UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2012. |
OR
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission File Number: 001-34765
Teucrium Commodity Trust
(Exact name of registrant as specified in its charter)
| Delaware | 61-1604335 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
232 Hidden Lake Road, Building A
Brattleboro, Vermont 05301
(Address of principal executive offices) (Zip code)
(802) 257-1617
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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.
x 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).
x Yes ¨ No
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.
| Large accelerated filer ¨ | Accelerated filer x | |
| Non-accelerated filer ¨ | Smaller reporting company ¨ | |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
TEUCRIUM COMMODITY TRUST
Table of Contents
| Page | ||
| Part I. FINANCIAL INFORMATION | ||
| Item 1. Financial Statements. | 3 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 109 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 125 | |
| Item 4. Controls and Procedures. | 126 | |
| Part II. OTHER INFORMATION | ||
| Item 1. Legal Proceedings. | 127 | |
| Item 1A. Risk Factors. | 127 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 144 | |
| Item 3. Defaults Upon Senior Securities. | 147 | |
| Item 4. Mine Safety Disclosures. | 147 | |
| Item 5. Other Information. | 147 | |
| Item 6. Exhibits. | 147 |
| 2 |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Index to Financial Statements
| Documents | Page | |
| TEUCRIUM COMMODITY TRUST | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 5 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 6 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 and 2011 | 8 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 and 2011 | 9 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and 2011 | 10 | |
| Notes to Financial Statements | 11 | |
| TEUCRIUM CORN FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 19 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 20 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 and 2011 | 22 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 and 2011 | 23 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and 2011 | 24 | |
| Notes to Financial Statements | 25 | |
| TEUCRIUM NATURAL GAS FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 33 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 34 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 and from commencement of operations (February 1, 2011) through March 31, 2011 | 36 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 and from commencement of operations (February 1, 2011) through March 31, 2011 | 37 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and from commencement of operations (February 1, 2011) through March 31, 2011 | 38 | |
| Notes to Financial Statements | 39 |
| 3 |
| TEUCRIUM WTI CRUDE OIL FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 47 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 48 | |
| Statements of Operations for the three months ended March 31, 2012 and from commencement of operations (February 23, 2011) through March 31, 2011 | 50 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 and from commencement of operations (February 23, 2011) through March 31, 2011 | 51 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and from commencement of operations (February 23, 2011) through March 31, 2011 | 52 | |
| Notes to Financial Statements | 53 | |
| TEUCRIUM SOYBEAN FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 60 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 61 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 | 63 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 | 64 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 | 65 | |
| Notes to Financial Statements | 66 | |
| TEUCRIUM SUGAR FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 73 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 74 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 | 76 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 | 77 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 | 78 | |
| Notes to Financial Statements | 79 | |
| TEUCRIUM WHEAT FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 86 | |
| Schedule of Investments at March 31, 2012 (Unaudited) and December 31, 2011 | 87 | |
| Statements of Operations (Unaudited) for the three months ended March 31, 2012 | 89 | |
| Statements of Changes in Net Assets (Unaudited) for the three months ended March 31, 2012 | 90 | |
| Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 | 91 | |
| Notes to Financial Statements | 92 | |
| TEUCRIUM AGRICULTURAL FUND | ||
| Statements of Assets and Liabilities at March 31, 2012 (Unaudited) and December 31, 2011 | 99 | |
| Schedule of Investments (Unaudited) at March 31, 2012 | 100 | |
| Statements of Operations (Unaudited) from commencement of operations (March 28, 2012) through March 31, 2012 | 101 | |
| Statements of Changes in Net Assets (Unaudited) from commencement of operations (March 28, 2012) through March 31, 2012 | 102 | |
| Statements of Cash Flows (Unaudited) from commencement of operations (March 28, 2012) through March 31, 2012 | 103 | |
| Notes to Financial Statements | 104 |
| 4 |
TEUCRIUM COMMODITY TRUST
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 78,144,787 | $ | 80,567,901 | ||||
| Commodity futures contracts | 1,803,220 | 2,125,714 | ||||||
| Collateral, due from broker | 12,481,372 | 8,747,339 | ||||||
| Interest receivable | 2,311 | 2,609 | ||||||
| Other assets | 566,896 | 404,199 | ||||||
| Total assets | 92,998,586 | 91,847,762 | ||||||
| Liabilities | ||||||||
| Payable for shares redeemed | 1,195,557 | 4,147,011 | ||||||
| Commodity futures contracts | 3,940,212 | 3,758,460 | ||||||
| Collateral, due to broker | 124,584 | - | ||||||
| Management fee payable to Sponsor | 66,942 | 74,629 | ||||||
| Due to broker for securities transactions | 47,308 | - | ||||||
| Other liabilities | 108,858 | 44,094 | ||||||
| Total liabilities | 5,483,461 | 8,024,194 | ||||||
| Net assets before cost of shares of the Underlying Funds owned by Teucrium Agricultural Fund | 102,610,225 | 83,823,568 | ||||||
| Less: cost of shares of the Underlying Funds owned by Teucrium Agricultural Fund | (14,891,933 | ) | - | |||||
| Net assets | $ | 87,515,125 | $ | 83,823,568 | ||||
The accompanying notes are an integral part of these financial statements.
| 5 |
TEUCRIUM COMMODITY TRUST
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | Principal | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| United States Treasury obligations | ||||||||||||
| U.S. Treasury bills, 0.020%, due April 19, 2012 | $ | 9,999,820 | 11.43 | % | $ | 10,000,000 | ||||||
| U.S. Treasury bills, 0.085%, due May 17, 2012 | 9,999,440 | 11.42 | 10,000,000 | |||||||||
| Total U.S. Treasury obligations | 19,999,260 | 22.85 | 20,000,000 | |||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | 58,145,527 | 66.44 | ||||||||||
| Total cash equivalents | $ | 78,144,787 | 89.29 | % | ||||||||
| Notional | ||||||||||||
| Amount | ||||||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (730 contracts, settlement date July 13, 2012) | $ | 1,174,810 | 1.34 | % | $ | 23,478,625 | ||||||
| United States WTI crude oil contracts | ||||||||||||
| WTI crude oil futures (12 contracts, settlement date May 22, 2012) | 82,764 | 0.09 | 1,242,480 | |||||||||
| WTI crude oil futures (10 contracts, settlement date November 16, 2012) | 94,975 | 0.11 | 1,052,300 | |||||||||
| WTI crude oil futures (12 contracts, settlement date November 20, 2013) | 162,755 | 0.19 | 1,227,120 | |||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT soybean futures (30 contracts, settlement date July 13, 2012) | 111,022 | 0.13 | 2,112,375 | |||||||||
| CBOT soybean futures (26 contracts, settlement date November 14, 2012) | 49,306 | 0.06 | 1,765,400 | |||||||||
| CBOT soybean futures (34 contracts, settlement date November 14, 2013) | 12,475 | 0.01 | 2,109,700 | |||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (62 contracts, settlement date June 29, 2012) | 987 | 0.00 | 1,654,061 | |||||||||
| ICE sugar futures (60 contracts, settlement date February 28, 2013) | 22,502 | 0.03 | 1,648,416 | |||||||||
| United States wheat futures contracts | ||||||||||||
| CBOT wheat futures (61 contracts, settlement date July 13, 2012) | 65,212 | 0.07 | 2,055,700 | |||||||||
| CBOT wheat futures (51 contracts, settlement date September 14, 2012) | 26,412 | 0.03 | 1,759,500 | |||||||||
| Total commodity futures contracts | $ | 1,803,220 | 2.06 | % | $ | 40,105,677 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (690 contracts, settlement date September 14, 2012) | $ | 1,304,825 | 1.49 | % | $ | 19,432,125 | ||||||
| CBOT corn futures (840 contracts, settlement date December 14, 2012) | 2,095,878 | 2.39 | 22,690,500 | |||||||||
| United States natural gas futures contracts | ||||||||||||
| NYMEX natural gas futures (16 contracts, settlement date September 26, 2012) | 217,064 | 0.25 | 411,040 | |||||||||
| NYMEX natural gas futures (15 contracts, settlement date October 29, 2012) | 177,691 | 0.20 | 422,400 | |||||||||
| NYMEX natural gas futures (12 contracts, settlement date February 26, 2013) | 43,546 | 0.05 | 399,000 | |||||||||
| NYMEX natural gas futures (13 contracts, settlement date March 26, 2013) | 31,569 | 0.04 | 430,430 | |||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (53 contracts, settlement date September 28, 2012) | 7,942 | 0.01 | 1,416,923 | |||||||||
| United States wheat futures contracts | ||||||||||||
| CBOT wheat futures (58 contracts, settlement date December 14, 2012) | 61,697 | 0.07 | 2,064,800 | |||||||||
| Total commodity futures contracts | $ | 3,940,212 | 4.50 | % | $ | 47,267,218 | ||||||
| Shares | ||||||||||||
| Exchange-traded funds | ||||||||||||
| Teucrium Corn Fund | $ | 3,770,130 | 4.31 | % | 96,248 | |||||||
| Teucrium Soybean Fund | 3,776,564 | 4.32 | 156,984 | |||||||||
| Teucrium Sugar Fund | 3,749,246 | 4.28 | 157,762 | |||||||||
| Teucrium Wheat Fund | 3,799,190 | 4.34 | 177,340 | |||||||||
| Total exchange-traded funds (cost $14,891,933), included in shares of the Underlying Funds owned by Teucrium Agricultural Fund | $ | 15,095,130 | 17.25 | % | 588,334 | |||||||
The accompanying notes are an integral part of these financial statements.
| 6 |
TEUCRIUM COMMODITY TRUST
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | Principal | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| United States Treasury obligations | ||||||||||||
| U.S. Treasury bills, 0.010%, due January 19, 2012 | $ | 9,999,950 | 11.93 | % | $ | 10,000,000 | ||||||
| U.S. Treasury bills, 0.000%, due February 16, 2012 | 9,999,880 | 11.93 | 10,000,000 | |||||||||
| Total U.S. Treasury obligations | 19,999,830 | 23.86 | ||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | 60,567,971 | 72.26 | ||||||||||
| Total cash equivalents | $ | 80,567,801 | 96.12 | % | ||||||||
| Notional | ||||||||||||
| Amount | ||||||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (648 contracts, settlement date July 13, 2012) | $ | 1,928,408 | 2.30 | % | $ | 21,424,500 | ||||||
| United States WTI crude oil futures contracts | ||||||||||||
| WTI crude oil futures (14 contracts, settlement date November 16, 2012) | 15,839 | 0.02 | 1,373,540 | |||||||||
| WTI crude oil futures (16 contracts, settlement date November 20, 2013) | 100,303 | 0.12 | 1,516,160 | |||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT Soybean futures (11 contracts, settlement date May 14, 2012) | 9,994 | 0.01 | 669,625 | |||||||||
| United States wheat futures contracts | ||||||||||||
| CBOT Wheat futures (20 contracts, settlement date July 13, 2012) | 71,170 | 0.08 | 686,250 | |||||||||
| Total commodity futures contracts | $ | 2,125,714 | 2.53 | % | $ | 25,670,075 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (763 contracts, settlement date May 14, 2012) | $ | 2,478,427 | 2.96 | % | $ | 24,978,713 | ||||||
| CBOT corn futures (849 contracts, settlement date December 14, 2012) | 233,096 | 0.28 | 24,886,312 | |||||||||
| United States natural gas futures contracts | ||||||||||||
| NYMEX natural gas futures (11 contracts, settlement date February 27, 2012) | 217,844 | 0.26 | 331,760 | |||||||||
| NYMEX natural gas futures (11 contracts, settlement date March 28, 2012) | 161,614 | 0.19 | 338,690 | |||||||||
| NYMEX natural gas futures (11 contracts, settlement date September 26, 2012) | 120,352 | 0.14 | 365,420 | |||||||||
| NYMEX natural gas futures (10 contracts, settlement date October 29, 2012) | 102,630 | 0.12 | 347,900 | |||||||||
| United States WTI crude oil futures contracts | ||||||||||||
| WTI crude oil futures (16 contracts, settlement date May 22, 2012) | 168 | 0.00 | 1,591,680 | |||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT soybean futures (12 contracts, settlement date March 14, 2012) | 81,898 | 0.10 | 724,650 | |||||||||
| CBOT soybean futures (13 contracts, settlement date November 14, 2012) | 82,765 | 0.10 | 782,763 | |||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (32 contracts, settlement date April 30, 2012) | 82,593 | 0.10 | 822,528 | |||||||||
| ICE sugar futures (27 contracts, settlement date June 29, 2012) | 37,908 | 0.05 | 682,215 | |||||||||
| ICE sugar futures (31 contracts, settlement date February 28, 2013) | 17,697 | 0.02 | 811,059 | |||||||||
| United States wheat futures contracts | ||||||||||||
| CBOT wheat futures (23 contracts, settlement date May 14, 2012) | 66,580 | 0.08 | 771,938 | |||||||||
| CBOT wheat futures (22 contracts, settlement date December 14, 2012) | 74,888 | 0.09 | 792,000 | |||||||||
| Total commodity futures contracts | $ | 3,758,460 | 4.49 | % | $ | 58,227,628 | ||||||
The accompanying notes are an integral part of these financial statements.
| 7 |
TEUCRIUM COMMODITY TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Income | ||||||||
| Realized and unrealized (loss) gain on trading of commodity futures contracts and on investment transactions: | ||||||||
| Realized (loss) gain on commodity futures contracts | $ | (2,738,437 | ) | $ | 3,367,545 | |||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | (504,246 | ) | 4,387,449 | |||||
| Realized gain on securities | 1,720 | - | ||||||
| Interest income | 12,530 | 21,684 | ||||||
| Total (loss) income | (3,228,433 | ) | 7,776,678 | |||||
| Expenses | ||||||||
| Management fees | 198,431 | 163,132 | ||||||
| Professional fees | 206,459 | 157,139 | ||||||
| Distribution and marketing fees | 538,136 | 100,065 | ||||||
| Custodian fees and expenses | 162,023 | 65,837 | ||||||
| Business permits and licenses fees | 1,443 | - | ||||||
| General and administrative expenses | 9,422 | - | ||||||
| Brokerage commissions | 6,543 | 8,748 | ||||||
| Other expenses | 30,938 | 12,638 | ||||||
| Total expenses | 1,153,395 | 507,559 | ||||||
| Net (loss) income | $ | (4,381,828 | ) | $ | 7,269,119 | |||
The accompanying notes are an integral part of these financial statements.
| 8 |
TEUCRIUM COMMODITY TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Operations | ||||||||
| Net (loss) income | $ | (4,381,828 | ) | $ | 7,269,119 | |||
| Capital transactions | ||||||||
| Issuance of Shares | 30,450,079 | 39,035,708 | ||||||
| Cost of shares of the Underlying Funds owned by Teucrium Agricultural Fund | (14,891,933 | ) | - | |||||
| Redemption of Shares | (7,484,761 | ) | (6,289,257 | ) | ||||
| Total capital transactions | 8,073,385 | 32,746,451 | ||||||
| Net change in net assets | 3,691,557 | 40,015,570 | ||||||
| Net assets, beginning of period | 83,823,568 | 42,964,439 | ||||||
| Net assets, end of period | $ | 87,515,125 | $ | 82,980,009 | ||||
The accompanying notes are an integral part of these financial statements.
| 9 |
TEUCRIUM COMMODITY TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (4,381,828 | ) | $ | 7,269,119 | |||
| 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 | 504,246 | (4,387,449 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Purchase of Underlying Funds owned by Teucrium Agricultural Fund | (14,891,933 | ) | - | |||||
| Collateral, due from broker | (3,734,033 | ) | (1,233,961 | ) | ||||
| Interest receivable | 298 | 27 | ||||||
| Other assets | (162,697 | ) | (158,100 | ) | ||||
| Collateral, due to broker | 124,584 | (1,495,343 | ) | |||||
| Management fee payable to Sponsor | (7,687 | ) | 32,562 | |||||
| Due to broker for securities transactions | 47,308 | - | ||||||
| Other liabilities | 64,764 | 107,952 | ||||||
| Net cash (used in) provided by operating activities | (22,436,978 | ) | 134,807 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Shares, including the cost of shares of the Underlying Funds owned by Teucrium Agricultural Funds | 30,450,079 | 39,035,708 | ||||||
| Redemption of Shares, net of change in payable for shares redeemed | (10,436,215 | ) | (6,289,257 | ) | ||||
| Net cash provided by financing activities | 20,013,864 | 32,746,451 | ||||||
| Net change in cash and cash equivalents | (2,423,114 | ) | 32,881,258 | |||||
| Cash and cash equivalents, beginning of period | 80,567,901 | 39,311,038 | ||||||
| Cash and cash equivalents, end of period | $ | 78,144,787 | $ | 72,192,296 | ||||
The accompanying notes are an integral part of these financial statements.
| 10 |
NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 – Organization and Operation
Teucrium Commodity Trust (“Trust”) is a Delaware statutory trust organized on September 11, 2009, and is a series trust. The Teucrium Corn Fund (“CORN”) was the first commodity pool that is a series of the Trust, and as of June 9, 2010, shares of CORN could be purchased and sold on the New York Stock Exchange (“NYSE”) Arca. In 2010, registration statements were also filed to register units of the Teucrium WTI Crude Oil Fund (“CRUD”), Teucrium Natural Gas Fund (“NAGS”), Teucrium Sugar Fund (“CANE”), Teucrium Soybean Fund (“SOYB”), and Teucrium Wheat Fund (“WEAT”), which would represent additional future series of the Trust. On April 22, 2011, an initial registration statement to register units was filed with the Securities and Exchange Commission (“SEC”) for the Teucrium Agricultural Fund (“TAGS”). This represented an additional series of the Trust. All these series of the Trust, for which registration statements had been filed and/or approved as of March 31, 2012, are collectively referred to as the “Funds” and singularly as the “Fund.” 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”).
On October 22, 2010, the Forms S-1 for NAGS and CRUD were declared effective by the SEC. On January 31, 2011, four Creation Baskets for NAGS were issued representing 200,000 shares and $5,000,000. NAGS began trading on the NYSE Arca on February 1, 2011. On February 22, 2011, four Creation Baskets for CRUD were issued representing 100,000 shares and $5,000,000. CRUD began trading on the NYSE Arca on February 23, 2011. Amended registration statements for CANE, SOYB and WEAT were filed with the SEC on March 9, 2011, and, on June 17, 2011, the Forms S-1 for CANE, SOYB and WEAT were declared effective by the SEC. On September 16, 2011, two initial Creation Baskets for each Fund, representing 100,000 shares and $2,500,000, for CANE, SOYB, and WEAT were issued. On September 19, 2011, CANE, SOYB and WEAT started trading on the NYSE Arca.
On February 10, 2012, the Form S-1 for TAGS was declared effective by the SEC. On February 24, 2012, the SEC granted listing authority to TAGS. 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 Teucrium Corn Fund, the Teucrium Natural Gas Fund, the Teucrium WTI Crude Oil Fund, the Teucrium Sugar Fund, the Teucrium Soybean Fund, the Teucrium Wheat Fund, and the Teucrium Agricultural Fund are collectively referred to herein as the “Operating Funds” and singularly referred to as an “Operating Fund.”
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-Q 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 the 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 to maintain the approximate 25% allocation to each Underlying Fund.
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Trust’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K and Form 10-K/A, as applicable. The operating results from January 1, 2012 through March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared 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, NAGS, CRUD, CANE, SOYB, WEAT and TAGS. 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 for the months during which each Fund was in operation.
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Reclassifications
Certain amounts in prior periods have been reclassified to conform to current period presentation.
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 operations 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 at a rate equal to 85% of the overnight of Federal Funds Rate. In addition, the Funds earn 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 a full-turn basis.
Income Taxes
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.
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 740-10-25-6, “Accounting for Uncertainty in Income Taxes,” 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. The Funds are subject to income tax examinations by major taxing authorities for all tax years since inception. 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 March 31, 2012 and December 31, 2011. 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, on-going analysis of and changes to tax laws, regulations, and interpretations thereof.
The Funds recognize interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three months ended March 31, 2012 and the year ended December 31, 2011.
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.
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.
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Cash Equivalents
Cash equivalents are highly-liquid investments with original maturity dates of three months or less at inception. The Trust 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 Trust has a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. The Trust had a balance of $58,145,527 and $60,567,971 in money market funds at March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities. The Trust also had investments in United States Treasury Bills with a maturity of three months or less with a fair value of $19,999,260 and $19,999,830 on March 31, 2012 and December 31, 2011, respectively.
Collateral, Due from/to Broker
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 (ranging upward from less than 2%) 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.
Due from/to Broker for Securities Transactions
Due from/to broker for investments in securities are securities transactions pending settlement. For the period from the commencement of operations through March 31, 2012, all of TAGS’ securities transactions for the shares of the Underlying Funds, money balances and security positions were transacted with the Bank of New York Mellon. 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.
Shares of the Underlying Funds Held by the Teucrium Agricultural Fund (TAGS)
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 accounts for shares of other series of the Trust owned by the Teucrium Agricultural Fund at cost as treasury shares on its statements of assets and liabilities.
Sponsor Fee and Allocation of Expenses
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. For the performance of this service, 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, the Financial Industry Regulatory Authority (“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 are allocated by the Sponsor to the respective funds based on activity drivers deemed most appropriate by the Sponsor for such expenses. All asset-based fees and expenses for the Funds are calculated on prior day’s net assets.
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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 securities. 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 security to security and is affected by a wide variety of factors including, the type of security, whether the security 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 securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities 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 securities. This condition could cause a security 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 March 31, 2012 and December 31, 2011, 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 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.
Investments in the securities 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 Fund.
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New Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Amendments of the FASB Accounting Standards Codification and Disclosures about Offsetting Assets and Liabilities in U.S. GAAP and IFRS.” ASU No. 2011-11 clarifies existing requirements for balance sheet offsetting and for disclosures about the offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position in converged guidance of the FASB and the International Accounting Standards Board. The amendments are to be applied retrospectively for all comparative periods presented. For public entities, the amendments are effective for annual reporting periods beginning on or after January 1, 2013. The implementation of ASU No. 2011-11 will not be adopted prior to January 1, 2013, and we are evaluating the material impacts on the financial statement disclosures for the Trust or the Funds.
Note 3 – 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 2. The following table presents information about the Trust’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
March 31, 2012
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | 78,144,787 | $ | - | $ | - | $ | 78,144,787 | ||||||||
| Commodity futures contracts | ||||||||||||||||
| Corn futures contracts | 1,174,810 | - | - | 1,174,810 | ||||||||||||
| WTI crude oil futures contracts | 340,494 | - | - | 340,494 | ||||||||||||
| Soybean futures contracts | 172,803 | - | - | 172,803 | ||||||||||||
| Sugar futures contracts | 23,489 | - | - | 23,489 | ||||||||||||
| Wheat futures contracts | 91,624 | - | - | 91,624 | ||||||||||||
| Total | $ | 79,948,007 | $ | - | $ | - | $ | 79,948,007 | ||||||||
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Commodity futures contracts | ||||||||||||||||
| Corn futures contracts | $ | 3,400,703 | $ | - | $ | - | $ | 3,400,703 | ||||||||
| Natural gas futures contracts | 469,870 | - | - | 469,870 | ||||||||||||
| Sugar futures contracts | 7,942 | - | - | 7,942 | ||||||||||||
| Wheat futures contracts | 61,697 | - | - | 61,697 | ||||||||||||
| Total | $ | 3,940,212 | $ | - | $ | - | $ | 3,940,212 | ||||||||
December 31, 2011
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | 80,567,801 | - | - | $ | 80,567,801 | ||||||||||
| Commodity futures contracts | ||||||||||||||||
| Corn futures contracts | 1,928,408 | - | - | 1,928,408 | ||||||||||||
| WTI crude oil futures contracts | 116,142 | - | - | 116,142 | ||||||||||||
| Soybean futures contracts | 9,994 | - | - | 9,994 | ||||||||||||
| Wheat futures contracts | 71,170 | - | - | 71,170 | ||||||||||||
| Total | $ | 82,693,515 | $ | - | $ | - | $ | 82,693,515 | ||||||||
| 15 |
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Commodity futures contracts | ||||||||||||||||
| Corn futures contracts | $ | 2,711,523 | $ | - | $ | - | $ | 2,711,523 | ||||||||
| Natural gas futures contracts | 602,440 | - | - | 602,440 | ||||||||||||
| WTI crude oil futures contracts | 168 | - | - | 168 | ||||||||||||
| Soybean futures contracts | 164,663 | - | - | 164,663 | ||||||||||||
| Sugar futures contracts | 138,198 | - | - | 138,198 | ||||||||||||
| Wheat futures contracts | 141,468 | - | - | 141,468 | ||||||||||||
| Total | $ | 3,758,460 | $ | - | $ | - | $ | 3,758,460 | ||||||||
There were no transfers into and out of each level of the fair value hierarchy for the commodity futures contracts valued using alternative verifiable sources due to a "limit-down" or “limit-up” conditions for the period January 1, 2012 through March 31, 2012.
Transfers into and out of each level of the fair value hierarchy for the corn futures contracts valued using alternative verifiable sources due to a "limit-down" condition for the period January 1, 2011 through March 31, 2011 were as follows:
| Transfers | Transfers | Transfers | Transfers | Transfers | Transfers | |||||||||||||||||||
| into | out of | into | out of | into | out of | |||||||||||||||||||
| Level 1 | Level 1 | Level 2 | Level 2 | Level 3 | Level 3 | |||||||||||||||||||
| Assets (at fair value) | ||||||||||||||||||||||||
| Derivative contracts | ||||||||||||||||||||||||
| Corn future contracts | $ | - | $ | 9,140,288 | $ | 9,140,288 | $ | - | $ | - | $ | - | ||||||||||||
Note 4 – 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 three months ended March 31, 2011, the Operating Funds invested only in commodity futures contracts specifically related to each Fund. For the three months ended March 31, 2012, the Operating Funds invested in commodity futures contracts and Chicago Mercantile Exchange Calendar Swaps. Cleared Corn Swaps have standardized terms similar to, and are priced by reference to, a corresponding Benchmark Component Futures Contract. Additionally, Other Corn 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 Cleared Swaps and/or over-the-counter Interests intended to exactly 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 exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract. As of March 31, 2012 and December 31, 2011, the Operating Funds had investments 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 Futures Commission Merchant (“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.
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The following tables identify the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of master netting arrangements and have been reduced by the application of cash collateral receivables and payables with its counterparties. The following tables also identify the net gain and loss amounts included in the statement of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the period from January 1, 2012 to March 31, 2012 and for the period from January 1, 2011 to March 31, 2011.
At March 31, 2012, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset derivatives | Liability derivatives | Net derivatives | |||||||||
| Commodity price | ||||||||||||
| Corn futures contracts | $ | 1,174,810 | $ | (3,400,703 | ) | (2,225,893 | ) | |||||
| Natural gas futures contracts | - | (469,870 | ) | (469,870 | ) | |||||||
| WTI crude oil futures contracts | 340,494 | - | 340,494 | |||||||||
| Soybean futures contracts | 172,803 | - | 172,803 | |||||||||
| Sugar futures contracts | 23,489 | (7,942 | ) | 15,547 | ||||||||
| Wheat futures contracts | 91,624 | (61,697 | ) | 29,927 | ||||||||
| Total commodity futures contracts | $ | 1,803,220 | $ | (3,940,212 | ) | (2,136,992 | ) | |||||
At December 31, 2011, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset derivatives | Liability derivatives | Net derivatives | |||||||||
| Commodity price | ||||||||||||
| Corn futures contracts | $ | 1,928,408 | $ | (2,711,523 | ) | (783,115 | ) | |||||
| Natural gas futures contracts | - | (602,440 | ) | (602,440 | ) | |||||||
| WTI crude oil futures contracts | 116,142 | (168 | ) | 115,974 | ||||||||
| Soybean futures contracts | 9,994 | (164,663 | ) | (154,669 | ) | |||||||
| Sugar futures contracts | - | (138,198 | ) | (138,198 | ) | |||||||
| Wheat futures contracts | 71,170 | (141,468 | ) | (70,298 | ) | |||||||
| Total commodity futures contracts | $ | 2,125,714 | $ | (3,758,460 | ) | (1,632,746 | ) | |||||
The following is a summary of realized and unrealized gains (losses) of the derivative instruments utilized by the Trust:
For the period January 1, 2012 to March 31, 2012
| Realized gain (loss) on | Net change in unrealized gain (loss) | |||||||
| Primary underlying risk | derivative instruments | on derivative instruments | ||||||
| Commodity price | ||||||||
| Corn futures contracts | $ | (2,136,224 | ) | $ | (1,442,778 | ) | ||
| Natural gas futures contracts | (504,280 | ) | 132,570 | |||||
| WTI crude oil futures contracts | 5,610 | 224,520 | ||||||
| Soybean futures contracts | 10,341 | 327,472 | ||||||
| Sugar futures contracts | (9,734 | ) | 153,745 | |||||
| Wheat futures contracts | (104,150 | ) | 100,225 | |||||
| Total commodity futures contracts | $ | (2,738,437 | ) | $ | (504,246 | ) | ||
For the period January 1, 2011 to March 31, 2011
| Realized gain (loss) on | Net change in unrealized gain | |||||||
| Primary underlying risk | derivative instruments | on derivative instruments | ||||||
| Commodity price | ||||||||
| Corn futures contracts | $ | 3,686,233 | $ | 3,962,069 | ||||
| Natural gas futures contracts | (324,188 | ) | 43,520 | |||||
| WTI crude oil futures contracts | 5,500 | 381,860 | ||||||
| Total commodity futures contracts | $ | 3,367,545 | $ | 4,387,449 | ||||
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Volume of Derivative Activities
At March 31, 2012, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Corn futures contracts | $ | 65,601,250 | 2,260 | |||||
| Natural gas futures contracts | 1,662,870 | 56 | ||||||
| WTI crude oil futures contracts | 3,521,900 | 34 | ||||||
| Soybean futures contracts | 5,987,475 | 90 | ||||||
| Sugar futures contracts | 4,719,400 | 175 | ||||||
| Wheat futures contracts | 5,880,000 | 170 | ||||||
| Total commodity futures contracts | $ | 87,372,895 | 2,785 | |||||
At December 31, 2011, the notional amounts and number of contracts, categorized by primary underlying risk, are as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Corn futures contracts | $ | 71,289,525 | 2,260 | |||||
| Natural gas futures contracts | 1,383,770 | 43 | ||||||
| WTI crude oil futures contracts | 4,481,380 | 46 | ||||||
| Soybean futures contracts | 2,177,038 | 36 | ||||||
| Sugar futures contracts | 2,315,802 | 90 | ||||||
| Wheat futures contracts | 2,50,188 | 65 | ||||||
| Total commodity futures contracts | $ | 83,897,703 | 2,540 | |||||
Note 5 - Organizational and Offering Costs
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 Operating 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.
Note 6 – Subsequent Events
The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.
For the period April 1, 2012 through May 9, 2012, the following subsequent events transpired for each of the series of the Trust:
CORN: On May 1, 2012, the SEC declared effective Post-Effective Amendment No. 4 to the Registration Statement (Number 333-162033) on Form S-1 for the Fund.
NAGS: On May 1, 2012, the SEC declared effective Post-Effective Amendment No. 3 to the Registration Statement (Number 333- 167593) on Form S-1 for the Fund.
CRUD: On May 1, 2012, the SEC declared effective Post-Effective Amendment No. 3 to the Registration Statement (Number 333- 167594) on Form S-1 for the Fund.
SOYB: Nothing to Report
CANE: Nothing to Report
WEAT: Nothing to Report
TAGS: Nothing to Report
| 18 |
TEUCRIUM CORN FUND
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 57,144,993 | $ | 69,022,336 | ||||
| Commodity futures contracts | 1,174,810 | 1,928,408 | ||||||
| Collateral, due from broker | 10,282,643 | 6,910,552 | ||||||
| Interest receivable | 1,775 | 2,086 | ||||||
| Other assets | 494,682 | 342,859 | ||||||
| Total assets | 69,098,903 | 78,206,241 | ||||||
| Liabilities | ||||||||
| Payable for shares redeemed | - | 4,147,011 | ||||||
| Commodity futures contracts | 3,400,703 | 2,711,523 | ||||||
| Management fee payable to Sponsor | 56,961 | 64,423 | ||||||
| Other liabilities | 29,588 | 14,763 | ||||||
| Total liabilities | 3,487,252 | 6,937,720 | ||||||
| Net assets | $ | 65,611,651 | $ | 71,268,521 | ||||
| Shares outstanding | 1,675,004 | 1,700,004 | ||||||
| Net asset value per share | $ | 39.17 | $ | 41.92 | ||||
| Market value per share (closing price) | $ | 39.26 | $ | 41.98 | ||||
The accompanying notes are an integral part of these financial statements.
| 19 |
TEUCRIUM CORN FUND
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | Principal | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| United States Treasury obligations | ||||||||||||
| U.S. Treasury bills, 0.020%, due April 19, 2012 | $ | 9,999,820 | 15.24 | % | $ | 10,000,000 | ||||||
| U.S. Treasury bills, 0.085%, due May 17, 2012 | 9,999,440 | 15.24 | 10,000,000 | |||||||||
| Total U.S. Treasury obligations | 19,999,260 | 30.48 | 20,000,000 | |||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | 37,145,733 | 56.62 | ||||||||||
| Total cash equivalents | $ | 57,144,993 | 87.10 | % | ||||||||
| Notional | ||||||||||||
| Amount | ||||||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (730 contracts, settlement date July 13, 2012) | $ | 1,174,810 | 1.79 | % | $ | 23,478,625 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (690 contracts, settlement date September 14, 2012) | $ | 1,304,825 | 1.99 | % | $ | 19,432,125 | ||||||
| CBOT corn futures (840 contracts, settlement date December 14, 2012) | 2,095,878 | 3.19 | 22,690,500 | |||||||||
| $ | 3,400,703 | 5.18 | % | $ | 42,122,625 | |||||||
The accompanying notes are an integral part of these financial statements.
| 20 |
TEUCRIUM CORN FUND
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | Principal | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| United States Treasury obligations | ||||||||||||
| U.S. Treasury bills, 0.010%, due January 19, 2012 | $ | 9,999,950 | 14.03 | % | $ | 10,000,000 | ||||||
| U.S. Treasury bills, 0.000%, due February 16, 2012 | 9,999,880 | 14.03 | 10,000,000 | |||||||||
| Total U.S. Treasury obligations | 19,999,830 | 28.06 | 20,000,000 | |||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | 49,022,506 | 68.79 | ||||||||||
| Total cash equivalents | $ | 69,022,336 | 96.85 | % | ||||||||
| Notional | ||||||||||||
| Amount | ||||||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (648 contracts, settlement date July 13, 2012) | $ | 1,928,408 | 2.71 | % | $ | 21,424,500 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States corn futures contracts | ||||||||||||
| CBOT corn futures (763 contracts, settlement date May 14, 2012) | $ | 2,478,427 | 3.48 | % | $ | 24,978,713 | ||||||
| CBOT corn futures (849 contracts, settlement date December 14, 2012) | 233,096 | 0.33 | 24,886,312 | |||||||||
| $ | 2,711,523 | 3.81 | % | $ | 49,865,025 | |||||||
The accompanying notes are an integral part of these financial statements.
| 21 |
TEUCRIUM CORN FUND
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Income | ||||||||
| Realized and unrealized (loss) gain on trading of commodity futures contracts: | ||||||||
| Realized (loss) gain on commodity futures contracts | $ | (2,136,224 | ) | $ | 3,686,233 | |||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | (1,442,778 | ) | 3,962,069 | |||||
| Interest income | 10,462 | 20,482 | ||||||
| Total (loss) income | (3,568,540 | ) | 7,668,784 | |||||
| Expenses | ||||||||
| Management fees | 170,603 | 154,245 | ||||||
| Professional fees | 201,387 | 109,384 | ||||||
| Distribution and marketing fees | 437,130 | 69,098 | ||||||
| Custodian fees and expenses | 32,210 | 31,856 | ||||||
| Business permits and licenses fees | 1,286 | - | ||||||
| General and administrative expenses | 9,310 | - | ||||||
| Brokerage commissions | 4,892 | 8,092 | ||||||
| Other expenses | 30,741 | 7,594 | ||||||
| Total expenses | 887,559 | 380,269 | ||||||
| Net (loss) income | $ | (4,456,099 | ) | $ | 7,288,515 | |||
| Net (loss) income per share | $ | (2.75 | ) | $ | 5.20 | |||
| Net (loss) income per weighted average share | $ | (2.64 | ) | $ | 4.83 | |||
| Weighted average shares outstanding | 1,688,466 | 1,510,004 | ||||||
The accompanying notes are an integral part of these financial statements.
| 22 |
TEUCRIUM CORN FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Operations | ||||||||
| Net (loss) income | $ | (4,456,099 | ) | $ | 7,288,515 | |||
| Capital transactions | ||||||||
| Issuance of Shares | 3,964,375 | 29,035,708 | ||||||
| Redemption of Shares | (5,165,146 | ) | (4,049,849 | ) | ||||
| Total capital transactions | (1,200,771 | ) | 24,985,859 | |||||
| Net change in net assets | (5,656,870 | ) | 32,274,374 | |||||
| Net assets, beginning of period | 71,268,521 | 42,963,939 | ||||||
| Net assets, end of period | $ | 65,611,651 | $ | 75,238,313 | ||||
| Net asset value per share | ||||||||
| At beginning of period | $ | 41.92 | $ | 39.06 | ||||
| At end of period | $ | 39.17 | $ | 44.26 | ||||
The accompanying notes are an integral part of these financial statements.
| 23 |
TEUCRIUM CORN FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (4,456,099 | ) | $ | 7,288,515 | |||
| 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 | 1,442,778 | (3,962,069 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Collateral, due from broker | (3,372,091 | ) | (1,090,636 | ) | ||||
| Interest receivable | 311 | 615 | ||||||
| Other assets | (151,823 | ) | (130,286 | ) | ||||
| Collateral, due to broker | - | (1,496,045 | ) | |||||
| Management fee payable to Sponsor | (7,462 | ) | 27,943 | |||||
| Other liabilities | 14,825 | 21,173 | ||||||
| Net cash (used in) provided by operating activities | (6,529,561 | ) | 659,210 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Shares | 3,964,375 | 29,035,708 | ||||||
| Redemption of Shares, net of change in payable for shares redeemed | (9,312,157 | ) | (4,049,849 | ) | ||||
| Net cash (used in) provided by financing activities | (5,347,782 | ) | 24,985,859 | |||||
| Net change in cash and cash equivalents | (11,877,343 | ) | 25,645,069 | |||||
| Cash and cash equivalents, beginning of period | 69,022,336 | 39,310,538 | ||||||
| Cash and cash equivalents, end of period | $ | 57,144,993 | $ | 64,955,607 | ||||
The accompanying notes are an integral part of these financial statements.
| 24 |
NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 – Organization and Operation
Teucrium Corn Fund (referred to herein as “CORN,” the “Corn Fund” 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 Corn Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Corn Fund. The Corn 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 Corn 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 Corn 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 Corn 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 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%. (This weighted average of the three referenced Corn Futures Contracts is referred to herein as the “Benchmark,” and the three Corn Futures Contracts that at any given time make up the Benchmark are referred to herein as the “Benchmark Component Futures Contracts”.
The Corn Fund commenced investment operations on June 9, 2010 and has a fiscal year ending on December 31. The Corn Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Corn 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.
On June 5, 2010, the Corn 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 Corn Fund listed its shares on the NYSE Arca under the ticker symbol “CORN.” On the day prior to that, the Corn Fund issued 200,000 shares in exchange for $5,000,000 at the Corn Fund’s initial NAV of $25 per share. The Corn Fund also commenced investment operations on June 9, 2010 by purchasing commodity futures contracts traded on the Chicago Board of Trade (“CBOT”).
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K and Form 10-K/A, as well as the most recent amendment to Form S-1, dated May 1, 2012, as applicable. The operating results from January 1, 2012 through March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Note 2 – 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.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to current period presentation.
| 25 |
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 operations 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 Corn Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant at a rate equal to 85% of the overnight of Federal Funds Rate. In addition, the Corn 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 a full-turn basis.
Income Taxes
For tax purposes, the Corn Fund will be treated as a partnership. The Corn Fund does not record a provision for income taxes because the partners report their share of the Corn Fund’s income or loss on their income tax returns. The financial statements reflect the Corn Fund’s transactions without adjustment, if any, required for income tax purposes.
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic (“ASC”) 740-10-25-6, “Accounting for Uncertainty in Income Taxes,” the Corn 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 Corn 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. The Corn Fund is subject to income tax examinations by major taxing authorities for all tax years since inception. 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 Corn Fund recording a tax liability that reduces net assets. Based on its analysis, the Corn Fund has determined that it has not incurred any liability for unrecognized tax benefits as of March 31, 2012 and December 31, 2011. However, the Corn 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, on-going analysis of and changes to tax laws, regulations, and interpretations thereof.
The Corn Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three months ended March 31, 2012 and the year ended December 31, 2011.
The Corn 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 Corn Fund’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
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 net asset value 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 Corn 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 net asset value 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 size of a Creation Basket and a Redemption basket was changed effective February 1, 2012 from 100,000 to 50,000 shares. On March 5, 2012 from the size of a Creation Basket and a Redemption Basket was changed again from 50,000 to 25,000 shares.
The Corn 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 Corn 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.
Allocation of Shareholder Income and Losses
Profit or loss is allocated among the shareholders of the Corn Fund in proportion to the number of shares each shareholder holds as of the close of each month.
| 26 |
Cash Equivalents
Cash equivalents are highly-liquid investments with original maturity dates of three months or less at inception. The Corn 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 Corn Fund has a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. The Corn Fund had a balance of $37,145,733 and $49,022,506 in money market funds at March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities. The Corn Fund held $19,999,260 and $19,999,830 in United States Treasury Bills with a maturity date of three months or less at March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities.
Collateral, Due from/to Broker
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 (ranging upward from less than 2%) 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 Corn 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 Corn Fund’s trading, the Corn 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 Corn Fund’s NAV is calculated by:
| · | Taking the current market value of its total assets, |
| · | Subtracting any liabilities, and |
The administrator, the Bank of New York Mellon, calculates the NAV of the Corn 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 (typically 2:15 p.m. New York time). 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 Corn 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 Corn 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 Corn Fund but unpaid or not received by the Corn Fund.
| 27 |
Sponsor Fee and Allocation of Expenses
The Sponsor is responsible for investing the assets of the Corn Fund in accordance with the objectives and policies of the Corn 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 Corn Fund. For these services, the Corn 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. From the period from January 1, 2012 through March 31, 2012, the Corn Fund recorded $170,603 in management fees to the Sponsor. For the period from January 1, 2011 through March 31, 2011, the Corn Fund recorded $154,245 in management fees to the Sponsor. The Corn 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, the Financial Industry Regulatory Authority (“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 Corn Fund also pays the fees and expenses associated with the Fund’s tax accounting and reporting requirements. Certain aggregate expenses common to all funds managed by the Sponsor are allocated to each fund based on activity drivers deemed most appropriate by the Sponsor for such expenses. All asset-based fees and expenses are calculated on prior day’s net assets.
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 Corn 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 Corn Fund. Unobservable inputs reflect the Corn 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 securities. 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 security to security and is affected by a wide variety of factors including, the type of security, whether the security 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 securities existed. Accordingly, the degree of judgment exercised by the Corn Fund in determining fair value is greatest for securities 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 Corn 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 Corn 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 security 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 March 31, 2012 and December 31, 2011, 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.
| 28 |
The Corn Fund records its 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 Chicago Board of Trade (“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.
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 units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
New Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Amendments of the FASB Accounting Standards Codification and Disclosures about Offsetting Assets and Liabilities in U.S. GAAP and IFRS.” ASU No. 2011-11 clarifies existing requirements for balance sheet offsetting and for disclosures about the offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position in converged guidance of the FASB and the International Accounting Standards Board. The amendments are to be applied retrospectively for all comparative periods presented. For public entities, the amendments are effective for annual reporting periods beginning on or after January 1, 2013. The implementation of ASU No. 2011-11 will not be adopted prior to January 1, 2013, and we are evaluating the material impacts on the financial statement disclosures for the Fund.
Note 3 – Fair Value Measurements
The Corn Fund’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Corn Fund’s significant accounting policies in Note 2. The following table presents information about the Corn Fund’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
| Balance | ||||||||||||||||
| March 31, 2012 | as of | |||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | 57,144,993 | $ | - | $ | - | $ | 57,144,993 | ||||||||
| Commodity futures contracts | 1,174,810 | - | - | 1,174,810 | ||||||||||||
| Total | 58,319,803 | - | - | 58,319,803 | ||||||||||||
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Commodity futures contracts | $ | 3,400,703 | $ | $ | - | $ | 3,400,703 | |||||||||
| Balance | ||||||||||||||||
| December 31, 2011 | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash equivalents | $ | 69,022,336 | $ | - | $ | - | $ | 69,022,336 | ||||||||
| Commodity futures contracts | 1,928,408 | - | - | 1,928,408 | ||||||||||||
| Total | $ | 70,950,744 | $ | - | $ | - | $ | 70,950,744 | ||||||||
| 29 |
| Balance | ||||||||||||||||
| as of | ||||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Commodity futures contracts | $ | 2,711,523 | $ | $ | - | $ | 2,711,523 | |||||||||
There were no transfers into and out of each level of the fair value hierarchy for the commodity futures contracts valued using alternative verifiable sources due to a "limit-down" condition for the period January 1, 2012 through March 31, 2012.
Transfers into and out of each level of the fair value hierarchy for the corn futures contracts valued using alternative verifiable sources due to a "limit-down" or “limit-up” condition for the period January 1, 2011 through March 31, 2011 were as follows:
| Transfers | Transfers | Transfers | Transfers | Transfers | Transfers | |||||||||||||||||||
| into | out of | into | out of | into | out of | |||||||||||||||||||
| Level 1 | Level 1 | Level 2 | Level 2 | Level 3 | Level 3 | |||||||||||||||||||
| Assets (at fair value) | ||||||||||||||||||||||||
| Derivative contracts | ||||||||||||||||||||||||
| Corn future contracts | $ | - | $ | 9,140,288 | $ | 9,140,288 | $ | - | $ | - | $ | - | ||||||||||||
Note 4 -Derivative Instruments and Hedging Activities
In the normal course of business, the Corn 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 Corn 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 Corn Fund is also subject to additional counterparty risk due to inability of its counterparties to meet the terms of their contracts. For the three months ended March 31, 2012 and 2011, the Corn Fund invested only in CBOT Corn Futures Contracts. Cleared Corn Swaps have standardized terms similar to, and are priced by reference to, the corresponding Benchmark Component Futures Contract. Additionally, Other Corn 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, the Fund might enter into multiple Cleared Swaps and/or over-the-counter Interests intended to exactly replicate the performance 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 exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract.
Futures Contracts
The Corn 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 Futures Commission Merchant (“FCM”). Subsequent payments (variation margin) are made or received by the Corn Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded as unrealized gains or losses by the Corn Fund. Futures contracts may reduce the Corn 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 Corn 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 tables identify the fair value amounts of derivative instruments included in the statements of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain and loss amounts included in the statement of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the period from January 1, 2012 to March 31, 2012 and for the period from January 1, 2011 to March 31, 2011.
| 30 |
The fair value of derivative instruments was as follows:
At March 31, 2012
| Primary underlying risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | 1,174,810 | $ | (3,400,703 | ) | $ | (2,225,893 | ) | ||||
At December 31, 2011
| Primary Underlying Risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity Price | ||||||||||||
| Commodity futures contracts | $ | 1,928,408 | $ | (2,711,523 | ) | $ | (783,115 | ) | ||||
The following is a summary of realized and unrealized gains and losses of the derivative instruments utilized by the Corn Fund:
For the period from January 1, 2012 to March 31, 2012
| Realized Loss on | Net Change in Unrealized Loss | |||||||
| Primary Underlying Risk | Derivative Instruments | on Derivative Instruments | ||||||
| Commodity Price | ||||||||
| Commodity futures contracts | $ | (2,136,224 | ) | $ | (1,442,778 | ) | ||
For the period from January 1, 2011 to March 31, 2011
| Realized Gain on | Net Change in Unrealized Gain | |||||||
| Primary Underlying Risk | Derivative Instruments | on Derivative Instruments | ||||||
| Commodity Price | ||||||||
| Commodity futures contracts | $ | 3,686,233 | $ | 3,962,069 | ||||
Volume of Derivative Activities
The notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
At March 31, 2012
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 65,601,250 | 2,260 | |||||
At December 31, 2011
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 71,289,525 | 2,260 | |||||
| 31 |
Note 5 - Financial Highlights
The following tables present per unit performance data and other supplemental financial data for the periods from January 1, 2012 through March 31, 2012 and January 1, 2011 through March 31, 2011. This information has been derived from information presented in the financial statements.
| Per Share Operation Performance for January 1 through March 31, 2012 | ||||
| Net asset value at beginning of period | $ | 41.92 | ||
| Income (loss) from investment operations: | ||||
| Investment income | 0.01 | |||
| Net realized and unrealized loss on commodity futures contracts | (2.23 | ) | ||
| Total expenses | (0.53 | ) | ||
| Net decrease in net asset value | (2.75 | ) | ||
| Net asset value end of period | $ | 39.17 | ||
| Total Return | (6.56 | )% | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 5.21 | % | ||
| Net investment loss | (5.15 | )% |
| Per Share Operation Performance for January 1 through March 31, 2011 | ||||
| Net asset value at beginning of period | $ | 39.06 | ||
| Income (loss) from investment operations: | ||||
| Investment income | 0.01 | |||
| Net realized and unrealized gain on commodity futures contracts | 5.44 | |||
| Total expenses | (0.25 | ) | ||
| Net increase in net asset value | 5.20 | |||
| Net asset value end of period | $ | 44.26 | ||
| Total Return | 13.32 | % | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 2.43 | % | ||
| Net investment loss | (2.30 | )% |
Total returns are calculated based on the change in value during the period. An individual shareholder’s total return and ratio may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from the Corn Fund.
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 under report. The asset-based per share data in the Financial Highlights are calculated using the prior day’s net assets consistent with the methodology used to calculate asset-based fees and expenses.
Note 6 - Organizational and Offering Costs
Expenses incurred in organizing of the Trust and the initial offering of the Shares of the Corn Fund, including applicable SEC registration fees were borne directly by the Sponsor. The Corn Fund will not be obligated to reimburse the Sponsor.
Note 7 – Subsequent Events
The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.
For the period April 1, 2012 through May 9, 2012, on May 1, 2012, the SEC declared effective Post-Effective Amendment No. 4 to the Registration Statement (Number 333-162033) on Form S-1 for the Fund.
| 32 |
TEUCRIUM NATURAL GAS FUND
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 1,494,360 | $ | 1,277,159 | ||||
| Collateral, due from broker | 618,975 | 700,573 | ||||||
| Interest receivable | 67 | 57 | ||||||
| Other assets | 9,753 | 12,808 | ||||||
| Total assets | 2,123,155 | 1,990,597 | ||||||
| Liabilities | ||||||||
| Commodity futures contracts | 469,870 | 602,440 | ||||||
| Other liabilities | 512 | 6,790 | ||||||
| Total liabilities | 470,382 | 609,230 | ||||||
| Net assets | $ | 1,652,773 | $ | 1,381,367 | ||||
| Shares outstanding | 150,004 | 100,004 | ||||||
| Net asset value per share | $ | 11.02 | $ | 13.81 | ||||
| Market value per share (closing price) | $ | 11.04 | $ | 13.88 | ||||
The accompanying notes are an integral part of these financial statements.
| 33 |
TEUCRIUM NATURAL GAS FUND
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | |||||||||||
| Description: Assets | Value | Net Assets | ||||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 1,494,360 | 90.42 | % | ||||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States natural gas futures contracts | ||||||||||||
| NYMEX natural gas futures (16 contracts, settlement date September 26, 2012) | $ | 217,064 | 13.14 | % | $ | 411,040 | ||||||
| NYMEX natural gas futures (15 contracts, settlement date October 29, 2012) | 177,691 | 10.75 | 422,400 | |||||||||
| NYMEX natural gas futures (12 contracts, settlement date February 26, 2013) | 43,546 | 2.63 | 399,000 | |||||||||
| NYMEX natural gas futures (13 contracts, settlement date March 26, 2013) | 31,569 | 1.91 | 430,430 | |||||||||
| $ | 469,870 | 28.43 | % | $ | 1,662,870 | |||||||
The accompanying notes are an integral part of these financial statements.
| 34 |
TEUCRIUM NATURAL GAS FUND
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | |||||||||||
| Description: Assets | Value | Net Assets | ||||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 1,277,159 | 92.46 | % | ||||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States natural gas futures contracts | ||||||||||||
| NYMEX natural gas futures (11 contracts, settlement date February 27, 2012) | $ | 217,844 | 15.77 | % | $ | 331,760 | ||||||
| NYMEX natural gas futures (11 contracts, settlement date March 28, 2012) | 161,614 | 11.70 | 338,690 | |||||||||
| NYMEX natural gas futures (11 contracts, settlement date September 26, 2012) | 120,352 | 8.71 | 365,420 | |||||||||
| NYMEX natural gas futures (10 contracts, settlement date October 29, 2012) | 102,630 | 7.43 | 347,900 | |||||||||
| $ | 602,440 | 43.61 | % | $ | 1,383,770 | |||||||
The accompanying notes are an integral part of these financial statements.
| 35 |
TEUCRIUM NATURAL GAS FUND
STATEMENTS OF OPERATIONS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 1, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Income | ||||||||
| Realized and unrealized (loss) gain on trading of commodity futures contracts: | ||||||||
| Realized loss on commodity futures contracts | $ | (504,280 | ) | $ | (324,188 | ) | ||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | 132,570 | 43,520 | ||||||
| Interest income | 235 | 696 | ||||||
| Total loss | (371,475 | ) | (279,972 | ) | ||||
| Expenses | ||||||||
| Management fees | - | 3,628 | ||||||
| Professional fees | 2,456 | 29,349 | ||||||
| Distribution and marketing fees | 1,917 | 19,032 | ||||||
| Custodian fees and expenses | 891 | 20,884 | ||||||
| Business permits and licenses fees | 49 | - | ||||||
| General and administrative expenses | 4 | - | ||||||
| Brokerage commissions | 282 | 449 | ||||||
| Other expenses | 197 | 3,100 | ||||||
| Total expenses | 5,796 | 76,442 | ||||||
| Net loss | $ | (377,271 | ) | $ | (356,414 | ) | ||
| Net loss per share | $ | (2.79 | ) | $ | (0.96 | ) | ||
| Net loss per weighted average share | $ | (3.11 | ) | $ | (2.43 | ) | ||
| Weighted average shares outstanding | 121,433 | 146,614 | ||||||
The accompanying notes are an integral part of these financial statements.
| 36 |
TEUCRIUM NATURAL GAS FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 1, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Operations | ||||||||
| Net loss | $ | (377,271 | ) | $ | (356,414 | ) | ||
| Capital transactions | ||||||||
| Issuance of Shares | 648,677 | 5,000,000 | ||||||
| Redemption of Shares | - | (2,239,408 | ) | |||||
| Total capital transactions | 648,677 | 2,760,592 | ||||||
| Net change in net assets | 271,406 | 2,404,178 | ||||||
| Net assets, beginning of period | 1,381,367 | 100 | ||||||
| Net assets, end of period | $ | 1,652,773 | $ | 2,404,278 | ||||
| Net asset value per share at beginning of period | $ | 13.81 | $ | 25.00 | ||||
| At end of period | $ | 11.02 | $ | 24.04 | ||||
The accompanying notes are an integral part of these financial statements.
| 37 |
TEUCRIUM NATURAL GAS FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 1, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (377,271 | ) | $ | (356,414 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | (132,570 | ) | (43,520 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Collateral, due from broker | 81,598 | (143,325 | ) | |||||
| Interest receivable | (10 | ) | (197 | ) | ||||
| Other assets | 3,055 | (19,510 | ) | |||||
| Management fee payable to Sponsor | - | 188 | ||||||
| Other liabilities | (6,278 | ) | 53,333 | |||||
| Net cash used in operating activities | (431,476 | ) | (509,445 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Shares | 648,677 | 5,000,000 | ||||||
| Redemption of Shares | - | (2,239,408 | ) | |||||
| Net cash provided by financing activities | 648,677 | 2,760,592 | ||||||
| Net change in cash and cash equivalents | 217,201 | 2,251,147 | ||||||
| Cash and cash equivalents, beginning of period | 1,277,159 | 100 | ||||||
| Cash and cash equivalents, end of period | $ | 1,494,360 | $ | 2,251,247 | ||||
The accompanying notes are an integral part of these financial statements.
| 38 |
NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 – Organization and Operation
Teucrium Natural Gas Fund (“NAGS” 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. NAGS issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. NAGS continuously offers Creation Baskets consisting of 50,000 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 “NAGS,” 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 natural gas 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 NAGS 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 following: the nearest to spot month March, April, October and November Henry Hub Natural Gas Futures Contracts traded on the New York Mercantile Exchange (“NYMEX”), weighted 25% equally in each contract month. (This weighted average of the four referenced Natural Gas Futures Contracts is referred to herein as the “NAGS Benchmark,” and the four Natural Gas Futures Contracts that at any given time make up the Benchmark are referred to herein as the “NAGS Benchmark Component Futures Contracts.”)
NAGS commenced investment operations on February 1, 2011and has a fiscal year ending December 31. NAGS’ 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.
On October 22, 2010, NAGS’ initial registration of 40,000,000 shares on Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On February 1, 2011, NAGS listed its shares on the NYSE Arca under the ticker symbol “NAGS”. On the day prior to that, NAGS issued 200,000 shares in exchange for $5,000,000 at NAGS’ initial NAV of $25 per share. NAGS also commenced investment operations on February 1, 2011 by purchasing commodity futures contracts traded on the NYMEX.
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K and Form 10-K/A, as well as the most recent amendment to Form S-1, dated May 1, 2012, as applicable. The operating results from January 1, 2012 through March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Note 2 – 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.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to current period presentation.
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 statement of operations 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 statement 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 at a rate equal to 85% of the overnight of Federal Funds Rate. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.
| 39 |
Brokerage Commissions
Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.
Income Taxes
For tax purposes, the Fund will be treated as a partnership. The Fund does not record a provision for income taxes because the partners 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.
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic (“ASC”) 740-10-25-6, “Accounting for Uncertainty in Income Taxes,” 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. The Fund is subject to income tax examinations by major taxing authorities for all tax years since inception. 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 March 31, 2012 and December 31, 2011. 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, on-going analysis of and changes to tax laws, regulations, and interpretations thereof.
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three months ended March 31, 2012 and the year ended December 31, 2011.
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.
Creations and Redemptions
Authorized Purchasers may purchase Creation Baskets consisting of 50,000 shares from NAGS. The amount of the proceeds required to purchase a Creation Basket will be equal to the net asset value 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 NAGS only in blocks of 50,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the net asset value 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 Amendment No 2 to Form S-1, 100,000 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 Equivalents
Cash equivalents are highly-liquid investments with original maturity dates of three months or less at inception. 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 a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. NAGS had a balance of $1,494,360 and $1,277,159 in money market funds on March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities.
| 40 |
Collateral, Due from/to Broker
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 (ranging upward from less than 2%) 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, |
| · | Subtracting any liabilities, and |
The administrator, the Bank of New York Mellon, 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 Natural Gas Futures Contracts, the administrator uses the NYMEX closing price (typically 2:30 p.m. New York time). 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 natural gas interests is determined based on the value of the commodity or futures contract underlying such natural gas 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 natural gas 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 natural gas interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.
Sponsor Fee and Allocation of Expenses
The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Fund. For these services, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum. For the period January 1, 2012 through March 31, 2012, the Fund recorded $0 in management fees to the Sponsor. The Sponsor has waived, for a period to be instituted again at the Sponsor’s discretion, the management fee for this Fund. This action by the Sponsor resulted in an approximate $3,700 reduction in expenses to the Fund from January 1, 2012 through March 31, 2012. For the period from the commencement of operations (February 1, 2011) through March 31, 2011, the Fund recorded $3,628 in management fees to the Sponsor. 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”), 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 managed by the Sponsor are allocated to each fund based on activity drivers deemed most appropriate by the Sponsor for such expenses. All asset-based fees and expenses are calculated on prior day’s net assets. On July 29, 2011, the Sponsor filed a Form 8-K with the SEC which stated that effective August 1, 2011, the Sponsor has agreed to voluntarily cap the management fee and expenses of NAGS at 1.5% per annum of the daily net assets of the Fund. The cap may be terminated by the Sponsor at any time with 90 days’ notice. Although this action did not result in any expenses that would have been borne by the Fund absent this cap being paid by the Sponsor for the period of January 1, 2012 through March 31, 2012, expenses of the Fund may be paid by the Sponsor in future periods.
| 41 |
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 securities. 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 security to security and is affected by a wide variety of factors including, the type of security, whether the security 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 securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities 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 securities. This condition could cause a security 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 Fund records its 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 Chicago Board of Trade (“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.
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 units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
| 42 |
New Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Amendments of the FASB Accounting Standards Codification and Disclosures about Offsetting Assets and Liabilities in U.S. GAAP and IFRS.” ASU No. 2011-11 clarifies existing requirements for balance sheet offsetting and for disclosures about the offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position in converged guidance of the FASB and the International Accounting Standards Board. The amendments are to be applied retrospectively for all comparative periods presented. For public entities, the amendments are effective for annual reporting periods beginning on or after January 1, 2013. The implementation of ASU No. 2011-11 will not be adopted prior to January 1, 2013, and we are evaluating the material impacts on the financial statement disclosures for the Fund.
Note 3 – 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 2. The following table presents information about the Fund’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
| March 31, 2012 | ||||||||||||||||
| Balance | ||||||||||||||||
| Assets | as of | |||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Cash equivalents | $ | 1,494,360 | $ | - | $ | - | $ | 1,494,360 | ||||||||
| Balance | ||||||||||||||||
| Liabilities | as of | |||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Commodity futures contracts | $ | 469,870 | $ | - | $ | - | $ | 469,870 | ||||||||
| December 31, 2011 | ||||||||||||||||
| Balance | ||||||||||||||||
| Assets | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Cash equivalents | $ | 1,277,159 | $ | - | $ | - | $ | 1,277,159 | ||||||||
| Balance | ||||||||||||||||
| Liabilities | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Commodity futures contracts | $ | 602,440 | $ | - | $ | - | $ | 602,440 | ||||||||
During the period ended March 31, 2012 and from the commencement of operations (February 1, 2011) through March 31, 2011, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.
Note 4 -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 periods ended March 31, 2012 and 2011, the Fund had invested only in natural gas commodity futures contracts.
| 43 |
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 Futures Commission Merchant (“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 tables identify the fair value amounts of derivative instruments included in the statement of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of master netting arrangements and have been reduced by the application of cash collateral receivables and payables with its counterparties. The following tables also identify the net gain and loss amounts included in the statements of operations as realized and unrealized gain on trading of commodity futures contracts, categorized by primary underlying risk, for the period January 1, 2012 to March 31, 2012 and for the period from commencement of operations (February 1, 2011) to March 31, 2011.
At March 31, 2012, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | - | $ | (469,870 | ) | $ | (469,870 | ) | ||||
At December 31, 2011, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | - | $ | (602,440 | ) | $ | (602,440 | ) | ||||
The following is a summary of realized and unrealized gains and losses of the derivative instruments utilized by the Fund:
For the period January 1, 2012 to March 31, 2012
| Realized Loss on | Net Change in Unrealized Gain | |||||||
| Primary underlying risk | Derivative Instruments | on Derivative Instruments | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | (504,280 | ) | $ | 132,570 | |||
For the period from commencement of operations (February 1, 2011) to March 31, 2011
| Realized Loss on | Net Change in Unrealized Gain | |||||||
| Primary underlying risk | Derivative Instruments | on Derivative Instruments | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | (324,188 | ) | $ | 43,520 | |||
| 44 |
Volume of Derivative Activities
At March 31, 2012, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 1,662,870 | 56 | |||||
At December 31, 2011, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 1,383,770 | 43 | |||||
Note 5 - Financial Highlights
The following table presents per unit performance data and other supplemental financial data for the period January 1, 2012 through March 31, 2012 and from commencement of operations (February 1, 2011) through March 31, 2011. This information has been derived from information presented in the financial statements.
| Per Share Operation Performance for January 1 through March 31, 2012 | ||||
| Net asset value at beginning of period | $ | 13.81 | ||
| Income (loss) from investment operations: | ||||
| Investment income | - | |||
| Net realized and unrealized loss on commodity futures contracts | (2.75 | ) | ||
| Total expenses | (0.04 | ) | ||
| Net decrease in net asset value | (2.79 | ) | ||
| Net asset value at end of period | $ | 11.02 | ||
| Total Return | (20.20 | )% | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 1.57 | % | ||
| Net investment loss | (1.51 | )% |
| Per Share Operation Performance from commencement of operations (February 1, 2011) through March 31, 2011 | ||||
| Net asset value at beginning of period | $ | 25.00 | ||
| Income (loss) from investment operations: | ||||
| Investment income | 0.01 | |||
| Net realized and unrealized loss on commodity futures contracts | (0.45 | ) | ||
| Total expenses | (0.52 | ) | ||
| Net decrease in net asset value | (0.96 | ) | ||
| Net asset value at end of period | $ | 24.04 | ||
| Total Return | (3.84 | )% | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 13.65 | % | ||
| Net investment loss | (13.52 | )% |
On July 29, 2011, the Sponsor filed a Form 8-K with the SEC which stated that effective August 1, 2011, the Sponsor has agreed to voluntarily cap the management fee and expenses of NAGS at 1.5% per annum of the daily net assets of the Fund. The cap may be terminated by the Sponsor at any time with 90 days’ notice. This action by the Sponsor resulted in an approximate $3,700 reduction in expenses to the Fund for the period January 1, 2012 through March 31, 2012. The Sponsor has waived, for a period to be instituted again at the Sponsor’s discretion, the management fee for this Fund. Although this action did not result in any expenses that would have been borne by the Fund absent this cap being paid by the Sponsor for the period of January 1, 2012 through March 31, 2012, expenses of the Fund may be paid by the Sponsor in future periods.
| 45 |
Total returns are calculated based on the change in value during the period. An individual shareholder’s total return and ratio may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from the Fund.
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 under report. The asset-based per share data in the Financial Highlights are calculated using the prior day’s net assets consistent with the methodology used to calculate asset-based fees and expenses.
Note 6 - 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 will not be obligated to reimburse the Sponsor.
Note 7 - Subsequent Events
The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.
For the period April 1, 2012 through May 9, 2012, on May 1, 2012, the SEC declared effective Post-Effective Amendment No. 3 to the Registration Statement (Number 333- 167593) on Form S-1 for the Fund.
| 46 |
TEUCRIUM WTI CRUDE OIL FUND
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 3,247,856 | $ | 4,139,910 | ||||
| Commodity futures contracts | 340,494 | 116,142 | ||||||
| Collateral, due from broker | - | 157,791 | ||||||
| Interest receivable | 142 | 215 | ||||||
| Other assets | 45,703 | 48,532 | ||||||
| Total assets | 3,634,195 | 4,462,590 | ||||||
| Liabilities | ||||||||
| Commodity futures contracts | - | 168 | ||||||
| Collateral, due to broker | 124,584 | - | ||||||
| Management fee payable to Sponsor | 3,034 | 4,658 | ||||||
| Other liabilities | 23,940 | 12,751 | ||||||
| Total liabilities | 151,558 | 17,577 | ||||||
| Net assets | $ | 3,482,637 | $ | 4,445,013 | ||||
| Shares outstanding | 75,002 | 100,002 | ||||||
| Net asset value per share | $ | 46.43 | $ | 44.45 | ||||
| Market value per share (closing price) | $ | 46.46 | $ | 44.58 | ||||
The accompanying notes are an integral part of these financial statements.
| 47 |
TEUCRIUM WTI CRUDE OIL FUND
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | Notional | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 3,247,856 | 93.26 | % | ||||||||
| Commodity futures contracts | ||||||||||||
| United States WTI crude oil futures contracts | ||||||||||||
| WTI crude oil futures (12 contracts, settlement date May 22, 2012) | $ | 82,764 | 2.38 | % | $ | 1,242,480 | ||||||
| WTI crude oil futures (10 contracts, settlement date November 16, 2012) | 94,975 | 2.73 | 1,052,300 | |||||||||
| WTI crude oil futures (12 contracts, settlement date November 20, 2013) | 162,755 | 4.67 | 1,227,120 | |||||||||
| Total commodity futures contracts | $ | 340,494 | 9.78 | % | $ | 3,521,900 | ||||||
The accompanying notes are an integral part of these financial statements.
| 48 |
TEUCRIUM WTI CRUDE OIL FUND
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | Notional | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 4,139,910 | 93.14 | % | ||||||||
| Commodity futures contracts | ||||||||||||
| United States WTI crude oil futures contracts | ||||||||||||
| WTI crude oil futures (14 contracts, settlement date November 16, 2012) | $ | 15,839 | 0.35 | % | $ | 1,373,540 | ||||||
| WTI crude oil futures (16 contracts, settlement date November 20, 2013) | 100,303 | 2.26 | 1,516,160 | |||||||||
| Total commodity futures contracts | $ | 116,142 | 2.61 | % | $ | 2,889,700 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States WTI crude oil futures contracts | ||||||||||||
| WTI crude oil futures (16 contracts, settlement date May 22, 2012) | $ | 168 | 0.00 | % | $ | 1,591,680 | ||||||
The accompanying notes are an integral part of these financial statements.
| 49 |
TEUCRIUM WTI CRUDE OIL FUND
STATEMENTS OF OPERATIONS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 23, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Income | ||||||||
| Realized and unrealized gain on trading of commodity futures contracts: | ||||||||
| Realized gain on commodity futures contracts | $ | 5,610 | $ | 5,500 | ||||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | 224,520 | 381,860 | ||||||
| Interest income | 655 | 506 | ||||||
| Total income | 230,785 | 387,866 | ||||||
| Expenses | ||||||||
| Management fees | 9,862 | 5,259 | ||||||
| Professional fees | 2,184 | 18,406 | ||||||
| Distribution and marketing fees | 24,752 | 11,935 | ||||||
| Custodian fees and expenses | 32,210 | 13,097 | ||||||
| Brokerage commissions | 95 | 207 | ||||||
| Other expenses | - | 1,944 | ||||||
| Total expenses | 69,103 | 50,848 | ||||||
| Net Income | $ | 161,682 | $ | 337,018 | ||||
| Net income per share | $ | 1.98 | $ | 3.37 | ||||
| Net income per weighted average share | $ | 1.89 | $ | 3.37 | ||||
| Weighted average shares outstanding | 85,442 | 100,002 | ||||||
The accompanying notes are an integral part of these financial statements.
| 50 |
TEUCRIUM WTI CRUDE OIL FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 23, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Operations | ||||||||
| Net Income | $ | 161,682 | $ | 337,018 | ||||
| Capital transactions | ||||||||
| Issuance of Shares | - | 5,000,000 | ||||||
| Redemption of Shares | (1,124,058 | ) | - | |||||
| Total capital transactions | (1,124,058 | ) | 5,000,000 | |||||
| Net change in net assets | (962,376 | ) | 5,337,018 | |||||
| Net assets, beginning of period | 4,445,013 | 100 | ||||||
| Net assets, end of period | $ | 3,482,637 | $ | 5,337,118 | ||||
| Net asset value per share at beginning of period | $ | 44.45 | $ | 50.00 | ||||
| At end of period | $ | 46.43 | $ | 53.37 | ||||
The accompanying notes are an integral part of these financial statements.
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TEUCRIUM WTI CRUDE OIL FUND
STATEMENT OF CASH FLOWS
(Unaudited)
| From commencement of | ||||||||
| Three months ended | operations (February 23, 2011) | |||||||
| March 31, 2012 | through March 31, 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 161,682 | $ | 337,018 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | (224,520 | ) | (381,860 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Collateral, due from broker | 157,791 | - | ||||||
| Interest receivable | 73 | (391 | ) | |||||
| Other assets | 2,829 | (8,304 | ) | |||||
| Collateral, due to broker | 124,584 | 702 | ||||||
| Management fee payable to Sponsor | (1,624 | ) | 4,431 | |||||
| Other liabilities | 11,189 | 33,446 | ||||||
| Net cash provided by (used in) operating activities | 232,004 | (14,958 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of Shares | - | 5,000,000 | ||||||
| Redemption of Shares | (1,124,058 | ) | - | |||||
| Net cash(used in) provided by financing activities | (1,124,058 | ) | 5,000,000 | |||||
| Net change in cash and cash equivalents | (892,054 | ) | 4,985,042 | |||||
| Cash and cash equivalents, beginning of period | 4,139,910 | 100 | ||||||
| Cash and cash equivalents, end of period | $ | 3,247,856 | $ | 4,985,142 | ||||
The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 – Organization and Operation
Teucrium WTI Crude Oil Fund (“CRUD” 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. CRUD issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. CRUD 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 “CRUD,” 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 crude oil 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 CRUD 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 futures contracts for WTI crude oil, also known as Texas Light Sweet Crude Oil (“Oil Futures Contracts”) traded on the NYMEX, specifically (1) the nearest to spot June or December Oil Futures Contract, weighted 35%; (2) the June or December Oil Futures Contract following the aforementioned (1), weighted 30%; and (3) the next December Oil Future Contract that immediately follows the aforementioned (2), weighted 35%. (This weighted average of the three referenced WTI Crude Oil Futures Contracts is referred to herein as the “CRUD Benchmark,” and the three WTI Crude Oil Futures Contracts that at any given time make up the Benchmark are referred to herein as the “CRUD Benchmark Component Futures Contracts.”)
CRUD commenced investment operations on February 23, 2011 and has a fiscal year ending December 31. CRUD’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.
On October 22, 2010, CRUD’s initial registration of 15,000,000 shares on Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On February 23, 2011, CRUD listed its shares on the NYSE Arca under the ticker symbol “CRUD.” On the day prior to that, CRUD issued 100,000 shares in exchange for $5,000,000 at CRUD’s initial NAV of $50 per share. CRUD also commenced investment operations on February 23, 2011 by purchasing commodity futures contracts traded on the NYMEX. On December 31, 2010, CRUD had two shares outstanding, which were owned by the Sponsor.
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K and Form 10-K/A, as well as the most recent amendment to Form S-1, dated May 1, 2012, as applicable. The operating results from January 1, 2012 through March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Note 2 – 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.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to current period presentation.
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 statement of operations 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 statement 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 at a rate equal to 85% of the overnight of Federal Funds Rate. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.
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Brokerage Commissions
Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.
Income Taxes
For tax purposes, the Fund will be treated as a partnership. The Fund does not record a provision for income taxes because the partners 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.
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic (“ASC”) 740-10-25-6, “Accounting for Uncertainty in Income Taxes,” 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. The Fund is subject to income tax examinations by major taxing authorities for all tax years since inception. 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 March 31, 2012 and December 31, 2011. 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, on-going analysis of and changes to tax laws, regulations, and interpretations thereof.
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the three months ended March 31, 2012 and and the year ended December 31, 2011.
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.
Creations and Redemptions
Authorized Purchasers may purchase Creation Baskets consisting of 25,000 shares from CRUD. The amount of the proceeds required to purchase a Creation Basket will be equal to the net asset value 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 CRUD 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 net asset value 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.
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 original maturity dates of three months or less at inception. 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 a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. CRUD had a balance of $3,247,856 and $4,139,910 in money market funds at March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities.
| 54 |
Collateral, Due from/to Broker
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 (ranging upward from less than 2%) 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,
| |
| · | Subtracting any liabilities, and |
The administrator, the Bank of New York Mellon, 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 WTI Crude Oil Futures Contracts, the administrator uses the NYMEX closing price (typically 2:30 p.m. New York time). 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 crude oil interests is determined based on the value of the commodity or futures contract underlying such crude oil 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 crude oil 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 crude oil interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.
Sponsor Fee and Allocation of Expenses
The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Fund. For these services, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum. For the period January 1, 2012 through March 31, 2012, the Fund recorded $9,862 in management fees to the Sponsor. For the period from the commencement of operations (February 23, 2011) through March 31, 2011, the Fund recorded $5,259 in management fees to the Sponsor. 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, the Financial Industry Regulatory Authority (“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 managed by the Sponsor are allocated to each fund based on activity drivers deemed most appropriate by the Sponsor for such expenses. All asset-based fees and expenses are calculated on prior day’s net assets.
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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 securities. 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 security to security and is affected by a wide variety of factors including, the type of security, whether the security 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 securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities 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 securities. This condition could cause a security 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 Fund records its 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 Chicago Board of Trade (“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.
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 units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
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New Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Amendments of the FASB Accounting Standards Codification and Disclosures about Offsetting Assets and Liabilities in U.S. GAAP and IFRS.” ASU No. 2011-11 clarifies existing requirements for balance sheet offsetting and for disclosures about the offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position in converged guidance of the FASB and the International Accounting Standards Board. The amendments are to be applied retrospectively for all comparative periods presented. For public entities, the amendments are effective for annual reporting periods beginning on or after January 1, 2013. The implementation of ASU No. 2011-11 will not be adopted prior to January 1, 2013, and we are evaluating the material impacts on the financial statement disclosures for the Fund.
Note 3 – 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 2. The following table presents information about the Fund’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
March 31, 2012
| Balance | ||||||||||||||||
| Assets | as of | |||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Cash equivalents | $ | 3,247,856 | $ | - | $ | - | $ | 3,247,856 | ||||||||
| Commodity futures contracts | 340,494 | - | - | 340,494 | ||||||||||||
| Total | $ | 3,588,350 | $ | - | $ | - | $ | 3,588,350 | ||||||||
December 31, 2011
| Balance | ||||||||||||||||
| Assets | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Cash equivalents | $ | 4,139,910 | $ | - | $ | - | $ | 4,139,910 | ||||||||
| Commodity futures contracts | 116,142 | - | - | 116,142 | ||||||||||||
| Total | $ | 4,256,052 | $ | - | $ | - | $ | 4,256,052 | ||||||||
| Balance | ||||||||||||||||
| Liabilities | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Commodity futures contracts | $ | 168 | $ | - | $ | - | $ | 168 | ||||||||
During the periods ended March 31, 2012 and from the commencement of operations (February 23, 2011) through March 31, 2011, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.
Note 4 -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 three months ended March 31, 2012 and March 31, 2011, the Fund had invested only in crude oil 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.
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The purchase and sale of futures contracts requires margin deposits with a Futures Commission Merchant (“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 tables identify the fair value amounts of derivative instruments included in the statement of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain and loss amounts included in the statement of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the period January 1, 2012 to March 31, 2012 and for the period from commencement of operations (February 23, 2011) through March 31, 2011.
At March 31, 2012, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | 340,494 | $ | - | $ | 340,494 | ||||||
At December 31, 2011, the fair value of derivative instruments was as follows:
| Primary underlying risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | 116,142 | $ | (168 | ) | $ | 115,974 | |||||
The following is a summary of realized and unrealized gains and losses of the derivative instruments utilized by the Fund:
For the period January 1, 2012 to March 31, 2012
| Realized Gain on | Net Change in Unrealized Gain | |||||
| Primary underlying risk | Derivative Instruments | on Derivative Instruments | ||||
| Commodity price | ||||||
| Commodity futures contracts | $ | 5,610 | $ | 224,520 | ||
For the period from commencement of operations (February 23, 2011) to March 31, 2011
| Realized Gain on | Net Change in Unrealized Gain | |||||
| Primary underlying risk | Derivative Instruments | on Derivative Instruments | ||||
| Commodity price | ||||||
| Commodity futures contracts | $ | 5,500 | $ | 381,860 | ||
Volume of Derivative Activities
At March 31, 2012, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 3,521,900 | 34 | |||||
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At December 31, 2011, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 4,481,380 | 46 | |||||
Note 5 - Financial Highlights
The following table presents per unit performance data and other, supplemental financial data for the period January 1, 2012 through March 31, 2012 and from commencement of operations (February 23, 2011) through March 31, 2011. This information has been derived from information presented in the financial statements.
| Per Share Operation Performance for January 1 through March 31, 2012 | ||||
| Net asset value at beginning of period | $ | 44.45 | ||
| Income from investment operations: | ||||
| Investment income | 0.01 | |||
| Net realized and unrealized gain on commodity futures contracts | 2.78 | |||
| Total expenses | (0.81 | ) | ||
| Net increase in net asset value | 1.98 | |||
| Net asset value at end of period | $ | 46.43 | ||
| Total Return | 4.45 | % | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 7.02 | % | ||
| Net investment loss | (6.95 | )% |
| Per Share Operation Performance from commencement of operations (February 23, 2011) through March 31, 2011 | ||||
| Net asset value at beginning of period | $ | 50.00 | ||
| Income from investment operations: | ||||
| Investment income | 0.01 | |||
| Net realized and unrealized loss on commodity futures contracts | 3.87 | |||
| Total expenses | (0.51 | ) | ||
| Net increase in net asset value | 3.37 | |||
| Net asset value at end of period | $ | 53.37 | ||
| Total Return | 6.74 | % | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 9.41 | % | ||
| Net investment loss | (9.31 | )% |
Total returns are calculated based on the change in value during the period. An individual shareholder’s total return and ratios may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from the Fund. The ratios, excluding non-recurring expenses, have been annualized.
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 under report. The asset-based per share data in the Financial Highlights are calculated using the prior day’s net assets consistent with the methodology used to calculate asset-based fees and expenses.
Note 6 - 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 will not be obligated to reimburse the Sponsor.
Note 7 – Subsequent Events
The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.
For the period April 1, 2012 through May 9, 2012, on May 1, 2012, the SEC declared effective Post-Effective Amendment No. 3 to the Registration Statement (Number 333- 167593) on Form S-1 for the Fund.
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TEUCRIUM SOYBEAN FUND
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 6,094,983 | $ | 2,055,369 | ||||
| Commodity futures contracts | 172,803 | 9,994 | ||||||
| Collateral, due from broker | 362,797 | 290,694 | ||||||
| Interest receivable | 116 | 84 | ||||||
| Other assets | 5,503 | - | ||||||
| Total assets | 6,636,202 | 2,356,141 | ||||||
| Liabilities | ||||||||
| Payable for shares redeemed | 601,426 | - | ||||||
| Commodity futures contracts | - | 164,663 | ||||||
| Management fee payable to Sponsor | 2,435 | 1,782 | ||||||
| Other liabilities | 17,991 | 3,266 | ||||||
| Total liabilities | 621,852 | 169,711 | ||||||
| Net assets | $ | 6,014,350 | $ | 2,186,430 | ||||
| Shares outstanding | 250,004 | 100,004 | ||||||
| Net asset value per share | $ | 24.06 | $ | 21.86 | ||||
| Market value per share (closing price) | $ | 24.10 | $ | 22.06 | ||||
The accompanying notes are an integral part of these financial statements.
| 60 |
TEUCRIUM SOYBEAN FUND
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | Notional | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 6,094,983 | 101.34 | % | ||||||||
| Commodity futures contracts | ||||||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT Soybean futures (30 contracts, settlement date July 13, 2012) | $ | 111,022 | 1.85 | % | $ | 2,112,375 | ||||||
| CBOT Soybean futures (26 contracts, settlement date November 14, 2012) | 49,306 | 0.82 | 1,765,400 | |||||||||
| CBOT Soybean futures (34 contracts, settlement date November 14, 2013) | 12,475 | 0.21 | 2,109,700 | |||||||||
| $ | 172,803 | 2.88 | % | $ | 5,987,475 | |||||||
The accompanying notes are an integral part of these financial statements.
| 61 |
TEUCRIUM SOYBEAN FUND
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | Notional | ||||||||||
| Description: Assets | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 2,055,369 | 94.01 | % | ||||||||
| Commodity futures contracts | ||||||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT Soybean futures (11 contracts, settlement date May 14, 2012) | $ | 9,994 | 0.46 | % | $ | 669,625 | ||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States soybean futures contracts | ||||||||||||
| CBOT Soybean futures (12 contracts, settlement date March 14, 2012) | $ | 81,898 | 3.75 | % | $ | 724,650 | ||||||
| CBOT Soybean futures (13 contracts, settlement date November 14, 2012) | 82,765 | 3.78 | 782,763 | |||||||||
| $ | 164,663 | 7.53 | % | $ | 1,507,413 | |||||||
The accompanying notes are an integral part of these financial statements.
| 62 |
TEUCRIUM SOYBEAN FUND
STATEMENT OF OPERATIONS
(Unaudited)
| Three months ended March 31, 2012 | ||||
| Income | ||||
| Realized and unrealized gain on trading of commodity futures contracts: | ||||
| Realized gain on commodity futures contracts | $ | 10,341 | ||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | 327,472 | |||
| Interest income | 400 | |||
| Total income | 338,213 | |||
| Expenses | ||||
| Management fees | 6,050 | |||
| Distribution and marketing fees | 24,752 | |||
| Custodian fees and expenses | 32,210 | |||
| Brokerage commissions | 343 | |||
| Total expenses | 63,355 | |||
| Net Income | $ | 274,858 | ||
| Net income per share | $ | 2.21 | ||
| Net income per weighted average share | $ | 2.56 | ||
| Weighted average shares outstanding | 107,422 | |||
The accompanying notes are an integral part of these financial statements.
| 63 |
TEUCRIUM SOYBEAN FUND
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
| Three months ended | ||||
| March 31, 2012 | ||||
| Operations | ||||
| Net income | $ | 274,858 | ||
| Capital transactions | ||||
| Issuance of Shares | 4,154,488 | |||
| Redemption of Shares | (601,426 | ) | ||
| Total capital transactions | 3,553,062 | |||
| Net change in net assets | 3,827,920 | |||
| Net assets, beginning of period | 2,186,430 | |||
| Net assets, end of period | $ | 6,014,350 | ||
| Net asset value per share at beginning of period | $ | 21.86 | ||
| At end of period | $ | 24.06 | ||
The accompanying notes are an integral part of these financial statements.
| 64 |
TEUCRIUM SOYBEAN FUND
STATEMENT OF CASH FLOWS
(Unaudited)
| Three months ended | ||||
| March 31, 2012 | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 274,858 | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Net change in unrealized appreciation or depreciation on commodity futures contracts | (327,472 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Collateral, due from broker | (72,103 | ) | ||
| Interest receivable | (32 | ) | ||
| Other assets | (5,503 | ) | ||
| Management fee payable to Sponsor | 653 | |||
| Other liabilities | 14,725 | |||
| Net cash used in operating activities | (114,874 | ) | ||
| Cash flows from financing activities: | ||||
| Proceeds from sale of Shares | 4,154,488 | |||
| Redemption of Shares, net of payable for shares redeemed | - | |||
| Net cash used in financing activities | 4,154,488 | |||
| Net change in cash and cash equivalents | 4,039,614 | |||
| Cash and cash equivalents, beginning of period | 2,055,369 | |||
| Cash and cash equivalents, end of period | $ | 6,094,983 | ||
The accompanying notes are an integral part of these financial statements.
| 65 |
NOTES TO FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
Note 1 – Organization and Operation
Teucrium Soybean Fund (“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. SOYB issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. SOYB 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 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%.
SOYB commenced investment operations on September 19, 2011 and has a fiscal year ending December 31. SOYB’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.
On June 17, 2011, SOYB’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, SOYB listed its shares on the NYSE Arca under the ticker symbol “SOYB.” On the business day prior to that, SOYB issued 100,000 shares in exchange for $2,500,000 at SOYB’s initial NAV of $25 per share. SOYB also commenced investment operations on September 19, 2011 by purchasing soybean commodity futures contracts traded on the CBOT. On December 31, 2010, SOYB had four shares outstanding, which were owned by the Sponsor.
The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosures required under accounting principles generally accepted in the United States of America (“GAAP”). The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the Fund’s financial statements for the interim period. It is suggested that these interim financial statements be read in conjunction with the financial statements and related notes included in the Trust’s Annual Report on Form 10-K and Form 10-K/A, as well as the most recent amendment to Form S-1, dated June 17, 2011, as applicable. The operating results from January 1, 2012 through March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.
Note 2 – 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 statement of operations 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 statement 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 at a rate equal to 85% of the overnight of Federal Funds Rate. 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 a full-turn basis.
| 66 |
Income Taxes
For tax purposes, the Fund will be treated as a partnership. The Fund does not record a provision for income taxes because the partners 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. In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic (“ASC”) 740-10-25-6, “Accounting for Uncertainty in Income Taxes,” 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. The Fund is subject to income tax examinations by major taxing authorities for all tax years since inception. 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 March 31, 2012 and December 31, 2011. 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, on-going analysis of and changes to tax laws, regulations, and interpretations thereof.
The Fund recognizes interest accrued related to unrecognized tax benefits and penalties related to unrecognized tax benefits in income tax fees payable, if assessed. No interest expense or penalties have been recognized as of and for the period ended March 31, 2012.
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.
Creations and Redemptions
Authorized Purchasers may purchase Creation Baskets consisting of 25,000 shares from SOYB. The amount of the proceeds required to purchase a Creation Basket will be equal to the net asset value 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 SOYB 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 net asset value 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 size of a Creation Basket and a Redemption basket was changed effective March 5, 2012 from 50,000 to 25,000 shares.
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.
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 original maturity dates of three months or less at inception. 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 a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. SOYB had a balance of $6,094,983 and $2,055,369 in money market funds at March 31, 2012 and December 31, 2011, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities.
Collateral, Due from/to Broker
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 (ranging upward from less than 2%) 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.
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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,
| |
| · | Subtracting any liabilities, and |
The administrator, the Bank of New York Mellon, 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 (typically 2:15 p.m. New York time). 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 and Allocation of Expenses
The Sponsor is responsible for investing the assets of the Fund in accordance with the objectives and policies of the Fund. In addition, the Sponsor arranges for one or more third parties to provide administrative, custodial, accounting, transfer agency and other necessary services to the Fund. For these services, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum. For the period from January 1, 2012 through March 31, 2012, the Fund recorded $6,050 in management fees to the Sponsor. 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”), 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. For an initial period, the Sponsor waived the payment by the Fund of certain expenses. This election was subject to change by the Sponsor, at its discretion. For the period January 1, 2012 to March 31, 2012, this resulted in a reduction of fees to the fund of approximately $4,200. Certain aggregate expenses common to all funds managed by the Sponsor are allocated to each fund based on activity drivers deemed most appropriate by the Sponsor for such expenses. All asset-based fees and expenses are calculated on prior day’s net assets.
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.
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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 securities. 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 security to security and is affected by a wide variety of factors including, the type of security, whether the security 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 securities existed. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for securities 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 securities. This condition could cause a security 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 Fund records its 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 Chicago Board of Trade (“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.
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 units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units created or redeemed based on the amount of time the units were outstanding during such period.
New Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Amendments of the FASB Accounting Standards Codification and Disclosures about Offsetting Assets and Liabilities in U.S. GAAP and IFRS.” ASU No. 2011-11 clarifies existing requirements for balance sheet offsetting and for disclosures about the offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position in converged guidance of the FASB and the International Accounting Standards Board. The amendments are to be applied retrospectively for all comparative periods presented. For public entities, the amendments are effective for annual reporting periods beginning on or after January 1, 2013. The implementation of ASU No. 2011-11 will not be adopted prior to January 1, 2013, and we are evaluating the material impacts on the financial statement disclosures for the Fund.
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Note 3 – 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 2. The following table presents information about the Fund’s assets and liabilities measured at fair value as of March 31, 2012 and December 31, 2011:
| March 31, 2012 | Balance | |||||||||||||||
| Assets | as of | |||||||||||||||
| March 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2012 | |||||||||||||
| Cash equivalents | $ | 6,094,983 | $ | - | $ | - | $ | 6,094,983 | ||||||||
| Commodity futures contracts | 172,803 | - | - | 172,803 | ||||||||||||
| Total | $ | 6,267,786 | $ | - | $ | - | $ | 6,267,786 | ||||||||
| December 31, 2011 | Balance | |||||||||||||||
| Assets | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Cash equivalents | $ | 2,055,369 | $ | - | $ | - | $ | 2,055,369 | ||||||||
| Commodity futures contracts | 9,994 | - | - | 9,994 | ||||||||||||
| Total | $ | 2,065,363 | $ | - | $ | - | $ | 2,065,363 | ||||||||
| Balance | ||||||||||||||||
| Liabilities | as of | |||||||||||||||
| December 31, | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | 2011 | |||||||||||||
| Commodity futures contracts | $ | 164,663 | $ | - | $ | - | $ | 164,663 | ||||||||
During the period ended March 31, 2012 the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.
Note 4 -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 three months ended March 31, 2012, the Fund had invested only in soybean 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 Futures Commission Merchant (“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.
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The following tables identify the fair value amounts of derivative instruments included in the statement of assets and liabilities as derivative contracts, categorized by primary underlying risk, at March 31, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain and loss amounts included in the statement of operations as realized and unrealized gains and losses on trading of commodity futures contracts, categorized by primary underlying risk, for the period from January 1, 2012 to March 31, 2012.
At March 31, 2012, the fair value of derivative instruments was as follows:
| Primary Underlying Risk | Asset Derivatives | Liability Derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | 172,803 | $ | - | $ | 172,803 | ||||||
At December 31, 2011, the fair value of derivative instruments was as follows:
| Primary Underlying Risk | Asset Derivatives | Liability derivatives | Net Derivatives | |||||||||
| Commodity price | ||||||||||||
| Commodity futures contracts | $ | 9,994 | $ | (164,663 | ) | $ | (154,669 | ) | ||||
The following is a summary of realized and unrealized gains and losses of the derivative instruments utilized by the Fund:
For the period from January 1, 2012 to March 31, 2012
| Realized Gain on | Net Change in Unrealized Gain | |||||||
| Primary underlying risk | Derivative Instruments | on Derivative Instruments | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 10,341 | $ | 327,472 | ||||
Volume of Derivative Activities
At March 31, 2012, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 5,987,475 | 90 | |||||
At December 31, 2011, the notional amounts and number of contracts, categorized by primary underlying risk, were as follows:
| Long exposure | ||||||||
| Notional | Number | |||||||
| Primary underlying risk | amounts | of contracts | ||||||
| Commodity price | ||||||||
| Commodity futures contracts | $ | 2,177,038 | 36 | |||||
Note 5 - Financial Highlights
The following table presents per unit performance data and other supplemental financial data for the period January 1, 2012 through March 31, 2012. This information has been derived from information presented in the financial statements.
| Per Share Operation Performance | ||||
| Net asset value at beginning of period | $ | 21.86 | ||
| Income from investment operations: | ||||
| Investment income | - | |||
| Net realized and unrealized gain on commodity futures contracts | 2.79 | |||
| Total Expenses | (0.59 | ) | ||
| Net increase in net asset value | 2.20 | |||
| Net asset value at end of period | $ | 24.06 | ||
| Total Return | 10.11 | % | ||
| Ratios to Average Net Assets (Annualized) | ||||
| Total expense | 10.51 | % | ||
| Net investment loss | (10.44 | )% |
| 71 |
Total returns are calculated based on the change in value during the period. An individual shareholder’s total return and ratios may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from the Fund. The ratios, excluding non-recurring expenses, have been annualized.
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 under report. The asset-based per share data in the Financial Highlights are calculated using the prior day’s net assets consistent with the methodology used to calculate asset-based fees and expenses.
Note 6 - 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 will not be obligated to reimburse the Sponsor.
Note 7 – Subsequent Events
The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.
| 72 |
TEUCRIUM SUGAR FUND
STATEMENTS OF ASSETS AND LIABILITIES
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Equity in BNY Mellon trading accounts: | ||||||||
| Cash and cash equivalents | $ | 5,005,868 | $ | 2,051,003 | ||||
| Commodity futures contracts | 23,489 | - | ||||||
| Collateral, due from broker | 340,671 | 398,593 | ||||||
| Interest receivable | 110 | 86 | ||||||
| Other assets | 5,316 | - | ||||||
| Total assets | 5,375,454 | 2,449,682 | ||||||
| Liabilities | ||||||||
| Payable for shares redeemed | 594,131 | - | ||||||
| Commodity futures contracts | 7,942 | 138,198 | ||||||
| Management fee payable to Sponsor | 2,340 | 1,973 | ||||||
| Other liabilities | 17,896 | 3,262 | ||||||
| Total liabilities | 622,309 | 143,433 | ||||||
| Net assets | $ | 4,753,145 | $ | 2,306,249 | ||||
| Shares outstanding | 200,004 | 100,004 | ||||||
| Net asset value per share | $ | 23.77 | $ | 23.06 | ||||
| Market value per share (closing price) | $ | 23.79 | $ | 22.93 | ||||
The accompanying notes are an integral part of these financial statements.
| 73 |
TEUCRIUM SUGAR FUND
SCHEDULE OF INVESTMENTS
March 31, 2012
(Unaudited)
| Fair | Percentage of | Notional | ||||||||||
| Description: Asset | Value | Net Assets | Amount | |||||||||
| Cash equivalents | ||||||||||||
| Money market funds | ||||||||||||
| Dreyfus Cash Management Plus | $ | 5,005,868 | 105.32 | % | ||||||||
| Commodity futures contracts | ||||||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (62 contracts, settlement date June 29, 2012) | $ | 987 | 0.02 | % | $ | 1,654,061 | ||||||
| ICE sugar futures (60 contracts, settlement date February 28, 2013) | 22,502 | 0.47 | 1,648,416 | |||||||||
| $ | 23,489 | 0.49 | % | $ | 3,302,477 | |||||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liability | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (53 contracts, settlement date September 28, 2012) | $ | 7,942 | 0.17 | % | $ | 1,416,923 | ||||||
The accompanying notes are an integral part of these financial statements.
| 74 |
TEUCRIUM SUGAR FUND
SCHEDULE OF INVESTMENTS
December 31, 2011
| Fair | Percentage of | |||||||
| Description: Assets | Value | Net Assets | ||||||
| Cash equivalents | ||||||||
| Money market funds | ||||||||
| Dreyfus Cash Management Plus | $ | 2,051,003 | 88.93 | % | ||||
| Fair | Percentage of | Notional | ||||||||||
| Description: Liabilities | Value | Net Assets | Amount | |||||||||
| Commodity futures contracts | ||||||||||||
| United States sugar futures contracts | ||||||||||||
| ICE sugar futures (32 contracts, settlement date April 30, 2012) | $ | 82,593 | 3.58 | % | $ | 822,528 | ||||||
| ICE sugar futures (27 contracts, settlement date June 29, 2012) | 37,908 | 1.64 | 682,215 | |||||||||
| ICE sugar futures (31 contracts, settlement date February 28, 2013) | 17,697 | 0.77 | 811,059 | |||||||||
| $ | 138,198 | 5.99 | % | $ | 2,315,802 | |||||||
The accompanying notes are an integral part of these financial statements.
| 75 |
TEUCRIUM SUGAR FUND
STATEMENT OF OPERATIONS
(Unaudited)
| Three months ended March 31, 2012 | ||||
| Income | ||||
| Realized and unrealized (loss) gain on trading of commodity futures contracts: | ||||
| Realized loss on commodity futures contracts | $ | (9,734 | ) | |
| Net change in unrealized appreciation or depreciation on commodity futures contracts | 153,745 | |||
| Interest income | 409 | |||
| Total income | 144,420 | |||
| Expenses | ||||
| Management fees | 6,209 | |||
| Distribution and marketing fees | 24,752 | |||
| Custodian fees and expenses | 32,210 | |||
| Brokerage commissions | 473 | |||
| Total expenses | 63,644 | |||
| Net income | $ | 80,776 | ||
| Net income per share | $ | 0.71 | ||
| Net income per weighted average share | $ | 0.77 | ||
| Weighted average shares outstanding | 105,224 | |||
The accompanying notes are an integral part of these financial statements.
| 76 |
TEUCRIUM SUGAR FUND
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
| Three months ended | ||||
| March 31, 2012 | ||||
| Operations | ||||
| Net income | $ | 80,776 | ||
| Capital transactions | ||||
| Issuance of Shares | 2,960,251 | |||
| Redemption of Shares | (594,131 | ) | ||
| Total capital transactions | 2,366,120 | |||
| Net change in net assets | 2,446,896 | |||
| Net assets, beginning of period | ||||