
5,075,248
|
Due from/to Broker
The amount recorded by the Fund
for the amount due from and to the clearing broker includes, but is
not limited to, cash held by the broker, amounts payable to the
clearing broker related to open transactions and payables for
commodities futures accounts liquidating to an equity balance on
the clearing broker’s records.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Fund’s
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Fund’s trading,
the Fund (and not its shareholders personally) is subject to margin
calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Calculation of Net Asset Value
The Fund’s NAV is
calculated by:
●
Taking the current market value
of its total assets and
●
Subtracting any
liabilities
The administrator, USBFS,
calculates the NAV of the Fund once each trading day. It calculates
the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. The NAV for a particular trading day is released after
4:15 p.m. New York time.
In determining the value of Sugar
Futures Contracts, the administrator uses the ICE closing price.
The administrator determines the value of all other Fund
investments as of the earlier of the close of the NYSE or 4:00 p.m.
New York time. The value of over-the-counter sugar interests is
determined based on the value of the commodity or futures contract
underlying such sugar interest, except that a fair value may be
determined if the Sponsor believes that the Fund is subject to
significant credit risk relating to the counterparty to such sugar
interest. 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.
Treasury securities held by the Fund are valued by the
administrator using values received from recognized third-party
vendors and dealer quotes. NAV includes any unrealized profit or
loss on open sugar interests and any other income or expense
accruing to the Fund but unpaid or not received by the
Fund.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
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
Trust and the Funds. In addition, the Sponsor elected not to
outsource services directly attributable to the Trust and the
Funds, such as
certain aspects of
accounting, financial reporting, regulatory compliance and trading
activities. In addition, 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 Fund generally pays for all
brokerage fees, taxes and other expenses, including licensing fees
for the use of intellectual property, registration or other fees
paid to the SEC, FINRA, formerly the National Association of
Securities Dealers, or any other regulatory agency in connection
with the offer and sale of subsequent Shares after its initial
registration and all legal, accounting, printing and other expenses
associated therewith. The Fund also pays its portion of the fees
and expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to
all 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 and redeem 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, which are included in the related line item in the
statements of operations. 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
Funds, which are primarily the cost of performing accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund. For the
years ended December 31, the Fund recognized $109,266 in 2017,
$102,601 in 2016, and $47,236 in 2015, respectively, such
expenses, which are primarily included as distribution and
marketing fees on the statements of operations; of these amounts,
$57,667 in 2017, $71,311 in 2016, and $33,483 in 2015 were
waived by the Sponsor. All asset-based fees and expenses for the
Funds are calculated on the prior day’s net
assets.
For the year ended December 31,
2017, there were $129,334 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be
no recovery sought for these amounts in any future
period.
For the year ended December 31,
2016, there were $148,281 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
For the year ended December 31,
2015, there were $256,227 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of the revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value - Definition and Hierarchy
In accordance with U.S. GAAP,
fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Fund uses various valuation approaches. In accordance with U.S.
GAAP, a fair value hierarchy for inputs is used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are those that
market participants would use in pricing the asset or liability
based on market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
financial instruments. Since valuations are based on quoted prices
that are readily and regularly available in an active market,
valuation of these financial instruments does not entail a
significant degree of judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial
instrument to financial instrument and is affected
by a wide variety of factors including, the type of financial
instrument, whether the financial instrument is new and
not yet established in the marketplace, and other characteristics
particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more
judgment. Those estimated values do not necessarily represent the
amounts that may be ultimately realized due to the occurrence of
future circumstances that cannot be reasonably determined. Because
of the inherent uncertainty of valuation, those estimated values
may be materially higher or lower than the values that would have
been used had a ready market for the financial
instruments existed. Accordingly, the degree of judgment
exercised by the Fund in determining fair value is greatest
for financial instruments categorized in Level 3. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy, within
which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Fund’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Fund uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market
dislocation, the observability of prices and inputs may be reduced
for many financial instruments. This condition could cause a
financial instrument to be reclassified to a lower level
within the fair value hierarchy. When such a situation exists on a
quarter close, the Sponsor will calculate the NAV on a particular
day using the Level 1 valuation, but will later recalculate the NAV
for the impacted Fund based upon the valuation inputs from these
alternative verifiable sources (Level 2 or Level 3) and will report
such NAV in its applicable financial statements and
reports.
On December 31, 2017 and
2016, in the opinion of the Trust and the Fund, the reported value
of the Sugar Futures Contracts traded on the ICE fairly reflected
the value of the Sugar Futures Contracts held by the Fund, and no
adjustments were necessary. The determination is made as of the
settlement of the futures contracts on the last day of trading for
the reporting period. In making the determination of a Level 1 or
Level 2 transfer, the Fund considers the average volume of the
specific underlying futures contracts traded on the relevant
exchange for the years being reported.
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
The Fund records its derivative
activities at fair value. Gains and losses from derivative
contracts are included in the statements of operations. Derivative
contracts include futures contracts related to commodity prices.
Futures, which are listed on a national securities exchange, such
as the CBOT and the ICE, or reported on another national market,
are generally categorized in Level 1 of the fair value hierarchy.
OTC derivatives contracts (such as forward and swap contracts)
which may be valued using models, depending on whether significant
inputs are observable or unobservable, are categorized in Levels 2
or 3 of the fair value hierarchy.
Expenses
Expenses are recorded using the
accrual method of accounting.
Net Income (Loss) per Share
Net income (loss) per Share is
the difference between the NAV per unit at the beginning of each
period and at the end of each period. The weighted average number
of Shares outstanding was computed for purposes of disclosing net
income (loss) per weighted average Share. The weighted average
Shares are equal to the number of Shares outstanding at the end of
the period, adjusted proportionately for Shares created or redeemed
based on the amount of time the Shares were outstanding during such
period.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years.
T
he
Sponsor elected to early adopt ASU 2016-18 for the year ending
December 31, 2017 and the adoption did not have a material impact
on the financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance.
The Sponsor elected to early
adopt ASU 2016-15 for the year ending December 31, 2017 and the
adoption did not have a material impact on the financial statements
and disclosures of the Trust or the Fund.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2014-09 and 2015-14. Therefore, these standards
are not expected to have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Fund record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Fund.
Note 4 – Fair Value Measurements
The Fund’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Fund’s significant
accounting policies in Note 3. The following table presents
information about the Fund’s assets and liabilities measured
at fair value as of December 31, 2017 and December 31,
2016.
December 31, 2017
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Cash
Equivalents
|
$
100
|
$
-
|
$
-
|
$
100
|
|
Sugar Futures
Contracts
|
184,319
|
-
|
-
|
184,319
|
|
Total
|
$
184,419
|
$
-
|
$
-
|
$
184,419
|
|
|
|
|
|
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Sugar Futures
Contracts
|
$
67,133
|
$
-
|
$
-
|
$
67,133
|
December 31,
2016
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Cash
Equivalents
|
$
125,182
|
$
-
|
$
-
|
$
125,182
|
|
Sugar Futures
Contracts
|
185,147
|
-
|
-
|
185,147
|
|
Total
|
$
310,329
|
$
-
|
$
-
|
$
310,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Sugar Futures
Contracts
|
$
331,542
|
$
-
|
$
-
|
$
331,542
|
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
Note 5 – Derivative Instruments and Hedging
Activities
In the normal course of business,
the Fund utilizes derivative contracts in connection with its
proprietary trading activities. Investments in derivative contracts
are subject to additional risks that can result in a loss of all or
part of an investment. The Fund’s derivative activities and
exposure to derivative contracts are classified by the following
primary underlying risks: interest rate, credit, commodity price,
and equity price risks. In addition to its primary underlying
risks, the Fund is also subject to additional counterparty risk due
to inability of its counterparties to meet the terms of their
contracts. For the years ended December 31, 2017 and 2016, the Fund
invested only in commodity futures contracts.
Futures Contracts
The Fund is subject to commodity
price risk in the normal course of pursuing its investment
objectives. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a
specified date.
The purchase and sale of futures
contracts requires margin deposits with a FCM. Subsequent payments
(variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract,
and are recorded as unrealized gains or losses by the Fund. Futures
contracts may reduce the Fund’s exposure to counterparty risk
since futures contracts are exchange-traded; and the
exchange’s clearinghouse, as the counterparty to all
exchange-traded futures, guarantees the futures against
default.
The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from the FCM’s proprietary activities. A customer’s
cash and other equity deposited with an FCM are considered
commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s
insolvency, recovery may be limited to the Fund’s pro rata
share of segregated customer funds available. It is possible that
the recovery amount could be less than the total of cash and other
equity deposited.
The following table discloses
information about offsetting assets and liabilities presented in
the statements of assets and liabilities to enable users of these
financial statements to evaluate the effect or potential effect of
netting arrangements for recognized assets and liabilities. These
recognized assets and liabilities are presented as defined in FASB
ASU No. 2011-11 “Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities” and subsequently clarified
in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying
the Scope of Disclosures about Offsetting Assets and
Liabilities.”
The following table also
identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of December 31, 2017 and
2016.
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Sugar Futures
Contracts
|
$
184,319
|
$
-
|
$
184,319
|
$
67,133
|
$
-
|
$
117,186
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Sugar Futures
Contracts
|
$
67,133
|
$
-
|
$
67,133
|
$
67,133
|
$
-
|
$
-
|
Offsetting of
Financial Assets and Derivative Assets as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Sugar Futures
Contracts
|
$
185,147
|
$
-
|
$
185,147
|
$
185,147
|
$
-
|
$
-
|
Offsetting of
Financial Liabilities and Derivative Liabilities as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Sugar Futures
Contracts
|
$
331,542
|
$
-
|
$
331,542
|
$
185,147
|
$
146,395
|
$
-
|
The following is a summary of
realized and net change in unrealized gains (losses) of the
derivative instruments utilized by the Fund:
Year ended
December 31, 2017
|
|
Realized Loss
on
Commodity
Futures Contracts
|
Net Change in Unrealized
Appreciation on Commodity Futures Contacts
|
|
Commodity
Price
|
|
|
|
Sugar futures
contracts
|
$
(2,435,305
)
|
$
263,581
|
Year ended
December 31, 2016
|
|
Realized Gain
on
Commodity
Futures Contracts
|
Net Change in Unrealized
Depreciation on Commodity Futures Contacts
|
|
Commodity
Price
|
|
|
|
Sugar futures
contracts
|
$
1,967,694
|
$
(510,451
)
|
Year ended
December 31, 2015
|
|
Realized Loss
on
Commodity
Futures Contracts
|
Net Change in Unrealized
Appreciation on Commodity Futures Contacts
|
|
Commodity
Price
|
|
|
|
Sugar futures
contracts
|
$
(1,279,891
)
|
$
868,011
|
Volume of Derivative Activities
The average notional market value
categorized by primary underlying risk for all futures contracts
held was $7.1 million in 2017, $6.1 million in 2016, and
$4.1 million in 2015.
The following table presents per
share performance data and other supplemental financial data for
the years ended December 31, 2017, 2016 and 2015. This information
has been derived from information presented in the financial
statements and is presented with total expenses gross of expenses
waived by the Sponsor and with total expenses net of expenses
waived by the Sponsor, as appropriate.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Per Share
Operation Performance
|
|
|
|
|
Net asset value at beginning of
period
|
$
12.97
|
$
10.02
|
$
11.83
|
|
Income (loss) from investment
operations:
|
|
|
|
|
Investment
income
|
0.12
|
0.06
|
0.02
|
|
Net realized and unrealized
(loss) gain on commodity futures contracts
|
(3.01
)
|
3.17
|
(1.64
)
|
|
Total expenses,
net
|
(0.29
)
|
(0.28
)
|
(0.19
)
|
|
Net (decrease) increase in net
asset value
|
(3.18
)
|
2.95
|
(1.81
)
|
|
Net asset value at end of
period
|
$
9.79
|
$
12.97
|
$
10.02
|
|
Total
Return
|
(24.52
)%
|
29.44
%
|
(15.30
)%
|
|
Ratios to
Average Net Assets (Annualized)
|
|
|
|
|
Total
expenses
|
4.62
%
|
4.72
%
|
9.16
%
|
|
Total expenses,
net
|
2.79
%
|
2.29
%
|
2.00
%
|
|
Net investment
loss
|
(1.68
)%
|
(1.77
)%
|
(1.79
)%
|
Effective in the third quarter
2015, the financial highlights per share data are calculated
consistent with the methodology used to calculate asset-based fees
and expenses. In prior periods, the financial highlights per share
data are calculated using the average of the daily shares
outstanding for the reporting period, which is inclusive of the
last day of the period. Any change in methodology was not material
to the ratios presented.
Note 7 – Quarterly Financial Data
(Unaudited)
The following summarized
quarterly financial information presents the results of operations
for the Teucrium Sugar Fund and other data for three-month periods
ended March 31, June 30, September 30 and December 31, 2017 and
2016.
|
|
Three months
ended
March 31,
2017
|
Three months
ended
June 30,
2017
|
Three months
ended
September 30,
2017
|
Three months
ended
December 31,
2017
|
|
Total (Loss)
Income
|
$
(572,243
)
|
$
(1,575,978
)
|
$
(120,913
)
|
$
176,299
|
|
Total
Expenses
|
49,635
|
79,000
|
102,485
|
95,467
|
|
Total Expenses,
net
|
36,557
|
53,714
|
57,299
|
49,683
|
|
Net (Loss)
Income
|
(608,800
)
|
(1,629,692
)
|
(178,212
)
|
126,616
|
|
Net (Loss) Income per
share
|
$
(1.18
)
|
$
(2.15
)
|
$
(0.21
)
|
$
0.36
|
|
|
Three months
ended
March 31,
2016
|
Three months
ended
June 30,
2016
|
Three months
ended
September 30,
2016
|
Three months
ended
December 31,
2016
|
|
Total Income
(Loss)
|
$
1,628
|
$
1,344,301
|
$
939,912
|
$
(796,550
)
|
|
Total
Expenses
|
42,333
|
93,020
|
88,916
|
64,040
|
|
Total Expenses,
net
|
27,353
|
34,614
|
40,873
|
37,188
|
|
Net (Loss)
Income
|
(25,725
)
|
1,309,687
|
899,039
|
(833,738
)
|
|
Net Income (Loss) per
share
|
$
0.51
|
$
2.39
|
$
1.73
|
$
(1.68
)
|
Expenses incurred in organizing
of the Trust and the initial offering of the Shares of the Fund,
including applicable SEC registration fees, were borne directly by
the Sponsor. The Fund is not obligated to reimburse these costs to
the Sponsor.
Note 9 – Subsequent Events
Management has evaluated the
financial statements for the period-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Fund other than those noted
below:
Effective
January 2, 2018, the Sponsor established a demand deposit account
for CANE at Mascoma Savings Bank.
Beginning in the first quarter on
2018, the Sponsor established an account at Morgan Stanley for CANE
for the purposes of investing a portion of available assets in
commercial paper as described in the prospectus supplement dated
January 16, 2018.
The total net assets of the Fund increased by
$1,523,512 or 24% the period from December 31, 2017 through March
14, 2018. This was driven by a 42% increase in the shares
outstanding and a 13% decrease in the net asset value per
share.
Report of
Independent Registered Public Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Wheat Fund
Opinion on the financial
statements
We have audited the accompanying
statements of assets and liabilities of Teucrium Wheat Fund (the
“Fund”), including the schedules of investments, as of
December 31, 2017 and 2016, the related statements of operations,
changes in net assets, and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Fund as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Fund’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as the
Fund’s auditor since 2014.
New York, New
York
March 16,
2018
Report of Independent Registered Public
Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Wheat Fund
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Wheat Fund (the
“Fund”) as of December 31, 2017, based on criteria
established in the 2013
Internal
Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Fund maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
the 2013
Internal
Control—Integrated Framework
issued by
COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
financial statements of the Fund as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Fund’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A fund’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A fund’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the fund; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
fund are being made only in accordance with authorizations of
management and directors of the fund; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the fund’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRANT THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM WHEAT
FUND
STATEMENTS OF
ASSETS AND LIABILITIES
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash and cash
equivalents
|
$
58,932,231
|
$
58,931,911
|
|
Interest
receivable
|
111
|
279
|
|
Other assets
|
1,861
|
7,637
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
604,475
|
-
|
|
Due from
broker
|
5,166,254
|
7,381,706
|
|
Total
equity in trading accounts
|
5,770,729
|
7,381,706
|
|
Total
assets
|
64,704,932
|
66,321,533
|
|
|
|
|
|
Liabilities
|
|
|
|
Management fee payable to
Sponsor
|
51,974
|
52,145
|
|
Other
liabilities
|
36,414
|
3,041
|
|
Equity in trading
accounts:
|
|
|
|
Commodity
futures contracts
|
3,200,525
|
3,921,588
|
|
Total
liabilities
|
3,288,913
|
3,976,774
|
|
|
|
|
|
Net
assets
|
$
61,416,019
|
$
62,344,759
|
|
|
|
|
|
Shares
outstanding
|
10,250,004
|
9,050,004
|
|
|
|
|
|
Net asset
value per share
|
$
5.99
|
$
6.89
|
|
|
|
|
|
Market value
per share
|
$
6.00
|
$
6.88
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM WHEAT
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost $100)
|
$
100
|
0.00
%
|
100
|
|
Blackrock FedFund - Institutional
Class (Cost $70)
|
70
|
0.00
|
70
|
|
Total money market
funds
|
$
170
|
0.00
%
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Commercial
Paper
|
|
|
|
|
Boston Scientific Corporation
1.709% (cost: $2,496,104 due 1/16/2018)
|
$
2,498,229
|
4.07
%
|
2,500,000
|
|
Canadian Natural Resources
Limited 1.759% (cost: $2,495,017 due 1/31/2018)
|
2,496,354
|
4.06
|
2,500,000
|
|
E. I. du Pont de Nemours and
Company 1.67% (cost: $2,490,778 due 3/5/2018)
|
2,492,737
|
4.06
|
2,500,000
|
|
Enbridge Energy Partners, L.P.
2.198% (cost: $2,488,490 due 3/5/2018)
|
2,490,459
|
4.06
|
2,500,000
|
|
Equifax Inc. 1.709% (cost:
$2,493,979 due 1/5/2018)
|
2,499,528
|
4.07
|
2,500,000
|
|
Ford Motor Credit Company LLC
1.407% (cost: $2,491,250 due 1/10/2018)
|
2,499,125
|
4.07
|
2,500,000
|
|
Glencore Funding LLC 1.424%
(cost: $2,491,248 due 1/17/2018)
|
2,498,427
|
4.07
|
2,500,000
|
|
HP Inc. 1.648% (cost: $2,496,014
due 1/22/2018)
|
2,497,608
|
4.07
|
2,500,000
|
|
Oneok, Inc. 1.749% (cost:
$2,497,342 due 1/5/2018)
|
2,499,517
|
4.07
|
2,500,000
|
|
VW Credit, Inc. 1.61% (cost:
$2,490,000 due 3/6/2018)
|
2,492,889
|
4.06
|
2,500,000
|
|
Total Commercial Paper (total
cost: $24,930,222)
|
$
24,964,873
|
40.66
%
|
|
|
Total Cash
Equivalents
|
$
24,965,043
|
40.66
%
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
|
|
(Long
Exposure)
|
|
Commodity
futures contracts
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures JUL18 (813
contracts)
|
$
604,475
|
0.98
%
|
$
18,424,613
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures MAY18 (976
contracts)
|
$
1,182,225
|
1.92
%
|
$
21,484,200
|
|
CBOT wheat futures DEC18 (893
contracts)
|
2,018,300
|
3.29
|
21,521,300
|
|
Total commodity futures
contracts
|
$
3,200,525
|
5.21
%
|
$
43,005,500
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM WHEAT
FUND
SCHEDULE OF
INVESTMENTS
December 31,
2016
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$406,927)
|
$
406,927
|
0.65
%
|
406,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of
|
Notional
Amount
|
|
Description:
Liabilities
|
Fair
Value
|
Net
Assets
|
(Long
Exposure)
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
|
|
|
United States wheat futures
contracts
|
|
|
|
|
CBOT wheat futures MAY17 (1,037
contracts)
|
$
1,011,350
|
1.62
%
|
$
21,802,925
|
|
CBOT wheat futures JUL17 (861
contracts)
|
213,963
|
0.34
|
18,694,463
|
|
CBOT wheat futures DEC17 (939
contracts)
|
2,696,275
|
4.33
|
21,831,750
|
|
Total commodity futures
contracts
|
$
3,921,588
|
6.29
%
|
$
62,329,138
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM WHEAT
FUND
STATEMENTS OF
OPERATIONS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized gain
(loss) on trading of commodity futures
contracts:
|
|
|
|
|
Realized loss
on commodity futures contracts
|
$
(5,305,113
)
|
$
(9,631,400
)
|
$
(4,559,863
)
|
|
Net change in
unrealized appreciation or depreciation on commodity futures
contracts
|
1,325,538
|
(1,997,125
)
|
(2,640,963
)
|
|
Interest
income
|
745,357
|
231,598
|
54,109
|
|
Total
loss
|
(3,234,218
)
|
(11,396,927
)
|
(7,146,717
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
654,207
|
415,147
|
254,597
|
|
Professional
fees
|
585,774
|
319,007
|
213,241
|
|
Distribution
and marketing fees
|
1,070,569
|
777,708
|
374,436
|
|
Custodian fees
and expenses
|
143,071
|
120,829
|
171,747
|
|
Business
permits and licenses fees
|
20,733
|
39,116
|
13,803
|
|
General and
administrative expenses
|
107,357
|
91,644
|
66,012
|
|
Brokerage
commissions
|
59,520
|
48,209
|
20,561
|
|
Other
expenses
|
37,382
|
42,922
|
7,307
|
|
Total
expenses
|
2,678,613
|
1,854,582
|
1,121,704
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(323,244
)
|
(140,028
)
|
(130,716
)
|
|
|
|
|
|
|
Total
expenses, net
|
2,355,369
|
1,714,554
|
990,988
|
|
|
|
|
|
|
Net
loss
|
$
(5,589,587
)
|
$
(13,111,481
)
|
$
(8,137,705
)
|
|
|
|
|
|
|
Net loss per
share
|
$
(0.90
)
|
$
(2.26
)
|
$
(3.57
)
|
|
Net loss per weighted average
share
|
$
(0.58
)
|
$
(2.45
)
|
$
(3.29
)
|
|
Weighted average shares
outstanding
|
9,594,936
|
5,340,851
|
2,470,483
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM WHEAT
FUND
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net loss
|
$
(5,589,587
)
|
$
(13,111,481
)
|
$
(8,137,705
)
|
|
Capital
transactions
|
|
|
|
|
Issuance of
Shares
|
35,809,657
|
51,690,600
|
18,019,705
|
|
Redemption of
Shares
|
(31,148,810
)
|
(2,763,620
)
|
(5,616,197
)
|
|
Total capital
transactions
|
4,660,847
|
48,926,980
|
12,403,508
|
|
Net change in net
assets
|
(928,740
)
|
35,815,499
|
4,265,803
|
|
|
|
|
|
|
Net assets,
beginning of period
|
$
62,344,759
|
$
26,529,260
|
$
22,263,457
|
|
|
|
|
|
|
Net assets,
end of period
|
$
61,416,019
|
$
62,344,759
|
$
26,529,260
|
|
|
|
|
|
|
Net asset
value per share at beginning of period
|
$
6.89
|
$
9.15
|
$
12.72
|
|
|
|
|
|
|
Net asset
value per share at end of period
|
$
5.99
|
$
6.89
|
$
9.15
|
|
|
|
|
|
|
Creation of
Shares
|
5,375,000
|
6,475,000
|
1,675,000
|
|
Redemption of
Shares
|
4,175,000
|
325,000
|
525,000
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM WHEAT
FUND
STATEMENTS OF
CASH FLOWS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net
loss
|
$
(5,589,587
)
|
$
(13,111,481
)
|
$
(8,137,705
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Net change in
unrealized appreciation or depreciation on commodity futures
contracts
|
(1,325,538
)
|
1,997,125
|
2,640,963
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Due from
broker
|
2,215,452
|
(3,660,318
)
|
(3,721,388
)
|
|
Interest
receivable
|
168
|
17
|
1,410
|
|
Other
assets
|
5,776
|
145,927
|
(76,816
)
|
|
Due to
broker
|
-
|
-
|
(60,805
)
|
|
Management fee
payable to Sponsor
|
(171
)
|
28,919
|
645
|
|
Other
liabilities
|
33,373
|
3,041
|
(16,479
)
|
|
Net cash used
in operating activities
|
(4,660,527
)
|
(14,596,770
)
|
(9,370,175
)
|
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
|
Proceeds from sale of
Shares
|
35,809,657
|
51,690,600
|
18,019,705
|
|
Redemption of
Shares
|
(31,148,810
)
|
(2,763,620
)
|
(5,616,197
)
|
|
Net cash
provided by financing activities
|
4,660,847
|
48,926,980
|
12,403,508
|
|
|
|
|
|
|
Net change in
cash, cash equivalents, and restricted
cash
|
320
|
34,330,210
|
3,033,333
|
|
Cash, cash
equivalents, and restricted cash, beginning of
period
|
58,931,911
|
24,601,701
|
21,568,368
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
58,932,231
|
$
58,931,911
|
$
24,601,701
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO
FINANCIAL STATEMENTS
December 31,
2017
Teucrium Wheat Fund (referred to
herein as “WEAT” or the “Fund”) is a
commodity pool that is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust formed on
September 11, 2009. The Fund issues common units, called the
“Shares,” representing fractional undivided beneficial
interests in the Fund. The Fund continuously offers Creation
Baskets consisting of 25,000 Shares at their Net Asset Value
(“NAV”) to “Authorized Purchasers” through
Foreside Fund Services, LLC, which is the distributor for the Fund
(the “Distributor”). Authorized Purchasers sell such
Shares, which are listed on the New York Stock Exchange
(“NYSE”) Arca under the symbol “WEAT,” to
the public at per-Share offering prices that reflect, among other
factors, the trading price of the Shares on the NYSE Arca, the NAV
of the Fund at the time the Authorized Purchaser purchased the
Creation Baskets and the NAV at the time of the offer of the Shares
to the public, the supply of and demand for Shares at the time of
sale, and the liquidity of the markets for wheat interests. The
Fund’s Shares trade in the secondary market on the NYSE Arca
at prices that are lower or higher than their NAV per
Share.
The investment objective of WEAT
is to have the daily changes in percentage terms of the
Shares’ Net Asset Value (“NAV”) reflect the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for wheat
(“Wheat Futures Contracts”) that are traded on the
Chicago Board of Trade (“CBOT”):
WEAT
Benchmark
|
CBOT Wheat
Futures Contract
|
Weighting
|
|
Second to
expire
|
35%
|
|
Third to
expire
|
30%
|
|
December following the
third-to-expire
|
35%
|
The Fund commenced investment
operations on September 19, 2011 and has a fiscal year ending
December 31. The Fund’s sponsor is Teucrium Trading, LLC (the
“Sponsor”). The Sponsor is responsible for the
management of the Fund. The Sponsor is a member of the National
Futures Association (the “NFA”) and became a commodity
pool operator registered with the Commodity Futures Trading
Commission (the “CFTC”) effective November 10, 2009.
The Sponsor registred as a Commodity Trading Advisor ("CTA") with
the NFA effective September 8, 2017.
On June 17, 2011, the
Fund’s initial registration of 10,000,000 shares on Form S-1
was declared effective by the SEC. On September 19, 2011, the Fund
listed its shares on the NYSE Arca under the ticker symbol
“WEAT.” On the business day prior to that, the Fund
issued 100,000 shares in exchange for $2,500,000 at the
Fund’s initial NAV of $25 per share. The Fund also commenced
investment operations on September 19, 2011 by purchasing commodity
futures contracts traded on the CBOT. On December 31, 2010, the
Fund had four shares outstanding, which were owned by the Sponsor.
On June 30, 2014, a subsequent registration statement for WEAT was
declared effective by the SEC. On July 15, 2016, a subsequent
registration statement for WEAT was declared effective. This
registration statement for WEAT registered an additional 24,050,000
shares.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC, in its capacity as the
Sponsor (“Sponsor”), may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
Note 2 – Principal Contracts and
Agreements
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Fund. The principal
business address for U.S. Bank N.A. is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department.
The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”), is 615 E.
Michigan Street, Milwaukee, WI, 53202. In addition, effective on
the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the first $250
million, 0.05% on the next $250 million, 0.04% on the next $500
million and 0.03% on the balance over $1 billion annually. A
combined minimum annual fee of up to $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund. For the year ended December 31, 2015, such expenses
include both the fees for the Bank of New York Mellon and USBFS.
For the years ended December 31, the Fund recognized $143,071 in
2017, $120,829 in 2016, and $171,747 in 2015, respectively, for
these services, which is recorded in custodian fees and expenses on
the statements of operations; of this expense $12,241 in 2017,
$2,000 in 2016, and $60,512 in 2015 was waived by the
Sponsor.
The Sponsor and the Trust employ
Foreside Fund Services, LLC as the Distributor for the Funds. 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. For its services as the
Distributor, Foreside receives a fee of 0.01% of the Fund’s
average daily net assets and an aggregate annual fee of $100,000
for all Teucrium Funds, along with certain expense reimbursements.
For its services under the SASA, Foreside receives a fee of $5,000
per registered representative and $1,000 per registered location.
For the years ended December 31, the Fund recognized $75,469 in
2017, $48,516 in 2016, and $35,804 in 2015,
respectively, for these services, which is recorded in distribution
and marketing fees on the statements of operations; of this expense
$14,910 in 2017, $570 in 2016, and $0 in 2015 was waived by the
Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015, Newedge USA, LLC (“Newedge
USA”) merged with and into SG Americas Securities, LLC
(“SG”), with the latter as the surviving entity. On
February 6, 2015 Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was
$0. Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and residual
cash balances held at Jefferies had been transferred to ED&F
Man and the balance in all Jefferies accounts was
$0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of
the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a
clearing member of ICE Futures U.S., Inc., Chicago Board of Trade,
Chicago Mercantile Exchange, New York Mercantile Exchange, and all
other major United States commodity exchanges. For Corn,
Soybean, Sugar and Wheat Futures Contracts ED&F Man,
Jefferies and SG were paid $8.00 per round turn in
2015. Effective January 1, 2016, ED&F Man, increased the
per round-term charge for futures contracts commission to $9.00.
For the years ended December 31, the Fund recognized $59,520 in
2017, $48,209 in 2016, and $20,561 in 2015, respectively, for these
services, which is recorded in brokerage commissions on the
statements of operations; of this expense $0 in 2017, $0 in 2016,
and $4,000 in 2015 was waived by the
Sponsor.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. For the years ended December 31, the
Fund recognized $1,349 in 2017, $1,078 in 2016, and $885 in
2015, respectively, for these services, which is recorded in
business permits and licenses fees on the statements of operations;
of this expense $0 in 2017, $1,078 in 2016, and $0 in 2015 were
waived by the Sponsor.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) as detailed in the Financial Accounting
Standards Board’s Accounting Standards
Codification.
In accordance
with ASU 2016-18 issued by the FASB, the presentation of cash and
cash equivalents and restricted cash is disaggregated by line item
on the statements of assets and liabilities and sum to the total
amount of cash, cash equivalents, and restricted cash at the end of
the corresponding period shown on the combined statements of cash
flows. This update in presentation did not have a material impact
on the financial statements and disclosures of the Trust and the
Funds.
Revenue Recognition
Commodity futures contracts are
recorded on the trade date. All such transactions are recorded on
the identified cost basis and marked to market daily. Unrealized
appreciation or depreciation on commodity futures contracts are
reflected in the statements of assets and liabilities as the
difference between the original contract amount and the fair market
value as of the last business day of the year or as of the last
date of the financial statements. Changes in the appreciation or
depreciation between periods are reflected in the statements of
operations. Interest on cash equivalents and deposits with the
Futures Commission Merchant are recognized on the accrual basis.
The Fund earns interest on its assets denominated in U.S. dollars
on deposit with the Futures Commission Merchant. In addition, the
Fund earns interest on funds held at the custodian at prevailing
market rates for such investments.
Beginning in October 2017, the Sponsor began investing a portion of cash in commercial paper, which is deemed a cash equivalent based on the rating and duration of contracts as described in the notes to the financial statements and reflected in cash and cash equivalents on the statements of assets and liabilites and in cash, cash equivalents and restricted cash on the statements of cash flows. Accretion on these investments are recognized using the effective interest method in U.S. dollars and included in interest income on the statements of operations.
Brokerage Commissions
Brokerage commissions on all open
commodity futures contracts are accrued on the trade date and on a
full-turn basis.
Income Taxes
For United States federal income
tax purposes, the Fund will be treated as a partnership. The Fund
does not record a provision for income taxes because the
shareholders report their share of the Fund’s income or loss
on their income tax returns. The financial statements reflect the
Fund’s transactions without adjustment, if any, required for
income tax purposes
The Fund is required to determine
whether a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. The Fund files an income tax
return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. For all
tax years 2014 to 2017, the Fund remains subject to income tax
examinations by major taxing authorities. The tax benefit
recognized is measured as the largest amount of benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate settlement. De-recognition of a tax benefit previously
recognized results in the Fund recording a tax liability that
reduces net assets. Based on its analysis, the Fund has determined
that it has not incurred any liability for unrecognized tax
benefits as of and for the years ended December 31, 2017, 2016,
2015, and 2014. However, the Fund’s conclusions regarding
this policy may be subject to review and adjustment at a later date
based on factors including, but not limited to, ongoing analysis of
and changes to tax laws, regulations, and interpretations
thereof.
The Fund will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016 and 2015.
The Fund may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Fund’s management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months.
In
the opinion of the Sponsor, the 2017 Tax Cuts and Jobs Act, will
not have a significant impact on the Fund and did not have a
significant impact on the financial statements of the
Fund.
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 shares from the
Fund. The amount of the proceeds required to purchase a Creation
Basket will be equal to the NAV of the shares in the Creation
Basket determined as of 4:00 p.m. New York time on the day the
order to create the basket is properly
received.
Authorized Purchasers may redeem
shares from the Fund only in blocks of 25,000 shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
The Fund receives or pays the
proceeds from shares sold or redeemed within three business days
after the trade date of the purchase or redemption. The amounts due
from Authorized Purchasers are reflected in the Fund’s
statements of assets and liabilities as receivable for shares sold.
Amounts payable to Authorized Purchasers upon redemption are
reflected in the Fund’s statements of assets and liabilities
as payable for shares redeemed.
As outlined in the most recent
Form S-1 filing, 50,000 shares represents two Redemption Baskets
for the Fund and a minimum level of shares.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among
the shareholders of the Fund in proportion to the number of shares
each shareholder holds as of the close of each
month.
Cash, Cash Equivalents, and Restricted
Cash
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Fund reported its cash equivalents in the
statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Fund has these
balances of its cash equivalents on deposit with banks. The Fund
had a balance of $170 and $406,927 in money market funds at
December 31, 2017 and December 31, 2016, respectively; these
balances are included in cash and cash equivalents on the
statements of assets and liabilities. Effective in the second
quarter 2015, the Sponsor invested a portion of the available cash
for the Fund in alternative demand-deposit savings accounts, which
is classified as cash and not as a cash equivalent. The Fund had a
balance of $33,967,053 and $58,526,678 in a demand-deposit savings
account on December 31, 2017 and December 31, 2016. Assets
deposited with financial institutions, at times, exceed federally
insured limits.
Effective in the fourth quarter
2017, the Sponsor invested a portion of the available cash for the
Funds in investment grade commercial paper with durations of 90
days or less, which is classified as a cash equivalent; these
balances are included in cash and cash equivalents on the
statements of assets and liabilities. The Fund had a balance of
$24,964,873 in commercial paper contracts on December 31, 2017. The
above changes resulted in a reduction in the balance held in money
market funds and demand-deposit savings accounts,
respectively.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Funds. Per the
amended agreement between the Sponsor and The Bank of New York
Mellon dated August 14, 2015, certain cash amounts for each
Fund, except in the
case of TAGS, are to remain at The Bank of New York Mellon until
amounts for services and early termination fees are paid.
The amended agreement
allows for payments for such amounts owed to be made through
December 31, 2017. Cash balances that are held in custody at The
Bank of New York Mellon under this amended agreement are reflected
as restricted cash on the financial statements of the Fund. The
following table provides a reconciliation of cash and cash
equivalents, and restricted cash reported within the statements of
assets and liabilities that sum to the total of the same such
amounts shown in the statements of cash
flows.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash and cash
equivalents
|
$
58,932,231
|
$
58,931,911
|
$
24,579,091
|
|
Restricted
cash
|
-
|
-
|
22,610
|
|
Total cash, cash equivalents, and
restricted cash shown in the combined statements of cash
flows
|
$
58,932,231
|
$
58,931,911
|
$
24,601,701
|
Due from/to Broker
The
amount recorded by the Fund for the amount due from and to the
clearing broker includes, but is not limited to, cash held by the
broker, amounts payable to the clearing broker related to open
transactions and payables for commodities futures accounts
liquidating to a
n equity balance on the clearing
broker’s records.
Margin is the minimum amount of
funds that must be deposited by a commodity interest trader with
the trader’s broker to initiate and maintain an open position
in futures contracts. A margin deposit acts to assure the
trader’s performance of the futures contracts purchased or
sold. Futures contracts are customarily bought and sold on initial
margin that represents a very small percentage of the aggregate
purchase or sales price of the contract. Because of such low margin
requirements, price fluctuations occurring in the futures markets
may create profits and losses that, in relation to the amount
invested, are greater than are customary in other forms of
investment or speculation. As discussed below, adverse price
changes in the futures contract may result in margin requirements
that greatly exceed the initial margin. In addition, the amount of
margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is
traded and may be modified from time to time by the exchange during
the term of the contract. Brokerage firms, such as the Fund’s
clearing brokers, carrying accounts for traders in commodity
interest contracts generally require higher amounts of margin as a
matter of policy to further protect themselves. Over-the-counter
trading generally involves the extension of credit between
counterparties, so the counterparties may agree to require the
posting of collateral by one or both parties to address credit
exposure.
When a trader purchases an
option, there is no margin requirement; however, the option premium
must be paid in full. When a trader sells an option, on the other
hand, he or she is required to deposit margin in an amount
determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Fund’s trading,
the Fund (and not its shareholders personally) is subject to margin
calls.
Finally, many major U.S.
exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Calculation of Net Asset Value
The Fund’s NAV is
calculated by:
●
Taking the current market value
of its total assets and
●
Subtracting any
liabilities
The administrator, USBFS,
calculates the NAV of the Fund once each trading day. It calculates
the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. The NAV for a particular trading day is released after
4:15 p.m. New York time.
In determining the value of Wheat
Futures Contracts, the administrator uses the CBOT closing price.
The administrator determines the value of all other Fund
investments as of the earlier of the close of the NYSE or 4:00 p.m.
New York time. The value of over-the-counter wheat interests is
determined based on the value of the commodity or futures contract
underlying such wheat interest, except that a fair value may be
determined if the Sponsor believes that the Fund is subject to
significant credit risk relating to the counterparty to such wheat
interest. 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.
Treasury securities held by the Fund are valued by the
administrator using values received from recognized third-party
vendors and dealer quotes. NAV includes any unrealized profit or
loss on open wheat interests and any other income or expense
accruing to the Fund but unpaid or not received by the
Fund.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
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
Trust and the Funds. In addition, the Sponsor elected not to
outsource services directly attributable to the Trust and the
Funds, such as
certain aspects of
accounting, financial reporting, regulatory compliance and trading
activities. In addition, 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 Fund generally pays for all
brokerage fees, taxes and other expenses, including licensing fees
for the use of intellectual property, registration or other fees
paid to the SEC, FINRA, formerly the National Association of
Securities Dealers, or any other regulatory agency in connection
with the offer and sale of subsequent Shares after its initial
registration and all legal, accounting, printing and other expenses
associated therewith. The Fund also pays its portion of the fees
and expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to
all 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 and redeem 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, which are included in the related line item in the
statements of operations. 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
Funds, which are primarily the cost of performing accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund. For the years ended
December 31, the Fund recognized $893,340 in 2017, $602,637 in
2016, and $382,178 in 2015, respectively, such expenses, which
are primarily recorded in distribution and marketing fees on the
statements of operations; of these amounts $125,219 in 2017,
$87,767 in 2016, and $22,364 in 2015 were waived by the Sponsor.
All asset-based fees and expenses for the Funds are calculated on
the prior day’s net assets.
For the year ended December 31,
2017, there were $323,244 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2016, there were $140,028 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
For the year ended December 31,
2015 there were $130,716 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts
of the revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value - Definition and Hierarchy
In accordance with U.S. GAAP,
fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Fund uses various valuation approaches. In accordance with U.S.
GAAP, a fair value hierarchy for inputs is used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are those that
market participants would use in pricing the asset or liability
based on market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
financial instruments. Since valuations are based on quoted prices
that are readily and regularly available in an active market,
valuation of these financial instruments does not entail a
significant degree of judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial
instrument to financial instrument and is affected
by a wide variety of factors including, the type of financial
instrument, whether the financial instrument is new and
not yet established in the marketplace, and other characteristics
particular to the transaction. To the extent that valuation is
based on models or inputs that are less observable or unobservable
in the market, the determination of fair value requires more
judgment. Those estimated values do not necessarily represent the
amounts that may be ultimately realized due to the occurrence of
future circumstances that cannot be reasonably determined. Because
of the inherent uncertainty of valuation, those estimated values
may be materially higher or lower than the values that would have
been used had a ready market for the financial
instruments existed. Accordingly, the degree of judgment
exercised by the Fund in determining fair value is greatest
for financial instruments categorized in Level 3. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy, within
which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Fund’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Fund uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market
dislocation, the observability of prices and inputs may be reduced
for many financial instruments. This condition could cause a
financial instrument to be reclassified to a lower level
within the fair value hierarchy. When such a situation exists on a
quarter close, the Sponsor will calculate the NAV on a particular
day using the Level 1 valuation, but will later recalculate the NAV
for the impacted Fund based upon the valuation inputs from these
alternative verifiable sources (Level 2 or Level 3) and will report
such NAV in its applicable financial statements and
reports.
The determination is made as of
the settlement of the futures contracts on the last day of trading
for the reporting period. In making the determination of a Level 1
or Level 2 transfer, the Fund considers the average volume of the
specific underlying futures contracts traded on the relevant
exchange for the years being reported.
On December 31, 2017 and 2016, in
the opinion of the Trust and the Fund, the reported value of the
Wheat Futures Contracts traded on the CBOT fairly reflected the
value of the Wheat Futures Contracts held by the Fund, and no
adjustments were necessary. The determination is made as of the
settlement of the futures contracts on the last day of trading for
the reporting period. In making the determination of a Level 1 or
Level 2 transfer, the Fund considers the average volume of the
specific underlying futures contracts traded on the relevant
exchange for the years being reported.
For the years ended December 31,
2017 and 2016, the Fund did not have any significant transfers
between any of the levels of the fair value
hierarchy.
The Fund records its derivative
activities at fair value. Gains and losses from derivative
contracts are included in the statements of operations. Derivative
contracts include futures contracts related to commodity prices.
Futures, which are listed on a national securities exchange, such
as the CBOT and the ICE, or reported on another national market,
are generally categorized in Level 1 of the fair value hierarchy.
OTC derivatives contracts (such as forward and swap contracts)
which may be valued using models, depending on whether significant
inputs are observable or unobservable, are categorized in Levels 2
or 3 of the fair value hierarchy.
Expenses
Expenses are recorded using the
accrual method of accounting.
Net Income (Loss) per Share
Net income (loss) per Share is
the difference between the NAV per unit at the beginning of each
period and at the end of each period. The weighted average number
of Shares outstanding was computed for purposes of disclosing net
income (loss) per weighted average Share. The weighted average
Shares are equal to the number of Shares outstanding at the end of
the period, adjusted proportionately for Shares created or redeemed
based on the amount of time the Shares were outstanding during such
period.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years.
The
Sponsor elected to early adopt ASU 2016-18 for the year ending
December 31, 2017 and the adoption did not have a material impact
on the financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance.
The Sponsor elected to early
adopt ASU 2016-15 for the year ending December 31, 2017 and the
adoption did not have a material impact on the financial statements
and disclosures of the Trust or the Fund.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2014-09 and 2015-14. Therefore, these standards
are not expected to have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Fund record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Fund.
Note 4 – Fair Value Measurements
The Fund’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Fund’s significant
accounting policies in Note 3. The following table presents
information about the Fund’s assets and liabilities measured
at fair value as of December 31, 2017 and December 31,
2016:
December 31,
2017
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Cash
Equivalents
|
$
24,965,043
|
$
-
|
$
-
|
$
24,965,043
|
|
Wheat Futures
contracts
|
604,475
|
-
|
-
|
604,475
|
|
Total
|
$
25,569,518
|
$
-
|
$
-
|
$
25,569,518
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Wheat Futures
contracts
|
$
3,200,525
|
$
-
|
$
-
|
$
3,200,525
|
December 31,
2016
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Cash
Equivalents
|
$
406,927
|
$
-
|
$
-
|
$
406,927
|
|
Liabilities:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Wheat Futures
contracts
|
$
3,921,588
|
$
-
|
$
-
|
$
3,921,588
|
For the years ended December 31,
2017 and 2016, the Fund did not have any transfers between any of
the level of the fair value hierarchy.
See the
Fair Value - Definition and Hierarchy
section in Note 3 above for an explanation of the transfers into
and out of each level of the fair value
hierarchy.
In the normal course of business,
the Fund utilizes derivative contracts in connection with its
proprietary trading activities. Investments in derivative contracts
are subject to additional risks that can result in a loss of all or
part of an investment. The Fund’s derivative activities and
exposure to derivative contracts are classified by the following
primary underlying risks: interest rate, credit, commodity price,
and equity price risks. In addition to its primary underlying
risks, the Fund is also subject to additional counterparty risk due
to inability of its counterparties to meet the terms of their
contracts. For the years ended December 31, 2017 and 2016, the Fund
invested only in commodity futures contracts.
Futures Contracts
The Fund is subject to commodity
price risk in the normal course of pursuing its investment
objectives. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a
specified date.
The purchase and sale of futures
contracts requires margin deposits with a FCM. Subsequent payments
(variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract,
and are recorded as unrealized gains or losses by the Fund. Futures
contracts may reduce the Fund’s exposure to counterparty risk
since futures contracts are exchange-traded; and the
exchange’s clearinghouse, as the counterparty to all
exchange-traded futures, guarantees the futures against
default.
The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from the FCM’s proprietary activities. A customer’s
cash and other equity deposited with an FCM are considered
commingled with all other customer funds subject to the FCM’s
segregation requirements. In the event of an FCM’s
insolvency, recovery may be limited to the Fund’s pro rata
share of segregated customer funds available. It is possible that
the recovery amount could be less than the total of cash and other
equity deposited.
The following table discloses
information about offsetting assets and liabilities presented in
the statements of assets and liabilities to enable users of these
financial statements to evaluate the effect or potential effect of
netting arrangements for recognized assets and liabilities. These
recognized assets and liabilities are presented as defined in FASB
ASU No. 2011-11 “Balance Sheet (Topic 210): Disclosures about
Offsetting Assets and Liabilities” and subsequently clarified
in FASB ASU 2013-01 “Balance Sheet (Topic 210): Clarifying
the Scope of Disclosures about Offsetting Assets and
Liabilities.”
The following table also
identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of December 31, 2017 and
2016.
Offsetting of Financial Assets and Derivative
Assets as of December 31, 2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Assets
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due to
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Wheat Futures
Contracts
|
$
604,475
|
$
-
|
$
604,475
|
$
604,475
|
$
-
|
$
-
|
Offsetting of Financial Liabilities and
Derivative Liabilities as of December 31,
2017
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Wheat Futures
Contracts
|
$
3,200,525
|
$
-
|
$
3,200,525
|
$
604,475
|
$
2,596,050
|
$
-
|
Offsetting of Financial Liabilities and
Derivative Liabilities as of December 31,
2016
|
|
(i)
|
(ii)
|
(iii) =
(i)-(ii)
|
(iv)
|
(v) =
(iii)-(iv)
|
|
|
|
|
|
|
Gross Amount Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
Description
|
Gross Amount of Recognized
Liabilities
|
Gross Amount Offset in the
Statement of Assets and Liabilities
|
Net Amount Presented in the
Statement of Assets and Liabilities
|
Futures Contracts Available for
Offset
|
Collateral, Due from
Broker
|
Net Amount
|
|
Commodity
Price
|
|
|
|
|
|
|
|
Wheat Futures
Contracts
|
$
3,921,588
|
$
-
|
$
3,921,588
|
$
-
|
$
3,921,588
|
$
-
|
The following is a summary of
realized and net change in unrealized gains (losses) of the
derivative instruments utilized by the Fund:
Year ended
December 31, 2017
|
|
|
Net Change in Unrealized
|
|
|
Realized
Loss on
|
Appreciation
on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Wheat futures
contracts
|
$
(5,305,113
)
|
$
1,325,538
|
Year ended
December 31, 2016
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Wheat futures
contracts
|
$
(9,631,400
)
|
$
(1,997,125
)
|
Year ended
December 31, 2015
|
|
|
Net Change in Unrealized
|
|
|
Realized Loss
on
|
Depreciation on
|
|
|
Commodity
Futures Contracts
|
Commodity
Futures Contacts
|
|
Commodity
Price
|
|
|
|
Wheat futures
contracts
|
$
(4,559,863
)
|
$
(2,640,963
)
|
Volume of Derivative Activities
The average notional market value
categorized by primary underlying risk for all futures contracts
held was $66.0 million in 2017, $42.5 million in 2016, and
$26.6 million in 2015.
The following table presents per
share performance data and other supplemental financial data for
the years ended December 31, 2017, 2016 and 2015. This information
has been derived from information presented in the financial
statements and is presented with total expenses gross of expenses
waived by the Sponsor and with total expenses net of expenses
waived by the Sponsor, as appropriate.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Per Share
Operation Performance
|
|
|
|
|
Net asset value at beginning of
period
|
$
6.89
|
$
9.15
|
$
12.72
|
|
Income (loss) from investment
operations:
|
|
|
|
|
Investment
income
|
0.08
|
0.04
|
0.02
|
|
Net realized and unrealized loss
on commodity futures contracts
|
(0.73
)
|
(1.98
)
|
(3.19
)
|
|
Total expenses,
net
|
(0.25
)
|
(0.32
)
|
(0.40
)
|
|
Net decrease in net asset
value
|
(0.90
)
|
(2.26
)
|
(3.57
)
|
|
Net asset value at end of
period
|
$
5.99
|
$
6.89
|
$
9.15
|
|
Total
Return
|
(13.06
)%
|
(24.70
)%
|
(28.07
)%
|
|
Ratios to
Average Net Assets (Annualized)
|
|
|
|
|
Total
expenses
|
4.09
%
|
4.47
%
|
4.40
%
|
|
Total expenses,
net
|
3.60
%
|
4.13
%
|
3.89
%
|
|
Net investment
loss
|
(2.46
)%
|
(3.57
)%
|
(3.67
)%
|
Effective in the third quarter
2015, the financial highlights per share data are calculated
consistent with the methodology used to calculate asset-based fees
and expenses. In prior periods, the financial highlights per share
data are calculated using the average of the daily shares
outstanding for the reporting period, which is inclusive of the
last day of the period. Any change in methodology was not material
to the ratios presented.
The following summarized
quarterly financial information presents the results of operations
for the Teucrium Wheat Fund and other data for three-month periods
ended March 31, June 30, September 30 and December 31, 2017 and
2016.
|
|
Three months
ended
March 31,
2017
|
Three months
ended
June 30,
2017
|
Three months
ended
September 30,
2017
|
Three months
ended
December 31,
2017
|
|
Total Income
(Loss)
|
$
924,694
|
$
10,004,367
|
$
(8,961,538
)
|
$
(5,201,741
)
|
|
Total
Expenses
|
594,271
|
615,698
|
714,365
|
754,279
|
|
Total Expenses,
net
|
594,271
|
615,698
|
608,423
|
536,977
|
|
Net Income
(Loss)
|
330,423
|
9,388,669
|
(9,569,961
)
|
(5,738,718
)
|
|
Net Income (Loss) per
share
|
$
0.04
|
$
0.91
|
$
(1.27
)
|
$
(0.58
)
|
|
|
Three months
ended
March 31,
2016
|
Three months
ended
June 30,
2016
|
Three months
ended
September 30,
2016
|
Three months
ended
December 31,
2016
|
|
Total Loss
|
$
(139,504
)
|
$
(2,771,883
)
|
$
(6,298,223
)
|
$
(2,187,317
)
|
|
Total
Expenses
|
265,750
|
309,403
|
608,506
|
670,923
|
|
Total Expenses,
net
|
265,750
|
309,403
|
558,990
|
580,411
|
|
Net Loss
|
(405,254
)
|
(3,081,286
)
|
(6,857,213
)
|
(2,767,728
)
|
|
Net Loss per
share
|
$
(0.14
)
|
$
(0.79
)
|
$
(1.03
)
|
$
(0.30
)
|
Expenses incurred in organizing
of the Trust and the initial offering of the Shares of the Fund,
including applicable SEC registration fees, were borne directly by
the Sponsor. The Fund is not obligated to reimburse these costs to
the Sponsor.
Management has evaluated the
financial statements for the period-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Fund other than those noted
below:
Effective January 2, 2018, the
Sponsor established a demand deposit account for WEAT at Mascoma
Savings Bank.
Report of
Independent Registered Public Accounting Firm
To the Sponsor and Shareholders
of
Teucrium
Agricultural Fund
Opinion on the financial
statements
We have audited the accompanying
statements of assets and liabilities of Teucrium Agricultural Fund
(the “Fund”), including the schedules of investments,
as of December 31, 2017 and 2016, the related statements of
operations, changes in net assets, and cash flows for each of the
three years in the period ended December 31, 2017, and the related
notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Fund as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
Fund’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and
our report dated March 16, 2018 expressed an unqualified
opinion.
Basis for
opinion
These financial statements are
the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s
financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our
opinion.
/s/ GRANT THORNTON
LLP
We have served as the
Fund’s auditor since 2014.
New York, New
York
March 16,
2018
Report
of Independent Registered Public Accounting
Firm
To the Sponsor and Shareholders
of
Teucrium
Agricultural Fund
Opinion on internal control over
financial reporting
We have audited the internal
control over financial reporting of Teucrium Agricultural Fund (the
“Fund”) as of December 31, 2017, based on criteria
established in the 2013
Internal
Control—Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Fund maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in
the 2013
Internal
Control—Integrated Framework
issued by
COSO.
We also have audited, in
accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the
financial statements of the Fund as of and for the year ended
December 31, 2017, and our report dated March 16, 2018 expressed an
unqualified opinion on those financial
statements.
Basis for
opinion
The Fund’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of
internal control over financial reporting
A fund’s internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A fund’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the fund; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
fund are being made only in accordance with authorizations of
management and directors of the fund; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the fund’s assets that
could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ GRANT THORNTON
LLP
New York, New
York
March 16,
2018
TEUCRIUM
AGRICULTURAL FUND
STATEMENTS OF
ASSETS AND LIABILITIES
|
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
|
Assets
|
|
|
|
Cash
equivalents
|
$
2,474
|
$
2,360
|
|
Interest
receivable
|
2
|
1
|
|
Other assets
|
-
|
508
|
|
Equity in trading
accounts:
|
|
|
|
Investments in
securities, at fair value (cost $1,790,621 and $2,033,919 as of
December 31, 2017 and December 31, 2016,
respectively)
|
1,136,120
|
1,313,554
|
|
Total assets
|
1,138,596
|
1,316,423
|
|
|
|
|
|
Liabilities
|
|
|
|
Other
liabilities
|
957
|
53
|
|
|
|
|
|
Net
assets
|
$
1,137,639
|
$
1,316,370
|
|
|
|
|
|
Shares
outstanding
|
50,002
|
50,002
|
|
|
|
|
|
Net asset
value per share
|
$
22.75
|
$
26.33
|
|
|
|
|
|
Market value
per share
|
$
22.10
|
$
25.68
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
AGRICULTURAL FUND
SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
Percentage
of
|
|
|
Description:
Assets
|
Fair
Value
|
Net
Assets
|
Shares
|
|
|
|
|
|
|
Exchange-traded
funds
|
|
|
|
|
Teucrium Corn
Fund
|
$
287,376
|
25.26
%
|
17,158
|
|
Teucrium Soybean
Fund
|
273,664
|
24.06
|
15,331
|
|
Teucrium Sugar
Fund
|
289,049
|
25.41
|
29,524
|
|
Teucrium Wheat
Fund
|
286,031
|
25.14
|
47,737
|
|
Total exchange-traded funds (cost
$1,790,621)
|
$
1,136,120
|
99.87
%
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$2,474)
|
$
2,474
|
0.22
%
|
2,474
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
AGRICULTURAL FUND
SCHEDULE OF
INVESTMENTS
December 31,
2016
|
Description:
Assets
|
Fair
Value
|
Percentage
of
Net
Assets
|
Shares
|
|
|
|
|
|
|
Exchange-traded
funds
|
|
|
|
|
Teucrium Corn
Fund
|
$
323,979
|
24.61
%
|
17,258
|
|
Teucrium Soybean
Fund
|
315,486
|
23.97
|
16,531
|
|
Teucrium Sugar
Fund
|
342,822
|
26.04
|
26,424
|
|
Teucrium Wheat
Fund
|
331,267
|
25.17
|
48,087
|
|
Total exchange-traded funds (cost
$2,033,919)
|
$
1,313,554
|
99.79
%
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
|
|
|
Money market
funds
|
|
|
|
|
Fidelity Institutional Money
Market Funds - Government Portfolio (cost
$2,360)
|
$
2,360
|
0.18
%
|
2,360
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
AGRICULTURAL FUND
STATEMENTS OF
OPERATIONS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Income
|
|
|
|
|
Realized and unrealized gain
(loss) on trading of securities:
|
|
|
|
|
Realized loss
on securities
|
$
(238,398
)
|
$
(87,644
)
|
$
(266,180
)
|
|
Net change in
unrealized appreciation or depreciation on
securities
|
65,864
|
81,413
|
(50,002
)
|
|
Interest income
(loss)
|
14
|
11
|
(4
)
|
|
Total
loss
|
(172,520
)
|
(6,220
)
|
(316,186
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Professional
fees
|
15,175
|
12,160
|
25,101
|
|
Distribution
and marketing fees
|
14,657
|
15,738
|
16,253
|
|
Custodian fees
and expenses
|
2,090
|
2,566
|
133,965
|
|
Business
permits and licenses fees
|
12,195
|
12,141
|
15,540
|
|
General and
administrative expenses
|
1,739
|
1,873
|
8,732
|
|
Brokerage
commissions
|
-
|
223
|
-
|
|
Other
expenses
|
625
|
558
|
645
|
|
Total
expenses
|
46,481
|
45,259
|
200,236
|
|
|
|
|
|
|
Expenses waived by the
Sponsor
|
(40,270
)
|
(38,459
)
|
(193,063
)
|
|
|
|
|
|
|
Total
expenses, net
|
6,211
|
6,800
|
7,173
|
|
|
|
|
|
|
Net
loss
|
$
(178,731
)
|
$
(13,020
)
|
$
(323,359
)
|
|
|
|
|
|
|
Net loss per
share
|
$
(3.58
)
|
$
(0.26
)
|
$
(6.46
)
|
|
Net loss per weighted average
share
|
$
(3.57
)
|
$
(0.26
)
|
$
(6.47
)
|
|
Weighted average shares
outstanding
|
50,002
|
50,002
|
50,002
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
AGRICULTURAL FUND
STATEMENTS OF
CHANGES IN NET ASSETS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Operations
|
|
|
|
|
Net loss
|
$
(178,731
)
|
$
(13,020
)
|
$
(323,359
)
|
|
Net change in net
assets
|
(178,731
)
|
(13,020
)
|
(323,359
)
|
|
|
|
|
|
|
Net assets,
beginning of period
|
$
1,316,370
|
$
1,329,390
|
$
1,652,749
|
|
|
|
|
|
|
Net assets,
end of period
|
$
1,137,639
|
$
1,316,370
|
$
1,329,390
|
|
|
|
|
|
|
Net asset
value per share at beginning of period
|
$
26.33
|
$
26.59
|
$
33.05
|
|
|
|
|
|
|
Net asset
value per share at end of period
|
$
22.75
|
$
26.33
|
$
26.59
|
|
|
|
|
|
|
Creation of
Shares
|
-
|
-
|
-
|
|
Redemption of
Shares
|
-
|
-
|
-
|
The
accompanying notes are an integral part of these financial
statements.
TEUCRIUM
AGRICULTURAL FUND
STATEMENTS OF
CASH FLOWS
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Cash flows
from operating activities:
|
|
|
|
|
Net
loss
|
$
(178,731
)
|
$
(13,020
)
|
$
(323,359
)
|
|
Adjustments to
reconcile net loss to net cash provided by operating
activities:
|
|
||
|
Net change in
unrealized appreciation or depreciation on
securities
|
(65,864
)
|
(81,413
)
|
50,002
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Net sale of investments in
securities
|
243,298
|
92,460
|
266,498
|
|
Interest
receivable
|
(1
)
|
(1
)
|
-
|
|
Other assets
|
508
|
2,466
|
7,027
|
|
Other
liabilities
|
904
|
53
|
-
|
|
Net cash
provided by operating activities
|
114
|
545
|
168
|
|
|
|
|
|
|
Net change in
cash equivalents
|
114
|
545
|
168
|
|
Cash
equivalents, beginning of period
|
2,360
|
1,815
|
1,647
|
|
Cash
equivalents, end of period
|
$
2,474
|
$
2,360
|
$
1,815
|
The
accompanying notes are an integral part of these financial
statements.
NOTES TO
FINANCIAL STATEMENTS
December 31,
2017
Teucrium Agricultural Fund
(referred to herein as “TAGS” or the
“Fund”) is a series of Teucrium Commodity Trust
(“Trust”), a Delaware statutory trust organized on
September 11, 2009. The Fund operates pursuant to the Trust’s
Second Amended and Restated Declaration of Trust and Trust
Agreement (the “Trust Agreement”). The Fund was formed
on March 29, 2011 and is managed and controlled by Teucrium
Trading, LLC (the “Sponsor”). The Sponsor is a limited
liability company formed in Delaware on July 28, 2009 that is
registered as a commodity pool operator (“CPO”) with
the Commodity Futures Trading Commission (“CFTC”) and
is a member of the National Futures Association
(“NFA”). The Sponsor registered as a Commodity Trading
Advisor ("CTA") with the NFA effective September 8,
2017.
On April 22, 2011, a registration
statement was filed with the Securities and Exchange Commission
(“SEC”). On February 10, 2012, the Fund’s initial
registration of 5,000,000 shares on Form S-1 was declared effective
by the SEC. On March 28, 2012, the Fund listed its shares on the
NYSE Arca under the ticker symbol “TAGS.” On the
business day prior to that, the Fund issued 300,000 shares in
exchange for $15,000,000 at the Fund’s initial NAV of $50 per
share. The Fund also commenced investment operations on March 28,
2012 by purchasing shares of the Underlying Funds. On December 31,
2011, the Fund had two shares outstanding, which were owned by the
Sponsor. On April 30, 2015, a subsequent registration statement for
TAGS was declared effective by the SEC.
The investment objective of the
TAGS is to have the daily changes in percentage terms of the NAV of
its Shares reflect the daily changes in percentage terms of a
weighted average (the “Underlying Fund Average”) of the
NAVs per share of four other commodity pools that are series of the
Trust and are sponsored by the Sponsor: the Teucrium Corn Fund, the
Teucrium Wheat Fund, the Teucrium Soybean Fund and the Teucrium
Sugar Fund (collectively, the “Underlying Funds”). The
Underlying Fund Average will have a weighting of 25% to each
Underlying Fund, and the Fund’s assets will be rebalanced,
generally on a daily basis, to maintain the approximate 25%
allocation to each Underlying Fund:
TAGS
Benchmark
|
Underlying
Fund
|
Weighting
|
|
CORN
|
25%
|
|
SOYB
|
25%
|
|
CANE
|
25%
|
|
WEAT
|
25%
|
The investment objective of each
Underlying Fund is to have the daily changes in percentage terms of
its shares’ NAV reflect the daily changes in percentage terms
of a weighted average of the closing settlement prices for certain
Futures Contracts for the commodity specified in the Underlying
Fund’s name. (This weighted average is referred to herein as
the Underlying Fund’s “Benchmark,” the Futures
Contracts that at any given time make up an Underlying Fund’s
Benchmark are referred to herein as the Underlying Fund’s
“Benchmark Component Futures Contracts,” and the
commodity specified in the Underlying Fund’s name is referred
to herein as its “Specified Commodity.”) Specifically,
the Teucrium Corn Fund’s Benchmark is: (1) the
second-to-expire Futures Contract for corn traded on the Chicago
Board of Trade (“CBOT”), weighted 35%, (2) the
third-to-expire CBOT corn Futures Contract, weighted 30%, and (3)
the CBOT corn Futures Contract expiring in the December following
the expiration month of the third-to-expire contract, weighted 35%.
The Teucrium Wheat Fund’s Benchmark is: (1) the
second-to-expire CBOT wheat Futures Contract, weighted 35%, (2) the
third-to-expire CBOT wheat Futures Contract, weighted 30%, and (3)
the CBOT wheat Futures Contract expiring in the December following
the expiration month of the third-to-expire contract, weighted 35%.
The Teucrium Soybean Fund’s Benchmark is: (1) the
second-to-expire CBOT soybean Futures Contract, weighted 35%, (2)
the third-to-expire CBOT soybean Futures Contract, weighted 30%,
and (3) the CBOT soybean Futures Contract expiring in the November
following the expiration month of the third-to-expire contract,
weighted 35%, except that CBOT soybean Futures Contracts expiring
in August and September will not be part of the Teucrium Soybean
Fund’s Benchmark because of the less liquid market for these
Futures Contracts. The Teucrium Sugar Fund’s Benchmark is:
(1) the second-to-expire Sugar No. 11 Futures Contract traded on
ICE Futures US (“ICE Futures”), weighted 35%, (2) the
third-to-expire ICE Futures Sugar No. 11 Futures Contract, weighted
30%, and (3) the ICE Futures Sugar No. 11 Futures Contract expiring
in the March following the expiration month of the third-to-expire
contract, weighted 35%.
While the Fund expects to
maintain substantially all of its assets in shares of the
Underlying Funds at all times, the Fund may hold some residual
amount of assets in obligations of the United States government
(“Treasury Securities”) or cash equivalents, and/or
merely hold such assets in cash (generally in interest-bearing
accounts). The Underlying Funds invest in Commodity Interests to
the fullest extent possible without being leveraged or unable to
satisfy their expected current or potential margin or collateral
obligations with respect to their investments in Commodity
Interests. After fulfilling such margin and collateral
requirements, the Underlying Funds will invest the remainder of the
proceeds from the sale of baskets in Treasury Securities or cash
equivalents, and/or merely hold such assets in cash. Therefore, the
focus of the Sponsor in managing the Underlying Funds is investing
in Commodity Interests and in Treasury Securities, cash and/or cash
equivalents. The Fund and Underlying Funds will earn interest
income from the Treasury Securities and/or cash equivalents that it
purchases and on the cash it holds through the Fund’s
custodian.
Subject to the terms of the Trust
Agreement, Teucrium Trading, LLC, in its capacity as the Sponsor
(“Sponsor”), may terminate a Fund at any time,
regardless of whether the Fund has incurred losses, including, for
instance, 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. However, no level
of losses will require the Sponsor to terminate a
Fund.
On August 17, 2015 (the
“Conversion Date”), U.S. Bank N.A. replaced The Bank of
New York Mellon as the Custodian for the Fund. The principal
business address for U.S. Bank N.A. is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin
53212. U.S. Bank N.A. is a Wisconsin state chartered bank
subject to regulation by the Board of Governors of the Federal
Reserve System and the Wisconsin State Banking Department.
The principal address for U.S. Bancorp Fund
Services, LLC (“USBFS”), is 615 E.
Michigan Street, Milwaukee, WI, 53202. In addition, effective on
the Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset-based
fee, subject to a minimum annual fee.
Given this conversion, the
Sponsor has, for the year-ended December 31, 2015, reflected an
expense, before and after fees waived by the Sponsor, for fees
associated with Custodian, Fund Administration and Transfer Agent
services (“Custodian Fees”) that have or will be paid
to the Bank of New York Mellon by a Fund or by the Sponsor on
behalf of a Fund.
For custody services, the Funds
pay to U.S. Bank N.A. 0.0075% of average gross assets up to $1
billion, and .0050% of average gross assets over $1 billion,
annually, plus certain per-transaction charges. For Transfer
Agency, Fund Accounting and Fund Administration services, which are
based on the total assets for all the Funds in the Trust, the Funds
will pay to USBFS 0.06% of average gross assets on the first $250
million, 0.05% on the next $250 million, 0.04% on the next $500
million and 0.03% on the balance over $1 billion annually. A
combined minimum annual fee of up to $64,500 for custody, transfer
agency, accounting and administrative services is assessed per
Fund. For the years ended December 31, 2015, such expenses include
both the fees for the Bank of New York Mellon and U.S. Bank. For
the years ended December 31, the Fund recognized $2,090 in 2017,
$2,566 in 2016, and $133,965 in 2015, respectively, for these
services, which is recorded in custodian fees and expenses on the
statements of operations; of this expense $1,796 in 2017, $2,175 in
2016, and $133,965 in 2015 was waived by the
Sponsor.
The Sponsor and the Trust employ
Foreside Fund Services, LLC (“Foreside” or the
“Distributor”) as the Distributor for the Funds. 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 Financial Industry Regulatory Authority
(“FINRA”) rules. For its services as the Distributor,
Foreside receives a fee of 0.01% of the Fund’s average daily
net assets and an aggregate annual fee of $100,000 for all Teucrium
Funds, along with certain expense reimbursements. For its services
under the SASA, Foreside receives a fee of $5,000 per registered
representative and $1,000 per registered location. For the years
ended December 31, the Fund recognized $1,032 in 2017, $1,119 in
2016, and $1,240 in 2015, respectively, for these services, which
is recorded in distribution and marketing fees on the statements of
operations; of this expense $682 in 2017, $931 in 2016, and
$1,240 in 2015 was waived by the Sponsor.
For the year ended December 31,
2014, Newedge USA, LLC (“Newedge USA”) served as the
Funds’ futures commission merchant (“FCM”) and
primary clearing broker to execute and clear the Funds’
futures transactions and provide other brokerage-related
services. In 2014, the Funds introduced the use of Jefferies
LLC (“Jefferies”), for the execution and clearing of
the Funds’ futures and options, if any, on futures
transactions. On January 2, 2015, Newedge USA, LLC (“Newedge
USA”) merged with and into SG Americas Securities, LLC
(“SG”), with the latter as the surviving entity. On
February 6, 2015 Jefferies LLC (“Jefferies”) became the
Funds’ FCM and primary clearing broker. All futures contracts
held by SG were transferred to Jefferies on that date. As of
February 23, 2015 all residual cash balances held at SG had been
transferred to Jefferies and the balance in all SG accounts was
$0. Effective June 3, 2015, ED&F Man Capital Markets Inc.
(“ED&F Man”) replaced Jefferies as the Underlying
Funds’ FCM and the clearing broker to execute and clear the
Underlying Fund’s futures and provide other brokerage-related
services. As of June 4, 2015 all futures contracts and residual
cash balances of the Underlying Funds held at Jefferies had been
transferred to ED&F Man and the balance in all Jefferies
accounts was $0.
Currently, ED&F
Man serves as the Underlying Funds’ clearing broker to
execute and clear the Underlying Funds’ futures and provide
other brokerage-related services. ED&F Man is registered as a
FCM with the U.S. CFTC and is a member of
the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a
clearing member of ICE Futures U.S., Inc., Chicago Board of Trade,
Chicago Mercantile Exchange, New York Mercantile Exchange, and all
other major United States commodity exchanges. For Corn,
Soybean, Sugar and Wheat Futures Contracts ED&F Man,
Jefferies and SG were paid $8.00 per round turn in
2015. Effective January 1, 2016, ED&F Man, increased the
per round-term charge for futures contracts commission to $9.00.
The Bank of New York Mellon serves as the broker for the Fund. For
the years ended December 31, the Fund recognized $0 in 2017, $223
in 2016, and $0 in 2015, respectively, for these services, which is
recorded in brokerage commissions on the statements of operations
and was paid for by the Fund.
The sole Trustee of the Trust is
Wilmington Trust Company, a Delaware banking corporation. 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. For its services, the Trustee receives an
annual fee of $3,300. For the years ended December 31, the
Fund recognized $16 in 2017, $21 in 2016, and $24 in 2015,
respectively, for these services, which is recorded in business
permits and licenses fees on the statements of operations; of this
expense $0 in 2017, $21 in 2016, and $24 in 2015 was waived by the
Sponsor.
Basis of Presentation
The accompanying financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) as detailed in the Financial Accounting
Standards Board’s Accounting Standards
Codification.
Revenue Recognition
Investment transactions are
accounted for on a trade-date basis. All such transactions are
recorded on the identified cost basis and marked to market daily.
Unrealized appreciation or depreciation on investments are
reflected in the statements of assets and liabilities as the
difference between the original amount and the fair market value as
of the last business day of the year or as of the last date of the
financial statements. Changes in the appreciation or depreciation
between periods are reflected in the statements of
operations.
Brokerage Commissions
Brokerage commissions are accrued
on the trade date and on a full-turn basis.
Income Taxes
For United States federal income
tax purposes, the Fund will be treated as a partnership. The Fund
does not record a provision for income taxes because the
shareholders report their share of the Fund’s income or loss
on their income tax returns. The financial statements reflect the
Fund’s transactions without adjustment, if any, required for
income tax purposes.
The Fund is required to determine
whether a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. The Fund files an income tax
return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. For all
tax years 2014 to 2017, the Fund remains subject to income tax
examinations by major taxing authorities. The tax benefit
recognized is measured as the largest amount of benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate settlement. De-recognition of a tax benefit previously
recognized results in the Fund recording a tax liability that
reduces net assets. This policy has been applied to all existing
tax positions upon the Fund’s initial adoption. Based on its
analysis, the Fund has determined that it has not incurred any
liability for unrecognized tax benefits as of and for the years
ended December 31, 2017, 2016, 2015, and 2014. However, the
Fund’s conclusions regarding this policy may be subject to
review and adjustment at a later date based on factors including,
but not limited to, ongoing analysis of and changes to tax laws,
regulations, and interpretations thereof.
The Fund will recognize interest
accrued related to any unrecognized tax benefits and penalties in
income tax fees payable, if assessed. No interest expense or
penalties have been recognized as of and for the years ended
December 31, 2017, 2016 and 2015.
The Fund may be subject to
potential examination by U.S. federal, U.S. state, or foreign
jurisdictional authorities in the area of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Fund’s management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months.
In
the opinion of the Sponsor, the 2017 Tax Cuts and Jobs Act, will
not have a significant impact on the Fund and did not have a
significant impact on the financial statements of the
Fund.
F-119
Creations and Redemptions
Authorized Purchasers may
purchase Creation Baskets consisting of 25,000 shares from the
Fund. The amount of the proceeds required to purchase a Creation
Basket will be equal to the NAV of the shares in the Creation
Basket determined as of 4:00 p.m. New York time on the day the
order to create the basket is properly
received.
Authorized Purchasers may redeem
shares from the Fund only in blocks of 25,000 shares called
“Redemption Baskets.” The amount of the redemption
proceeds for a Redemption Basket will be equal to the NAV of the
shares in the Redemption Basket determined as of 4:00 p.m. New York
time on the day the order to redeem the basket is properly
received.
The Fund will receive the
proceeds from shares sold or will pay for redeemed shares within
three business days after the trade date of the purchase or
redemption, respectively. The amounts due from Authorized
Purchasers will be reflected in the Fund’s statements of
assets and liabilities as receivable for shares sold. Amounts
payable to Authorized Purchasers upon redemption will be reflected
in the Fund’s statements of assets and liabilities as payable
for shares redeemed.
As outlined in the most recent
Form S-1 filing, 50,000 shares represents two Redemption Baskets
for the Fund and a minimum level of shares.
Effective August 2, 2012, the
Fund was at 50,002 shares outstanding which represents a
minimum number of shares and there can be no further redemptions
until additional shares are created.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among
the shareholders of the Fund in proportion to the number of shares
each shareholder holds as of the close of each
month.
Cash Equivalents
Cash equivalents are
highly-liquid investments with maturity dates of 90 days or less
when acquired. The Fund reported its cash equivalents in the
statements of assets and liabilities at market value, or at
carrying amounts that approximate fair value, because of their
highly-liquid nature and short-term maturities. The Fund has these
balances of its cash equivalents on deposit with banks. Assets
deposited with the bank may, at times, exceed federally insured
limits. TAGS had a balance of $2,474 and $2,360 in money market
funds at December 31, 2017 and December 31, 2016, respectively;
these balances are included in cash equivalents on the statements
of assets and liabilities.
Payable/Receivable for Securities
Purchased/Sold
Due from/to broker for
investments in securities are securities transactions pending
settlement. The Fund is subject to credit risk to the extent any
broker with whom it conducts business is unable to fulfill
contractual obligations on its behalf. The management of the Funds
monitors the financial condition of such brokers and does not
anticipate any losses from these
counterparties.
Calculation of Net Asset Value
The Fund’s NAV is
calculated by:
●
Taking the current market value
of its total assets and
●
Subtracting any
liabilities
The administrator, USBFS, will
calculate the NAV of the Fund once each trading day. It will
calculate the NAV as of the earlier of the close of the New York
Stock Exchange or 4:00 p.m. New York time. The NAV for a particular
trading day will be released after 4:15 p.m. New York
time.
For purposes of the determining
the Fund’s NAV, the Fund’s investments in the
Underlying Funds will be valued based on the Underlying
Funds’ NAVs. In turn, in determining the value of the Futures
Contracts held by the Underlying Funds, the Administrator will use
the closing price on the exchange on which they are traded. The
Administrator will determine the value of all other Fund and
Underlying Fund investments as of the earlier of the close of the
New York Stock Exchange or 4:00 p.m. New York time, in accordance
with the current Services Agreement between the Administrator and
the Trust. The value of over-the-counter Commodity Interests will
be determined based on the value of the commodity or Futures
Contract underlying such Commodity Interest, except that a fair
value may be determined if the Sponsor believes that the Underlying
Fund is subject to significant credit risk relating to the
counterparty to such Commodity Interest. For purposes of financial
statements and reports, the Sponsor will recalculate the NAV of an
Underlying Fund where necessary to reflect the “fair
value” of a Futures Contract held by an Underlying Fund when
a Futures Contract held by an Underlying Fund closes at its price
fluctuation limit for the day. Treasury Securities held by the Fund
or Underlying Funds will be valued by the Administrator using
values received from recognized third-party vendors (such as
Reuters) and dealer quotes. NAV will include any unrealized profit
or loss on open Commodity Interests and any other credit or debit
accruing to the Fund but unpaid or not received by the
Fund.
Sponsor Fee, Allocation of Expenses and Related Party
Transactions
The Fund pays no direct
management fees to the Sponsor. The Underlying Funds are
contractually obligated to pay a monthly management fee to the
Sponsor, based on average daily net assets, at a rate equal to
1.00% per annum; these fees are recognized in the statements
contained in this Form 10-K for each of the Underlying Funds. The
Fund pays for all brokerage fees, taxes and other expenses,
including licensing fees for the use of intellectual property,
registration or other fees paid to the SEC, FINRA, formerly the
National Association of Securities Dealers, or any other regulatory
agency in connection with the offer and sale of subsequent Shares
after its initial registration and all legal, accounting, printing
and other expenses associated therewith. The Fund also pays its
portion of the fees and expenses for services directly attributable
to the Fund such as certain aspects of accounting, financial
reporting, regulatory compliance and trading activities, which the
Sponsor elected not to outsource. The Sponsor may, at its
discretion waive the payment by the Fund of certain expenses. This
election is subject to change by the Sponsor, at its discretion.
Certain aggregate expenses common to all 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 and redeem 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, which are included in the related line item in the
statements of operations. 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
Funds, which are primarily the cost of performing accounting and
financial reporting, regulatory compliance, and trading activities
that are directly attributable to the Fund. The Sponsor has the
ability to elect to pay certain expenses on behalf of the Fund.
This election is subject to change by the Sponsor, at its
discretion. For the years ended December 31, the Fund recognized
$12,512 in 2017, $14,004 in 2016, and $13,329 in 2015,
respectively, such expenses, which are primarily recorded in
distribution and marketing fees on the statements of operations; of
these amounts $9,438 in 2017, $11,975 in 2016, and $13,329 in 2015
were waived by the Sponsor. All asset-based fees and expenses for
the Funds are calculated on the prior day’s net assets. The
Sponsor can elect to adjust the daily expense accruals at its
discretion.
For the year ended December 31,
2017, there were $40,270 of expenses that were identified on the
statements of operations of the Fund as expenses that were waived
by the Sponsor. The Sponsor has determined that there would be no
recovery sought for these amounts in any future
period.
For the year ended December 31,
2016, there were $38,459 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
For the year ended December 31,
2015, there were $193,063 of expenses that were identified on
the statements of operations of the Fund as expenses that were
waived by the Sponsor. The Sponsor has determined that there would
be no recovery sought for these amounts in any future
period.
Expenses
Expenses are recorded using the
accrual method of accounting.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of the revenue and expenses during the reporting
period. Actual results could differ from those
estimates.
New Accounting Pronouncements
The Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2017-13, “Revenue Recognition
(Topic 605), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July
20,2017 EITF Meeting and Rescission of Prior SEC Staff
Announcements and Observer Comments”. The amendment amends
the early adoption date option for certain companies related to
adoption of ASU No. 2014-09 and ASU No. 2016-02. The SEC staff
stated the SEC would not object to a public business entity that
otherwise would not meet the definition of a public business entity
except for a requirement to include or the inclusion of its
financial statements or financial information in another
entity’s filing with the SEC adopting ASC Topic 842 for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. This
amendment is not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-12,
“Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities”. These amendments
refine and expand hedge accounting for both financial (e.g.,
interest rate) and commodity risks. Its provisions create more
transparency around how economic results are presented, both on the
face of the financial statements and in the footnotes. It also
makes certain targeted improvements to simplify the application of
hedge accounting guidance. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and
Investments – Equity Method and Joint Ventures (Topic
323)”. These amendments require disclosure of the impact that
recently issued accounting standards will have on the financial
statements of a registrant when such standards are adopted in a
future period. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition
of a Business”. The amendments are intended to help companies
and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The amendments are effective for public companies for
annual periods beginning after December 15, 2017, including interim
periods within those periods. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Fund.
The FASB issued ASU 2016-19,
“Technical Corrections and Improvements”. The
amendments in this update represent changes to clarify, correct
errors, or make minor improvements to the Accounting Standards
Codification. The amendments make the Accounting Standards
Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. The
amendments are effective for fiscal years, and interim periods with
those fiscal years, for all entities beginning after December 15,
2016. The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”. The amendments
in this update require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years.
The
Sponsor elected to early adopt ASU 2016-18 for the year ending
December 31, 2017 and the adoption did not have a material impact
on the financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-17,
“Consolidation (Topic 810): Interests Held through Related
Parties That are under Common Control”. The amendments in
this update alters how a decision maker needs to consider indirect
interests in a variable interest entity (VIE) held through an
entity under common control. The new guidance amends ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis, issued in February 2015. The amendments are effective for
fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments
provide cash flow statement classification guidance.
The Sponsor elected to early
adopt ASU 2016-15 for the year ending December 31, 2017 and the
adoption did not have a material impact on the financial statements
and disclosures of the Trust or the Fund.
The FASB issued ASU 2014-09 in
May 2014, “Revenue from Contracts with Customers (Topic
606),” which replaces the revenue recognition requirements of
“Revenue Recognition (Topic 605).” This ASU is based on
the principle that revenue is recognized to depict the transfer of
goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This ASU provides new and
more detailed guidance on specific topics and expands and improves
disclosures about revenue. In August 2015, the FASB issued ASU
2015-14 which defers the effective date of ASU 2014-09 by one year
to fiscal years beginning after December 15, 2017. ASU 2015-14 also
permits early adoption of ASU 2014-09, but not before the original
effective date, which was for fiscal years beginning after December
15, 2016. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts held by the
underlying Funds and that could be held by the Fund, and from
interest income under Subtopic 825-10. Revenue from financial
instruments which are valued under Subtopic 825 will not be subject
to the application of ASU 2014-09 and 2015-14. Therefore, these
standards are not expected to have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting”. The
amendments make targeted improvements to clarify the principal
versus agent assessment and are intended to make the guidance more
operable and lead to more consistent application. The Trust and the
Fund record income or loss from the recognition and measurement of
futures contracts and from interest income under Subtopic 825-10.
Revenue from financial instruments which are valued under Subtopic
825 will not be subject to the application of ASU 2016-11.
Therefore, this standard did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2016-02,
“Leases (Topic 842).” The amendments in this update
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
amendments in this update are effective for fiscal years beginning
after December 15, 2018. This standard is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Fund.
The FASB issued ASU 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial
Liabilities.” The amendments in this update are intended to
improve the recognitions measurement and disclosure of financial
instruments. The amendments to this update are effective for fiscal
years beginning after December 15, 2017, and interim periods within
those fiscal years. These amendments are required to be applied
prospectively. The adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-10,
“Technical Corrections and Improvements.” The
amendments in this update represent changes to clarify the
Codification, correct unintended application of guidance, or make
minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments
are effective for fiscal years beginning after December 15, 2015.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-07,
“Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The ASU amends ASC 820 to create
a practical expedient to measure the fair value of investments in
certain entities that do not have a quoted market price but
calculate net asset value per share or its equivalent. In addition,
the amendments to ASC 820 provide guidance on classifying
investments that are measured using the practical expedient in the
fair value hierarchy and require specific disclosures for eligible
investments, regardless of whether the practical expedient has been
applied. The amendments in this Update are effective for fiscal
years beginning after December 15, 2015, and interim periods within
those fiscal years. These amendments are required to be applied
retrospectively to all periods presented. The adoption did not have
a material impact on the financial statements and disclosures of
the Trust or the Fund.
The FASB issued ASU 2015-06,
“Earnings per Share (Topic 260): Effects on Historical
Earnings per Unit of Master Limited Partnership Dropdown
Transactions.” The amendments specify how earnings (losses)
of a transferred business before the date of a dropdown transaction
should be allocated to the various interest holders in a master
limited partnership for purposes of calculating earning per unit
under the two-class method. The amendments to this update are
effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The amendments are
required to be applied retrospectively for all periods presented.
The adoption did not have a material impact on the financial
statements and disclosures of the Trust or the
Fund.
The FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation
Analysis.” The amendments are intended to improve targeted
areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization
structures. The amendments to this update are effective for periods
beginning after December 15, 2015. These amendments are required to
be applied retrospectively for all periods presented. The adoption
did not have a material impact on the financial statements and
disclosures of the Trust or the Fund.
Fair Value - Definition and Hierarchy
In accordance with GAAP, fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability (i.e., the “exit
price”) in an orderly transaction between market participants
at the measurement date.
In determining fair value, the
Fund uses various valuation approaches. In accordance with GAAP, a
fair value hierarchy for inputs is used in measuring fair value
that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are those that market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund’s assumptions about the
inputs market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three
levels based on the inputs as follows:
Level 1
- Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
financial instruments of the Underlying Funds and securities of the
Fund, together the “financial instruments”. Since
valuations are based on quoted prices that are readily and
regularly available in an active market, valuation of these
financial instruments does not entail a significant degree of
judgment.
Level 2
- Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or
indirectly.
Level 3
- Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of valuation
techniques and observable inputs can vary from financial instrument
to financial instrument and is affected by a wide variety of
factors including, the type of financial instrument, whether the
financial instrument is new and not yet established in the
marketplace, and other characteristics particular to the
transaction. To the extent that valuation is based on models or
inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Those estimated
values do not necessarily represent the amounts that may be
ultimately realized due to the occurrence of future circumstances
that cannot be reasonably determined. Because of the inherent
uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a
ready market for the financial instruments existed. Accordingly,
the degree of judgment exercised by the Fund in determining fair
value is greatest for financial instruments categorized in Level 3.
In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy,
within which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a market-based
measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market
assumptions are not readily available, the Fund’s own
assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. The
Fund uses prices and inputs that are current as of the measurement
date, including periods of market dislocation. In periods of market
dislocation, the observability of prices and inputs may be reduced
for many financial instruments. This condition could cause a
financial instrument to be reclassified to a lower level within the
fair value hierarchy. When such a situation exists on a quarter
close, the Sponsor will calculate the Net Asset Value
(“NAV”) on a particular day using the Level 1
valuation, but will later recalculate the NAV for the impacted Fund
based upon the valuation inputs from these alternative verifiable
sources (Level 2 or Level 3) and will report such NAV in its
applicable financial statements and reports.
The determination is made as of
the settlement of the underlying futures contracts on the last day
of trading for the reporting period. In making the determination of
a Level 1 or Level 2 transfer, the Fund considers the average
volume of the underlying futures contracts traded on the relevant
exchange for the years being reported.
Investments in the financial
instruments of the Underlying Funds are freely tradable and
listed on the NYSE Arca. These investments are valued at the NAV of
the Underlying Fund as of the valuation date as calculated by the
administrator based on the exchange-quoted prices of the commodity
futures contracts held by the Underlying Funds.
Net Income (Loss) per Share
Net income (loss) per Share is
the difference between the NAV per unit at the beginning of each
period and at the end of each period. The weighted average number
of Shares outstanding was computed for purposes of disclosing net
income (loss) per weighted average Share. The weighted average
Shares are equal to the number of Shares outstanding at the end of
the period, adjusted proportionately for Shares created or redeemed
based on the amount of time the Shares were outstanding during such
period.
The Fund’s assets and
liabilities recorded at fair value have been categorized based upon
a fair value hierarchy as described in the Fund’s significant
accounting policies in Note 3. The following table presents
information about the Fund’s assets and liabilities measured
at fair value as of December 31, 2017 and December 31,
2016:
December 31,
2017
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2017
|
|
Exchange Traded
Funds
|
$
1,136,120
|
$
-
|
$
-
|
$
1,136,120
|
|
Cash
Equivalents
|
2,474
|
-
|
-
|
2,474
|
|
Total
|
$
1,138,594
|
$
-
|
$
-
|
$
1,138,594
|
December 31,
2016
|
Assets:
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
December 31,
2016
|
|
Exchange Traded
Funds
|
$
1,313,554
|
$
-
|
$
-
|
$
1,313,554
|
|
Cash
Equivalents
|
2,360
|
-
|
-
|
2,360
|
|
Total
|
$
1,315,914
|
$
-
|
$
-
|
$
1,315,914
|
For the years ended December 31,
2017 and 2016, the Fund did not have any transfers between any of
the level of the fair value hierarchy.
See the
Fair Value - Definition and Hierarchy
section in Note 3 above for an explanation of the transfers into
and out of each level of the fair value
hierarchy.
The following table presents per
share performance data and other supplemental financial data for
the years ended December 31, 2017, 2016 and 2015. This information
has been derived from information presented in the financial
statements and is presented with total expenses gross of expenses
waived by the Sponsor and with total expenses net of expenses
waived by the Sponsor, as appropriate.
|
|
Year
ended
|
Year
ended
|
Year
ended
|
|
|
December 31,
2017
|
December 31,
2016
|
December 31,
2015
|
|
Per Share
Operation Performance
|
|
|
|
|
Net asset value at beginning of
period
|
$
26.33
|
$
26.59
|
$
33.05
|
|
Income (loss) from investment
operations:
|
|
|
|
|
Net realized and unrealized loss
on investment transactions
|
(3.46
)
|
(0.12
)
|
(6.32
)
|
|
Total expenses,
net
|
(0.12
)
|
(0.14
)
|
(0.14
)
|
|
Net decrease in net asset
value
|
(3.58
)
|
(0.26
)
|
(6.46
)
|
|
Net asset value at end of
period
|
$
22.75
|
$
26.33
|
$
26.59
|
|
Total
Return
|
(13.60
)%
|
(0.98
)%
|
(19.55
)%
|
|
Ratios to
Average Net Assets (Annualized)
|
|
|
|
|
Total
expenses
|
3.74
%
|
3.33
%
|
13.97
%
|
|
Total expenses,
net
|
0.50
%
|
0.50
%
|
0.50
%
|
|
Net investment
loss
|
(0.50
)%
|
(0.50
)%
|
(0.50
)%
|
Effective in the third quarter
2015, the financial highlights per share data are calculated
consistent with the methodology used to calculate asset-based fees
and expenses. In prior periods, the financial highlights per share
data are calculated using the average of the daily shares
outstanding for the reporting period, which is inclusive of the
last day of the period. Any change in methodology was not material
to the ratios presented.
The following summarized
quarterly financial information presents the results of operations
for the Teucrium Agricultural Fund and other data for three-month
periods ended March 31, June 30, September 30 and December 31, 2017
and 2016.
|
|
Three months
ended
March 31,
2017
|
Three months
ended
June 30,
2017
|
Three months
ended
September 30,
2017
|
Three months
ended
December 31,
2017
|
|
Total
Loss
|
$
(39,152
)
|
$
(19,522
)
|
$
(76,451
)
|
$
(37,395
)
|
|
Total
Expenses
|
23,355
|
7,036
|
7,525
|
8,565
|
|
Total Expenses,
net
|
1,672
|
1,547
|
1,538
|
1,454
|
|
Net Loss
|
(40,824
)
|
(21,069
)
|
(77,989
)
|
(38,849
)
|
|
Net Loss per
share
|
$
(0.82
)
|
$
(0.42
)
|
$
(1.56
)
|
$
(0.78
)
|
|
|
Three months
ended
March 31,
2016
|
Three months
ended
June 30,
2016
|
Three months
ended
September 30,
2016
|
Three months
ended
December 31,
2016
|
|
Total Income
(Loss)
|
$
9,249
|
$
104,911
|
$
(78,441
)
|
$
(41,940
)
|
|
Total
Expenses
|
21,991
|
6,573
|
11,603
|
5,092
|
|
Total Expenses,
net
|
1,634
|
1,760
|
1,710
|
1,696
|
|
Net Income
(Loss)
|
7,615
|
103,151
|
(80,151
)
|
(43,636
)
|
|
Net Income (Loss) per
share
|
$
0.15
|
$
2.06
|
$
(1.60
)
|
$
(0.87
)
|
Expenses incurred in organizing
of the Trust and the initial offering of the Shares of the Fund,
including applicable SEC registration fees, were borne directly by
the Sponsor. The Fund is not obligated to reimburse these costs to
the Sponsor.
Management has evaluated the
financial statements for the year-ended December 31, 2017 for
subsequent events through the date of this filing and noted no
material events requiring either recognition through the date of
the filing or disclosure herein for the Fund.
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized
.
|
Teucrium
Commodity Trust (Registrant)
|
|
|
|
|
|
|
|
By:
|
Teucrium Trading,
LLC
|
|
|
|
its
Sponsor
|
|
|
|
|
|
|
By:
|
/s/ Dale
Riker
|
|
|
Name:
|
Dale
Riker
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
|
|
By:
|
/s/ Barbara
Riker
|
|
|
Name:
|
Barbara
Riker
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Date: March
16, 2018
|
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchase Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RisksItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors and Executive Officers Of The RegistrantItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statements SchedulesNote 1 Organization and OperationNote 2 Principal Contracts and AgreementsNote 3 Summary Of Significant Accounting PoliciesNote 4 Fair Value MeasurementsNote 5 Derivative Instruments and Hedging ActivitiesNote 6 - Organizational and Offering CostsNote 7 Detail Of The Net Assets and Shares Outstanding Of The Funds That Are A Series Of The TrustNote 8 Subsequent EventsNote 5 - Derivative Instruments and Hedging ActivitiesNote 6 - Financial HighlightsNote 7 Quarterly Financial Data (unaudited)Note 8 - Organizational and Offering CostsNote 9 Subsequent EventsNote 6 Financial HighlightsNote 8 Organizational and Offering CostsNote 1 Organization and BusinessNote 5 - Financial HighlightsNote 6 Quarterly Financial Data (unaudited)Note 7 Organizational and Offering Costs