UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM
10-Q
|
☒
|
Quarterly report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the quarterly
period ended September 30, 2018.
|
|
|
|
OR
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☐
|
Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the transition
period
from
to
..
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|
Commission File Number:
001-34765
Teucrium
Commodity Trust
(Exact name of registrant as
specified in its charter)
|
|
Delaware
|
61-1604335
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
|
|
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115
Christina Landing Drive, Unit 2004
Wilmington, DE 19801
(Address of principal executive
offices) (Zip code)
(302) 543-5977
(Registrant’s telephone
number, including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
☒ Yes
☐ No
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit
and post such files).
☒ Yes
☐ No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, smaller reporting company or an emerging
growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer
☐
|
Accelerated filer
☒
|
Non-accelerated filer
☐
|
Smaller reporting company
☐
|
(Do not check if a smaller
reporting company)
|
Emerging growth company
☐
|
If an emerging growth company,
indicate by a check mark if the registrant has elected not to use
the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
☐ Yes
☒ No
Indicate the number of shares
outstanding of each of the issuer’s classes of common stock,
as of the last practicable date.
|
Total
Number of Outstanding
Shares as of November 7,
2018
|
Teucrium Corn
Fund
|
3,875,004
|
Teucrium Sugar
Fund
|
1,625,004
|
Teucrium Soybean
Fund
|
1,750,004
|
Teucrium Wheat
Fund
|
9,350,004
|
Teucrium Agricultural
Fund
|
75,002
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TEUCRIUM COMMODITY TRUST
Table of Contents
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Page
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3
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3
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118
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163
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168
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169
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169
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169
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187
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190
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190
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190
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191
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Part I. FINANCIAL
INFORMATION
Item 1. Financial
Statements.
Index to Financial
Statements
Documents
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Page
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TEUCRIUM COMMODITY
TRUST
|
|
|
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|
4
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5
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7
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8
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9
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10
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TEUCRIUM CORN
FUND
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26
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27
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29
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30
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|
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31
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|
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32
|
TEUCRIUM SOYBEAN
FUND
|
|
|
|
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45
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|
46
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48
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|
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49
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|
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50
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|
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51
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TEUCRIUM SUGAR
FUND
|
|
|
|
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64
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|
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65
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|
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67
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|
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68
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|
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69
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|
|
70
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TEUCRIUM WHEAT
FUND
|
|
|
|
|
83
|
|
|
84
|
|
|
86
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|
|
87
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|
|
88
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|
|
89
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TEUCRIUM AGRICULTURAL
FUND
|
|
|
|
|
103
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|
|
104
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|
|
106
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|
|
107
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|
|
108
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|
|
109
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TEUCRIUM COMMODITY TRUST
COMBINED STATEMENTS OF ASSETS AND
LIABILITIES
|
|
|
|
|
|
Assets
|
|
|
Cash
and cash equivalents
|
$171,710,290
|
$137,945,626
|
Interest
receivable
|
111
|
255
|
Other
assets
|
11,645
|
6,748
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Equity
in trading accounts:
|
|
|
Commodity
futures contracts
|
517,664
|
909,281
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Due
from broker
|
12,866,573
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9,987,671
|
Total
equity in trading accounts
|
13,384,237
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10,896,952
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Total
assets
|
185,106,283
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$148,849,581
|
|
|
|
Liabilities
|
|
|
Management
fee payable to Sponsor
|
143,420
|
125,149
|
Cash
equivalent payable
|
7,481,728
|
-
|
Interest
Payable
|
70
|
-
|
Other
liabilities
|
410,113
|
99,909
|
Equity
in trading accounts:
|
|
|
Commodity
futures contracts
|
5,735,272
|
5,677,771
|
Total
liabilities
|
13,770,603
|
5,902,829
|
|
|
|
Net Assets
|
$171,335,680
|
$142,946,752
|
The accompanying notes are an integral part of
these financial statements.
TEUCRIUM COMMODITY TRUST
COMBINED SCHEDULE OF
INVESTMENTS
September 30,
2018
(Unaudited)
|
|
|
|
|
Percentage of
|
|
|
|
|
Description: Assets
|
|
Fair Value
|
|
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Net Assets
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
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|
Cash equivalents
|
|
|
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|
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|
|
|
|
Money
market funds
|
|
|
|
|
|
|
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|
|
Fidelity
Institutional Money Market Funds - Government Portfolio (cost
$3,577)
|
|
$
|
3,577
|
|
|
|
0.00
|
%
|
|
|
3,577
|
|
|
|
|
|
|
|
|
|
|
|
|
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Principal Amount
|
|
Commercial
Paper
|
|
|
|
|
|
|
|
|
|
|
|
|
Enbridge
Energy Partners, L.P. 2.86% (cost: $4,973,666 due
10/05/2018)
|
|
$
|
4,998,428
|
|
|
|
2.92
|
%
|
|
|
5,000,000
|
|
Enbridge
Energy Partners, L.P. 2.77% (cost: $4,988,924 due
10/10/2018)
|
|
|
4,996,562
|
|
|
|
2.92
|
|
|
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5,000,000
|
|
Enbridge
Energy Partners, L.P. 2.86% (cost: $9,953,620 due
10/12/2018)
|
|
|
9,991,352
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5.83
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|
|
10,000,000
|
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Energy
Transfer Partners, L.P. 2.57% (cost: $4,994,688 due
10/10/2018)
|
|
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4,996,812
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|
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2.92
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|
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|
5,000,000
|
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Energy
Transfer Partners, L.P. 2.55% (cost: $14,972,592 due
10/22/2018)
|
|
|
14,977,865
|
|
|
|
8.74
|
|
|
|
15,000,000
|
|
General
Motors Financial Company, Inc. 2.42% (cost: $7,469,500 due
10/01/2018)
|
|
|
7,500,000
|
|
|
|
4.38
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|
|
|
7,500,000
|
|
General
Motors Financial Company, Inc. 2.42% (cost: $4,980,666 due
10/04/2018)
|
|
|
4,999,000
|
|
|
|
2.92
|
|
|
|
5,000,000
|
|
General
Motors Financial Company, Inc. 2.53% (cost: $4,979,432 due
11/26/2018)
|
|
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4,980,478
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|
2.91
|
|
|
|
5,000,000
|
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General
Motors Financial Company, Inc. 2.55% (cost: $2,492,270 due
11/14/2018)
|
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|
2,492,270
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|
1.45
|
|
|
|
2,500,000
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|
Royal
Caribbean Cruise Ltd. 2.55% (cost: $4,989,458 due
10/31/2018)
|
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4,989,458
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|
|
|
2.91
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|
5,000,000
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Royal
Caribbean Cruise Ltd. 2.52% (cost: $7,482,812 due
10/23/2018)
|
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|
7,488,542
|
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|
4.37
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|
|
|
7,500,000
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|
The
Williams Companies, Inc 2.39% (cost: $7,495,557 due
10/03/2018)
|
|
|
7,499,013
|
|
|
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4.38
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|
|
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7,500,000
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|
The
Williams Companies, Inc 2.65% (cost: $7,471,833 due
10/18/2018)
|
|
|
7,490,792
|
|
|
|
4.37
|
|
|
|
7,500,000
|
|
Total
Commercial Paper (cost: $87,245,018)
|
|
$
|
87,400,572
|
|
|
|
51.02
|
%
|
|
|
|
|
Total
Cash Equivalents
|
|
$
|
87,404,149
|
|
|
|
51.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
|
|
|
|
|
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(Long Exposure)
|
|
Commodity futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States corn futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
corn futures MAR19 (1,250 contracts)
|
|
$
|
10,587
|
|
|
|
0.01
|
%
|
|
$
|
23,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States soybean futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
soybean futures MAR19 (198 contracts)
|
|
|
61,875
|
|
|
|
0.04
|
%
|
|
|
8,640,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States sugar futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
ICE
sugar futures JUL19 (354 contracts)
|
|
|
92,489
|
|
|
|
0.05
|
%
|
|
|
4,523,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States wheat futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
wheat futures MAR19 (823 contracts)
|
|
|
352,713
|
|
|
|
0.21
|
%
|
|
|
21,696,338
|
|
Total
commodity futures contracts
|
|
$
|
517,664
|
|
|
|
0.31
|
%
|
|
$
|
57,860,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Notional Amount
|
|
Description: Liabilities
|
|
Fair Value
|
|
|
Net Assets
|
|
|
(Long Exposure)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States corn futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
corn futures MAY19 (1,050 contracts)
|
|
$
|
246,675
|
|
|
|
0.14
|
%
|
|
$
|
19,726,875
|
|
CBOT
corn futures DEC19 (1,177 contracts)
|
|
|
1,554,975
|
|
|
|
0.91
|
|
|
|
23,025,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States soybean futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
soybean futures JAN19 (235 contracts)
|
|
|
889,175
|
|
|
|
0.52
|
%
|
|
|
10,099,125
|
|
CBOT
soybean futures NOV19 (223 contracts)
|
|
|
366,838
|
|
|
|
0.21
|
|
|
|
10,168,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States sugar futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
ICE
sugar futures MAY19 (419 contracts)
|
|
|
495,163
|
|
|
|
0.29
|
%
|
|
|
5,298,171
|
|
ICE
sugar futures MAR20 (379 contracts)
|
|
|
547,333
|
|
|
|
0.32
|
|
|
|
5,259,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States wheat futures contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CBOT
wheat futures MAY19 (686 contracts)
|
|
|
352,088
|
|
|
|
0.21
|
%
|
|
|
18,461,975
|
|
CBOT
wheat futures DEC19 (758 contracts)
|
|
|
1,283,025
|
|
|
|
0.75
|
|
|
|
21,508,250
|
|
Total
commodity futures contracts
|
|
$
|
5,735,272
|
|
|
|
3.35
|
%
|
|
$
|
113,547,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds*
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Teucrium
Corn Fund
|
|
$
|
374,705
|
|
|
|
0.22
|
%
|
|
|
23,658
|
|
Teucrium
Soybean Fund
|
|
|
378,926
|
|
|
|
0.22
|
|
|
|
23,931
|
|
Teucrium
Sugar Fund
|
|
|
377,319
|
|
|
|
0.22
|
|
|
|
56,874
|
|
Teucrium
Wheat Fund
|
|
|
367,102
|
|
|
|
0.21
|
|
|
|
58,837
|
|
Total
exchange-traded funds (cost $2,081,910)
|
|
$
|
1,498,052
|
|
|
|
0.87
|
%
|
|
|
|
|
*The Trust
eliminates the shares owned by the Teucrium Agricultural Fund from
its combined statements of assets and liabilities due to the fact
that these represent holdings of the Underlying Funds owned by the
Teucrium Agricultural Fund, which are included as shares
outstanding of the Underlying Funds.
The accompanying notes are an integral part of
these financial statements.
TEUCRIUM COMMODITY TRUST
COMBINED SCHEDULE OF
INVESTMENTS
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
Money
market funds
|
|
|
|
Fidelity
Institutional Money Market Funds - Government Portfolio (cost
$2,874)
|
$2,874
|
0.00%
|
2,874
|
Blackrock
FedFund - Institutional Class (cost $140)
|
140
|
0.00
|
140
|
Total
money market funds
|
$3,014
|
0.00%
|
|
|
|
|
|
|
|
|
|
Commercial
Paper
|
|
|
|
Boston
Scientific Corporation 1.71% (cost: $4,992,208 due
1/16/2018)
|
$4,996,458
|
3.50%
|
5,000,000
|
Canadian
Natural Resources Limited 1.76% (cost: $4,990,034 due
1/31/2018)
|
4,992,708
|
3.49
|
5,000,000
|
E.
I. du Pont de Nemours and Company 1.67% (cost: $4,981,556 due
3/5/2018)
|
4,985,474
|
3.49
|
5,000,000
|
Enbridge
Energy Partners, L.P. 2.20% (cost: $4,976,980 due
3/5/2018)
|
4,980,918
|
3.48
|
5,000,000
|
Equifax
Inc. 1.71% (cost: $4,987,958 due 1/5/2018)
|
4,999,056
|
3.50
|
5,000,000
|
Ford
Motor Credit Company LLC 1.41% (cost: $4,982,500 due
1/10/2018)
|
4,998,250
|
3.50
|
5,000,000
|
Glencore
Funding LLC 1.42% (cost: $4,982,496 due 1/17/2018)
|
4,996,854
|
3.50
|
5,000,000
|
HP
Inc. 1.65% (cost: $4,992,028 due 1/22/2018)
|
4,995,216
|
3.49
|
5,000,000
|
Oneok,
Inc. 1.75% (cost: $4,994,684 due 1/5/2018)
|
4,999,034
|
3.50
|
5,000,000
|
VW
Credit, Inc. 1.61% (cost: $4,980,000 due 3/6/2018)
|
4,985,778
|
3.49
|
5,000,000
|
Total
Commercial Paper (total cost: $49,860,444)
|
49,929,746
|
34.94
|
|
Total
Cash Equivalents
|
$49,932,760
|
34.94%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures contracts
|
|
|
|
United
States corn futures contracts
|
|
|
|
CBOT
corn futures JUL18 (1,060 contracts)
|
$120,487
|
0.08%
|
$19,464,250
|
|
|
|
|
United
States sugar futures contracts
|
|
|
|
ICE
sugar futures MAY18 (133 contracts)
|
94,539
|
0.07
|
2,237,379
|
ICE
sugar futures JUL18 (114 contracts)
|
89,780
|
0.06
|
1,920,307
|
|
|
|
|
United
States wheat futures contracts
|
|
|
|
CBOT
wheat futures JUL18 (813 contracts)
|
604,475
|
0.42
|
18,424,613
|
Total
commodity futures contracts
|
$909,281
|
0.63%
|
$42,046,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity futures contracts
|
|
|
|
United
States corn futures contracts
|
|
|
|
CBOT
corn futures MAY18 (1,265 contracts)
|
$821,825
|
0.57%
|
$22,706,750
|
CBOT
corn futures DEC18 (1,184 contracts)
|
1,140,225
|
0.80
|
22,732,800
|
|
|
|
|
United
States soybean futures contracts
|
|
|
|
CBOT
soybean futures MAR18 (75 contracts)
|
174,063
|
0.12
|
3,606,563
|
CBOT
soybean futures MAY18 (63 contracts)
|
152,338
|
0.11
|
3,064,950
|
CBOT
soybean futures NOV18 (74 contracts)
|
121,662
|
0.09
|
3,610,275
|
|
|
|
|
United
States sugar futures contracts
|
|
|
|
ICE
sugar futures MAR19 (126 contracts)
|
67,133
|
0.05
|
2,214,173
|
|
|
|
|
United
States wheat futures contracts
|
|
|
|
CBOT
wheat futures MAY18 (976 contracts)
|
1,182,225
|
0.83
|
21,484,200
|
CBOT
wheat futures DEC18 (893 contracts)
|
2,018,300
|
1.41
|
21,521,300
|
Total
commodity futures contracts
|
$5,677,771
|
3.98%
|
$100,941,011
|
|
|
|
|
Exchange-traded funds*
|
|
|
|
Teucrium
Corn Fund
|
$287,376
|
0.20%
|
17,158
|
Teucrium
Soybean Fund
|
273,664
|
0.19
|
15,331
|
Teucrium
Sugar Fund
|
289,049
|
0.20
|
29,524
|
Teucrium
Wheat Fund
|
286,031
|
0.20
|
47,737
|
Total
exchange-traded funds (cost $1,790,621)
|
$1,136,120
|
0.79%
|
|
*The Trust
eliminates the shares owned by the Teucrium Agricultural Fund from
its combined statements of assets and liabilities due to the fact
that these represent holdings of the Underlying Funds owned by the
Teucrium Agricultural Fund, which are included as shares
outstanding of the Underlying Funds.
The accompanying notes are an integral part of
these financial statements.
TEUCRIUM COMMODITY TRUST
COMBINED STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
Realized
and unrealized gain (loss) on trading of commodity futures
contracts:
|
|
|
|
|
Realized
loss on commodity futures contracts
|
$(12,210,874)
|
$(363,195)
|
$(5,518,367)
|
$(3,036,823)
|
Net
change in unrealized appreciation or (depreciation) on commodity
futures contracts
|
6,804,734
|
(13,715,137)
|
(449,117)
|
(1,084,644)
|
Interest
income
|
995,171
|
489,124
|
2,514,842
|
1,229,246
|
Total
loss
|
(4,410,969)
|
(13,589,208)
|
(3,452,642)
|
(2,892,221)
|
|
|
|
|
|
Expenses
|
|
|
|
|
Management
fees
|
453,301
|
379,462
|
1,269,139
|
1,155,626
|
Professional
fees
|
421,519
|
352,288
|
1,123,516
|
983,524
|
Distribution
and marketing fees
|
854,026
|
715,384
|
2,416,995
|
1,912,998
|
Custodian
fees and expenses
|
103,629
|
91,666
|
287,652
|
263,485
|
Business
permits and licenses fees
|
17,425
|
19,849
|
105,151
|
77,862
|
General
and administrative expenses
|
72,069
|
74,494
|
229,953
|
220,472
|
Brokerage
commissions
|
56,262
|
44,377
|
144,986
|
121,696
|
Other
expenses
|
33,511
|
23,979
|
99,650
|
67,375
|
Total
expenses
|
2,011,742
|
1,701,499
|
5,677,042
|
4,803,038
|
|
|
|
|
|
Expenses
waived by the Sponsor
|
(319,431)
|
(284,299)
|
(961,565)
|
(545,764)
|
|
|
|
|
|
Total
expenses, net
|
1,692,311
|
1,417,200
|
4,715,477
|
4,257,274
|
|
|
|
|
|
Net loss
|
$(6,103,280)
|
$(15,006,408)
|
$(8,168,119)
|
$(7,149,495)
|
The accompanying notes are an integral part of
these financial statements.
TEUCRIUM COMMODITY TRUST
COMBINED STATEMENTS OF CHANGES IN NET
ASSETS
(Unaudited)
|
|
|
|
|
|
Operations
|
|
|
Net
loss
|
$(8,168,119)
|
$(7,149,495)
|
Capital
transactions
|
|
|
Issuance
of Shares
|
79,071,522
|
76,238,431
|
Redemption
of Shares
|
(41,941,536)
|
(61,140,856)
|
Net
change in the cost of the Underlying Funds
|
(572,939)
|
3,049
|
Total
capital transactions
|
36,557,047
|
15,100,624
|
|
|
|
Net change in net assets
|
28,388,928
|
7,951,129
|
|
|
|
Net assets, beginning of period
|
142,946,752
|
153,957,187
|
|
|
|
Net assets, end of period
|
$171,335,680
|
$161,908,316
|
The accompanying notes are an integral part of
these financial statements.
TEUCRIUM COMMODITY TRUST
COMBINED STATEMENTS OF CASH
FLOWS
(Unaudited)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
Net
loss
|
$(8,168,119)
|
$(7,149,495)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
Net
change in unrealized depreciation on commodity futures
contracts
|
449,117
|
1,084,644
|
Changes in operating assets and liabilities:
|
|
|
Due
from broker
|
(2,878,902)
|
(82,670)
|
Interest
receivable
|
214
|
(45)
|
Other
assets
|
(4,897)
|
(84,299)
|
Management
fee payable to Sponsor
|
18,271
|
(2,039)
|
Cash equivalent payable
|
7,481,728
|
-
|
Other
liabilities
|
310,205
|
8,945
|
Net
cash used in operating activities
|
(2,792,383)
|
(6,224,959)
|
|
|
|
Cash flows from financing activities:
|
|
|
Proceeds
from sale of Shares
|
79,071,522
|
76,238,431
|
Redemption
of Shares
|
(41,941,536)
|
(61,140,856)
|
Net
change in cost of the Underlying Funds
|
(572,939)
|
3,049
|
Net
cash provided by financing activities
|
36,557,047
|
15,100,624
|
|
|
|
Net change in cash, cash equivalents and restricted
cash
|
33,764,664
|
8,875,665
|
Cash, cash equivalents, and restricted cash beginning of
period
|
137,945,626
|
145,475,153
|
Cash, cash equivalents, and restricted cash end of
period
|
$171,710,290
|
$154,350,818
|
The accompanying notes are an integral part of
these financial statements.
NOTES TO COMBINED FINANCIAL
STATEMENTS
September 30,
2018
(Unaudited)
Note 1 –
Organization and Operation
Teucrium
Commodity Trust (“Trust”), a Delaware statutory trust
organized on September 11, 2009, is a series trust consisting of
five series: Teucrium Corn Fund (“CORN”), Teucrium
Sugar Fund (“CANE”), Teucrium Soybean Fund
(“SOYB”), Teucrium Wheat Fund (“WEAT”), and
Teucrium Agricultural Fund (“TAGS”). All these series
of the Trust are collectively referred to as the
“Funds” and singularly as the “Fund.” Each
Fund is a commodity pool that is a series of the Trust. The Funds
issue common units, called the “Shares,” representing
fractional undivided beneficial interests in a Fund. Effective as
of April 16, 2018, the Trust and the Funds operate pursuant to the
Trust’s Third Amended and Restated Declaration of Trust and
Trust Agreement (the “Trust
Agreement”).
On June 5,
2010, the initial Form S-1 for CORN was declared effective by the
U.S. Securities and Exchange Commission (“SEC”). On
June 8, 2010, four Creation Baskets for CORN were issued
representing 200,000 shares and $5,000,000. CORN began trading on
the New York Stock Exchange (“NYSE”) Arca on June 9,
2010. The current registration statement for CORN was declared
effective by the SEC on April 29, 2016.
On June 17,
2011, the initial Forms S-1 for CANE, SOYB, and WEAT were declared
effective by the SEC. On September 16, 2011, two Creation Baskets
were issued for each Fund, representing 100,000 shares and
$2,500,000, for CANE, SOYB, and WEAT. On September 19, 2011, CANE,
SOYB, and WEAT started trading on the NYSE Arca. The current
registration statements for CANE and SOYB were declared effective
by the SEC on April 30, 2018. The registration statements for SOYB
and CANE registered an additional 5,000,000 shares each. The
current registration statement for WEAT was declared effective on
July 15, 2016. This registration statement for WEAT registered an
additional 24,050,000 shares.
On February
10, 2012, the Form S-1 for TAGS was declared effective by the SEC.
On March 27, 2012, six Creation Baskets for TAGS were issued
representing 300,000 shares and $15,000,000. TAGS began trading on
the NYSE Arca on March 28, 2012. The current registration statement
for TAGS was declared effective by the SEC on April 30,
2018.
The Sponsor
is a member of the National Futures Association (the "NFA") and
became a commodity pool operator ("CPO") registered with the
Commodity Futures Trading Commission (the "CFTC") effective
November 10, 2009. The Sponsor registered as a Commodity Trading
Advisor ("CTA") with the CFTC effective September 8,
2017.
The specific
investment objective of each Fund and information regarding the
organization and operation of each Fund are included in each
Fund’s financial statements and accompanying notes, as well
as in other sections of this Form 10K filing. In general, the
investment objective of each Fund is to have the daily changes in
percentage terms of its Shares’ Net Asset Value
(“NAV”) reflect the daily changes in percentage terms
of a weighted average of the closing settlement prices for certain
Futures Contracts for the commodity specified for that Fund. The
investment objective of TAGS is to have the daily changes in
percentage terms of NAV of its common units (“Shares”)
reflect the daily changes in percentage terms of a weighted average
(the “Underlying Fund Average”) of the NAVs per share
of four other commodity pools that are series of the Trust and are
sponsored by the Sponsor: CORN, WEAT, SOYB, and CANE (collectively,
the “Underlying Funds”). The Underlying Fund Average
will have a weighting of 25% to each Underlying Fund, and the
Fund’s assets will be rebalanced to maintain the approximate
25% allocation to each Underlying Fund.
The
accompanying unaudited financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X promulgated by 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, as
applicable. The operating results for the three and nine months
ended September 30, 2018 are not necessarily indicative of the
results to be expected for the full year ending December 31,
2018.
Subject to
the terms of the Trust Agreement, Teucrium Trading, LLC in its
capacity as the Sponsor (“Sponsor”) may terminate a
Fund at any time, regardless of whether the Fund has incurred
losses, including, for instance, if it determines that the
Fund’s aggregate net assets in relation to its operating
expenses make the continued operation of the Fund unreasonable or
imprudent. However, no level of losses will require the Sponsor to
terminate a Fund.
Note 2 –
Principal Contracts and Agreements
On August
17, 2015 (the “Conversion Date”), U.S. Bank N.A.
replaced The Bank of New York Mellon as the Custodian for the
Funds. The principal business address for U.S. Bank N.A is 1555
North Rivercenter Drive, Suite 302, Milwaukee, Wisconsin 53212.
U.S. Bank N.A. is a Wisconsin state chartered bank subject to
regulation by the Board of Governors of the Federal Reserve System
and the Wisconsin State Banking Department. The principal address
for U.S. Bancorp Fund Services, LLC (“USBFS”) is 615 E.
Michigan Street, Milwaukee, WI 53202. In addition, effective on the
Conversion Date, USBFS, a wholly owned subsidiary of U.S. Bank,
commenced serving as administrator for each Fund, performing
certain administrative and accounting services and preparing
certain SEC reports on behalf of the Funds, and also became the
registrar and transfer agent for each Fund’s Shares. For such
services, U.S. Bank and USBFS will receive an asset based fee,
subject to a minimum annual fee.
For custody
services, the Funds will pay to U.S. Bank N.A. 0.0075% of average
gross assets up to $1 billion, and .0050% of average gross assets
over $1 billion, annually, plus certain per-transaction charges.
For Transfer Agency, Fund Accounting and Fund Administration
services, which are based on the total assets for all the Funds in
the Trust, the Funds will pay to USBFS 0.06% of average gross
assets on the first $250 million, 0.05% on the next $250 million,
0.04% on the next $500 million and 0.03% on the balance over $1
billion annually. A combined minimum annual fee of up to $64,500
for custody, transfer agency, accounting and administrative
services is assessed per Fund. These services are recorded in custodian
fees and expenses on the combined statements of operations. A
summary of these expenses is included
below.
The Sponsor
employs Foreside Fund Services, LLC (“Foreside” or the
“Distributor”) as the Distributor for the Funds. The
Distribution Services Agreement among the Distributor and the
Sponsor calls for the Distributor to work with the Custodian in
connection with the receipt and processing of orders for Creation
Baskets and Redemption Baskets and the review and approval of all
Fund sales literature and advertising materials. The Distributor
and the Sponsor have also entered into a Securities Activities and
Service Agreement (the “SASA”) under which certain
employees and officers of the Sponsor are licensed as registered
representatives or registered principals of the Distributor, under
Financial Industry Regulatory Authority (“FINRA”)
rules. For its services as the Distributor, Foreside receives a fee
of 0.01% of the Fund’s average daily net assets and an
aggregate annual fee of $100,000 for all Teucrium Funds, along with
certain expense reimbursements. For its services under the SASA,
Foreside receives a fee of $5,000 per registered representative and
$1,000 per registered location. These services are recorded in
distribution and marketing fees on the combined statements of
operations. A summary of these expenses is included
below.
ED&F Man
Capital Markets, Inc. (“ED&F Man”) serves as the
Underlying Funds’ clearing broker to execute and clear the
Underlying Funds’ futures and provide other brokerage-related
services. ED&F Man is registered as a FCM with the U.S. CFTC
and is a member of the NFA. ED&F Man is also registered as a
broker/dealer with the U.S. Securities and Exchange Commission and
is a member of the FINRA. ED&F Man is a clearing member of ICE
Futures U.S., Inc., Chicago Board of Trade, Chicago Mercantile
Exchange, New York Mercantile Exchange, and all other major United
States commodity exchanges. For Corn, Soybean, Sugar and Wheat
Futures Contracts ED&F Man is paid $9.00 per round turn. These
expenses are recorded in
brokerage commissions on the combined statements of operations. A
summary of these expenses is included
below.
The sole Trustee of
the Trust is Wilmington Trust Company, a Delaware banking
corporation. The Trustee will accept service of legal process on
the Trust in the State of Delaware and will make certain filings
under the Delaware Statutory Trust Act. For its services, the
Trustee receives an annual fee of $3,300 from the Trust. These
services are recorded in business permits and licenses fees on the
combined statements of operations. A summary of these expenses is
included below.
|
|
|
|
|
|
|
|
|
|
Amount
Recognized for Custody Services
|
$103,629
|
$91,666
|
$287,651
|
$263,485
|
Amount
of Custody Services Waived
|
$33,628
|
$7,972
|
$78,067
|
$12,611
|
|
|
|
|
|
Amount
Recognized for Distribution Services
|
$40,200
|
$42,782
|
$127,401
|
$136,568
|
Amount
of Distribution Services Waived
|
$15,565
|
$13,582
|
$37,156
|
$27,719
|
|
|
|
|
|
Amount
Recognized for Brokerage Commissions
|
$50,414
|
$44,377
|
$139,138
|
$121,696
|
Amount
of Brokerage Commissions Waived
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
Amount
Recognized for Wilmington Trust
|
$3,160
|
$3,072
|
$3,160
|
$3,072
|
Amount
of Wilmington Trust Waived
|
$24
|
$1,515
|
$24
|
$1,515
|
Note 3 –
Summary of Significant Accounting
Policies
Basis of
Presentation
The accompanying
financial statements have been prepared on a combined basis in
conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) as detailed in
the Financial Accounting Standards Board’s Accounting
Standards Codification and include the accounts of the Trust, CORN,
CANE, SOYB, WEAT and TAGS. Refer to the accompanying separate
financial statements for each Fund for more detailed information.
For the periods represented by the financial statements herein the
operations of the Trust contain the results of CORN, SOYB, CANE,
WEAT, and TAGS except for eliminations for TAGS as explained below
for the months during which each Fund was in
operation.
In accordance
with ASU 2016-18 issued by the Financial Accounting Standards Board
("FASB"), the presentation of cash and cash equivalents and
restricted cash is disaggregated by line item on the combined
statements of assets and liabilities and sum to the total amount of
cash, cash equivalents, and restricted cash at the end of the
corresponding period shown on the combined statements of cash
flows. This update in presentation did not have a material impact
on the financial statements and disclosures of the Trust and the
Funds.
Given the
investment objective of TAGS as described in Note 1 above, TAGS
will buy, sell and hold, as part of its normal operations, shares
of the four Underlying Funds. The Trust eliminates the shares of
the other series of the Trust owned by the Teucrium Agricultural
Fund from its combined statements of assets and liabilities. The
Trust eliminates the net change in unrealized appreciation or
depreciation on securities owned by the Teucrium Agricultural Fund
from its combined statements of operations. The combined statements
of changes in net assets and cash flows present a net presentation
of the purchases and sales of the Underlying Funds of
TAGS.
Revenue
Recognition
Commodity futures
contracts are recorded on the trade date. All such transactions are
recorded on the identified cost basis and marked to market daily.
Unrealized appreciation or depreciation on commodity futures
contracts are reflected in the combined 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 combined
statements of operations. Interest on cash equivalents with
financial institutions are recognized on the accrual basis. The
Funds earn interest on funds held at the custodian and other
financial institutions at prevailing market rates for such
investments.
Beginning in
October 2017, the Sponsor began investing a portion of cash in
commercial paper, which is deemed a cash equivalent based on the
rating and duration of contracts as described in the notes to the
combined financial statements and reflected in cash and cash
equivalents on the combined statements of assets and liabilities
and in cash, cash equivalents and restricted cash on the combined
statements of cash flows. Accretion on these investments are
recognized using the effective interest method in U.S. dollars and
included in interest income on the combined statements of
operations.
Brokerage
Commissions
Brokerage
commissions on all open commodity futures contracts are accrued on
the trade date and on a full-turn basis.
Income
Taxes
The Trust, as a
Delaware statutory trust, is considered a trust for federal tax
purposes and is, thus, a pass through entity. For tax purposes, the
Funds will be treated as partnerships. Therefore, the Funds do not
record a provision for income taxes because the shareholders report
their share of a Fund’s income or loss on their income tax
returns. The financial statements reflect the Funds’
transactions without adjustment, if any, required for income tax
purposes.
The Funds are
required to determine whether a tax position is more likely than
not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The Funds file income tax returns in the U.S. federal
jurisdiction, and may file income tax returns in various U.S.
states and foreign jurisdictions. For all tax years 2015 to 2017,
the Funds remain subject to income tax examinations by major taxing
authorities. The tax benefit recognized is measured as the largest
amount of benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement. De-recognition of a tax
benefit previously recognized results in the Funds recording a tax
liability that reduces net assets. Based on their analysis, the
Funds have determined that they have not incurred any liability for
unrecognized tax benefits as of September 30, 2018 and for the
years ended December 31, 2017, 2016, and 2015. However, the
Funds’ conclusions regarding this policy may be subject to
review and adjustment at a later date based on factors including,
but not limited to, ongoing analysis of and changes to tax laws,
regulations, and interpretations thereof.
The Funds 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 and nine months ended September 30, 2018 and
2017.
The Funds may
be subject to potential examination by U.S. federal, U.S. state, or
foreign jurisdictional authorities in the area of income taxes.
These potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions, and compliance with U.S. federal, U.S. state and
foreign tax laws. The Funds’ management does not expect that
the total amount of unrecognized tax benefits will materially
change over the next twelve months. In the opinion of the Sponsor,
the 2017 Tax Cuts and Jobs Act, will not have a significant impact
on the Trust or the Funds and did not have a significant impact on
the financial statements of the Trust and the
Funds.
Creations and
Redemptions
Authorized
Purchasers may purchase Creation Baskets from each Fund. The amount
of the proceeds required to purchase a Creation Basket will be
equal to the NAV of the shares in the Creation Basket determined as
of 4:00 p.m. New York time on the day the order to create the
basket is properly received.
Authorized
Purchasers may redeem shares from each Fund only in blocks of
shares called “Redemption Baskets.” The amount of the
redemption proceeds for a Redemption Basket will be equal to the
NAV of the shares in the Redemption Basket determined as of 4:00
p.m. New York time on the day the order to redeem the basket is
properly received.
Each Fund receives
or pays the proceeds from shares sold or redeemed within three
business days after the trade date of the purchase or redemption.
The amounts due from Authorized Purchasers are reflected in the
statements of assets and liabilities as receivable for shares sold.
Amounts payable to Authorized Purchasers upon redemption are
reflected in the statements of assets and liabilities as payable
for shares redeemed.
There are a minimum
number of baskets and associated Shares specified for each Fund in
the Fund’s respective prospectus, as amended from time to
time. If a Fund experienced redemptions that caused the number of
Shares outstanding to decrease to the minimum level of Shares
required to be outstanding, until the minimum number of Shares is
again exceeded through the purchase of a new Creation Basket, there
can be no more redemptions by an Authorized Purchaser. These
minimum levels are as follows:
CORN: 50,000 shares
representing 2 baskets
SOYB: 50,000 shares
representing 2 baskets
CANE: 50,000 shares
representing 2 baskets
WEAT: 50,000 shares
representing 2 baskets
TAGS: 50,000 shares
representing 4 baskets
Cash, Cash
Equivalents, and Restricted Cash
Cash
equivalents are highly liquid investments with maturity dates of 90
days or less when acquired. The Trust reported its cash equivalents
in the combined statements of assets and liabilities at market
value, or at carrying amounts that approximate fair value, because
of their highly liquid nature and short term maturities. Each Fund
that is a series of the Trust has the balance of its cash
equivalents on deposit with financial institutions. The Trust holds
a balance in money market funds that is included in cash and cash
equivalents on the combined statements of assets and liabilities.
Effective in the second quarter 2015, the Sponsor invested a
portion of the available cash for the Funds in alternative demand
deposit savings accounts, which is classified as cash and not as
cash equivalents. Assets deposited with the bank may, at times,
exceed federally insured limits. Effective in the fourth quarter
2017, the Sponsor invested a portion of the available cash for the
Funds in investment grade commercial paper with durations of 90
days or less, which is classified as a cash equivalent and is not
FDIC insured. Effective August 13, 2018, the Sponsor invested a
portion of the available cash for the Funds in a Promontory Insured
Cash Sweep ("ICS") product, which is classified as cash and not a
cash equivalent. The entire balance held in the Promontory Insured
Cash Sweep product is FDIC insured.
|
|
|
|
Money
Market Funds
|
$3,577
|
$2,318,065
|
$3,014
|
Demand
Deposit Savings Accounts
|
$68,271,037
|
$152,013,174
|
$88,013,073
|
Commercial
Paper
|
$87,400,572
|
$-
|
$49,929,746
|
Promontory
ICS Deposits
|
$16,035,611
|
$-
|
$-
|
On August 17,
2015 (the “Conversion Date”), U.S. Bank N.A. replaced
The Bank of New York Mellon as the Custodian for the Funds. Per the
amended agreement between the Sponsor and The Bank of New York
Mellon dated August 14, 2015, certain cash amounts for each Fund,
except in the case of TAGS, are to remain at The Bank of New York
Mellon until amounts for services and early termination fees are
paid. The amended agreement allows for payments for such amounts
owed to be made through December 31, 2017. Cash balances that are
held in custody at The Bank of New York Mellon under this amended
agreement are reflected as restricted cash on the financial
statements of the Trust and Funds. The following table provides a
reconciliation of cash and cash equivalents, and restricted cash
reported within the combined statements of assets and liabilities
that sum to the total of the same such amounts shown in the
combined statements of cash flows.
|
|
|
|
Cash
and cash equivalents
|
$171,710,290
|
$154,329,202
|
$137,945,626
|
Restricted
cash
|
$-
|
$21,616
|
$-
|
Total
cash, cash equivalents, and restricted cash shown in the combined
statements of cash flows
|
$171,710,290
|
$154,350,818
|
$137,945,626
|
Due from/to
Broker
The amount recorded
by the Trust for the amount due from and to the clearing broker
includes, but is not limited to, cash held by the broker, amounts
payable to the clearing broker related to open transactions and
payables for commodities futures accounts liquidating to an equity
balance on the clearing broker’s records.
Margin is the
minimum amount of funds that must be deposited by a commodity
interest trader with the trader’s broker to initiate and
maintain an open position in futures contracts. A margin deposit
acts to assure the trader’s performance of the futures
contracts purchased or sold. Futures contracts are customarily
bought and sold on initial margin that represents a very small
percentage of the aggregate purchase or sales price of the
contract. Because of such low margin requirements, price
fluctuations occurring in the futures markets may create profits
and losses that, in relation to the amount invested, are greater
than are customary in other forms of investment or speculation. As
discussed below, adverse price changes in the futures contract may
result in margin requirements that greatly exceed the initial
margin. In addition, the amount of margin required in connection
with a particular futures contract is set from time to time by the
exchange on which the contract is traded and may be modified from
time to time by the exchange during the term of the contract.
Brokerage firms, such as the Funds’ clearing brokers,
carrying accounts for traders in commodity interest contracts
generally require higher amounts of margin as a matter of policy to
further protect themselves. Over-the-counter trading generally
involves the extension of credit between counter-parties, so the
counter-parties may agree to require the posting of collateral by
one or both parties to address credit exposure.
When a trader
purchases an option, there is no margin requirement; however, the
option premium must be paid in full. When a trader sells an option,
on the other hand, he or she is required to deposit margin in an
amount determined by the margin requirements established for the
underlying interest and, in addition, an amount substantially equal
to the current premium for the option. The margin requirements
imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised,
can in fact be higher than those imposed in dealing in the futures
markets directly. Complicated margin requirements apply to spreads
and conversions, which are complex trading strategies in which a
trader acquires a mixture of options positions and positions in the
underlying interest.
Ongoing or
“maintenance” margin requirements are computed each day
by a trader’s clearing broker. When the market value of a
particular open futures contract changes to a point where the
margin on deposit does not satisfy maintenance margin requirements,
a margin call is made by the broker. If the margin call is not met
within a reasonable time, the broker may close out the
trader’s position. With respect to the Funds’ trading,
the Funds (and not their shareholders personally) are subject to
margin calls.
Finally, many major
U.S. exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options
positions held in an account would, in the case of some accounts,
be aggregated, and margin requirements would be assessed on a
portfolio basis, measuring the total risk of the combined
positions.
Payable/Receivable for Securities
Purchased/Sold
Due from/to broker
for investments in securities are securities transactions pending
settlement. The Trust and the Funds are subject to credit risk to
the extent any broker with whom it conducts business is unable to
fulfill contractual obligations on its behalf. The management of
the Trust and the Funds monitors the financial condition of such
brokers and does not anticipate any losses from these
counter-parties. Since the inception of the Fund, the principal
broker through which the Trust and TAGS can execute securities
transactions for TAGS is the Bank of New York Mellon Capital
Markets.
Sponsor Fee,
Allocation of Expenses and Related Party
Transactions
The Fund’s
sponsor is Teucrium Trading, LLC (the “Sponsor”). The
Sponsor is responsible for investing the assets of the Funds in
accordance with the objectives and policies of each Fund. In
addition, the Sponsor arranges for one or more third parties to
provide administrative, custodial, accounting, transfer agency and
other necessary services to the Trust and the Funds. In addition,
the Sponsor elected not to outsource services directly attributable
to the Trust and the Funds such as accounting, financial reporting,
regulatory compliance and trading activities. In addition, the
Funds, except for TAGS which has no such fee, are contractually
obligated to pay a monthly management fee to the Sponsor, based on
average daily net assets, at a rate equal to 1.00% per
annum.
The Funds pay for
all brokerage fees, taxes and other expenses, including licensing
fees for the use of intellectual property, registration or other
fees paid to the SEC, FINRA (formerly the National Association of
Securities Dealers) or any other regulatory agency in connection
with the offer and sale of subsequent Shares, after its initial
registration, and all legal, accounting, printing and other
expenses associated therewith. The Funds also pay the fees and
expenses associated with the Trust’s tax accounting and
reporting requirements. Certain aggregate expenses common to all
Funds within the Trust are allocated by the Sponsor to the
respective Fund based on activity drivers deemed most appropriate
by the Sponsor for such expenses, including but not limited to
relative assets under management and creation and redeem order
activity.
These aggregate
common expenses include, but are not limited to, legal, auditing,
accounting and financial reporting, tax-preparation, regulatory
compliance, trading activities, and insurance costs, as well as
fees paid to the Distributor, which are included in the related
line item in the combined statements of operations. A portion of
these aggregate common expenses are related to the Sponsor or
related parties of principals of the Sponsor; these are necessary
services to the Trust and the Funds, which are primarily the cost
of performing accounting and financial reporting, regulatory
compliance, and trading activities that are directly attributable
to the Trust and the Funds. Such expenses are primarily included as
distribution and marketing fees.
|
|
|
|
|
|
|
|
|
|
Recognized
Related Party Transactions
|
$470,347
|
$454,469
|
$1,923,198
|
$1,747,602
|
Waived
Related Party Transactions
|
$132,156
|
$169,163
|
$383,327
|
$292,825
|
The Sponsor has the
ability to elect to pay certain expenses on behalf of the Funds or
waive the management fee. This election is subject to change by the
Sponsor, at its discretion. Expenses paid by the Sponsor and
Management fees waived by the Sponsor are, if applicable, presented
as waived expenses in the statements of operations for each Fund.
The Sponsor has determined that there would be no recovery sought
for the amounts below in any future period.
|
|
|
|
|
|
|
Three
Months Ended September 30, 2018
|
$32,123
|
$163,478
|
$71,371
|
$43,831
|
$8,628
|
$319,431
|
Three
Months Ended September 30, 2017
|
$95,836
|
$31,348
|
$45,186
|
$105,942
|
$5,987
|
$284,299
|
Nine
Months Ended September 30, 2018
|
$170,846
|
$347,905
|
$218,270
|
$188,615
|
$35,929
|
$961,565
|
Nine
Months Ended September 30, 2017
|
$264,656
|
$58,457
|
$83,550
|
$105,942
|
$33,159
|
$545,764
|
Use of
Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of the revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value -
Definition and Hierarchy
In accordance with
U.S. GAAP, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (i.e.,
the “exit price”) in an orderly transaction between
market participants at the measurement date.
In determining fair
value, the Trust uses various valuation approaches. In accordance
with U.S. GAAP, a fair value hierarchy for inputs is used in
measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the
most observable inputs be used when available. Observable inputs
are those that market participants would use in pricing the asset
or liability based on market data obtained from sources independent
of the Trust. Unobservable inputs reflect the Trust’s
assumptions about the inputs market participants would use in
pricing the asset or liability developed based on the best
information available in the circumstances. The fair value
hierarchy is categorized into three levels based on the inputs as
follows:
Level 1 - Valuations based on
unadjusted quoted prices in active markets for identical assets or
liabilities that the Trust has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1 futures
contracts held by CORN, SOYB, CANE and WEAT, the securities of the
Underlying Funds held by TAGS, and any other securities held by any
Fund, together referenced throughout this filing as
“financial instruments.” Since valuations are based on
quoted prices that are readily and regularly available in an active
market, valuation of these securities does not entail a significant
degree of judgment.
Level 2 - Valuations based on quoted
prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs
that are unobservable and significant to the overall fair value
measurement.
The availability of
valuation techniques and observable inputs can vary from financial
instrument to financial instrument and is affected by a wide
variety of factors including, the type of financial instrument,
whether the financial instrument is new and not yet established in
the marketplace, and other characteristics particular to the
transaction. To the extent that valuation is based on models or
inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Those estimated
values do not necessarily represent the amounts that may be
ultimately realized due to the occurrence of future circumstances
that cannot be reasonably determined. Because of the inherent
uncertainty of valuation, those estimated values may be materially
higher or lower than the values that would have been used had a
ready market for the financial instruments existed. Accordingly,
the degree of judgment exercised by the Fund in determining fair
value is greatest for financial instruments categorized in Level 3.
In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy,
within which the fair value measurement in its entirety falls, is
determined based on the lowest level input that is significant to
the fair value measurement.
Fair value is a
market-based measure considered from the perspective of a market
participant rather than an entity-specific measure. Therefore, even
when market assumptions are not readily available, the
Trust’s own assumptions are set to reflect those that market
participants would use in pricing the asset or liability at the
measurement date. The Trust uses prices and inputs that are current
as of the measurement date, including periods of market
dislocation. In periods of market dislocation, the observability of
prices and inputs may be reduced for many financial instruments.
This condition could cause a financial instrument to be
reclassified to a lower level within the fair value hierarchy. For
instance, when Corn Futures Contracts on the Chicago Board of Trade
(“CBOT”) are not actively trading due to a
“limit-up” or ‘limit-down” condition,
meaning that the change in the Corn Futures Contracts has exceeded
the limits established, the Trust and the Fund will revert to
alternative verifiable sources of valuation of its assets. When
such a situation exists on a quarter close, the Sponsor will
calculate the NAV on a particular day using the Level 1 valuation,
but will later recalculate the NAV for the impacted Fund based upon
the valuation inputs from these alternative verifiable sources
(Level 2 or Level 3) and will report such NAV in its applicable
financial statements and reports.
On September 30,
2018 and December 31, 2017, in the opinion of the Trust, the
reported value at the close of the market for each commodity
contract fairly reflected the value of the futures and no
alternative valuations were required. The determination is made as
of the settlement of the futures contracts on the last day of
trading for the reporting period. In making the determination of a
Level 1 or Level 2 transfer, the Funds consider the average volume
of the specific underlying futures contracts traded on the relevant
exchange for the periods being reported.
For the nine months
ended September 30, 2018 and year ended December 31, 2017, the
Funds did not have any significant transfers between any of the
levels of the fair value hierarchy.
The Funds and the
Trust record their derivative activities at fair value. Gains and
losses from derivative contracts are included in the statements of
operations. Derivative contracts include futures contracts related
to commodity prices. Futures, which are listed on a national
securities exchange, such as the CBOT and the ICE, or reported on
another national market, are generally categorized in Level 1 of
the fair value hierarchy. OTC derivatives contracts (such as
forward and swap contracts), which may be valued using models,
depending on whether significant inputs are observable or
unobservable, are categorized in Levels 2 or 3 of the fair value
hierarchy.
Investments in the
securities of the Underlying Funds are freely traded and listed on
the NYSE Arca. These investments are valued at the NAV of the
Underlying Fund as of the valuation date as calculated by the
administrator based on the exchange-quoted prices of the commodity
futures contracts held by the Underlying Fund.
Expenses
Expenses are
recorded using the accrual method of accounting.
New Accounting
Pronouncements
The
Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2018-13:
“Fair Value Measurement (Topic 820): Disclosure Framework
– Changes to the Disclosure Requirements for Fair Value
Measurement. These amendments modify public and private company
fair value disclosure requirements. While some disclosures were
removed or modified, others were added. The guidance is a result of
the FASB’s test of the principals developed to improve the
effectiveness of disclosures in the notes to the financial
statements. The amendments will be effective for fiscal years and
interim periods beginning after December 15, 2019 and may be
adopted early. The Sponsor is evaluating the impacts, specifically,
the removal, modification and addition to the fair value
disclosures of the Trust or the Funds.
The
FASB issued ASU 2018-05, “Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118." These amendments add guidance to the FASB
Accounting Standards Codification regarding the Tax Cuts and Jobs
Act (Act). The amendments were adopted for the quarter ended March
31, 2018; the adoption did not have a material impact on the
financial statements and disclosures of the Trust or the
Funds.
The
FASB issued ASU 2018-03: “Technical Corrections and
Improvements to Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities, that clarifies the guidance in ASU No.
2016-01, Financial Instruments—Overall (Subtopic
825-10).” These amendments clarify the guidance in ASU No.
2016-01 on issues related to Fair Value and Forward Contracts and
Purchased Options. The amendments are effective for fiscal years
beginning after December 15, 2017. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Funds.
The
FASB issued ASU 2017-13, “Revenue Recognition (Topic 605),
Leases (Topic 840), and Leases (Topic 842): Amendments to SEC
Paragraphs Pursuant to the Staff Announcement at the July 20, 2017
EITF Meeting and Rescission of Prior SEC Staff Announcements and
Observer Comments”. The amendment amends the early adoption
date option for certain companies related to adoption of ASU No.
2014-09 and ASU No. 2016-02. The SEC staff stated the SEC would not
object to a public business entity that otherwise would not meet
the definition of a public business entity except for a requirement
to include or the inclusion of its financial statements or
financial information in another entity’s filing with the SEC
adopting ASC Topic 842 for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. This amendment is not expected to have a
material impact on the financial statements and disclosures of the
Trust or the Funds.
The
FASB issued ASU 2017-12, “Derivatives and Hedging (Topic
815): Targeted Improvements to Accounting for Hedging
Activities”. These amendments refine and expand hedge
accounting for both financial (e.g., interest rate) and commodity
risks. Its provisions create more transparency around how economic
results are presented, both on the face of the financial statements
and in the footnotes. It also makes certain targeted improvements
to simplify the application of hedge accounting guidance. The
amendments are effective for public companies for fiscal years
beginning after December 15, 2018. This amendment is not expected
to have any impact on the financial statements and disclosures of
the Trust or the Funds.
The
FASB issued ASU 2017-03, “Accounting Changes and Error
Corrections (Topic 250) and Investments – Equity Method and
Joint Ventures (Topic 323)”. These amendments require
disclosure of the impact that recently issued accounting standards
will have on the financial statements of a registrant when such
standards are adopted in a future period. The amendments were
adopted for the quarter ended March 31, 2017; the adoption did not
have a material impact on the financial statements and disclosures
of the Trust or the Funds.
The
FASB issued ASU 2017-01, “Business Combinations (Topic 805):
Clarifying the Definition of a Business”. The amendments are
intended to help companies and other organizations evaluate whether
transactions should be accounted for as acquisitions (or disposals)
of assets or businesses. The amendments are effective for public
companies for annual periods beginning after December 15, 2017,
including interim periods within those periods. The adoption did
not have a material impact on the financial statements and
disclosures of the Trust or the Funds.
The
FASB issued ASU 2016-18, “Statement of Cash Flows (Topic
230)”. The amendments in this update require that a statement
of cash flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning of period and end of period total amounts
shown on the statement of cash flows. The amendments are effective
for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. The Sponsor elected to early
adopt ASU 2016-18 for the year ending December 31, 2017 and the
adoption did not have a material impact on the financial statements
and disclosures of the Trust or the Funds.
The
FASB issued ASU 2014-09 in May 2014, “Revenue from Contracts
with Customers (Topic 606),” which replaces the revenue
recognition requirements of “Revenue Recognition (Topic
605).” This ASU is based on the principle that revenue is
recognized to depict the transfer of goods and services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. This ASU provides new and more detailed guidance on
specific topics and expands and improves disclosures about revenue.
In August 2015, the FASB issued ASU 2015-14 which defers the
effective date of ASU 2014-09 by one year to fiscal years beginning
after December 15, 2017. ASU 2015-14 also permits early adoption of
ASU 2014-09, but not before the original effective date, which was
for fiscal years beginning after December 15, 2016. The Trust and
the Fund record income or loss from the recognition and measurement
of futures contracts and from interest income under Subtopic
825-10. Revenue from financial instruments which are valued under
Subtopic 825 will not be subject to the application of ASU 2014-09
and 2015-14. The Sponsor elected to adopt the amendments for the
fiscal year ending December 31, 2017. The adoption did not have a
material impact on the financial statements and disclosures of the
Trust or the Funds.
The
FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and
Derivatives and Hedging (Topic 815): Rescission of SEC Guidance
Because of Accounting Standards Updates 2014-09 and 2014-16
Pursuant to Staff Announcements at the March 3, 2016 EITF
Meeting”. The amendments make targeted improvements to
clarify the principal versus agent assessment and are intended to
make the guidance more operable and lead to more consistent
application. The Trust and the Fund record income or loss from the
recognition and measurement of futures contracts and from interest
income under Subtopic 825-10. Revenue from financial instruments
which are valued under Subtopic 825 will not be subject to the
application of ASU 2016-11. The Sponsor elected to adopt ASU
2016-11 for the year ending December 31, 2017. The adoption did not
have a material impact on the financial statements and disclosures
of the Trust or the Funds.
The
FASB issued ASU 2016-02, “Leases (Topic 842).” The
amendments in this update increase transparency and comparability
among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information
about leasing arrangements. The amendments in this update are
effective for fiscal years beginning after December 15, 2018. This
standard is not expected to have a material impact on the financial
statements and disclosures of the Trust or the Funds.
The
FASB issued ASU 2016-01, “Financial Instruments-Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities.” The amendments in this update are
intended to improve the recognitions measurement and disclosure of
financial instruments. The amendments to this update are effective
for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. These amendments are required to
be applied prospectively. The adoption did not have a material
impact on the financial statements and disclosures of the Trust or
the Funds.
Note 4 –
Fair Value Measurements
The Trust’s
assets and liabilities recorded at fair value have been categorized
based upon a fair value hierarchy as described in the Trust’s
significant accounting policies in Note 3. The following table
presents information about the Trust’s assets and liabilities
measured at fair value as of September 30, 2018 and December 31,
2017:
September 30, 2018
|
|
|
|
|
Assets:
|
|
|
|
|
Cash
equivalents
|
$87,404,149
|
$-
|
$-
|
$87,404,149
|
Commodity
futures contracts
|
|
|
|
|
Corn
futures contracts
|
10,587
|
-
|
-
|
10,587
|
Soybean
futures contracts
|
61,875
|
-
|
-
|
61,875
|
Sugar
futures contracts
|
92,489
|
-
|
-
|
92,489
|
Wheat
futures contracts
|
352,713
|
-
|
-
|
352,713
|
Total
|
$87,921,813
|
$-
|
$-
|
$87,921,813
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Corn
futures contracts
|
$1,801,650
|
$-
|
$-
|
$1,801,650
|
Soybean
futures contracts
|
1,256,013
|
-
|
-
|
1,256,013
|
Sugar
futures contracts
|
1,042,496
|
-
|
-
|
1,042,496
|
Wheat
futures contracts
|
1,635,113
|
-
|
-
|
1,635,113
|
Total
|
$5,735,272
|
$-
|
$-
|
$5,735,272
|
December
31, 2017
|
|
|
|
|
Assets:
|
|
|
|
|
Cash
equivalents
|
$49,932,760
|
$-
|
$-
|
$49,932,760
|
Commodity
futures contracts
|
|
|
|
|
Corn
futures contracts
|
120,487
|
-
|
-
|
120,487
|
Sugar
futures contracts
|
184,319
|
-
|
-
|
184,319
|
Wheat
futures contracts
|
604,475
|
-
|
-
|
604,475
|
Total
|
$50,842,041
|
$-
|
$-
|
$50,842,041
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Corn
futures contracts
|
$1,962,050
|
$-
|
$-
|
$1,962,050
|
Soybean
futures contracts
|
448,063
|
-
|
-
|
448,063
|
Sugar
futures contracts
|
67,133
|
-
|
-
|
67,133
|
Wheat
futures contracts
|
3,200,525
|
-
|
-
|
3,200,525
|
Total
|
$5,617,771
|
$-
|
$-
|
$5,617,771
|
For the nine months
ended September 30, 2018 and year ended December 31, 2017, the
Funds did not have any significant transfers between any of the
levels of the fair value hierarchy.
See the
Fair Value - Definition and
Hierarchy section in Note 3 above for an explanation of the
transfers into and out of each level of the fair value
hierarchy.
Note 5 –
Derivative Instruments and Hedging
Activities
In the normal
course of business, the Funds utilize derivative contracts in
connection with its proprietary trading activities. Investments in
derivative contracts are subject to additional risks that can
result in a loss of all or part of an investment. The Funds’
derivative activities and exposure to derivative contracts are
classified by the following primary underlying risks: interest
rate, credit, commodity price, and equity price risks. In addition
to its primary underlying risks, the Funds are also subject to
additional counter-party risk due to inability of its
counter-parties to meet the terms of their contracts. For the nine
months ended September 30, 2018 and year ended December 31, 2017,
the Funds invested only in commodity futures contracts specifically
related to each Fund.
Futures
Contracts
The Funds are
subject to commodity price risk in the normal course of pursuing
their investment objectives. A futures contract represents a
commitment for the future purchase or sale of an asset at a
specified price on a specified date.
The purchase and
sale of futures contracts requires margin deposits with a FCM.
Subsequent payments (variation margin) are made or received by each
Fund each day, depending on the daily fluctuations in the value of
the contract, and are recorded as unrealized gains or losses by
each Fund. Futures contracts may reduce the Funds’ exposure
to counter-party risk since futures contracts are exchange-traded;
and the exchange’s clearinghouse, as the counter-party to all
exchange-traded futures, guarantees the futures against
default.
The Commodity
Exchange Act requires an FCM to segregate all customer transactions
and assets from the FCM’s proprietary activities. A
customer’s cash and other equity deposited with an FCM are
considered commingled with all other customer funds subject to the
FCM’s segregation requirements. In the event of an
FCM’s insolvency, recovery may be limited to each
Fund’s pro rata share of segregated customer funds available.
It is possible that the recovery amount could be less than the
total of cash and other equity deposited.
The following table
discloses information about offsetting assets and liabilities
presented in the statements of assets and liabilities to enable
users of these financial statements to evaluate the effect or
potential effect of netting arrangements for recognized assets and
liabilities. These recognized assets and liabilities are presented
as defined in the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Update
(“ASU”) No. 2011-11 “Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities” and
subsequently clarified in FASB ASU 2013-01 “Balance Sheet
(Topic 210): Clarifying the Scope of Disclosures about Offsetting
Assets and Liabilities.”
The following table
also identifies the fair value amounts of derivative instruments
included in the statements of assets and liabilities as derivative
contracts, categorized by primary underlying risk and held by the
FCM, ED&F Man as of September 30, 2018 and December 31,
2017.
Offsetting of Financial Assets and Derivative
Assets as of September 30, 2018
|
|
|
|
(iv)
|
|
|
|
|
|
Gross
Amount Not Offset in the
|
|
|
|
|
|
Statement
of Assets and Liabilities
|
|
Description
|
Gross
Amount of Recognized Assets
|
Gross
Amount Offset in the Statement of Assets and
Liabilities
|
Net
Amount Presented in the Statement of Assets and
Liabilities
|
Futures
Contracts Available for Offset
|
Collateral,
Due to Broker
|
|
Commodity
Price
|
|
|
|
|
|
|
Corn
futures contracts
|
$10,587
|
$-
|
$10,587
|
$10,587
|
$-
|
$-
|
Soybean
futures contracts
|
$61,875
|
$-
|
$61,875
|
$61,875
|
$-
|
$-
|
Sugar
futures contracts
|
$92,489
|
$-
|
$92,489
|
$92,489
|
$-
|
$-
|
Wheat
futures contracts
|
$352,713
|
$-
|
$352,713
|
$352,713
|
$-
|
$-
|
Offsetting of Financial Liabilities and
Derivative Liabilities as of September 30, 2018
|
|
|
|
(iv)
|
|
|
|
|
|
Gross
Amount Not Offset in the
|
|
|
|
|
|
Statement
of Assets and Liabilities
|
|
Description
|
Gross
Amount of Recognized Liabilities
|
Gross
Amount Offset in the Statement of Assets and
Liabilities
|
Net
Amount Presented in the Statement of Assets and
Liabilities
|
Futures
Contracts Available for Offset
|
Collateral,
Due from Broker
|
|
Commodity
Price
|
|
|
|
|
|
|
Corn
futures contracts
|
$1,801,650
|
$-
|
$1,801,650
|
$10,587
|
$1,791,063
|
$-
|
Soybean
futures contracts
|
$1,256,013
|
$-
|
$1,256,013
|
$61,875
|
$1,194,138
|
$-
|
Sugar
futures contracts
|
$1,042,496
|
$-
|
$1,042,496
|
$92,489
|
$950,007
|
$-
|
Wheat
futures contracts
|
$1,635,113
|
$-
|
$1,635,113
|
$352,713
|
$1,282,400
|
$-
|
Offsetting of Financial Assets and Derivative
Assets as of December 31, 2017
|
|
|
|
(iv)
|
|
|
|
|
|
Gross
Amount Not Offset in the
|
|
|
|
|
|
Statement
of Assets and Liabilities
|
|
Description
|
Gross
Amount of Recognized Assets
|
Gross
Amount Offset in the Statement of Assets and
Liabilities
|
Net
Amount Presented in the Statement of Assets and
Liabilities
|
Futures
Contracts Available for Offset
|
Collateral,
Due to Broker
|
|
Commodity
Price
|
|
|
|
|
|
|
Corn
futures contracts
|
$120,487
|
$-
|
$120,487
|
$120,487
|
$-
|
$-
|
Sugar
futures contracts
|
$184,319
|
$-
|
$184,319
|
$67,133
|
$-
|
$117,186
|
Wheat
futures contracts
|
$604,475
|
$-
|
$604,475
|
$604,475
|
$-
|
$-
|
Offsetting of Financial Liabilities and
Derivative Liabilities as of December 31, 2017
|
|
|
|
(iv)
|
|
|
|
|
|
Gross
Amount Not Offset in the
|
|
|
|
|
|
Statement
of Assets and Liabilities
|
|
Description
|
Gross
Amount of Recognized Liabilities
|
Gross
Amount Offset in the Statement of Assets and
Liabilities
|
Net
Amount Presented in the Statement of Assets and
Liabilities
|
Futures
Contracts Available for Offset
|
Collateral,
Due from Broker
|
|
Commodity
Price
|
|
|
|
|
|
|
Corn
futures contracts
|
$1,962,050
|
$-
|
$1,962,050
|
$120,487
|
$1,841,563
|
$-
|
Soybean
futures contracts
|
$448,063
|
$-
|
$448,063
|
$-
|
$448,063
|
$-
|
Sugar
futures contracts
|
$67,133
|
$-
|
$67,133
|
$67,133
|
$-
|
$-
|
Wheat
futures contracts
|
$3,200,525
|
$-
|
$3,200,525
|
$604,475
|
$2,596,050
|
$-
|
The following is a
summary of realized and unrealized gains (losses) of the derivative
instruments utilized by the Trust:
Three months ended September 30,
2018
Primary
Underlying Risk
|
Realized
Loss on
Commodity Futures
Contracts
|
Net
Change in Unrealized
Appreciation or Depreciation on
Commodity Futures
Contracts
|
Commodity
price
|
|
|
Corn futures
contracts
|
$(6,989,488)
|
$4,859,838
|
Soybean futures
contracts
|
(1,270,462)
|
827,925
|
Sugar futures
contracts
|
(1,477,762)
|
(458,729)
|
Wheat futures
contracts
|
(2,473,162)
|
1,575,700
|
Total commodity
futures contracts
|
$(12,210,874)
|
$6,804,734
|
Three months ended September 30,
2017
Primary Underlying
Risk
|
Realized (Loss) Gain on
Commodity Futures
Contracts
|
Net Change in Unrealized
Depreciation or
Appreciation on
Commodity Futures
Contracts
|
Commodity price
|
|
|
Corn futures contracts
|
$(1,616,988)
|
$(3,363,975 )
|
Soybean futures contracts
|
(24,025)
|
241,863
|
Sugar futures contracts
|
(678,070)
|
532,963
|
Wheat futures contracts
|
1,955,888
|
(11,125,988)
|
Total commodity futures contracts
|
$(363,195)
|
$(13,175,137)
|
Nine months ended September 30,
2018
Primary Underlying Risk
|
Realized (Loss) Gain on
Commodity Futures
Contracts
|
Net Change in Unrealized
Appreciation or
Depreciation on
Commodity Futures
Contracts
|
Commodity price
|
|
|
Corn
futures contracts
|
$(3,818,950)
|
$50,500
|
Soybean futures
contracts
|
(1,350,475)
|
(746,075)
|
Sugar
futures contracts
|
(2,775,629)
|
(1,067,192)
|
Wheat
futures contracts
|
2,426,687
|
1,313,650
|
Total
commodity futures contracts
|
$(5,518,367)
|
$(449,117)
|
Nine
months ended September 30, 2017
Primary Underlying Risk
|
Realized (Loss) Gain on
Commodity Futures
Contracts
|
Net Change in Unrealized
Depreciation or
Appreciation on
Commodity Futures
Contracts
|
Commodity price
|
|
|
Corn
futures contracts
|
$(2,064,200)
|
$(969,000)
|
Soybean futures
contracts
|
7,475
|
(210,300)
|
Sugar
futures contracts
|
(2,266,185)
|
(57,994)
|
Wheat
futures contracts
|
|