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 June 30, 2013.

OR

o 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     o  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     o 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    o   Accelerated filer    x
Non-accelerated filer    o   Smaller reporting company    o
(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).

 

o Yes     x 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 July 31, 2013

 
Teucrium Corn Fund 1,000,004
Teucrium WTI Crude Oil Fund 50,002
Teucrium Natural Gas Fund 300,004
Teucrium Sugar Fund 175,004
Teucrium Soybean Fund 275,004
Teucrium Wheat Fund 400,004
Teucrium Agricultural Fund 50,002
   

 

 
 

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.   117
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   141
     
Item 4. Controls and Procedures.   144
     
Part II. OTHER INFORMATION   145
     
Item 1. Legal Proceedings.   145
     
Item 1A. Risk Factors.   145
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   164
     
Item 3. Defaults Upon Senior Securities.   165
     
Item 4. Mine Safety Disclosures.   166
     
Item 5. Other Information.   166
     
Item 6. Exhibits.   166

 

 

2
 

Part I. FINANCIAL INFORMATION

 

Item 1.   Financial Statements.

 

Index to Financial Statements

 

Documents   Page
TEUCRIUM COMMODITY TRUST    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   5
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   6
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   8
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and  2012   9
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and  2012   10
     
Notes to Financial Statements   11
     
TEUCRIUM CORN FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   20
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   21
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   23
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   24
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   25
     
Notes to Financial Statements   26
     
TEUCRIUM NATURAL GAS FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   34
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   35
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   37
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   38
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   39
     
Notes to Financial Statements   40

 

 

TEUCRIUM WTI CRUDE OIL FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   48
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   49
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   51
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   52
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   53
     
Notes to Financial Statements   54
     
3
 

 

TEUCRIUM SOYBEAN FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   63
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   64
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   66
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   67
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   68
     
Notes to Financial Statements   69
     
TEUCRIUM SUGAR FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   77
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   78
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   80
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   81
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   82
     
Notes to Financial Statements   83
     
TEUCRIUM WHEAT FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   91
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   92
     
Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012   94
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and 2012   95
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012   96
     
Notes to Financial Statements   97

 

 

TEUCRIUM AGRICULTURAL FUND    
     
Statements of Assets and Liabilities at June 30, 2013 (Unaudited) and December 31, 2012   105
     
Schedule of Investments at June 30, 2013 (Unaudited) and December 31, 2012   106
     
Statements of Operations (Unaudited) for three and six months ended June 30, 2013, for the three months ended June 30, 2012 and from commencement of operations (March 28, 2012) through June 30, 2012   108
     
Statements of Changes in Net Assets (Unaudited) for the six months ended June 30, 2013 and from commencement of operations (March 28, 2012) through June 30, 2012   109
     
Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and from commencement of operations (March 28, 2012) through June 30, 2012   110
     
Notes to Financial Statements   111

 

4
 

TEUCRIUM COMMODITY TRUST

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012  
Assets   (Unaudited)      
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 56,431,521     $ 52,575,291  
Commodity futures contracts     96,467       133,384  
Collateral, due from broker     7,274,776       7,004,263  
Interest receivable     2,988       2,596  
Other assets     337,423       365,076  
Total assets     64,143,175       60,080,610  
                 
Liabilities                
                 
Commodity futures contracts     3,977,778       3,075,587  
Management fee payable to Sponsor     46,496       50,632  
Other liabilities     95,527       56,695  
Total liabilities     4,119,801       3,182,914  
                 
Net assets   $ 60,023,374     $ 56,897,696  

 

The accompanying notes are an integral part of these financial statements.

 

 

5
 

 

TEUCRIUM COMMODITY TRUST

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

Description: Assets   Fair Value      Percentage of
Net Assets		      Principal Amount
Cash equivalents                  
United States Treasury obligations                  
U.S. Treasury bills, 0.040%, due July 18, 2013   $ 4,999,960   8.33 %   $ 5,000,000
U.S. Treasury bills, 0.020%, due August 15, 2013     4,999,875   8.33       5,000,000
Total U.S. Treasury obligations     9,999,835   16.66        
                   
Money market funds                  
Dreyfus Cash Management Plus     46,431,686   77.36        
                   
Total cash equivalents   $ 56,431,521   94.02 %      
                   
                  Notional Amount
(Long Exposure)
Commodity futures contracts                  
United States WTI crude oil futures contracts                  
WTI crude oil futures (7 contracts, settlement date November 20, 2013)   $ 36,092   0.06 %   $ 660,660
WTI crude oil futures (7 contracts, settlement date May 20, 2014)     25,200   0.04       635,180
                   
United States soybean futures contracts                  
CBOT soybean futures (31 contracts, settlement date January 14, 2014)     35,175   0.06       1,947,963
Total commodity futures contracts   $ 96,467   0.16 %   $ 3,243,803
             
Description: Liabilities   Fair Value   Percentage of
Net Assets		   Notional Amount
(Long Exposure)
Commodity futures contracts                  
United States corn futures contracts            
CBOT corn futures (494 contracts, settlement date September 13, 2013)   $ 792,537   1.32 %   $ 13,517,075
CBOT corn futures (453 contracts, settlement date December 13, 2013)     1,572,513   2.62       11,574,150
CBOT corn futures (516 contracts, settlement date December 12, 2014)     458,675   0.76       13,667,550
                   
United States natural gas futures contracts                  
NYMEX natural gas futures (23 contracts, settlement date September 26, 2013)     28,190   0.05       821,560
NYMEX natural gas futures (23 contracts, settlement date October 29, 2013)     79,650   0.13       838,580
NYMEX natural gas futures (22 contracts, settlement date February 26, 2014)     21,620   0.04       852,060
NYMEX natural gas futures (22 contracts, settlement date March 27, 2014)     30,400   0.05       834,460
                   
United States WTI crude oil futures contracts                  
WTI crude oil futures (8 contracts, settlement date November 20, 2014)     6,720   0.01       705,760
                   
United States soybean futures contracts                  
CBOT soybean futures (37 contracts, settlement date November 14, 2013)     69,537   0.12       2,316,200
CBOT soybean futures (37 contracts, settlement date November 14, 2014)     33,450   0.06       2,270,413
                   
United States sugar futures contracts                  
ICE sugar futures (46 contracts, settlement date February 28, 2014)     110,891   0.18       913,965
ICE sugar futures (39 contracts, settlement date April 30, 2014)     3,438   0.01       773,573
ICE sugar futures (45 contracts, settlement date February 27, 2015)     62,082   0.10       920,304
                   
United States wheat futures contracts                  
CBOT wheat futures contracts (73 contracts, settlement date September 13, 2013)     195,275   0.33       2,400,788
CBOT wheat futures contracts (61 contracts, settlement date December 13, 2013)     318,575   0.53       2,048,075
CBOT wheat futures contracts (68 contracts, settlement date December 12, 2014)     194,225   0.32       2,417,400
Total commodity futures contracts   $ 3,977,778   6.63  %   $ 56,871,913
                   
                Shares
Exchange-traded funds                  
Teucrium Corn Fund   $ 518,947   0.86 %     13,408
Teucrium Soybean Fund     537,369   0.90       22,656
Teucrium Wheat Fund     522,448   0.87       30,437
Teucrium Sugar Fund     541,030   0.90       36,274
Total exchange-traded funds (cost $2,647,235) owned by Teucrium Agricultural Fund   $ 2,119,794   3.53 %      
                   

 

The accompanying notes are an integral part of these financial statements.

 

6
 

 

  TEUCRIUM COMMODITY TRUST

SCHEDULE OF INVESTMENTS

December 31, 2012

 

Description: Assets          

 

Fair Value		            Percentage of
Net Assets		           Principal Amount
Cash equivalents                  
United States Treasury obligations                  
U.S. Treasury bills, 0.090%, due January 17, 2013   $ 9,999,930   17.58 %   $ 10,000,000
U.S. Treasury bills, 0.090%, due February 14, 2013     9,999,670   17.57       10,000,000
Total U.S. Treasury obligations     19,999,600   35.15        
                   
Money market funds                  
Dreyfus Cash Management Plus     32,575,691   57.25        
                   
Total cash equivalents   $ 52,575,291   92.40 %      
                 
                Notional Amount
(Long Exposure)
Commodity futures contracts                  
United States natural gas futures contracts                  
NYMEX natural gas futures (32 contracts, settlement date September 26, 2013)   $ 9,550   0.02 %   $ 1,161,600
                   
United States WTI crude oil futures contracts                  
WTI crude oil futures (6 contracts, settlement date November 20, 2013)     24,312   0.04       560,220
WTI crude oil futures (8 contracts, settlement date November 20, 2014)     20,560   0.04       733,040
                   
United States soybean futures contracts                  
CBOT soybean futures (28 contracts, settlement date May 14, 2013)     40,775   0.07       1,958,950
CBOT soybean futures (36 contracts, settlement date November 14, 2013)     22,425   0.04       2,344,950
                   
United States wheat futures contracts                  
CBOT wheat futures (32 contracts, settlement date December 13, 2013)     15,762   0.03       1,313,200
Total commodity futures contracts   $ 133,384   0.24 %    $ 8,071,960
             
Description: Liabilities   Fair Value   Percentage of
Net Assets		   Notional Amount
(Long Exposure)
Commodity futures contracts                  
United States corn futures contracts                  
CBOT corn futures (377 contracts, settlement date May 14, 2013)   $ 1,341,775   2.36 %   $ 13,199,712
CBOT corn futures (325 contracts, settlement date July 12, 2013)     413,700   0.73       11,330,313
CBOT corn futures (440 contracts, settlement date December 13, 2013)     458,300   0.81       13,194,500
                   
United States natural gas futures contracts                  
NYMEX natural gas futures (34 contracts, settlement date February 26, 2013)     103,412   0.18       1,144,100
NYMEX natural gas futures (34 contracts, settlement date March 26, 2013)     61,967   0.11       1,157,020
NYMEX natural gas futures (31 contracts, settlement date October 29, 2013)     68,540   0.12       1,160,950
                   
United States WTI crude oil futures contracts                  
WTI crude oil futures (8 contracts, settlement date May 21, 2013)     58,090   0.10       747,920
                   
United States soybean futures contracts                  
CBOT soybean futures (33 contracts, settlement date March 14, 2013)     284,575   0.50       2,325,675
                   
United States sugar futures contracts                  
ICE sugar futures (35 contracts, settlement date April 30, 2013)     38,629   0.07       768,320
ICE sugar futures (30 contracts, settlement date June 28, 2013)     11,189   0.02       663,264
ICE sugar futures (34 contracts, settlement date February 28, 2014)     28,560   0.05       783,686
                   
United States wheat futures contracts                  
CBOT wheat futures (33 contracts, settlement date May 14,  2013)     166,925   0.29       1,299,787
CBOT wheat futures (28 contracts, settlement date July 12, 2013)     39,925   0.07       1,111,250
Total commodity futures contracts   $ 3,075,587   5.41 %   $ 48,886,497
           
          Shares
Exchange-traded funds                  
Teucrium Corn Fund   $ 596,685   1.05 %     13,458
Teucrium Soybean Fund     603,422   1.06       25,006
Teucrium Sugar Fund     628,110   1.10       35,274
Teucrium Wheat Fund     597,970   1.05       28,137
Total exchange-traded funds (cost $2,679,379) owned by Teucrium Agricultural Fund   $ 2,426,187   4.26 %      
                   

 

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  Six months ended  Six months ended
   June 30, 2013  June 30, 2012  June 30, 2013  June 30, 2012
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized loss on commodity futures contracts  $(2,414,400)  $(3,160,334)  $(5,083,220)  $(5,898,911)
Net change in unrealized appreciation or depreciation on commodity futures contracts   (451,196)   6,035,022    (939,108)   5,530,915 
Interest income   6,110    15,475    16,822    28,005 
Total (loss) income   (2,859,486)   2,890,163    (6,005,506)   (339,991)
                     
Expenses                    
Management fees   135,474    179,227    276,318    377,658 
Professional fees   173,247    407,460    329,147    613,919 
Distribution and marketing fees   414,655    423,423    835,783    961,559 
Custodian fees and expenses   35,825    163,711    71,544    325,734 
Business permits and licenses fees   26,447    15,030    51,489    16,473 
General and administrative expenses   40,374    133,667    78,471    143,089 
Brokerage commissions   20,945    19,116    49,355    25,659 
Other expenses   13,982    11,216    29,178    42,154 
Total expenses   860,949    1,352,850    1,721,285    2,506,245 
Net (loss) income  $(3,720,435)  $1,537,313   $(7,726,791)  $(2,846,236)

 

The accompanying notes are an integral part of these financial statements. 

8
 

 

TEUCRIUM COMMODITY TRUST

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Operations                
Net loss   $ (7,726,791 )   $ (2,846,236 )
                 
Capital transactions                
Issuance of Shares     37,471,116       38,499,917  
Change in cost of shares of the Underlying Funds acquired by Teucrium Agricultural Fund     32,144       (2,386,521 ) 
Realized loss on shares of the Underlying Funds sold by Teucrium Agricultural Fund     (28,629 )     (969,837 ) 
Redemption of Shares     (26,622,162 )     (42,485,467 )
Total capital transactions     10,852,469       (7,341,908 ) 
Net change in net assets     3,125,678       (10,188,144 ) 
                 
Net assets, beginning of period     56,897,696       83,823,568  
                 
Net assets, end of period   $ 60,023,374     $ 73,635,424  

 

The accompanying notes are an integral part of these financial statements.

9
 

 

TEUCRIUM COMMODITY TRUST

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six months ended  Six months ended
   June 30, 2013  June 30, 2012
Cash flows from operating activities:          
Net loss  $(7,726,791)  $(2,846,236)
Adjustments to reconcile net loss to net cash used in operating activities:          
Net change in unrealized appreciation or depreciation on commodity futures contracts   939,108    (5,530,915)
Realized loss on shares of the Underlying Funds sold by Teucrium Agricultural          
     Fund excluded from net loss   (28,629)   (969,837)
Changes in operating assets and liabilities:          
Net purchases and sales of Underlying Funds acquired by Teucrium Agricultural Fund   32,144    (2,386,521)
Collateral, due from broker   (270,513)   5,776,304 
Interest receivable   (392)   1,450 
Other assets   27,653    (296,406)
Collateral, due to broker   —      16,137 
Management fee payable to Sponsor   (4,136)   (23,447)
Other liabilities   38,832    188,956 
Net cash used in operating activities   (6,992,724)   (6,070,515)
           
Cash flows from financing activities:          
Proceeds from sale of Shares   37,471,116    36,399,141 
Redemption of Shares, net of change in payable for shares redeemed   (26,622,162)   (46,632,478)
Net cash provided by (used in) financing activities   10,848,954    (10,233,337)
           
Net change in cash and cash equivalents   3,856,230    (16,303,852)
Cash and cash equivalents, beginning of period   52,575,291    80,567,901 
Cash and cash equivalents, end of period  $56,431,521   $64,264,049 
           

 

The accompanying notes are an integral part of these financial statements.

 

10
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(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 seven series: Teucrium Corn Fund (“CORN”), Teucrium WTI Crude Oil Fund (“CRUD”), Teucrium Natural Gas Fund (“NAGS”), 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.” 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 June 5, 2010, the initial Form S-1 for CORN was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 8, 2010, four Creation Baskets for CORN were issued representing 200,000 shares and $5,000,000. CORN began trading on the New York Stock Exchange (“NYSE”) Arca on June 9, 2010.

  

On October 22, 2010, the initial 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.

 

On June 17, 2011, the Forms S-1 for CANE, SOYB, and WEAT were declared effective by the SEC. On September 16, 2011, two Creation Baskets were issued for each Fund, representing 100,000 shares and $2,500,000, for CANE, SOYB, and WEAT.  On September 19, 2011, CANE, SOYB, and WEAT started trading on the NYSE Arca.

 

On 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 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 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 six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 (except as discussed in the Shares of the Underlying Funds Held by the Teucrium Agricultural Fund (TAGS) section) for the months during which each Fund was in operation.

 

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

11
 

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. 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.

 

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 June 30, 2013 and December 31, 2012.  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 periods ended June 30, 2013 and 2012.

  

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.

 

There are a minimum number of baskets and associated shares specified for each Fund in the respective most recent Form S-1 registration statements, amendments or supplements. Once the minimum number of baskets is reached, there can be no more redemptions until there has been a creation basket. These minimum levels are as follows:

 

CORN: 50,000 shares representing 2 baskets

NAGS: 100,000 shares representing 2 baskets

CRUD: 50,000 shares representing 2 baskets (at minimum as of June 30, 2013 and December 31, 2012)

SOYB: 50,000 shares representing 2 baskets

CANE: 50,000 shares representing 2 baskets

WEAT: 50,000 shares representing 2 baskets

TAGS: 50,000 shares representing 2 baskets (at minimum as of June 30, 2013 and December 31, 2012)

 

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 $46,431,686 and $32,575,691 in money market funds at June 30, 2013

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and December 31, 2012, 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 $9,999,835 and $19,999,600 on June 30, 2013 and December 31, 2012, 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 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. The Trust and the Funds are subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The management of the Trust and the Funds monitors the financial condition of such brokers and does not anticipate any losses from these counterparties. Since the inception of the Fund, the principal broker through which the Trust and TAGS clear securities transactions for TAGS is the Bank of New York Mellon Capital Markets.

 

Shares of the Underlying Funds Held by the Teucrium Agricultural Fund (TAGS)

 

Given the investment objective of TAGS as described in Note 1, TAGS will buy, sell and hold as part of its normal operations shares of the four Underlying Funds. The Trust excludes the shares of the other series of the Trust owned by the Teucrium Agricultural Fund from its statements of assets and liabilities. The Trust excludes the net change in unrealized appreciation or depreciation on securities owned by the Teucrium Agricultural Fund from its statements of operations. Upon the sale of the Underlying Funds by the Teucrium Agricultural Fund, the Trust includes any realized gain or loss in its statements of changes in net assets.

 

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 the prior day’s net assets. The Sponsor can elect to waive certain fees or expenses that would generally be paid for by each Fund. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB and

13
 

WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013.

 

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 June 30, 2013 and December 31, 2012, 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.

 

On March 31, 2013, the Corn Futures Contracts traded on the CBOT due to settle on July 12, 2013 (the “JUL13 Corn Contracts”) were in a “limit down” condition and, in the opinion of the Trust and CORN, the reported value at the close of market on that day did not fairly value the JUL13 Corn Contracts held by CORN. Therefore, the Trust and CORN used alternative verifiable sources to value the JUL13 Corn Contracts on March 31, 2013 and the financial statements of the Trust and the Fund have been adjusted accordingly. This adjustment resulted in a ($410,475) decrease in the unrealized change in commodity futures contracted for the Trust and CORN in excess of reported CBOT values, for the quarter-ended March 31, 2013.

 

The Sugar Futures Contracts traded on ICE due to settle on February 27, 2015 (the “MAR15 ICE Sugar Contracts”) did not, in the opinion of the Trust and CANE, trade in an actively traded futures market as defined in the policy of the Trust and CANE for the entire period during which they were held. Accordingly, the Trust and CANE have classified these as a Level 2 liability for the period ended June 30, 2013. The MAR15 Sugar Contracts were, in the opinion of the Trust and CANE, fairly valued at settlement on June 30, 2013.

 

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The Wheat Futures Contracts traded on the CBOT due to settle on December 12, 2014 (the “DEC14 Wheat Contracts”) did not, in the opinion of the Trust and WEAT, trade in an actively traded futures market as defined in the policy of the Trust and WEAT for the entire period during which they were held. Accordingly, the Trust and WEAT have classified these as a Level 2 liability for the period ended June 30, 2013. The DEC14 Wheat Contracts were, in the opinion of the Trust and WEAT, fairly valued at settlement on June 30, 2013.

 

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 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.

  

New Accounting Pronouncements

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Funds.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013

 

                            Balance as of  
Assets:   Level 1     Level 2     Level 3     June 30, 2013  
Cash equivalents   $ 56,431,521     $ -     $ -     $ 56,431,521  
Commodity futures contracts                                
WTI crude oil futures contracts     61,292       -       -       61,292  
Soybean futures contracts     35,175       -       -       35,175  
Total   $ 56,527,988     $ -     $ -     $ 56,527,988  
 
              Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts                    
Corn futures contracts  $2,823,725   $-   $-   $2,823,725 
Natural gas futures contracts   159,860    -    -    159,860 
WTI crude oil futures contracts   6,720    -    -    6,720 
Soybean futures contracts   102,987    -    -    102,987 
Sugar futures contracts   114,329    62,082    -    176,411 
Wheat futures contracts   513,850    194,225    -    708,075 
Total  $3,721,471   $256,307   $-   $3,977,778 

 

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December 31, 2012

 

                Balance as of
Assets:   Level 1   Level 2   Level 3   December 31, 2012
Cash equivalents   $ 52,575,291       -       -     $ 52,575,291  
Commodity futures contracts                                
Natural gas futures contracts     9,550       -       -       9,550  
WTI crude oil futures contracts     44,872       -       -       44,872  
Soybean futures contracts     63,200       -       -       63,200  
Wheat futures contracts     15,762       -       -       15,762  
Total   $ 52,708,675     $ -     $ -     $ 52,708,675  
                                 
                Balance as of
    Level 1   Level 2   Level 3   December 31, 2012
Liabilities:                                
Commodity futures contracts                                
Corn futures contracts   $ 2,213,775     $ -     $ -     $ 2,213,775  
Natural gas futures contracts     233,919       -       -       233,919  
WTI crude oil futures contracts     58,090       -       -       58,090  
Soybean futures contracts     284,575       -       -       284,575  
Sugar futures contracts     78,378       -       -       78,378  
Wheat futures contracts     206,850       -       -       206,850  
Total   $ 3,075,587     $ -     $ -     $ 3,075,587  

 

 

Transfers into and out of each level of the fair value hierarchy for the JUL13 Corn Contracts, NOV14 Soybean Contracts, FEB15 Sugar Contracts, and the DEC14 Wheat Contracts, for the six months ended June 30, 2013 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  
Liabilities (at fair value)                                                
Derivative contracts                                                
Corn future contracts   $ 1,010,962     $ 1,010,962     $ 1,010,962     $ 1,010,962     $      -     $      -  
Soybean future contracts     6,850       6,850       6,850       6,850       -       -  
Sugar future contracts     -       62,082       62,082       -       -       -  
Wheat future contracts     -       194,225       194,225       -       -       -  
Total   $ 1,017,812     $ 1,274,119     $ 1,274,119     $ 1,017,812     $ -     $ -  

 

 

There were no transfers into and out of each level of the fair value hierarchy for the Trust or the Funds for the six months ended June 30, 2012.

 

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 six months ended June 30, 2013, the Funds invested only in commodity futures contracts specifically related to each Fund. For the six months ended June 30, 2012 the Operating Funds invested only in commodity futures contracts and Chicago Mercantile Exchange Calendar Swaps. Cleared Swaps have standardized terms similar to, and are priced by reference to, a corresponding Benchmark Component Futures Contract.  Additionally, Other Commodity Interests that do not have standardized terms and are not exchange-traded, referred to as “over-the-counter” Interests, can generally be structured as the parties to the Commodity 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 not necessarily correlate exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract.  

 

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 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Assets and Derivative Assets as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Corn futures contracts  $-   $-   $-   $-   $-   $- 
   Natural gas futures contracts   -    -    -    -    -    - 
   WTI crude oil futures contracts   61,292    -    61,292    6,720    -    54,572 
   Soybean futures contracts   35,175    -    35,175    35,175    -    - 
   Sugar futures contracts   -    -    -    -    -    - 
   Wheat futures contracts   -    -    -    -    -    - 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Corn futures contracts  $2,823,725   $-   $2,823,725   $-   $2,823,725   $- 
   Natural gas futures contracts   159,860    -    159,860    -    159,860    - 
   WTI crude oil futures contracts   6,720    -    6,720    6,720    -    - 
   Soybean futures contracts   102,987    -    102,987    35,175    67,812    - 
   Sugar futures contracts   176,411    -    176,411    -    176,411    - 
   Wheat futures contracts   708,075    -    708,075    -    708,075    - 

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Corn futures contracts  $-   $-   $-   $-   $-   $- 
   Natural gas futures contracts   9,550    -    9,550    9,550    -    - 
   WTI crude oil futures contracts   44,872    -    44,872    44,872    -    - 
   Soybean futures contracts   63,200    -    63,200    63,200    -    - 
   Sugar futures contracts   -    -    -    -    -    - 
   Wheat futures contracts   15,762    -    15,762    15,762    -    - 

 

 

 

 

 

17
 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Corn futures contracts  $2,213,775   $-   $2,213,775   $-   $2,213,775   $- 
   Natural gas futures contracts   233,919    -    233,919    9,550    224,369    - 
   WTI crude oil futures contracts   58,090    -    58,090    44,872    13,218    - 
   Soybean futures contracts   284,575    -    284,575    63,200    221,375    - 
   Sugar futures contracts   78,378    -    78,378    -    78,378    - 
   Wheat futures contracts   206,850    -    206,850    15,762    191,088    - 

 

The following is a summary of realized and unrealized gains (losses) of the derivative instruments utilized by the Trust:

 

Three months ended June 30, 2013

 

   Realized (Loss) Gain on   Net Change in Unrealized Gain 
Primary Underlying Risk  Derivative Instruments   (Loss) on Derivative Instruments 
Commodity price          
Corn futures contracts  $(1,820,791)  $1,075 
Natural gas futures contracts   11,680    (428,040)
WTI crude oil futures contracts   (77,810)   15,180 
Soybean futures contracts   42,650    13,513 
Sugar futures contracts   (199,292)   25,088 
Wheat futures contracts   (370,837)   (78,012)
Total commodity futures contracts  $(2,414,400)  $(451,196)

 

Three months ended June 30, 2012

    Realized (Loss) Gain on   Net Change in Unrealized (Loss)
Primary Underlying Risk   Derivative Instruments   Gain on Derivative Instruments
Commodity price                
Corn futures contracts   $ (2,255,455 )    $ 6,161,715  
Natural gas futures contracts     (63,608 )     197,507  
WTI crude oil futures contracts     37,737       (511,027)  
Soybean futures contracts     67,640       (24,765)  
Sugar futures contracts     (586,576 )     (76,531)  
Wheat futures contracts     (360,072 )      288,123  
Total commodity futures contracts   $ (3,160,334 )    $ 6,035,022  

 

Six months ended June 30, 2013

    Realized Loss on   Net Change in Unrealized (Loss)
Primary Underlying Risk   Derivative Instruments   Gain on Derivative Instruments
Commodity price                
Corn futures contracts   $ (3,680,613 )    $ (609,950 ) 
Natural gas futures contracts     (99,059 )     64,509  
WTI crude oil futures contracts     (87,130 )      67,790  
Soybean futures contracts     (174,925 )      153,563  
Sugar futures contracts     (285,118 )     (98,033 ) 
Wheat futures contracts     (756,375 )      (516,987 ) 
Total commodity futures contracts   $ (5,083,220 )    $ (939,108 ) 

 

18
 

 

Six months ended June 30, 2012

    Realized (Loss) Gain on   Net Change in Unrealized Gain
Primary Underlying Risk   Derivative Instruments   (Loss) on Derivative Instruments
Commodity price                
Corn futures contracts   $ (4,391,819 )    $ 4,719,076  
Natural gas futures contracts     (567,888 )     330,077  
WTI crude oil futures contracts     43,347       (286,507 )
Soybean futures contracts     77,981       302,707  
Sugar futures contracts     (596,310 )     77,214  
Wheat futures contracts     (464,222 )      388,348  
Total commodity futures contracts   $ (5,898,911 )    $ 5,530,915  

 

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

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 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 July 1, 2013 through August 9, 2013, the following subsequent events transpired for each of the series of the Trust:

 

CORN: Nothing to Report

 

NAGS: Nothing to Report

 

CRUD: Nothing to Report

 

SOYB: Nothing to Report

 

CANE: Nothing to Report

 

WEAT: Nothing to Report

 

TAGS: Nothing to Report

19
 

TEUCRIUM CORN FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 36,372,145     $ 34,631,982  
Collateral, due from broker     5,017,450       5,106,775  
Interest receivable     1,685       1,376  
Other assets     251,985       242,407  
Total assets     41,643,265       39,982,540  
                 
Liabilities                
                 
Commodity futures contracts     2,823,725       2,213,775  
Management fee payable to Sponsor     32,671       36,444  
Other liabilities     82,378       45,809  
Total liabilities     2,938,774       2,296,028  
                 
Net assets   $ 38,704,491     $ 37,686,512  
                 
Shares outstanding     1,000,004       850,004  
                 
Net asset value per share   $ 38.70     $ 44.34  
                 
Market value per share   $ 38.67     $ 44.32  

 

The accompanying notes are an integral part of these financial statements.

20
 

TEUCRIUM CORN FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

        Percentage of   Principal
Description: Assets   Fair Value   Net Assets   Amount
                         
Cash equivalents                        
United States Treasury obligations                        
U.S. Treasury bills, 0.040%, due July 18, 2013   $ 4,999,960       12.92 %   $ 5,000,000  
U.S. Treasury bills, 0.020%, due August 15, 2013     4,999,875       12.92       5,000,000  
Total U.S. Treasury obligations     9,999,835       25.84          
                         
Money market funds                        
Dreyfus Cash Management Plus     26,372,310       68.14          
                         
Total cash equivalents   $ 36,372,145       93.98 %        

 

        Percentage of   Notional Amount  
Description: Liabilities   Fair Value   Net Assets   (Long Exposure)
                         
Commodity futures contracts                        
United States corn futures contracts                        
   CBOT corn futures (494 contracts, settlement date
      September 13, 2013)		   $ 792,537       2.05 %   $ 13,517,075  
   CBOT corn futures (453 contracts, settlement date
      December 13, 2013)		     1,572,513       4.06       11,574,150  
   CBOT corn futures (516 contracts, settlement date
      December 12, 2014)		     458,675       1.19       13,667,550  
Total commodity futures contracts   $ 2,823,725       7.30 %   $ 38,758,775  

 

 

 

The accompanying notes are an integral part of these financial statements.

21
 

TEUCRIUM CORN FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

   Fair     Percentage of   Principal
Description: Assets  Value    Net Assets   Amount
               
Cash equivalents              
United States Treasury obligations          
   U.S. Treasury bills, 0.090%, due January 17, 2013   $9,999,930    26.53%  $ 10,000,000
   U.S. Treasury bills, 0.090%, due February 14, 2013   9,999,670    26.53   10,000,000
Total U.S. Treasury obligations   19,999,600    53.06 
           
Money market funds          
   Dreyfus Cash Management Plus   14,632,382    38.83 
           
Total cash equivalents   $34,631,982    91.89%

 

   Fair   Percentage of   Notional Amount 
Description: Liabilities  Value   Net Assets   (Long Exposure) 
                
Commodity futures contracts               
United States corn futures contracts               
   CBOT corn futures (377 contracts, settlement date
      May 14, 2013)		  $1,341,775    3.56%  $13,199,712 
   CBOT corn futures (325 contracts, settlement date
      July 12, 2013)		   413,700    1.10    11,330,313 
   CBOT corn futures (440 contracts, settlement date
      December 13, 2013)		   458,300    1.21    13,194,500 
Total commodity futures contracts  $2,213,775    5.87%  $37,724,525 

 

The accompanying notes are an integral part of these financial statements.

 

22
 

TEUCRIUM CORN FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized loss on commodity futures contracts  $(1,820,791)  $(2,255,455)  $(3,680,613)  $(4,391,819)
Net change in unrealized appreciation or depreciation on commodity futures contracts   1,075    6,161,715    (609,950)   4,719,076 
Interest income   3,774    11,628    11,738    22,090 
Total (loss) income   (1,815,942)   3,917,888    (4,278,825)   349,347 
                     
Expenses                    
Management fees   94,572    141,648    194,392    312,251 
Professional fees   120,120    229,775    238,920    431,162 
Distribution and marketing fees   349,152    291,200    686,202    728,330 
Custodian fees and expenses   32,211    32,211    64,067    64,421 
Business permits and licenses fees   20,930    10,010    41,630    11,296 
General and administrative expenses   31,395    101,010    62,445    110,320 
Brokerage commissions   16,395    13,902    40,875    18,794 
Other expenses   10,282    4,504    20,453    35,245 
Total expenses   675,057    824,260    1,348,984    1,711,819 
Net (loss) income  $(2,490,999)  $3,093,628   $(5,627,809)  $(1,362,472)
                     
Net (loss) income per share  $(2.30)  $2.85   $(5.64)  $0.10 
Net (loss) income per weighted average share  $(2.67)  $2.05   $(6.03)  $(0.85)
Weighted average shares outstanding   933,246    1,511,268    933,015    1,599,867 

 

 

The accompanying notes are an integral part of these financial statements.

23
 

TEUCRIUM CORN FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended  
    June 30, 2013   June 30, 2012
Operations                
Net loss   $ (5,627,809 )   $ (1,362,472 )
Capital transactions                
Issuance of  Shares     28,918,201       10,242,344  
Redemption of  Shares     (22,272,413 )     (18,175,346 )
Total capital transactions     6,645,788       (7,933,002 ) 
Net change in net assets     1,017,979       (9,295,474 ) 
                 
Net assets, beginning of period     37,686,512       71,268,521  
                 
Net assets, end of period   $ 38,704,491     $ 61,973,047  
                 
Net asset value per share at beginning of period   $ 44.34     $ 41.92  
                 
At end of period   $ 38.70     $ 42.02  

 

The accompanying notes are an integral part of these financial statements.

24
 

TEUCRIUM CORN FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Cash flows from operating activities:                
Net loss   $ (5,627,809 )   $ (1,362,472 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Net change in unrealized appreciation or depreciation on commodity futures contracts     609,950       (4,719,076 ) 
Changes in operating assets and liabilities:                
Collateral, due from broker     89,325       5,173,251  
Interest receivable     (309 )      1,314  
Other assets     (9,578 )     (215,395 )
Management fee payable to Sponsor     (3,773 )     (22,375 ) 
Other liabilities     36,569       124,495  
Net cash used in operating activities     (4,905,625 )     (1,020,258 ) 
                 
Cash flows from financing activities:                
Proceeds from sale of Shares     28,918,201       8,141,569  
Redemption of Shares     (22,272,413 )     (22,322,357 )
Net cash provided by (used in) financing activities     6,645,788       (14,180,788 ) 
                 
Net change in cash and cash equivalents     1,740,163       (15,201,046 ) 
Cash and cash equivalents, beginning of period     34,631,982       69,022,336  
Cash and cash equivalents, end of period   $ 36,372,145     $ 53,821,290  

 

The accompanying notes are an integral part of these financial statements.

25
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium Corn Fund (referred to herein as “CORN,” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “CORN,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for corn interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

 

The investment objective of the 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 Fund commenced investment operations on June 9, 2010 and has a fiscal year ending on December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009.

 

On June 5, 2010, the Fund’s initial registration of 30,000,000 shares the Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 9, 2010, the Fund listed its shares on the NYSE Arca under the ticker symbol “CORN.” On the day prior to that, the Fund issued 200,000 shares in exchange for $5,000,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on June 9, 2010 by purchasing commodity futures contracts traded on the 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 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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

Brokerage Commissions

 

Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.

26
 

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.

 

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 June 30, 2013 and December 31, 2012. However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 CORN. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The 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 the size of a Creation Basket and a Redemption Basket was changed again 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.

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash 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. The Fund had a balance of $26,372,310 and $14,632,382 in money market funds at June 30, 2013 and December 31, 2012, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities. The Fund held $9,999,835 and $19,999,600 in United States Treasury Bills with a maturity date of three months or less at June 30, 2013 and December 31, 2012 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 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

27
 

relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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 Corn Futures Contracts, the administrator uses the CBOT closing price. The administrator determines the value of all other Fund investments as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The value of over-the-counter corn interests is determined based on the value of the commodity or futures contract underlying such corn interest, except that a fair value may be determined if the Sponsor believes that the Fund is subject to significant credit risk relating to the counterparty to such corn interest.  For purposes of financial statements and reports, the Sponsor will recalculate the NAV where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract closes at its price fluctuation limit for the day. Treasury securities held by the Fund are valued by the administrator using values received from recognized third-party vendors and dealer quotes.  NAV includes any unrealized profit or loss on open corn interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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 three months ended June 30, 2013, the Fund recorded $94,572 in management fees to the Sponsor. For the three months ended June 30, 2012, the Fund recorded $141,648 in management fees to the Sponsor. For the six months ended June 30, 2013, the Fund recorded $194,392 in management fees to the Sponsor. For the six months ended June 30, 2012, the Fund recorded $312,251 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 the fees and expenses associated with the Fund’s tax accounting and reporting requirements. The Sponsor can elect to waive certain fees or expenses that would generally be paid for by the Fund. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB

28
 

and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $1,500 effective July 1, 2013.

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 the 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 Fund uses various valuation approaches.  In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund.  Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 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 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 June 30, 2012, December 31, 2012, and June 30, 2013, 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.

 

On March 31, 2013, the Corn Futures Contracts traded on the CBOT due to settle on July 12, 2013 (the “JUL13 Corn Contracts”) were in a “limit down” condition and, in the opinion of the Trust and CORN, the reported value at the close of market on that day did not fairly value the JUL13 Corn Contracts held by CORN. Therefore, the Trust and CORN used alternative verifiable sources to value the JUL13 Corn Contracts on March 31, 2013 and the financial statements of the Trust and the Fund have been adjusted accordingly. This adjustment resulted in a ($410,475) decrease in the unrealized change in commodity futures contracted for the Trust and CORN in excess of reported CBOT values, for the quarter-ended March 31, 2013.

 

29
 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the 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

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

June 30, 2013                  

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $36,372,145   $-   $-   $36,372,145 
                     

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts  $2,823,725   $-   $-   $2,823,725 
                     

 

December 31, 2012                  

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Cash equivalents  $34,631,982   $-   $-   $34,631,982 
                     

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2012 
Commodity futures contracts  $2,213,775   $-   $-   $2,213,775 
                     

 

Transfers into and out of each level of the fair value hierarchy for the JUL13 Corn Contracts, for the six months ended June 30, 2013 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  
Liabilities (at fair value)                                                
Derivative contracts                                                
Corn future contracts   $ 1,010,962     $ 1,010,962     $ 1,010,962     $ 1,010,962     $      -     $      -  

 

30
 

During the six months ended June 30, 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 six months ended June 30, 2013 and 2012 the Fund invested only in commodity 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 not necessarily correlate exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract.

 

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 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Corn futures contracts  $2,823,725   $-   $2,823,725   $-   $2,823,725   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Corn futures contracts  $2,213,775   $-   $2,213,775   $-   $2,213,775   $- 

 

31
 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (1,820,791 )   $ 1,075  

 

Three months ended June 30, 2012

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (2,255,455)     $ 6,161,715  

 

Six months ended June 30, 2013

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (3,680,613 )   $ (609,950 ) 

 

Six months ended June 30, 2012

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (4,391,819)     $ 4,719,076  

 

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

Note 5 - Financial Highlights

 

The following tables present per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 44.34  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (4.20 ) 
Total expenses     (1.45 )
Net decrease in net asset value     (5.64 ) 
Net asset value end of period   $ 38.70  
Total Return     (12.72 )%
Ratios to Average Net Assets (Annualized)        
Total expense     6.93 %
Net investment loss     (6.87 )%

 

Per Share Operation Performance for the six months ended June 30, 2012        
Net asset value at beginning of period   $ 41.92  
Income from investment operations:        
Investment income     0.02  
Net realized and unrealized gain on commodity futures contracts     1.15  
Total expenses     (1.07 )
Net increase in net asset value     0.10  
Net asset value at end of period   $ 42.02  
Total Return     0.24 %
Ratios to Average Net Assets (Annualized)        
Total expense     5.49 %
Net investment loss     (5.41 )%

 

 

32
 

The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion.  As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $1,500 effective July 1, 2013.

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 July 1, 2013 through August 9, 2013, there was nothing to report.

33
 

TEUCRIUM NATURAL GAS FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 3,171,684     $ 4,476,336  
Commodity futures contracts     -       9,550  
Collateral, due from broker     337,400       367,374  
Interest receivable     223       305  
Other assets     5,548       10,989  
Total assets     3,514,855       4,864,554  
                 
Liabilities                
                 
Commodity futures contracts     159,860       233,919  
Management fee payable to Sponsor     2,941       4,046  
Other liabilities     640       968  
Total liabilities     163,441       238,933  
                 
Net assets   $ 3,351,414     $ 4,625,621  
                 
Shares outstanding     300,004       400,004  
                 
Net asset value per share   $ 11.17     $ 11.56  
                 
Market value per share   $ 11.15     $ 11.58  

 

The accompanying notes are an integral part of these financial statements.

 

34
 

 

TEUCRIUM NATURAL GAS FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

       Percentage of         
Description: Assets  Fair Value   Net Assets         
                   
Cash equivalents                  
Money market funds                  
Dreyfus Cash Management Plus  $3,171,684    94.64%        

 

   Fair   Percentage of   Notional Amount 
Description: Liabilities  Value   Net Assets   (Long Exposure) 
                
Commodity futures contracts               
United States natural gas futures contracts               
   NYMEX natural gas futures (23 contracts, settlement date
      September 26, 2013)		  $28,190    0.84%  $821,560 
   NYMEX natural gas futures (23 contracts, settlement date
      October 29, 2013)		   79,650    2.38    838,580 
   NYMEX natural gas futures (22 contracts, settlement date
      February 26, 2014)		   21,620    0.64    852,060 
   NYMEX natural gas futures (22 contracts, settlement date
      March 27, 2014)		   30,400    0.91    834,460 
Total commodity futures contracts  $159,860    4.77%  $3,346,660 
                

 

The accompanying notes are an integral part of these financial statements.

 

35
 

 

TEUCRIUM NATURAL GAS FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

 

   Fair     Percentage of     Notional Amount  
Description: Assets   Value     Net Assets     (Long Exposure)  
                   
Cash equivalents                  
Money market funds                  
    Dreyfus Cash Management Plus   $ 4,476,336     96.77 %      
                   
Commodity futures contracts                  
United States natural gas futures contracts                  
NYMEX natural gas futures (32 contracts, settlement date
      September 26, 2013)		   $ 9,550       0.21 %   $ 1,161,600  
                         

 

   Fair   Percentage of   Notional Amount 
Description: Liabilities  Value   Net Assets   (Long Exposure) 
                
Commodity futures contracts               
United States natural gas futures contracts               
NYMEX natural gas futures (34 contracts, settlement date
      February 26, 2013)		  $103,412    2.24%  $1,144,100 
NYMEX natural gas futures (34 contracts, settlement date
      March 26, 2013)		   61,967    1.34    1,157,020 
NYMEX natural gas futures (31 contracts, settlement date
      October 29, 2013)		   68,540    1.48    1,160,950 
Total commodity futures contracts  $233,919    5.06%  $3,462,070 
                

 

The accompanying notes are an integral part of these financial statements.

 

36
 

TEUCRIUM NATURAL GAS FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

  Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012 
Income                    
Realized and unrealized gain (loss) on trading of commodity futures contracts:                    
Realized gain (loss) on commodity futures contracts  $11,680   $(63,608)  $(99,059)  $(567,888)
Net change in unrealized appreciation or depreciation on commodity futures contracts   (428,040)   197,507    64,509    330,077 
Interest income   292    446    780    681 
Total (loss) income   (416,068)   134,345    (33,770)   (237,130)
Expenses                    
Management fees   9,358    -    19,540    - 
Professional fees   3,019    (383)   5,125    2,073 
Distribution and marketing fees   246    4,671    1,713    6,588 
Custodian fees and expenses   699    1,463    1,459    2,354 
Business permits and licenses fees   -    (131)   -    (82)
General and administrative expenses   239    3,215    344    3,219 
Brokerage commissions   334    210    542    492 
Other expenses   (156)   (103)   (54)   94 
Total expenses   13,739    8,942    28,669    14,738 
Net (loss) income  $(429,807)  $125,403   $(62,439)  $(251,868)
                     
Net (loss) income per share  $(1.43)  $0.81   $(0.39)  $(1.98)
Net (loss) income per weighted average share  $(1.43)  $0.58   $(0.19)  $(1.49)
Weighted average shares outstanding   300,004    217,037    326,247    169,235 

 

 

The accompanying notes are an integral part of these financial statements.

37
 

TEUCRIUM NATURAL GAS FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended  
    June 30, 2013   June 30, 2012
Operations                
Net loss   $ (62,439 )   $ (251,868 )
Capital transactions                
Issuance of Shares     -       2,420,546  
Redemption of Shares     (1,211,768 )      -  
Total capital transactions     (1,211,768 )     2,420,546  
Net change in net assets     (1,274,207 )      2,168,678  
                 
Net assets, beginning of period     4,625,621       1,381,367  
                 
Net assets, end of period   $ 3,351,414     $ 3,550,045  
Net asset value per share at beginning of period   $ 11.56     $ 13.81  
                 
At end of period   $ 11.17     $ 11.83  

 

The accompanying notes are an integral part of these financial statements.

38
 

TEUCRIUM NATURAL GAS FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended   Six months ended  
    June 30, 2013   June 30, 2012
Cash flows from operating activities:                
Net loss   $ (62,439 )   $ (251,868 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Net change in unrealized appreciation or depreciation on commodity futures contracts     (64,509 )     (330,077 ) 
Changes in operating assets and liabilities:                
Collateral, due from broker     29,974       80,925  
Interest receivable     82       (16 )
Other assets     5,441       10,483  
Management fee payable to Sponsor     (1,105 )     -  
Other liabilities     (328 )     (6,166 ) 
Net cash used in operating activities     (92,884 )     (496,719 )
                 
Cash flows from financing activities:                
Proceeds from sale of Shares     -       2,420,546  
Redemption of Shares     (1,211,768 )      -  
Net cash (used in) provided by financing activities     (1,211,768 )      2,420,546  
                 
Net change in cash and cash equivalents     (1,304,652 )      1,923,827  
Cash and cash equivalents, beginning of period     4,476,336       1,277,159  
Cash and cash equivalents, end of period   $ 3,171,684     $ 3,200,986  

 

The accompanying notes are an integral part of these financial statements.

39
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium Natural Gas Fund (referred to herein as “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.  The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund 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 the 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 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.”)

 

The Fund commenced investment operations on February 1, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009.

 

On October 22, 2010, the Fund’s 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, the Fund listed its shares on the NYSE Arca under the ticker symbol “NAGS”. On the day prior to that, the Fund issued 200,000 shares in exchange for $5,000,000 at NAGS’ initial NAV of $25 per share. The Fund also commenced investment operations on February 1, 2011 by purchasing commodity futures contracts traded on the NYMEX. On December 31, 2010, the Fund 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 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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

Brokerage Commissions

 

Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.

 

40
 

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.

 

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 June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 50,000 shares from the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 50,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The Fund receives or pays the proceeds from shares sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in the Fund’s statements of assets and liabilities as receivable for shares sold. Amounts payable to Authorized Purchasers upon redemption are reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed. 

 

As outlined in the most recent Form S-1 filing, 100,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash 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. The Fund had a balance of $3,171,684 and $4,476,336 in money market funds on June 30, 2013 and December 31, 2012, 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 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

41
 

themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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 (currently 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.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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.  The Sponsor had waived the management fee for this Fund for the period August 1, 2011 through July 31, 2012. For the three months ended June 30, 2013, the Fund recorded a management fee expense of $9,358. For the six months ended June 30, 2013, the Fund recorded a management fee expense of $19,540.

 

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 the 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. This action by the Sponsor resulted in an approximate $17,200 and $36,300 reduction in expenses to the Fund for the three and six months ended June 30, 2013, respectively. Additional expenses of the Fund may be paid by the Sponsor in future periods.

 

 

42
 

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.

 

On June 30, 2013 and December 31, 2012, in the opinion of the Trust and the Fund, the reported value of the Natural Gas Futures Contracts traded on the NYMEX fairly reflected the value of the Natural Gas Futures Contracts held by the Fund, and no adjustments were necessary.

  

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT or the 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.

43
 

New Accounting Pronouncements

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013                

 

              Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $3,171,684   $-   $-   $3,171,684 

 

              Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts  $159,860   $-   $-   $159,860 

 

 

December 31, 2012

              Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Cash equivalents  $4,476,336   $-   $-   $4,476,336 
Commodity futures contracts   9,550    -    -    9,550 
Total  $4,485,886   $-   $-   $4,485,886 

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2012 
Commodity futures contracts  $233,919   $-   $-   $233,919 

 

During the three and six months ended June 30, 2013 and 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 and six months ended June 30, 2013 and 2012, the Fund invested only in commodity futures contracts.

 

Futures Contracts

 

The Fund is subject to commodity price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

The purchase and sale of futures contracts requires margin deposits with a 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

44
 

segregation requirements.  In the event of an FCM’s insolvency, recovery may be limited to the Fund’s pro rata share of segregated customer funds available.  It is possible that the recovery amount could be less than the total of cash and other equity deposited.

 

The following table discloses information about offsetting assets and liabilities presented in the statements of assets and liabilities to enable users of these financial statements to evaluate the effect or potential effect of netting arrangements for recognized assets and liabilities. These recognized assets and liabilities are presented as defined in 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Natural gas futures contracts  $159,860   $-   $159,860   $-   $159,860   $- 

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Natural gas futures contracts  $9,550   $-   $9,550   $9,550   $-   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Natural gas futures contracts  $233,919   $-   $233,919   $9,550   $224,369   $- 

 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

 

    Realized Gain on     Net Change in Unrealized Loss 
Primary Underlying Risk  Derivative Instruments   on Derivative Instruments 
Commodity price          
Commodity futures contracts  $11,680   $(428,040)
           

Three months ended June 30, 2012

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (63,608 )   $ 197,507  

 

45
 

Six months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (99,059 )   $ 64,509  

 

Six months ended June 30, 2012

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (567,888 )   $ 330,077  

 

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

Note 5 – Financial Highlights

 

The following table presents per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 11.56  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (0.29 )
Total expenses     (0.10 )
Net decrease in net asset value     (0.39 )
Net asset value at end of period   $ 11.17  
Total Return     (3.37 )%
Ratios to Average Net Assets (Annualized)        
Total expense     1.47 %
Net investment loss     (1.43 )%

  

 

Per Share Operation Performance for the six months ended June 30, 2012        
Net asset value at beginning of period   $ 13.81  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (1.90 )
Total expenses     (0.09 )
Net decrease in net asset value     (1.98 )
Net asset value at end of period   $ 11.83  
Total Return     (14.34 )%
Ratios to Average Net Assets        
Total expense     1.52 %
Net investment loss     (1.45 )%

 

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 $36,300 reduction in expenses to the Fund for the six months ended June 30, 2013 and approximately, $8,000 reduction in expenses to the Fund for the six months ended June 30, 2012. In addition, the Sponsor can waive the management fee; this action resulted in an approximate $10,000 reduction in expenses for the Fund for the six month period ending June 30, 2012. Additional expenses of the Fund may be paid by the Sponsor in future periods.

 

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.

 

46
 

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 July 1, 2013 through August 9, 2013, there was nothing to report.

47
 

TEUCRIUM WTI CRUDE OIL FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012  
    (Unaudited)    
Assets                  
                   
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 1,876,463     $ 1,845,910  
Commodity futures contracts     61,292       44,872  
Collateral, due from broker     16,023       137,328  
Interest receivable     123       123  
Other assets     14,832       26,866  
Total assets     1,968,733       2,055,099  
                 
Liabilities                
                 
Commodity futures contracts     6,720       58,090  
Management fee payable to Sponsor     -       1,626  
Other liabilities     1,870       1,636  
Total liabilities     8,590       61,352  
                 
Net assets   $ 1,960,143     $ 1,993,747  
                 
Shares outstanding     50,002       50,002  
                 
Net asset value per share   $ 39.20     $ 39.87  
                 
Market value per share   $ 39.15     $ 38.53  

 

The accompanying notes are an integral part of these financial statements.

48
 

TEUCRIUM WTI CRUDE OIL FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

 

     Percentage of   Notional Amount 
Description: Assets  Fair Value   Net Assets   (Long Exposure) 
Cash equivalents            
Money market funds               
    Dreyfus Cash Management Plus  $1,876,463    95.73%     
Commodity futures contracts               
United States WTI crude oil futures contracts               
   WTI crude oil futures (7 contracts, settlement date
      November 20, 2013)		  $36,092    1.84%  $660,660 
   WTI crude oil futures (7 contracts, settlement date
      May 20, 2014)		   25,200    1.29    635,180 
Total commodity futures contracts  $61,292    3.13%  $1,295,840 

 

 

     Percentage of   Notional Amount
Description: Liabilities  Fair Value   Net Assets   (Long Exposure)
Commodity futures contracts             
United States WTI crude oil futures contracts             
   WTI crude oil futures (8 contracts, settlement date
      November 20, 2014)		  $6,720    0.34%  $705,760

 

The accompanying notes are an integral part of these financial statements.

 

 

 

49
 

TEUCRIUM WTI CRUDE OIL FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

  Fair   Percentage of   Notional Amount 
Description: Assets  Value   Net Assets   (Long Exposure) 
Cash equivalents               
Money market funds               
    Dreyfus Cash Management Plus  $1,845,910    92.58%     
Commodity futures contracts               
United States WTI crude oil futures contracts               
   WTI crude oil futures (6 contracts, settlement date
      November 20, 2013)		  $24,312    1.22%  $560,220 
   WTI crude oil futures (8 contracts, settlement date
      November 20, 2014)		   20,560    1.03    733,040 
Total commodity futures contracts  $44,872    2.25%  $1,293,260 

 

 

  Fair   Percentage of   Notional Amount
Description: Liabilities  Value   Net Assets   (Long Exposure)
Commodity futures contracts             
United States WTI crude oil futures contracts             
   WTI crude oil futures (8 contracts, settlement date
      May 21, 2013)		  $58,090    2.91%  $ 747,920

 

The accompanying notes are an integral part of these financial statements.

50
 

TEUCRIUM WTI CRUDE OIL FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2012   June 30, 2012 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized (loss) gain on commodity futures contracts  $(77,810)  $37,737   $(87,130)  $43,347 
Net change in unrealized appreciation or depreciation on commodity futures contracts   15,180    (511,027)   67,790    (286,507)
Interest income   238    690    502    1,345 
Total loss   (62,392)   (472,600)   (18,838)   (241,815)
Expenses                    
Management fees   -    6,810    -    16,672 
Professional fees   6,893    13,309    12,373    15,493 
Distribution and marketing fees   446    4,436    2,393    29,188 
Custodian fees and expenses   -    32,211    -    64,421 
Brokerage commissions   -    204    -    299 
Other expenses   -    250    -    250 
Total expenses   7,339    57,220    14,766    126,323 
Net loss  $(69,731)  $(529,820)  $(33,604)  $(368,138)
                     
Net loss per share  $(1.40)  $(7.86)  $(0.67)  $(5.88)
Net loss per weighted average share  $(1.39)  $(8.26)  $(0.67)  $(4.93)
Weighted average shares outstanding   50,002    64,132    50,002    74,727 

 

 

The accompanying notes are an integral part of these financial statements.

51
 

TEUCRIUM WTI CRUDE OIL FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Operations                
Net loss   $ (33,604 )   $ (368,138 )
Capital transactions                
Redemption of Shares     -       (2,148,469 ) 
Net change in net assets     (33,604 )     (2,516,607 ) 
                 
Net assets, beginning of period     1,993,747       4,445,013  
                 
Net assets, end of period   $ 1,960,143     $ 1,928,406  
Net asset value per share at beginning of period   $ 39.87     $ 44.45  
                 
At end of period   $ 39.20     $ 38.57  

 

The accompanying notes are an integral part of these financial statements.

52
 

TEUCRIUM WTI CRUDE OIL FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Cash flows from operating activities:                
Net loss   $ (33,604 )   $ (368,138 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Net change in unrealized appreciation or depreciation on commodity futures contracts     (67,790 )      286,507  
Changes in operating assets and liabilities:                
Collateral, due from broker     121,305       (280,907 )
Interest receivable     -       171  
Other assets     12,034       14,121  
Management fee payable to Sponsor     (1,626 )     (3,123 ) 
Other liabilities     234       17,044  
Net cash provided by (used in) operating activities     30,553       (334,325 )
                 
Cash flows from financing activities:                
Redemption of Shares     -       (2,148,469 ) 
                 
Net change in cash and cash equivalents     30,553       (2,482,794 ) 
Cash and cash equivalents, beginning of period     1,845,910       4,139,910  
Cash and cash equivalents, end of period   $ 1,876,463     $ 1,657,116  

 

 

The accompanying notes are an integral part of these financial statements.

53
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium WTI Crude Oil Fund (referred to herein as “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. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “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 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 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 September or December Oil Futures Contract, weighted 35%; (2) the September 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.”)

 

The Fund commenced investment operations on February 23, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009. 

 

On October 22, 2010, the Fund’s initial registration of 15,000,000 shares on Form S-1 was declared effective by the SEC. On February 23, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “CRUD.” On the day prior to that, the Fund issued 100,000 shares in exchange for $5,000,000 at the Fund’s initial NAV of $50 per share. The Fund also commenced investment operations on February 23, 2011 by purchasing commodity futures contracts traded on the NYMEX. On December 31, 2010, the Fund 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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

 

54
 

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.

 

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 June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The Fund receives or pays the proceeds from shares sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in the Fund’s statements of assets and liabilities as receivable for shares sold. Amounts payable to Authorized Purchasers upon redemption are reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed. 

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares. Effective May 18, 2012, the Fund had a minimum number of shares and this situation continued through June 30, 2013. No redemptions can be made until additional shares are created.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash Equivalents

 

Cash equivalents are highly-liquid investments with 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. The Fund had a balance of $1,876,463 and $1,845,910 in money market funds at June 30, 2013 and December 31, 2012, 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 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

55
 

changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

  

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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. The Sponsor elected to waive the management fee for the three and six months ended June 30, 2013; this action by the Sponsor resulted in an approximate $5,000 and $10,000 reduction in fees for these periods, respectively.

 

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 the prior day’s net assets. The Sponsor may, at its discretion, pay certain expenses on behalf of the Fund. For the three and six months ended June 30, 2013, approximately $11,000 and $28,000 of expenses which were paid by the Sponsor that normally would have been paid by the Fund. For these same periods in 2012, the amounts were $0 and $14,500, respectively. Additional expenses of the Fund may be paid by the Sponsor in future periods.

 

56
 

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.

 

On June 30, 2013 and December 31, 2012, in the opinion of the Trust and the Fund, the reported value of the WTI Crude Oil Futures Contracts traded on the NYMEX fairly reflected the value of the WTI Crude Oil Futures Contracts held by the Fund, and no adjustments were necessary.

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT or the 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.

 

 

57
 

New Accounting Pronouncements

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013

              Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $1,876,463   $-   $-   $1,876,463 
Commodity futures contracts   61,292    -    -    61,292 
Total  $1,937,755   $-   $-   $1,937,755 

 

              Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts  $6,720   $-   $-   $6,720 

 

December 31, 2012  

              Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Cash equivalents  $1,845,910   $-   $-   $1,845,910 
Commodity futures contracts   44,872    -    -    44,872 
Total  $1,890,782   $-   $-   $1,890,782 

 

 

 

              Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2012 
Commodity futures contracts  $58,090   $-   $-   $58,090 

 

During the three and six months ended June 30, 2013 and 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 and six months ended June 30, 2013 and 2012, the Fund invested only in commodity futures contracts.

 

Futures Contracts

 

The Fund is subject to commodity price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

The purchase and sale of futures contracts requires margin deposits with a 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

58
 

as unrealized gains or losses by the Fund.  Futures contracts may reduce the Fund’s exposure to counterparty risk since futures contracts are exchange-traded; and the exchange’s clearinghouse, as the counterparty to all exchange-traded futures, guarantees the futures against default.

 

The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM's proprietary activities.  A customer's cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements.  In the event of an FCM’s insolvency, recovery may be limited to the Fund’s pro rata share of segregated customer funds available.  It is possible that the recovery amount could be less than the total of cash and other equity deposited.

 

The following table discloses information about offsetting assets and liabilities presented in the statements of assets and liabilities to enable users of these financial statements to evaluate the effect or potential effect of netting arrangements for recognized assets and liabilities. These recognized assets and liabilities are presented as defined in 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Assets and Derivative Assets as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   WTI crude oil futures contracts  $61,292   $-   $61,292   $6,720   $-   $54,572 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   WTI crude oil futures contracts  $6,720   $-   $6,720   $6,720   $-   $- 

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   WTI crude oil futures contracts  $44,872   $-   $44,872   $44,872   $-   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   WTI crude oil futures contracts  $58,090   $-   $58,090   $44,872   $13,218   $- 

 

59
 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

 

    Realized Loss on   Net Change in Unrealized Gain
Primary Underlying Risk   Derivative Instruments   on Derivative Instruments
Commodity price            
Commodity futures contracts   $ (77,810)   $ 15,180

 

Three months ended June 30, 2012

 

    Realized Gain on   Net Change in Unrealized Loss
Primary Underlying Risk   Derivative Instruments   on Derivative Instruments
Commodity price            
Commodity futures contracts   $ 37,737   $ (511,027)

 

 Six months ended June 30, 2013

 

    Realized Loss on   Net Change in Unrealized Gain
Primary Underlying Risk   Derivative Instruments   on Derivative Instruments
Commodity price            
Commodity futures contracts   $ (87,130)   $ 67,790

 

Six months ended June 30, 2012

 

    Realized Gain on   Net Change in Unrealized Loss
Primary Underlying Risk   Derivative Instruments   on Derivative Instruments
Commodity price            
Commodity futures contracts   $ 43,347   $ (286,507)

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

60
 

Note 5 – Financial Highlights

 

The following table presents per unit performance data and other, supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 39.87  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (0.38 )
Total expenses     (0.30 )
Net decrease in net asset value     (0.67 )
Net asset value at end of period   $ 39.20  
Total Return     (1.68 )%
Ratios to Average Net Assets (Annualized)        
Total expense     1.50 %
Net investment loss     (1.45 )%

  

 

Per Share Operation Performance for the six months ended June 30, 2012        
Net asset value at beginning of period   $ 44.45  
Income from investment operations:        
Investment income     0.02  
Net realized and unrealized loss on commodity futures contracts     (4.21 ) 
Total expenses     (1.69 )
Net decrease in net asset value     (5.88 )
Net asset value at end of period   $ 38.57  
Total Return     (13.23 )%
Ratios to Average Net Assets (Annualized)        
Total expense     7.59 %
Net investment loss     (7.51 )%

  

61
 

The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion. For the six months ended June 30, 2013, this resulted in the waiving of Fund expenses of approximately $28,000. For the six months ended June 30, 2012, this resulted in the waiving of Fund expenses of $14,500. In addition, for the six months ended June 30, 2013, the Sponsor waived approximately $10,000 in management fees. Additional expenses of the Fund may be paid by the Sponsor in future periods.

 

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 July 1, 2013 through August 9, 2013, there was nothing to report.

62
 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 6,130,910     $ 6,169,205  
Commodity futures contracts     35,175       63,200  
Collateral, due from broker     443,900       670,563  
Interest receivable     390       425  
Other assets     24,896       26,315  
Total assets     6,635,271       6,929,708  
                 
Liabilities                
                 
Commodity futures contracts     102,987       284,575  
Management fee payable to Sponsor     5,274       5,741  
Other liabilities     4,293       3,217  
Total liabilities     112,554       293,533  
                 
Net assets   $ 6,522,717     $ 6,636,175  
                 
Shares outstanding     275,004       275,004  
                 
Net asset value per share   $ 23.72     $ 24.13  
                 
Market value per share   $ 23.55     $ 24.07  

 

The accompanying notes are an integral part of these financial statements.

63
 

TEUCRIUM SOYBEAN FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

        Percentage of   Notional Amount
Description: Assets   Fair Value   Net Assets   (Long Exposure)
                       
Cash equivalents                      
Money market funds                      
Dreyfus Cash Management Plus   $ 6,130,910       93.99 %      
                       
Commodity futures contracts                      
United States soybean futures contracts                      
   CBOT Soybean futures (31 contracts, settlement date
      January 14, 2014)		   $ 35,175       0.54 %   $ 1,947,963

 

 

 

        Percentage of   Notional Amount
Description: Liabilities   Fair Value   Net Assets   (Long Exposure)
                         
Commodity futures contracts                        
United States soybean futures contracts                        
 CBOT Soybean futures (37 contracts, settlement date
   November 14, 2013)		   $ 69,537       1.07 %   $ 2,316,200  
 CBOT Soybean futures (37 contracts, settlement date
   November 14, 2014)		     33,450       0.51       2,270,413  
Total commodity futures contracts   $ 102,987       1.58 %   $ 4,586,613  

 

The accompanying notes are an integral part of these financial statements.

 

64
 

TEUCRIUM SOYBEAN FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

 

        Percentage of    
Description: Assets   Fair Value   Net Assets    
                       
Cash equivalents                      
Money market funds                      
Dreyfus Cash Management Plus   $ 6,169,205       92.96 %      
                      Notional Amount
                      (Long Exposure)
Commodity futures contracts                      
United States soybean futures contracts                      
   CBOT Soybean futures (28 contracts, settlement date
      May 14, 2013)		   $ 40,775     $ 0.61 %   $ 1,958,950
   CBOT soybean futures (36 contracts, settlement date
      November 14, 2013)		     22,425       0.34       2,344,950
Total commodity futures contracts   $ 63,200     $ 0.95 %   $ 4,303,900

 

 

    Fair     Percentage of     Notional Amount  
Description: Liabilities   Value     Net Assets     (Long Exposure)  
                   
Commodity futures contracts                  
United States soybean futures contracts                  
   CBOT soybean futures (33 contracts, settlement date
      March 14, 2013)		   $                    284,575     $                    4.29 %   $            2,325,675  

 

The accompanying notes are an integral part of these financial statements.

 

65
 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three months ended     Three months ended   Six months ended   Six months ended 
    June 30, 2013     June 30, 2012   June 30, 2013   June 30, 2012 
Income                
Realized and unrealized gain (loss) on trading of commodity futures contracts:                    
Realized gain (loss) on commodity futures contracts  $42,650   $67,640   $(174,925)  $77,981 
Net change in unrealized appreciation or depreciation on commodity futures contracts   13,513    (24,765)   153,563    302,707 
Interest income   739    1,032    1,661    1,432 
Total income (loss)   56,902    43,907    (19,701)   382,120 
Expenses                    
Management fees   15,562    11,728    32,795    17,778 
Professional fees   16,380    55,151    32,580    55,151 
Distribution and marketing fees   31,941    37,133    77,841    61,885 
Custodian fees and expenses   1,502    32,211    2,987    64,421 
Business permits and licenses fees   2,821    1,824    5,611    1,824 
General and administrative expenses   4,277    9,282    8,507    9,282 
Brokerage commissions   1,911    653    3,801    996 
Other expenses   1,911    2,151    4,306    2,151 
Total expenses   76,305    150,133    168,428    213,488 
Net (loss) income  $(19,403)  $(106,226)  $(188,129)  $168,632 
                     
Net income (loss) per share  $0.07   $0.34   $(0.41)  $2.54 
Net (loss) income per weighted average share  $(0.07)  $(0.54)  $(0.68)  $1.10 
Weighted average shares outstanding   262,367    198,374    275,418    152,614 

 

The accompanying notes are an integral part of these financial statements.

 

66
 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Operations                
Net (loss) income   $ (188,129 )   $ 168,632  
Capital transactions                
Issuance of Shares     1,859,169       4,154,488  
Redemption of Shares     (1,784,498 )     (4,069,742 ) 
Total capital transactions     74,671       84,746  
Net change in net assets     (113,458 )     253,378  
                 
Net assets, beginning of period     6,636,175       2,186,430  
                 
Net assets, end of period   $ 6,522,717     $ 2,439,808  
                 
Net asset value per share at beginning of period   $ 24.13     $ 21.86  
                 
At end of period   $ 23.72     $ 24.40  

 

  

The accompanying notes are an integral part of these financial statements.

67
 

TEUCRIUM SOYBEAN FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Cash flows from operating activities:                
Net (loss) income   $ (188,129 )   $ 168,632  
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     (153,563 )      (302,707 ) 
Changes in operating assets and liabilities:                
Collateral, due from broker     226,663       251,582  
Interest receivable     35       (21 )
Other assets     1,419       (35,785 )
Management fee payable to Sponsor     (467 )     1,184  
Other liabilities     1,076       17,405  
Net cash (used in) provided by operating activities     (112,966 )     100,290  
                 
Cash flows from financing activities:                
Proceeds from sale of Shares     1,859,169       4,154,488  
Redemption of Shares     (1,784,498 )     (4,069,742 ) 
Net cash provided by financing activities     74,671       84,746  
                 
Net change in cash and cash equivalents     (38,295 )     185,036  
Cash and cash equivalents, beginning of period     6,169,205       2,055,369  
Cash and cash equivalents, end of period   $ 6,130,910     $ 2,240,405  

 

 

The accompanying notes are an integral part of these financial statements.

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NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium Soybean Fund (referred to herein as “SOYB” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “SOYB,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for soybean interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

 

The investment objective of 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%.

 

The Fund commenced investment operations on September 19, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009. 

 

On June 17, 2011, the Fund’s registration of 10,000,000 shares on Form S-1 was declared effective by the SEC. On September 19, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “SOYB.” On the business day prior to that, the Fund issued 100,000 shares in exchange for $2,500,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on September 19, 2011 by purchasing soybean commodity futures contracts traded on the CBOT. On December 31, 2010, the Fund had four shares outstanding, which were owned by the Sponsor.

 

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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

 

 

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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.

 

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 June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The 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. 

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash 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. The Fund had a balance of $6,130,910 and $6,169,205 in money market funds at June 30, 2013 and December 31, 2012, 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 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

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relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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.  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.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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 three and six months ended June 30, 2013, the Fund recorded $15,562 and $32,795 in management fees to the Sponsor, respectively. For the three and six months ended June 30, 2012, the Fund recorded $11,728 and $17,778, respectively, 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 the fees and expenses associated with the Fund’s tax accounting and reporting requirements. The Sponsor can elect to waive certain fees or expenses that would generally be paid for by the Fund. For the three and six months ended June 30, 2013, approximately $5,700 of expenses were paid by the Sponsor. For the six months ended June 30, 2012, approximately $4,200 of expenses were waived. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought

71
 

approximately $184,000 in reimbursement from CORN, SOYB and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $500 effective July 1, 2013.

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 the 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 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.

 

On June 30, 2013 and December 31, 2012, in the opinion of the Trust and the Fund, the reported value of the Soybean Futures Contracts traded on the CBOT fairly reflected the value of the Soybean Futures Contracts held by the Fund, and no adjustments were necessary.

 

The Soybean Futures Contracts traded on the CBOT due to settle on November 14, 2014 (the “NOV14 Soybean Contracts”) did not, in the opinion of the Trust and SOYB, trade in an actively traded futures market as defined in the policy of the Trust and SOYB for the entire period during which they were held. Accordingly, the Trust and SOYB classified these as a Level 2 liability for the period ended March 31, 2013. The NOV14 Soybean Contracts were, in the opinion of the Trust and SOYB, fairly valued at settlement on March 31, 2013.

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the 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

72
 

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

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013                

 

              Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $6,130,910   $-   $-   $6,130,910 
Commodity futures contracts   35,175    -    -    35,175 
Total  $6,166,085   $-   $-   $6,166,085 

 

               Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts  $102,987   $-   $-   $102,987 

 

December 31, 2012                

 

               Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Cash equivalents  $6,169,205   $-   $-   $6,169,205 
Commodity futures contracts   63,200    -    -    63,200 
Total  $6,232,405   $-   $-   $6,232,405 

 

           Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2012 
Commodity futures contracts  $284,575   $-   $-   $284,575 

 

Transfers into and out of each level of the fair value hierarchy for the NOV14 Soybean Contracts for the six months ended June 30, 2013 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  
Liabilities (at fair value)                                                
Derivative contracts                                                
Soybean future contracts   $ 6,850     $ 6,850     $ 6,850     $ 6,850     $ -     $ -  

 

During the six months ended June 30, 2012, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

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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 and six months ended June 30, 2013 and 2012, the Fund invested only in commodity futures contracts.

 

Futures Contracts

 

The Fund is subject to commodity price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

The purchase and sale of futures contracts requires margin deposits with a 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 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Assets and Derivative Assets as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Soybean futures contracts  $35,175   $-   $35,175   $35,175   $-   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Soybean futures contracts  $102,987   $-   $102,987   $35,175   $67,812   $- 

 

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Offsetting of Financial Assets and Derivative Assets as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Soybean futures contracts  $63,200   $-   $63,200   $63,200   $-   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Soybean futures contracts  $284,575   $-   $284,575   $63,200   $221,375   $- 

 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

 

    Realized Gain on     Net Change in Unrealized Gain   
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ 42,650     $ 13,513  

 

Three months ended June 30, 2012

 

    Realized Gain on     Net Change in Unrealized Loss   
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ 67,640     $ (24,765 ) 

 

Six months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Gain   
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (174,925 )    $ 153,563  

  

Six months ended June 30, 2012

 

    Realized Gain on     Net Change in Unrealized Gain   
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ 77,981     $ 302,707  

  

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

75
 

Note 5 – Financial Highlights

 

The following table presents per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for six months ended June 30, 2013        
Net asset value at beginning of period   $ 24.13  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     0.19  
Total expenses     (0.61 )
Net decrease in net asset value     (0.41 ) 
Net asset value at end of period   $ 23.72  
Total Return     (1.70 )%
Ratios to Average Net Assets (Annualized)        
Total expense     5.14 %
Net investment loss     (5.09 )%

 

Per Share Operation Performance for six months ended June 30, 2012        
Net asset value at beginning of period   $ 21.86  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized gain on commodity futures contracts     3.93  
Total expenses     (1.40 )
Net increase in net asset value     2.54  
Net asset value at end of period   $ 24.40  
Total Return     11.62 %
Ratios to Average Net Assets        
Total expense     12.11 %
Net investment loss     (12.03 )%

 

The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion. For the six month period ended June 30, 2013, approximately $5,700 of expenses was paid by the Sponsor. For the six months ended June 30, 2012, approximately $4,200 of expenses were waived. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $500 effective July 1, 2013.

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 July 1, 2013 through August 9, 2013 there was nothing to report.

76
 

TEUCRIUM SUGAR FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 2,503,377     $ 2,088,533  
Collateral, due from broker     270,423       189,259  
Interest receivable     162       164  
Other assets     14,713       27,067  
Total assets     2,788,675       2,305,023  
                 
Liabilities                
                 
Commodity futures contracts     176,411       78,378  
Other liabilities     2,058       747  
Total liabilities     178,469       79,125  
                 
Net assets   $ 2,610,206     $ 2,225,898  
                 
Shares outstanding     175,004       125,004  
                 
Net asset value per share   $ 14.92     $ 17.81  
                 
Market value per share   $ 14.92     $ 17.84  

 

The accompanying notes are an integral part of these financial statements.

77
 

TEUCRIUM SUGAR FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

        Percentage of    
Description: Assets   Fair Value   Net Assets    
                       
Cash equivalents                      
Money market funds                      
Dreyfus Cash Management Plus   $ 2,503,377       95.91 %      
                       

 

Description: Liabilities   Fair Value  

Percentage of

Net Assets

  

Notional Amount

(Long Exposure)

  
                         
Commodity futures contracts                        
United States sugar futures contracts                        
 ICE sugar futures (46 contracts, settlement date
    February 28, 2014)		   $ 110,891       4.25 %   $ 913,965  
 ICE sugar futures (39 contracts, settlement date
   April 30, 2014)		     3,438       0.13       773,573  
 ICE sugar futures (45 contracts, settlement date
   February 27, 2015)		     62,082       2.38       920,304  
Total commodity futures contracts   $ 176,411       6.76 %   $ 2,607,842  
                           

 

 

The accompanying notes are an integral part of these financial statements.

78
 

 

 

TEUCRIUM SUGAR FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

    Fair     Percentage of        
Description: Assets   Value     Net Assets        
                   
Cash equivalents                      
Money market funds                      
    Dreyfus Cash Management Plus   $ 2,088,533       93.83 %      

 

    Fair     Percentage of     Notional Amount
Description: Liabilities   Value     Net Assets     (Long Exposure)
                   
Commodity futures contracts                  
United States sugar futures contracts                  
    ICE sugar futures (35 contracts, settlement date
      April 30, 2013)		   $ 38,629       1.74 %   $ 768,320  
    ICE sugar futures (30 contracts, settlement date
      June 28, 2013)		     11,189       0.50       663,264  
    ICE sugar futures (34 contracts, settlement date
      February 28, 2014)		     28,560       1.28       783,686  
 Total commodity futures contracts   $ 78,378       3.52 %   $ 2,215,270  

 

 

The accompanying notes are an integral part of these financial statements.

79
 

TEUCRIUM SUGAR FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

    Three months ended     Three months ended   Six months ended   Six months ended 
    June 30, 2013     June 30, 2012   June 30, 2013   June 30, 2012 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized loss on commodity futures contracts  $(199,292)  $(586,576)  $(285,118)  $(596,310)
Net change in unrealized appreciation or depreciation on commodity futures contracts   25,088    (76,531)   (98,033)   77,214 
Interest income   299    740    604    1,149 
Total loss   (173,905)   (662,367)   (382,547)   (517,947)
Expenses                    
Management fees   -    7,846    -    14,055 
Professional fees   8,077    55,150    12,243    55,150 
Distribution and marketing fees   336    37,132    4,814    61,884 
Custodian fees and expenses   -    32,211    -    64,421 
Business permits and licenses fees   -    1,824    (124)   1,824 
General and administrative expenses   239    9,282    245    9,282 
Brokerage commissions   455    1,546    455    2,019 
Other expenses   250    2,150    453    2,150 
Total expenses   9,357    147,141    18,086    210,785 
Net loss  $(183,262)  $(809,508)  $(400,633)  $(728,732)
                     
Net loss per share  $(1.20)  $(4.47)  $(2.89)  $(3.76)
Net loss per weighted average share  $(1.16)  $(5.48)  $(2.73)  $(5.76)
Weighted average shares outstanding   157,504    147,806    146,827    126,515 

 

The accompanying notes are an integral part of these financial statements.

80
 

TEUCRIUM SUGAR FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

  Six months ended   Six months ended 
   June 30, 2013   June 30, 2012 
Operations          
Net loss  $(400,633)  $(728,732)
Capital transactions          
Issuance of Shares   784,941    2,960,251 
Redemption of Shares   -    (3,572,730)
Total capital transactions   784,941    (612,479)
Net change in net assets   384,308    (1,341,211)
Net assets, beginning of period   2,225,898    2,306,249 
Net assets, end of period  $2,610,206   $965,038 
           
Net asset value per share at beginning of period  $17.81   $23.06 
At end of period  $14.92   $19.30 

 

 

The accompanying notes are an integral part of these financial statements.

81
 

TEUCRIUM SUGAR FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012 
Cash flows from operating activities:          
Net loss  $(400,633)  $(728,732)
Adjustments to reconcile net loss to net cash used in operating activities:          
Net change in unrealized appreciation or depreciation on commodity futures contracts   98,033    (77,214)
Changes in operating assets and liabilities:          
Collateral, due from broker   (81,164)   262,317 
Interest receivable   2    20 
Other assets   12,354    (29,692)
Management fee payable to Sponsor   -    (299)
Other liabilities   1,311    17,942 
Net cash used in operating activities   (370,097)   (555,658)
            
Cash flows from financing activities:          
Proceeds from sale of Shares   784,941    2,960,251 
Redemption of Shares   -    (3,572,730)
Net cash provided by (used in) financing activities   784,941    (612,479)
            
Net change in cash and cash equivalents   414,844    (1,168,137)
Cash and cash equivalents, beginning of period   2,088,533    2,051,003 
Cash and cash equivalents, end of period  $2,503,377   $882,866 

 

 

The accompanying notes are an integral part of these financial statements.

82
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium Sugar Fund (referred to herein as “CANE” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “CANE,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for sugar interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

 

The investment objective of the Fund is to have the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for sugar (“Sugar Futures Contracts”) that are traded on ICE Futures US (“ICE Futures”), specifically: (1) the second-to-expire Sugar No. 11 Futures Contract (a “Sugar No. 11 Futures Contract”), weighted 35%, (2) the third-to-expire Sugar No. 11 Futures Contract, weighted 30%, and (3) the Sugar No. 11 Futures Contract expiring in the March following the expiration month of the third-to-expire contract, weighted 35%.

 

The Fund commenced investment operations on September 19, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009. 

 

On June 17, 2011, the Fund’s registration of 10,000,000 shares on Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On September 19, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “CANE.” On the business day prior to that, the Fund issued 100,000 shares in exchange for $2,500,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on September 19, 2011 by purchasing commodity futures contracts traded on ICE. On December 31, 2010, the fund had four shares outstanding, which were owned by the Sponsor.

 

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 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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

 

 

83
 

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.

 

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 June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The 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. 

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash 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.  The Fund had a balance of $2,503,377 and $2,088,533 in money market funds at June 30, 2013 and December 31, 2012, 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 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

84
 

relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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 Sugar Futures Contracts, the administrator uses the ICE closing price (currently 1:30 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 sugar interests is determined based on the value of the commodity or futures contract underlying such sugar interest, except that a fair value may be determined if the Sponsor believes that the Fund is subject to significant credit risk relating to the counterparty to such sugar interest.  For purposes of financial statements and reports, the Sponsor will recalculate the NAV where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract closes at its price fluctuation limit for the day.  Treasury securities held by the Fund are valued by the administrator using values received from recognized third-party vendors and dealer quotes.  NAV includes any unrealized profit or loss on open sugar interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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. The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion. For the three and six months ended June 30, 2013, this election by the Sponsor resulted in approximately $5,900 and $11,600 reduction in management fees, respectively.

 

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 the prior day’s net assets. The Sponsor may, at its discretion, pay certain expenses on behalf of the Fund. For the three and six months ended June 30, 2013, approximately $19,200 and $37,600 of expenses were paid by the Sponsor that normally would have been paid by the Fund. For the same periods in 2012,

85
 

approximately $11,500 and $15,500 of expenses were paid by the Sponsor. Additional expenses of the Fund may be paid by the Sponsor in future periods.

 

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 Sugar Futures Contracts traded on ICE due to settle on February 27, 2015 (the “MAR15 ICE Sugar Contracts”) did not, in the opinion of the Trust and CANE, trade in an actively traded futures market as defined in the policy of the Trust and CANE for the entire period during which they were held. Accordingly, the Trust and CANE have classified these as a Level 2 liability for the period ended June 30, 2013. The MAR15 Sugar Contracts were, in the opinion of the Trust and CANE, fairly valued at settlement on June 30, 2013.

 

On December 31, 2012, in the opinion of the Trust and the Fund, the reported value of the Sugar Futures Contracts traded on ICE fairly reflected the value of the Sugar Futures Contracts held by the Fund, and no adjustments were necessary.

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT or the 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.  

 

 

86
 

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

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013                
           Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $2,503,377   $-   $-   $2,503,377 
                     
                 Balance as of 
Liabilities:  Level 1   Level 2   Level 3   June 30, 2013 
Commodity futures contracts  $114,329   $62,082   $-   $176,411 
                     
December 31, 2012                    
                 Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Cash equivalents  $2,088,533   $-   $-   $2,088,533 
                     
                 Balance as of 
Liabilities:  Level 1   Level 2   Level 3   December 31, 2012 
Commodity futures contracts  $78,378   $-   $-   $78,378 

Transfers into and out of each level of the fair value hierarchy for the FEB15 Sugar Contracts, for the six months ended June 30, 2013 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  
Liabilities (at fair value)                                                
Derivative contracts                                                
Sugar future contracts   $ -     $ 62,082     $ 62,082     $ -     $ -     $ -  

 

During the six months ended June 30, 2012, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

 

 

 

 

 

87
 

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 and six months ended June 30, 2013 and 2012, the Fund invested only in commodity futures contracts. 

 

Futures Contracts

 

The Fund is subject to commodity price risk in the normal course of pursuing its investment objectives. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. The purchase and sale of futures contracts requires margin deposits with a 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 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Sugar futures contracts  $176,411   $-   $176,411   $-   $176,411   $- 

 

Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)     (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Sugar futures contracts  $78,378   $-   $78,378   $-   $78,378   $- 

 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (199,292 )   $ 25,088  

 

88
 

 

Three months ended June 30, 2012

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (586,576 )   $ (76,531 ) 

 

Six months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (285,118 )   $ (98,033 ) 

 

Six months ended June 30, 2012

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (596,310 )   $ 77,214  

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

Note 5 – Financial Highlights

 

The following table presents per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 17.81  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (2.77 )
Total expenses     (0.12 )
Net decrease in net asset value     (2.89 )
Net asset value at end of period   $ 14.92  
Total Return     (16.23 )%
Ratios to Average Net Assets (Annualized)        
Total expense     1.54 %
Net investment loss     (1.49 )%

 

Per Share Operation Performance for the six months ended June 30, 2012        
Net asset value at beginning of period   $ 23.06  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (2.10 )
Total expenses     (1.67 )
Net decrease in net asset value     (3.76 )
Net asset value at end of period   $ 19.30  
Total Return     (16.31 )%
Ratios to Average Net Assets (Annualized)        
Total expense     (15.14 )%
Net investment loss     (15.06 )%

 

The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion. For the six months ended June 30, 2013, this resulted in the waiving of Fund expenses of approximately $37,600 and $11,600 reduction in management fees. For the period ended June 30, 2012, $15,500 in expenses were waived.

 

89
 

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 July 1, 2013 through August 9, 2013 there was nothing to report.

90
 

TEUCRIUM WHEAT FUND

STATEMENTS OF ASSETS AND LIABILITIES

 

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Cash and cash equivalents   $ 6,369,700     $ 3,356,906  
Commodity futures contracts     -       15,762  
Collateral, due from broker     1,189,580       532,964  
Interest receivable     405       203  
Other assets     23,786       26,443  
Total assets     7,583,471       3,932,278  
                 
Liabilities                
                 
Commodity futures contracts     708,075       206,850  
Management fee payable to Sponsor     5,610       2,775  
Other liabilities     3,750       3,444  
Total liabilities     717,435       213,069  
                 
Net assets   $ 6,866,036     $ 3,719,209  
                 
Shares outstanding     400,004       175,004  
                 
Net asset value per share   $ 17.16     $ 21.25  
                 
Market value per share   $ 17.05     $ 21.32  

 

The accompanying notes are an integral part of these financial statements.

91
 

TEUCRIUM WHEAT FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

    Fair   Percentage of    
Description: Assets   Value   Net Assets    
                         
Cash equivalents                        
Money market funds                        
Dreyfus Cash Management Plus   $ 6,369,700       92.77 %        
                         

 

        Percentage of   Notional Amount
Description: Liabilities   Fair Value   Net Assets   (Long Exposure)
                         
Commodity futures contracts                        
United States wheat futures contracts                        
 CBOT wheat futures (73 contracts, settlement date
    September 13, 2013)		   $ 195,275       2.84 %   $ 2,400,788  
 CBOT wheat futures (61 contracts, settlement date
    December 13, 2013)		     318,575       4.64       2,048,075  
 CBOT wheat futures (68 contracts, settlement date
    December 12, 2014)		     194,225       2.83       2,417,400  
Total commodity futures contracts   $ 708,075       10.31 %   $ 6,866,263  

 

The accompanying notes are an integral part of these financial statements.

92
 

TEUCRIUM WHEAT FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

   Fair   Percentage of   Notional Amount
Description: Assets  Value   Net Assets   (Long Exposure)
Cash equivalents             
Money market funds             
   Dreyfus Cash Management Plus  $3,356,906    90.26%   
Commodity futures contracts             
United States wheat futures contracts             
   CBOT wheat futures (32 contracts, settlement date
      December 13, 2013)		  $15,762    0.42   $1,313,200

 

 

   Fair   Percentage of   Notional Amount 
Description: Liabilities  Value   Net Assets   (Long Exposure) 
Commodity futures contracts               
United States wheat futures contracts               
   CBOT wheat futures (33 contracts, settlement date
      May 14, 2013)		  $166,925    4.49%  $1,299,787 
   CBOT wheat futures (28 contracts, settlement date
      July 12, 2013)		   39,925    1.07    1,111,250 
Total commodity futures contracts  $206,850    5.56%  $2,411,037 

 

The accompanying notes are an integral part of these financial statements.

 

93
 

TEUCRIUM WHEAT FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

  Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012 
Income                    
Realized and unrealized (loss) gain on trading of commodity futures contracts:                    
Realized loss on commodity futures contracts  $(370,837)  $(360,072)  $(756,375)  $(464,222)
Net change in unrealized appreciation or depreciation on commodity futures contracts   (78,012)   288,123    (516,987)   388,348 
Interest income   769    923    1,540    1,291 
Total loss   (448,080)   (71,026)   (1,271,822)   (74,583)
Expenses                    
Management fees   15,982    11,195    29,591    16,902 
Professional fees   16,380    55,151    26,055    55,151 
Distribution and marketing fees   32,123    37,133    59,393    61,885 
Custodian fees and expenses   1,502    32,210    2,987    64,421 
Business permits and licenses fees   2,821    1,824    4,441    1,824 
General and administrative expenses   4,095    9,282    6,615    9,282 
Brokerage commissions   1,820    1,352    3,620    1,810 
Other expenses   1,661    1,900    3,971    1,900 
Total expenses   76,384    150,047    136,673    213,175 
Net loss  $(524,464)  $(221,073)  $(1,408,495)  $(287,758)
                     
Net (loss) income per share  $(1.25)  $0.66   $(4.09)  $(0.28)
Net (loss) income per weighted average share  $(1.51)  $0.99   $(4.48)  $(1.74)
Weighted average shares outstanding   348,081    222,806    314,645    165,251 

 

 

The accompanying notes are an integral part of these financial statements.

94
 

TEUCRIUM WHEAT FUND

STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Operations                
Net loss   $ (1,408,495 )   $ (287,758 )
Capital transactions                
Issuance of Shares     5,908,805       3,722,288  
Redemption of Shares     (1,353,483 )      (2,910,939 ) 
Total capital transactions     4,555,322       811,349  
Net change in net assets     3,146,827       523,591  
                 
Net assets, beginning of period     3,719,209       2,235,888  
                 
Net assets, end of period   $ 6,866,036     $ 2,759,479  
Net asset value per share at beginning of period   $ 21.25     $ 22.36  
                 
At end of period   $ 17.16     $ 22.08  

 

 

The accompanying notes are an integral part of these financial statements.

95
 

 

 

TEUCRIUM WHEAT FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended   Six months ended
    June 30, 2013   June 30, 2012
Cash flows from operating activities:                
Net loss   $ (1,408,495 )   $ (287,758 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Net change in unrealized appreciation or depreciation on commodity futures contracts     516,987       (388,348 ) 
Changes in operating assets and liabilities:                
Collateral, due from broker     (656,616 )     289,136  
Interest receivable     (202)       (17 )
Other assets     2,657       (32,720 )
Collateral, due to broker     -       16,137  
Management fee payable to Sponsor     2,835       1,166  
Other liabilities     306       17,847  
Net cash used in operating activities     (1,542,528 )     (384,557 )
                 
Cash flows from financing activities:                
Proceeds from sale of Shares     5,908,805       3,722,288  
Redemption of Shares     (1,353,483 )      (2,910,939 ) 
Net cash provided by financing activities     4,555,322       811,349  
                 
Net change in cash and cash equivalents     3,012,794       426,792  
Cash and cash equivalents, beginning of period     3,356,906       2,022,024  
Cash and cash equivalents, end of period   $ 6,369,700     $ 2,448,816  

 

 

The accompanying notes are an integral part of these financial statements.

96
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 – Organization and Operation

 

Teucrium Wheat Fund (referred to herein as “WEAT” or the “Fund”) is a commodity pool that is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust formed on September 11, 2009. The Fund issues common units, called the “Shares,” representing fractional undivided beneficial interests in the Fund. The Fund continuously offers Creation Baskets consisting of 25,000 Shares at their Net Asset Value (“NAV”) to “Authorized Purchasers” through Foreside Fund Services, LLC, which is the distributor for the Fund (the “Distributor”). Authorized Purchasers sell such Shares, which are listed on the New York Stock Exchange (“NYSE”) Arca under the symbol “WEAT,” to the public at per-Share offering prices that reflect, among other factors, the trading price of the Shares on the NYSE Arca, the NAV of the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of the markets for wheat interests. The Fund’s Shares trade in the secondary market on the NYSE Arca at prices that are lower or higher than their NAV per Share.

 

The investment objective of the Fund is to have the daily changes in percentage terms of the Shares’ Net Asset Value reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for wheat (“Wheat Futures Contracts”) that are traded on the Chicago Board of Trade (“CBOT”), specifically: (1) the second-to-expire CBOT Wheat Futures Contract, weighted 35%, (2) the third-to-expire CBOT Wheat Futures Contract, weighted 30%, and (3) the CBOT Wheat Futures Contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%.

 

The Fund commenced investment operations on September 19, 2011 and has a fiscal year ending December 31. The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The Sponsor is responsible for the management of the Fund. The Sponsor is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission (the “CFTC”) effective November 10, 2009. 

 

On June 17, 2011, the Fund’s registration of 10,000,000 shares on Form S-1 was declared effective by the SEC. On September 19, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “WEAT.” On the business day prior to that, the Fund issued 100,000 shares in exchange for $2,500,000 at the Fund’s initial NAV of $25 per share. The Fund also commenced investment operations on September 19, 2011 by purchasing commodity futures contracts traded on the CBOT. On December 31, 2010, the Fund had four shares outstanding, which were owned by the Sponsor.

 

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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

 

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 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 Fund earns interest on its assets denominated in U.S. dollars on deposit with the Futures Commission Merchant. In addition, the Fund earns interest on funds held at the custodian at prevailing market rates for such investments.

 

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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.

 

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 June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.

 

The Fund 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 periods ended June 30, 2013 and 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 the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

The 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. 

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares.

 

Allocation of Shareholder Income and Losses

 

Profit or loss is allocated among the shareholders of the Fund in proportion to the number of shares each shareholder holds as of the close of each month.

 

Cash 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.  The Fund had a balance of $6,369,700 and $3,356,906 in money market funds at June 30, 2013 and December 31, 2012, 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 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

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changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Fund’s clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Fund’s trading, the Fund (and not its shareholders personally) is subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

 

  • Subtracting any liabilities.

 

The administrator, 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 Wheat Futures Contracts, the administrator uses the CBOT closing price. The administrator determines the value of all other Fund investments as of the earlier of the close of the NYSE or 4:00 p.m. New York time. The value of over-the-counter wheat interests is determined based on the value of the commodity or futures contract underlying such wheat interest, except that a fair value may be determined if the Sponsor believes that the Fund is subject to significant credit risk relating to the counterparty to such wheat interest.  For purposes of financial statements and reports, the Sponsor will recalculate the NAV where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract closes at its price fluctuation limit for the day.  Treasury securities held by the Fund are valued by the administrator using values received from recognized third-party vendors and dealer quotes.  NAV includes any unrealized profit or loss on open wheat interests and any other income or expense accruing to the Fund but unpaid or not received by the Fund.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

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 three months ended June 30, 2013, the Fund recorded $15,982 in management fees to the Sponsor. For the three months ended June 30, 2012, the Fund recorded $11,195 in management fees to the Sponsor. For the six months ended June 30, 2013, the Fund recorded $29,591 in management fees to the Sponsor. For the six months ended June 30, 2012, the Fund recorded $16,902 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. The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. For the three and six months ended June 30, 2013, approximately $5,600 of expenses were paid by the Sponsor. For the three and six month periods ended June 30, 2012 approximately $500 and $4,200 respectively were paid by the Sponsor. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB

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and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $500 effective July 1, 2013.

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 the 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 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 Wheat Futures Contracts traded on the CBOT due to settle on December 12, 2014 (the “DEC14 Wheat Contracts”) did not, in the opinion of the Trust and WEAT, trade in an actively traded futures market as defined in the policy of the Trust and WEAT for the entire period during which they were held. Accordingly, the Trust and WEAT have classified these as a Level 2 liability for the period ended June 30, 2013. The DEC14 Wheat Contracts were, in the opinion of the Trust and WEAT, fairly valued at settlement on June 30, 2013.

 

On December 31, 2012, in the opinion of the Trust and the Fund, the reported value of the Wheat Futures Contracts traded on the CBOT fairly reflected the value of the Wheat Futures Contracts held by the Fund, and no adjustments were necessary.

 

The Fund records its derivative activities at fair value. Gains and losses from derivative contracts are included in the statements of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT or the 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.  

 

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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

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact 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 June 30, 2013 and December 31, 2012:

 

June 30, 2013                
              Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Cash equivalents  $6,369,700   $-   $-   $6,369,700 
                 
              Balance as of 
Liabilities:   Level 1    Level 2    Level 3    June 30, 2013 
Commodity futures contracts  $513,850   $194,225   $-   $708,075 
December 31, 2012                    
              Balance as of 
Assets:   Level 1    Level 2    Level 3    December 31, 2012 
Cash equivalents  $3,356,906   $-   $-   $3,356,906 
Commodity futures contracts   15,762    -    -    15,762 
Total  $3,372,668   $-   $-   $3,372,668 
                 
              Balance as of 
Liabilities:   Level 1    Level 2    Level 3    December 31, 2012 
Commodity futures contracts  $206,850   $-   $-   $206,850 

 

Transfers into and out of each level of the fair value hierarchy for the DEC14 Wheat Contracts, for the six months ended June 30, 2013 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  
Liabilities (at fair value)                                                
Derivative contracts                                                
Wheat future contracts   $ -     $ 194,225     $ 194,225     $ -     $ -     $ -  

 

 

During the six months ended June 30, 2012, the Fund did not have any significant transfers between any of the levels of the fair value hierarchy.

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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 six months ended June 30, 2013 and 2012, the Fund invested only in commodity futures contracts. Cleared Wheat Swaps have standardized terms similar to, and are priced by reference to, the corresponding Benchmark Component Futures Contract. Additionally, Other Wheat Interests that do not have standardized terms and are not exchange-traded, referred to as “over-the-counter” Wheat Interests, can generally be structured as the parties to the Wheat 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 not necessarily correlate exactly with the performance of the Benchmark or the applicable Benchmark Component Futures Contract.

 

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 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 as of June 30, 2013 and December 31, 2012.

 

Offsetting of Financial Liabilities and Derivative Liabilities as of June 30, 2013

 

    (i)      (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Wheat futures contracts  $708,075   $-   $708,075   $-   $708,075   $- 

 

Offsetting of Financial Assets and Derivative Assets as of December 31, 2012

 

    (i)      (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Assets   Liabilities   Liabilities   Instruments   Received   Net Amount 
Commodity price                              
   Wheat futures contracts  $15,762   $-   $15,762   $15,762   $-   $- 

 

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Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2012

 

    (i)      (ii)   (iii) = (i) – (ii)   (iv)     (v) = (iii) – (iv) 
                            Gross Amount Not Offset in the      
                            Statement of Assets and Liabilities      
            Gross Amount     Net Amount             
            Offset in the     Presented in the             
    Gross Amount     Statement of   Statement of             
    of Recognized     Assets and   Assets and   Financial   Cash Collateral     
Description  Liabilities   Liabilities   Liabilities   Instruments   Pledged   Net Amount 
Commodity price                              
   Wheat futures contracts  $206,850   $-   $206,850   $15,762   $191,088   $- 

 

The following tables identify the net gain and loss amounts included in the statements of operations as realized and unrealized gains and losses on trading of commodity futures contracts categorized by primary underlying risk:

 

Three months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (370,837)     $ (78,012 ) 

 

Three months ended June 30, 2012

 

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (360,072)     $ 288,123  

 

Six months ended June 30, 2013

 

    Realized Loss on     Net Change in Unrealized Loss  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (756,375)     $ (516,987 ) 

 

Six months ended June 30, 2012

    Realized Loss on     Net Change in Unrealized Gain  
Primary Underlying Risk   Derivative Instruments     on Derivative Instruments  
Commodity price                
Commodity futures contracts   $ (464,222)     $ 388,348  

 

Volume of Derivative Activities

 

The notional amounts and number of contracts categorized by primary underlying risk, commodity price risk, are included in the schedule of investments as of June 30, 2013 and December 31, 2012. 

 

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Note 5 – Financial Highlights

 

The following table presents per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 21.25  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (3.66 ) 
Total expenses     (0.43 )
Net decrease in net asset value     (4.09 )
Net asset value at end of period   $ 17.16  
Total Return     (19.25 )%
Ratios to Average Net Assets (Annualized)        
Total expense     4.60 %
Net investment loss     (4.55 )%

 

Per Share Operation Performance for the six months June 30, 2012        
Net asset value at beginning of period   $ 22.36  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized gain on commodity futures contracts     1.00  
Total expenses     (1.29 )
Net decrease in net asset value     (0.28 )
Net asset value at end of period   $ 22.08  
Total Return     (1.25 )%
Ratios to Average Net Assets (Annualized)        
Total expense     12.70 %
Net investment loss     (12.63 )%

 

The Sponsor has the ability to elect to pay certain expenses on behalf of the Fund or waive the management fee. This election is subject to change by the Sponsor, at its discretion. For the six months ended June 30, 2013, approximately $5,600 of expenses were paid by the Sponsor. For the six months ended June 30, 2012 approximately $4,200 were paid by the Sponsor. As of December 31, 2012, there were approximately $560,000 of expenses recorded on the financial statements of the Sponsor which are subject to reimbursement by the Funds in 2013. Through the six months ended June 30, 2013, the Sponsor sought approximately $184,000 in reimbursement from CORN, SOYB and WEAT for these expenses. These Funds have not recorded the remaining $376,000 of expenses subject to reimbursement to the Sponsor as payment is not probable at June 30, 2013. The Sponsor has increased the expense accruals per day for the Fund by $500 effective July 1, 2013.

Total return is 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 July 1, 2013 through August 9, 2013 there was nothing to report.

 

104
 

TEUCRIUM AGRICULTURAL FUND

STATEMENTS OF ASSETS AND LIABILITIES

  

    June 30, 2013   December 31, 2012
    (Unaudited)    
Assets                
                 
Equity in BNY Mellon trading accounts:                
Investments in securities, at fair value (cost $2,647,235 and $2,679,379 as of June 30, 2013 and December 31, 2012, respectively)   $ 2,119,794     $ 2,426,187  
Cash and cash equivalents     7,242       6,419  
Other assets     1,663       4,989  
Total assets     2,128,699       2,437,595  
                 
Liabilities                
                 
Other liabilities     538       874  
                 
Net assets   $ 2,128,161     $ 2,436,721  
                 
Shares outstanding     50,002       50,002  
                 
Net asset value per share   $ 42.56     $ 48.73  
                 
Market value per share   $ 41.34     $ 48.74  

 

The accompanying notes are an integral part of these financial statements.

105
 

TEUCRIUM AGRICULTURAL FUND

SCHEDULE OF INVESTMENTS

June 30, 2013

(Unaudited)

 

    Fair   Percentage of    
Description: Assets   Value   Net Assets   Shares
                         
Exchange-traded funds                        
Teucrium Corn Fund   $ 518,947       24.38 %     13,408  
Teucrium Soybean Fund     537,369       25.25       22,656  
Teucrium Wheat Fund     522,448       24.55       30,437  
Teucrium Sugar Fund     541,030       25.42       36,274  
Total exchange-traded funds (cost $2,647,235)   $ 2,119,794       99.60 %        
                         
Cash equivalents                        
Money market funds                        
Dreyfus Cash Management Plus   $ 7,242       0.34 %        

  

The accompanying notes are an integral part of these financial statements.

 

106
 

TEUCRIUM AGRICULTURAL FUND

SCHEDULE OF INVESTMENTS

December 31, 2012

 

        Percentage of      
Description: Assets   Fair Value   Net Assets   Shares
                         
Exchange-traded funds                        
Teucrium Corn Fund   $ 596,685       24.49 %     13,458  
Teucrium Soybean Fund     603,422       24.76       25,006  
Teucrium Sugar Fund     628,110       25.78       35,274  
Teucrium Wheat Fund     597,970       24.54       28,137  
Total exchange-traded funds (cost $2,679,379)   $ 2,426,187       99.57 %        
                         
Cash equivalents                        
Money market funds                        
Dreyfus Cash Management Plus   $ 6,419       0.26 %        

  

The accompanying notes are an integral part of these financial statements.

 

107
 

TEUCRIUM AGRICULTURAL FUND

STATEMENTS OF OPERATIONS

(Unaudited)

 

              From the commencement of 
   Three months ended   Three months ended   Six months ended   operations (March 28, 2012) 
   June 30, 2013   June 30, 2012   June 30, 2013   through June 30, 2012 
Income                
Realized and unrealized (loss) gain on trading of securities:                    
Realized loss on securities  $(19,584)  $(971,557)  $(28,629)  $(969,837)
Net change in unrealized appreciation or depreciation on securities   (87,182)   (129,928)   (274,249)   73,269 
Interest income   (1)   16    (3)   17 
Total loss   (106,767)   (1,101,469)   (302,881)   (896,551)
Expenses                    
Professional fees   2,378    (693)   1,851    (261)
Distribution and marketing fees   411    11,718    3,427    11,799 
Custodian fees and expenses   (89)   1,194    44    1,275 
Business permits and licenses fees   (125)   (321)   (69)   (213)
General and administrative expenses   129    1,596    315    1,704 
Brokerage commissions   30    1,249    62    1,249 
Other expenses   34    364    49    364 
Total expenses   2,768    15,107    5,679    15,917 
Net loss  $(109,535)  $(1,116,576)  $(308,560)  $(912,468)
                     
Net (loss) income per share  $(2.19)  $(1.09)  $(6.17)  $0.41 
Net loss per weighted average share  $(2.19)  $(5.57)  $(6.17)  $(4.46)
Weighted average shares outstanding   50,002    200,551    50,002    204,739 

 

 

The accompanying notes are an integral part of these financial statements.

108
 

TEUCRIUM AGRICULTURAL FUND

STATEMENT OF CHANGES IN NET ASSETS

(Unaudited)

 

     From the commencement of 
  Six months ended   operations (March 28, 2012) 
   June 30, 2013   through June 30, 2012 
Operations          
Net loss  $(308,560)  $(912,468)
Capital transactions          
Issuance of Shares   -    15,000,000 
Redemption of Shares   -    (11,608,241)
Total capital transactions   -    3,391,759 
Net change in net assets   (308,560)   2,479,291 
Net assets, beginning of period   2,436,721    100 
Net assets, end of period  $2,128,161   $2,479,391 
Net asset value per share at beginning of period  $48.73   $50.00 
At end of period  $42.56   $49.59 

 

The accompanying notes are an integral part of these financial statements.

109
 

TEUCRIUM AGRICULTURAL FUND

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     From the commencement of 
  Six months ended   operations (March 28, 2012) 
   June 30, 2013   through June 30, 2012 
Cash flows from operating activities:          
Net loss  $(308,560)  $(912,468)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Net change in unrealized appreciation or depreciation on securities   274,249    (73,269)
Changes in operating assets and liabilities:          
Net purchases and sales of investments in securities   32,144    (2,386,521)
Other assets   3,326    (1)
Payable for investments purchased   -    (7,419)
Other liabilities   (336)   389 
Net cash provided by (used in) operating activities   823    (3,379,289)
Cash flows from financing activities:          
Proceeds from sale of Shares   -    15,000,000 
Redemption of Shares   -    (11,608,241)
Net cash provided by financing activities   -    3,391,759 
Net change in cash and cash equivalents   823    12,470 
Cash and cash equivalents, beginning of period   6,419    100 
Cash and cash equivalents, end of period  $7,242   $12,570 

 

The accompanying notes are an integral part of these financial statements.

110
 

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 — Organization and Business

 

Teucrium Agricultural Fund (referred to herein as “TAGS” or the “Fund”) is a series of Teucrium Commodity Trust (“Trust”), a Delaware statutory trust organized on September 11, 2009. The Fund operates pursuant to the Trust’s Second Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”).  The Fund was formed on March 29, 2011 and is managed and controlled by Teucrium Trading, LLC (the “Sponsor”). The Sponsor is a limited liability company formed in Delaware on July 28, 2009 that is registered as a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).

 

On April 22, 2011, a registration statement was filed with the Securities and Exchange Commission (“SEC”). On February 10, 2012, the Fund’s initial registration of 5,000,000 shares on Form S-1 was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On March 28, 2011, the Fund listed its shares on the NYSE Arca under the ticker symbol “TAGS.” On the business day prior to that, the Fund issued 300,000 shares in exchange for $15,000,000 at the Fund’s initial NAV of $50 per share. The Fund also commenced investment operations on March 28, 2012 by purchasing shares of the Underlying Funds. On December 31, 2011, the Fund had two shares outstanding, which were owned by the Sponsor.

 

The investment objective of the Fund is to have the daily changes in percentage terms of the Net Asset Value (“NAV”) of its common units (“Shares”) reflect the daily changes in percentage terms of a weighted average (the “Underlying Fund Average”) of the NAVs per share of four other commodity pools that are series of the Trust and are sponsored by the Sponsor: the Teucrium Corn Fund, 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.  The Fund does not intend to invest directly in futures contracts (“Futures Contracts”), although it reserves the right to do so in the future, including if an Underlying Fund ceases operations.

 

The investment objective of each Underlying Fund is to have the daily changes in percentage terms of its shares’ NAV reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for certain Futures Contracts for the commodity specified in the Underlying Fund’s name.  (This weighted average is referred to herein as the Underlying Fund’s “Benchmark,” the Futures Contracts that at any given time make up an Underlying Fund’s Benchmark are referred to herein as the Underlying Fund’s “Benchmark Component Futures Contracts,” and the commodity specified in the Underlying Fund’s name is referred to herein as its “Specified Commodity.”)  Specifically, the Teucrium Corn Fund’s Benchmark is: (1) the second-to-expire Futures Contract for corn traded on the Chicago Board of Trade (“CBOT”), weighted 35%, (2) the third-to-expire CBOT corn Futures Contract, weighted 30%, and (3) the CBOT corn Futures Contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%.  The Teucrium Wheat Fund’s Benchmark is: (1) the second-to-expire CBOT wheat Futures Contract, weighted 35%, (2) the third-to-expire CBOT wheat Futures Contract, weighted 30%, and (3) the CBOT wheat Futures Contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%.  The Teucrium Soybean Fund’s Benchmark is: (1) the second-to-expire CBOT soybean Futures Contract, weighted 35%, (2) the third-to-expire CBOT soybean Futures Contract, weighted 30%, and (3) the CBOT soybean Futures Contract expiring in the November following the expiration month of the third-to-expire contract, weighted 35%, except that CBOT soybean Futures Contracts expiring in August and September will not be part of the Teucrium Soybean Fund’s Benchmark because of the less liquid market for these Futures Contracts.  The Teucrium Sugar Fund’s Benchmark is: (1) the second-to-expire Sugar No. 11 Futures Contract traded on ICE Futures US (“ICE Futures”), weighted 35%, (2) the third-to-expire ICE Futures Sugar No. 11 Futures Contract, weighted 30%, and (3) the ICE Futures Sugar No. 11 Futures Contract expiring in the March following the expiration month of the third-to-expire contract, weighted 35%.

 

While the Fund expects to maintain substantially all of its assets in shares of the Underlying Funds at all times, the Fund may hold some residual amount of assets in obligations of the United States government (“Treasury Securities”) or cash equivalents, and/or merely hold such assets in cash (generally in interest-bearing accounts).  The Underlying Funds invest in Commodity Interests to the fullest extent possible without being leveraged or unable to satisfy their expected current or potential margin or collateral obligations with respect to their investments in Commodity Interests.  After fulfilling such margin and collateral requirements, the Underlying Funds will invest the remainder of the proceeds from the sale of baskets in Treasury Securities or cash equivalents, and/or merely hold such assets in cash.  Therefore, the focus of the Sponsor in managing the Underlying Funds is investing in Commodity Interests and in Treasury Securities, cash and/or cash equivalents.  The Fund and Underlying Funds will earn interest income from the Treasury Securities and/or cash equivalents that it purchases and on the cash it holds through the Fund’s custodian, the Bank of New York Mellon (the “Custodian”).

 

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 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, as well as the most recent Form S-1 filing, as applicable. The operating results for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

 

 

 

111
 

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

 

Investment transactions are accounted for on a trade-date basis. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation or depreciation on investments are reflected in the statements of operations as the difference between the original amount and the fair  market value as of the last business day of the year or as of the last date of the financial statements. Changes in the appreciation or depreciation between periods are reflected in the statements of operations.

 

Brokerage Commissions

 

Brokerage commissions are accrued on a full-turn basis.

 

Income Taxes

 

The Fund will be treated as a partnership for United States federal income tax purposes.  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.

  

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.  This policy has been applied to all existing tax positions upon the Fund’s initial adoption. Based on its analysis, the Fund has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2013 and December 31, 2012.  However, the Fund’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of and changes to tax laws, regulations, and interpretations thereof.  

 

The Fund 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 periods ended June 30, 2013 and 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 the Fund. The amount of the proceeds required to purchase a Creation Basket will be equal to the NAV of the shares in the Creation Basket determined as of 4:00 p.m. New York time on the day the order to create the basket is properly received.

 

Authorized Purchasers may redeem shares from the Fund only in blocks of 25,000 shares called “Redemption Baskets.” The amount of the redemption proceeds for a Redemption Basket will be equal to the NAV of the shares in the Redemption Basket determined as of 4:00 p.m. New York time on the day the order to redeem the basket is properly received.

 

Effective August 23, 2012, the number of shares in a “Basket” was reduced from 50,000 to 25,000.

 

The Fund will receive the proceeds from shares sold or will pay for redeemed shares within three business days after the trade date of the purchase or redemption, respectively. The amounts due from Authorized Purchasers will be reflected in the Fund’s statements of assets and liabilities as receivable for shares sold. Amounts payable to Authorized Purchasers upon redemption will be reflected in the Fund’s statements of assets and liabilities as payable for shares redeemed.

 

As outlined in the most recent Form S-1 filing, 50,000 shares represents two Redemption Baskets for the Fund and a minimum level of shares. The Fund currently is at this minimum number of shares outstanding and no redemptions can be made until additional shares are created.

 

112
 

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. Assets deposited with the bank may, at times, exceed federally insured limits. TAGS had a balance of $7,242 and $6,419 in money market funds at June 30, 2013 and December 31, 2012, respectively; these balances are included in cash and cash equivalents on the statements of assets and liabilities.  

 

Due from/to Broker for Securities Transactions

 

Due from/to broker for investments in securities are securities transactions pending settlement. For the six months ended June 30, 2013 and for the period from the commencement of operations (March 28, 2012) through December 31, 2012, all of the Fund’s securities transactions for the shares of the Underlying Funds, money balances were transacted with the Bank of New York Mellon and security transactions for the sale and purchase of shares of the Underlying Funds were principally transacted with the Bank of New York Mellon Capital Markets. The Fund is subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The management of the Funds monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.

 

Calculation of Net Asset Value

 

The Fund’s NAV is calculated by:

 

  • Taking the current market value of its total assets and

     

  • Subtracting any liabilities.

 

The administrator, the Bank of New York Mellon, will calculate the NAV of the Fund once each trading day.  It will calculate the NAV as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. New York time.  The NAV for a particular trading day will be released after 4:15 p.m. New York time.

 

For purposes of the determining the Fund’s NAV, the Fund’s investments in the Underlying Funds will be valued based on the Underlying Funds’ NAVs.  In turn, in determining the value of the Futures Contracts held by the Underlying Funds, the Administrator will use the closing price on the exchange on which they are traded.  The Administrator will determine the value of all other Fund and Underlying Fund investments as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. New York time, in accordance with the current Services Agreement between the Administrator and the Trust.  The value of Cleared Swaps and over-the-counter Commodity Interests will be determined based on the value of the commodity or Futures Contract underlying such Commodity Interest, except that a fair value may be determined if the Sponsor believes that the Underlying Fund is subject to significant credit risk relating to the counterparty to such Commodity Interest. For purposes of financial statements and reports, the Sponsor will recalculate the NAV of an Underlying Fund where necessary to reflect the “fair value” of a Futures Contract held by an Underlying Fund when a Futures Contract held by an Underlying Fund closes at its price fluctuation limit for the day.  Treasury Securities held by the Fund or Underlying Funds will be valued by the Administrator using values received from recognized third-party vendors (such as Reuters) and dealer quotes.  NAV will include any unrealized profit or loss on open Commodity Interests and any other credit or debit accruing to the Fund but unpaid or not received by the Fund.

 

Market value per share represents the closing price on the last trading day of the quarter as reported by the NYSE Arca. If such a closing price is not available, the bid/ask midpoint at 4 p.m. as reported by the NYSE Arca was used.

 

Sponsor Fee and Allocation of Expenses

 

The Fund pays no direct management fees to the Sponsor. The Underlying Funds are contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a rate equal to 1.00% per annum; these fees are recognized in the statements contained in this Form on 10-Q for each of the Underlying Funds. The Fund pays for all brokerage fees, taxes and other expenses, including licensing fees for the use of intellectual property, registration or other fees paid to the SEC, 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. The Sponsor may, at its discretion waive the payment by the Fund of certain expenses. This election is subject to change by the Sponsor, at its discretion. For the three and six months ended June 30, 2013, approximately $21,200 and $35,800, respectively, of expenses were paid by the Sponsor. For the three months ended June 30, 2012 and from the commencement of operations (March 28, 2012) through June 30, 2012, approximately $500 of expenses were paid by the Sponsor. 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 the prior day’s net assets. The Sponsor can elect to adjust the daily expense accruals at its discretion.

113
 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

New Accounting Pronouncements

 

The FASB issued ASU No. 2013-08, “Financial Services-Investment Companies (Topic 946)-Amendments to the Scope, Measurement, and Disclosure Requirements”. ASU No. 2013-08 affects the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. We anticipate the adoption will not have a significant impact on the financial statements disclosures for the Trust or the Fund.

 

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 adoption did not have a significant impact on the financial statement disclosures for the Fund.

 

Fair Value - Definition and Hierarchy

 

In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

In determining fair value, the Fund uses various valuation approaches.  In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund.  Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 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 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.

 

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 Funds.

 

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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.

 

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 June 30, 2013 and December 31, 2012:

 

 June 30, 2013                
              Balance as of 
Assets:  Level 1   Level 2   Level 3   June 30, 2013 
Exchange-traded funds  $2,119,794   $-   $-   $2,119,794 
Cash equivalents   7,242    -    -    7,242 
Total  $2,127,036   $-   $-   $2,127,036 
                     
 December 31, 2012                    
                      
                 Balance as of 
Assets:  Level 1   Level 2   Level 3   December 31, 2012 
Exchange-traded funds  $2,426,187   $-   $-   $2,426,187 
Cash equivalents   6,419    -    -    6,419 
Total  $2,432,606   $-   $-   $2,432,606 

 

 

Note 4 - Financial Highlights

 

The following table presents per unit performance data and other supplemental financial data for the six months ended June 30, 2013 and from the commencement of operations (March 28, 2012) through June 30, 2012. This information has been derived from information presented in the financial statements.

 

Per Share Operation Performance for the six months ended June 30, 2013        
Net asset value at beginning of period   $ 48.73  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on investment transactions     (6.06 )
Total expenses     (0.11 )
Net decrease in net asset value     (6.17 )
Net asset value at end of period   $ 42.56  
Total Return     (12.66 )%
Ratios to Average Net Assets (Annualized)        
Total expense     0.50 %
Net investment loss     (0.50 )%

 

Per Share Operation Performance from the commencement of operations (March 28, 2012) through June 30, 2012        
Net asset value at beginning of period   $ 50.00  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on investment transactions     (0.33 )
Total expenses     (0.08 )
Net decrease in net asset value     (0.41 )
Net asset value at end of period   $ 49.59  
Total Return     (0.82 )%
Ratios to Average Net Assets (Annualized)        
Total expense     0.63 %
Net investment loss     (0.63 )%

 

The Sponsor may, at its discretion waive the payment by the Fund of certain expenses. This election is subject to change by the Sponsor, at its discretion. For the six months ended June 30, 2013, approximately $35,800 of expenses were paid by the Sponsor. From the commencement of

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operations (March 28, 2012) through June 30, 2012, approximately $500 of expenses were paid by the Sponsor. The Sponsor can elect to adjust the daily expense accruals at its discretion.

 

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 5 – 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 6 – Subsequent Events

 

The Trust evaluates subsequent events through the date when financial statements are filed with the SEC.

 

For the period July 1, 2013 through August 9, 2013 there was nothing to report.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Quarterly Report (the “Report”). The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate,” as well as similar words and phrases, signify forward-looking statements. Teucrium Commodity Trust’s (the “Trust’s”) forward-looking statements are not guarantees of future results and conditions, and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements.

 

You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, Teucrium Trading, LLC (the “Sponsor”) undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.

 

Overview/Introduction

 

Teucrium Commodity Trust (“Trust”), a Delaware statutory trust organized on September 11, 2009, is a series trust consisting of seven series: Teucrium Corn Fund (“CORN”), Teucrium WTI Crude Oil Fund (“CRUD”), Teucrium Natural Gas Fund (“NAGS”), Teucrium Sugar Fund (“CANE”), Teucrium Soybean Fund (“SOYB”), Teucrium Wheat Fund (“WEAT”), and Teucrium Agricultural Fund (“TAGS”). All these series of the Trust are collectively referred to as the “Funds” and singularly as the “Fund.” Each Fund is a commodity pool that is a series of the Trust. The Funds issue common units, called the “Shares,” representing fractional undivided beneficial interests in a Fund.  The Trust and the Funds operate pursuant to the Trust’s Second Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”).

 

On June 5, 2010, the initial Form S-1 for CORN was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On June 8, 2010, four Creation Baskets for CORN were issued representing 200,000 shares and $5,000,000. CORN began trading on the New York Stock Exchange (“NYSE”) Arca on June 9, 2010.

  

On October 22, 2010, the initial 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.

 

On June 17, 2011, the Forms S-1 for CANE, SOYB, and WEAT were declared effective by the SEC. On September 16, 2011, two Creation Baskets were issued for each Fund, representing 100,000 shares and $2,500,000, for CANE, SOYB, and WEAT.  On September 19, 2011, CANE, SOYB, and WEAT started trading on the NYSE Arca.

 

On 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 Funds are designed and managed so that the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for specific futures contracts or the closing Net Asset Value per share of the Underlying Funds (as defined below) in the case of TAGS. Each Fund pursues its investment objective by investing in a portfolio of exchange-traded futures contracts that expire in a specific month and trade on a specific exchange in the commodities comprising the Benchmark, as defined below or shares of the Underlying Funds in the case of TAGS. Each Fund also holds United States Treasury Obligations and/or other high credit quality short-term fixed income securities for deposit with the commodity broker of the Funds as margin.

 

The Investment Objective of the Funds

 

The investment objective of CORN 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%. 

 

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.  

 

The investment objective of CRUD 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 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)

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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%.  

 

The investment objective of SOYB 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 soybeans (“Soybean Futures Contracts”) that are traded on the CBOT.   The three Soybean Futures Contracts will generally 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%.

 

The investment objective of CANE 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 sugar (“Sugar Futures Contracts”) that are traded on ICE Futures US (“ICE Futures”), specifically: (1) the second-to-expire Sugar No. 11 Futures Contract (a “Sugar No. 11 Futures Contract”), weighted 35%, (2) the third-to-expire Sugar No. 11 Futures Contract, weighted 30%, and (3) the Sugar No. 11 Futures Contract expiring in the March following the expiration month of the third-to-expire contract, weighted 35%.

 

The investment objective of WEAT 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 wheat (“Wheat Futures Contracts”) that are traded on the CBOT, specifically: (1) the second-to-expire CBOT Wheat Futures Contract, weighted 35%, (2) the third-to-expire CBOT Wheat Futures Contract, weighted 30%, and (3) the CBOT Wheat Futures Contract expiring in the December following the expiration month of the third-to-expire contract, weighted 35%.

 

The investment objective of the TAGS is to have the daily changes in percentage terms of the NAV of its Shares reflect the daily changes in percentage terms of a weighted average (the “Underlying Fund Average”) of the NAVs per share of four other commodity pools that are series of the Trust and are sponsored by the Sponsor: the Teucrium Corn Fund, the Teucrium Wheat Fund, the Teucrium Soybean Fund and the Teucrium Sugar Fund (collectively, the “Underlying Funds”).  The Underlying Fund Average will have a weighting of 25% to each Underlying Fund, and the Fund’s assets will be rebalanced, generally on a daily basis, to maintain the approximate 25% allocation to each Underlying Fund.

 

This weighted average of the referenced specific Futures Contracts for each Fund is referred to herein as the “Benchmark,” and the specific Futures Contracts that at any given time make up the Benchmark for that Fund and are referred to herein as the “Benchmark Component Futures Contracts.” 

 

The notional amount of each Benchmark Component Futures Contract included in each Benchmark is intended to reflect the changes in market value of each such Benchmark Component Futures Contract within the Benchmark. The closing level of each Benchmark is calculated on each business day by the Bank of New York Mellon (the “Administrator”) based on the closing price of the futures contracts for each of the underlying Benchmark Component Futures Contracts and the notional amounts of such Benchmark Component Futures Contracts.

 

Each Benchmark is rebalanced periodically to ensure that each of the Benchmark Component Futures Contracts is weighted in the same proportion as in the investment objective for each Fund. The following tables reflect the June 30, 2013, Benchmark Component Futures Contracts weights for each of the Funds:

 

CORN Benchmark Component Futures Contracts  Notional Value   Weight (%) 
CBOT Corn Futures
(494 contracts, settlement date September 13, 2013)		  $13,517,075    35%
CBOT Corn Futures
(453 contracts, settlement date December 13, 2013)		   11,574,150    30 
CBOT Corn Futures
(516 contracts, settlement date December 12, 2014)		   13,667,550    35 
Total at June 30, 2013  $38,758,775    100%

 

NAGS Benchmark Component Futures Contracts  Notional Value   Weight (%) 
NYMEX Natural Gas Futures
(23 contracts, settlement date September 26, 2013)		  $821,560    25%
NYMEX Natural Gas Futures
(23 contracts, settlement date October 29, 2013)		   838,580    25 
NYMEX Natural Gas Futures
(22 contracts, settlement date February 26, 2014)		   852,060    25 
NYMEX Natural Gas Futures
(22 contracts, settlement date March 27, 2014)		   834,460    25 
Total at June 30, 2013  $3,346,660    100%

 

 

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CRUD Benchmark Component Futures Contracts  Notional Value   Weight (%) 
WTI Crude Oil Futures
(7 contracts, settlement date November 20, 2013)		  $660,660    33%
WTI Crude Oil Futures
(7 contracts, settlement date May 20, 2014)		   635,180    32 
WTI Crude Oil Futures
(8 contracts, settlement date November 20, 2014)		   705,760    35 
Total at June 30, 2013  $2,001,600    100%

 

SOYB Benchmark Component Futures Contracts  Notional Value   Weight (%) 
CBOT Soybean Futures
(37 contracts, settlement date November 14, 2013)		  $2,316,200    35%
CBOT Soybean Futures
(31 contracts, settlement date January 14, 2014)		   1,947,963    30 
CBOT Soybean Futures
(37 contracts, settlement date November 14, 2014)		   2,270,413    35 
Total at June 30, 2013  $6,534,576    100%

 

CANE Benchmark Component Futures Contracts  Notional Value   Weight (%) 
ICE Sugar Futures
(46 contracts, settlement date February 28, 2014)		  $913,965    35%
ICE Sugar Futures
(39 contracts, settlement date April 30, 2014)		   773,573    30 
ICE Sugar Futures
(45 contracts, settlement date February 27, 2015)		   920,304    35 
Total at June 30, 2013  $2,607,842    100%

 

WEAT Benchmark Component Futures Contracts  Notional Value   Weight (%) 
CBOT Wheat Futures
(73 contracts, settlement date September 13, 2013)		  $2,400,788    35%
CBOT Wheat Futures
(61 contracts, settlement date December 13, 2013)		   2,048,075    30 
CBOT Wheat Futures
(68 contracts, settlement date December 12, 2014)		   2,417,400    35 
Total at June 30, 2013  $6,866,263    100%

 

TAGS Benchmark Component Futures Contracts  Fair Value   Weight (%) 
Shares of Teucrium Corn Fund  $518,947    25%
Shares of Teucrium Soybean Fund   537,369    25 
Shares of Teucrium Wheat Fund   522,448    25 
Shares of Teucrium Sugar Fund   541,030    25 
Total at June 30, 2013  $2,119,794    100%

 

The price relationship between the near month Futures Contract to expire and the Benchmark Component Futures Contracts will vary and may impact both the total return of each Fund over time and the degree to which such total return tracks the total return of the price indices related to the commodity of each Fund.  In cases in which the near month contract’s price is lower than later-expiring contracts’ prices (a situation known as “contango” in the futures markets), then absent the impact of the overall movement in commodity prices the value of the Benchmark Component Futures Contracts would tend to decline as they approach expiration.  In cases in which the near month contract’s price is higher than later-expiring contracts’ prices (a situation known as “backwardation” in the futures markets), then absent the impact of the overall movement in a Fund’s prices the value of the Benchmark Component Futures Contracts would tend to rise as they approach expiration.

 

The total portfolio composition for each Fund is disclosed each business day that the NYSE Arca is open for trading on the Fund’s website. The website for CORN is www.teucriumcornfund.com; for NAGS is www.teucriumnagsfund.com; for CRUD is www.teucriumcrudfund.com; for CANE is www.teucriumcanefund.com; for SOYB is www.teucriumsoybfund.com; for WEAT is www.teucriumweatfund.com; for TAGS is www.teucriumtagsfund.com. These sites are accessible at no charge.  The website disclosure of portfolio holdings is made daily and includes, as applicable, the name and value of each Futures Contract and Cleared Swap (for example, like Corn Futures Contracts, Cleared Corn Swaps are standardized as to certain material economic terms, including that each such swap be for a quantity of 5,000 bushels, which permits less flexibility in their structuring than with over-the-counter Corn Interests. The two parties to a Cleared Corn Swap agree on the specific fixed price component and the calendar month of expiration, and agree to submit the Cleared Corn Swap to the clearing organization. The clearing

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organization assumes the credit risk relating to the transaction, which effectively eliminates the creditworthiness of the counterparty as a risk. Unlike Corn Futures Contracts, Cleared Corn Swaps call for settlement in cash, and do not permit settlement by delivery or receipt of physical corn). The specific types of Other Interests (in addition to futures contracts, options on futures contracts and cleared swaps, derivative contracts) that are tied to various commodities are entered into outside of public exchanges.  These “over-the-counter” contracts are entered into between two parties in private contracts.  For example, unlike Futures Contracts and Cleared Corn Swaps, which are guaranteed by a clearing organization, each party to an over-the-counter derivative contract bears the credit risk of the other party, (i.e., the risk that the other party will not be able to perform its obligations under its contract), and characteristics of such Other Interests, and the amount of cash and cash equivalents held in the Fund’s portfolio. 

 

Consistent with achieving a Fund’s investment objective of closely tracking the Benchmark, the Sponsor may for certain reasons cause the Fund to enter into or hold Futures Contracts other than the Benchmark Component Futures Contracts, Cleared Swaps and/or Other Interests.  For example, certain 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.  Each Fund might also enter into or hold Interests other than Benchmark Component Futures Contracts to facilitate effective trading, consistent with the discussion of the Fund’s “roll” strategy.  In addition, each Fund might enter into or hold Interests that would be expected to alleviate overall deviation between the Fund’s performance and that of the Benchmark that may result from certain market and trading inefficiencies or other reasons.  By utilizing certain or all of the investments described above, the Sponsor will endeavor to cause the Fund’s performance to closely track that of the Benchmark of the Fund.

 

The Sponsor employs a “neutral” investment strategy intended to track the changes in the Benchmark of each Fund regardless of whether the Benchmark goes up or goes down.  The Fund’s “neutral” investment strategy is designed to permit investors generally to purchase and sell the Fund’s Shares for the purpose of investing indirectly in the commodity-specific market in a cost-effective manner.  Such investors may include participants in the specific industry and other industries seeking to hedge the risk of losses in their commodity-specific-related transactions, as well as investors seeking exposure to that commodity market.  Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the commodity-specific market and/or the risks involved in hedging may exist.  In addition, an investment in a Fund involves the risks that the changes in the price of the Fund’s Shares will not accurately track the changes in the Benchmark, and that changes in the Benchmark will not closely correlate with changes in the price of the commodity on the spot market.  The Sponsor does not intend to operate each Fund in a fashion such that its per share NAV equals, in dollar terms, the spot price of the commodity or the price of any particular commodity-specific Futures Contract.

 

The Sponsor

 

Teucrium Trading, LLC is the sponsor of the Trust and each of the series of the Trust. The Sponsor is a Delaware limited liability company, formed on July 28, 2009. The principal office is located at 232 Hidden Lake Road, Brattleboro, Vermont 05301. The Sponsor is registered as a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (“CFTC”) and became a member of the National Futures Association (“NFA”) on November 10, 2009. The Trust and the Funds operate pursuant to the Trust Agreement.

 

Under the Trust Agreement, the Sponsor is solely responsible for the management, and conducts or directs the conduct of the business of the Trust, the Funds, and any other Fund that may from time to time be established and designated by the Sponsor. The Sponsor is required to oversee the purchase and sale of Shares by firms designated as “Authorized Purchasers” and to manage the Funds’ investments, including to evaluate the credit risk of futures commission merchants and swap counterparties and to review daily positions and margin/collateral requirements. The Sponsor has the power to enter into agreements as may be necessary or appropriate for the offer and sale of the Funds’ Shares and the conduct of the Trust’s activities. Accordingly, the Sponsor is responsible for selecting the Trustee, Administrator, Distributor, the independent registered public accounting firm of the Trust, and any legal counsel employed by the Trust. The Sponsor is also responsible for preparing and filing periodic reports on behalf of the Trust with the SEC and providing any required certification for such reports. No person other than the Sponsor and its principals was involved in the organization of the Trust or the Funds.

 

Teucrium Trading, LLC designs the Funds to offer liquidity, transparency, and capacity in single-commodity investing for a variety of investors, including institutions and individuals, in an exchange-traded product format. The Funds have also been designed to mitigate the impacts of contango and backwardation, situations that can occur in the course of commodity trading which can affect the potential returns to investors. Backwardation is defined as a market condition in which a futures price of a commodity is lower in the distant delivery months than in the near delivery months, while contango, the opposite of backwardation, is defined as a condition in which distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity.

 

The Sponsor has a patent pending on certain business methods and procedures used with respect to the Funds.

 

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Performance Summary

 

This report covers the period from January 1, 2013 to June 30, 2013, for each Fund.

 

CORN Per Share Operation Performance        
Net asset value at beginning of period   $ 44.34  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (4.20 ) 
Total expenses     (1.45 )
Net decrease in net asset value     (5.64 ) 
Net asset value end of period   $ 38.70  
Total Return     (12.72 )%
Ratios to Average Net Assets (Annualized)        
Total expense     6.93 %
Net investment loss     (6.87 )%

 

NAGS Per Share Operation Performance        
Net asset value at beginning of period   $ 11.56  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (0.29 )
Total expenses     (0.10 )
Net decrease in net asset value     (0.39 )
Net asset value at end of period   $ 11.17  
Total Return     (3.37 )%
Ratios to Average Net Assets (Annualized)        
Total expense     1.47 %
Net investment loss     (1.43 )%

 

CRUD Per Share Operation Performance

       
Net asset value at beginning of period   $ 39.87  
Income from investment operations:        
Investment income     0.01  
Net realized and unrealized loss on commodity futures contracts     (0.38 )
Total expenses     (0.30 )
Net decrease in net asset value     (0.67 )
Net asset value at end of period   $ 39.20  
Total Return     (1.68) %
Ratios to Average Net Assets (Annualized)        
Total expense     1.50 %
Net investment loss     (1.45 )%

 

SOYB Per Share Operation Performance        
Net asset value at beginning of period   $ 24.13  
Income from investment operations:        
Investment  income     0.01  
Net realized and unrealized gain on commodity futures contracts     0.19  
Total expenses     (0.61 )
Net decrease in net asset value     (0.41 ) 
Net asset value at end of period   $ 23.72  
Total Return     (1.70 )%
Ratios to Average Net Assets (Annualized)        
Total expense     5.14 %
Net investment loss     (5.09 )%

 

CANE Per Share Operation Performance        
Net asset value at beginning of period   $ 17.81  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (2.77 )
Total expenses     (0.12 )
Net decrease in net asset value     (2.89 )
Net asset value at end of period   $ 14.92  
Total Return     (16.23 )%
Ratios to Average Net Assets (Annualized)        
Total expense     1.54 %
Net investment loss     (1.49 )%

 

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WEAT Per Share Operation Performance        
Net asset value at beginning of period   $ 21.25  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on commodity futures contracts     (3.66 ) 
Total expenses     (0.43 )
Net decrease in net asset value     (4.09 )
Net asset value at end of period   $ 17.16  
Total Return     (19.25 )%
Ratios to Average Net Assets (Annualized)        
Total expense     4.60 %
Net investment loss     (4.55 )%

 

TAGS Per Share Operation Performance        
Net asset value at beginning of period   $ 48.73  
Income from investment operations:        
Investment income     -  
Net realized and unrealized loss on investment transactions     (6.06 )
Total expenses     (0.11 )
Net decrease in net asset value     (6.17 )
Net asset value at end of period   $ 42.56  
Total Return     (12.66 )%
Ratios to Average Net Assets (Annualized)        
Total expense     0.50 %
Net investment loss     (0.50 )%

 

The performance of each Fund for the period January 1, 2013 to June 30, 2013 and the exchange-traded Shares are detailed below in “Results of Operations.”  Past performance of a Fund is not necessarily indicative of future performance.

 

Results of Operations

 

The discussion below addresses the material changes in the results of operations for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 and for the three months ended June 30, 2013 compared to the three months ended March 31, 2013. CORN, NAGS, CRUD, SOYB, WEAT and CANE operated for the entirety of both the 2012 periods. TAGS did not commence operations until March 28, 2012.

 

The Teucrium Corn Fund

  

For the quarter ended June 30, 2013, CORN had a total loss of $(1,815,942) compared to a total income of $3,917,888 for the quarter ended June 30, 2012 and a total loss of $(2,462,883) for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund decreased from $42.02 on June 30, 2012 to $38.70 on June 30, 2013, from $44.34 on December 31, 2012, and from $41.00 on March 31, 2013. The NAV per share in the three months ended June 30, 2012 had increased $2.85, an increase which is reflected in the income for that quarter. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

The decrease in the NAV per share when compared to the periods ending June 30, 2012, December 31, 2012 and March 31, 2013 has been driven principally by updates to the USDA’s outlook for corn prices, supply and demand. In general, the USDA’s estimate of corn production in the United States for the crop year 2013-14 is significantly improved over last year’s production which was impacted by the drought in the Midwest. A summary of the USDA’s most recent monthly report, which was released on July 11, 2013, is presented in the Market Outlook section of this filing.

 

For the quarter ended June 30, 2013, CORN had total expenses of $675,057 compared to $824,260 for the quarter ended June 30, 2012 and $673,927 for the quarter ended March 31, 2013. This decrease of $149,203 for the quarter year over year was driven primarily by decreases in the management fee and accruals for professional fees and for general and administrative expenses related to the ongoing operations of the Fund; these were partially offset by an increase in accruals for distribution and marketing fees. The Sponsor has reduced the overall costs for operating the Funds over the period. The approximately $47,000 decrease in the management fee was a result of lower average assets under management in the 2013 period than in 2012. The increase in business permits and license fees resulted principally from a timing difference in accruals for fees to the New York Stock Exchange. The increase in brokerage commissions in the current period reflects the Sponsor’s most current estimate, taking into account contract rolls. Total expenses for the Quarter ended June 30, 2013 increased by approximately $1,000 over the period ended March 31, 2013.

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For the six months ended June 30, 2013, CORN had total expenses of $1,348,984 compared to $1,711,819 for the six months ended June 30, 2012. This decrease of $362,835 for the six months year over year was driven primarily by decreases of approximately $118,000 in the management fee, $192,000 in accruals for professional fees, and approximately $48,000 in accruals for general and administrative expenses related to the ongoing operations of the Fund. The Sponsor has reduced the overall costs for operating the Funds over the twelve-month period.

The total expense ratio for the six-month period ended June 30, 2013 was 6.93% while it was 5.49% for the period ended June 30, 2012. This higher expense ratio was driven by a reduction in average net assets, offset partially by a reduction in total expenses. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management. The Sponsor has increased the expense accruals per day by $1,500 effective July 1, 2013.

Shares outstanding decreased by approximately 32% period over period from 1,475,004 on June 30, 2012 to 1,000,004 on June 30, 2013. This reduction was due primarily to macro market trends which saw a shift, in general, from commodities to other investment classes, a concern about the possibility of continued global economic growth, particularly in developing nations, which could sustain demand for agricultural commodities at current prices, and the more favorable corn production situation in the United States. Shares outstanding increased by 25,000 from March 31, 2013 to June 30, 2013.

 

The seasonality patterns for corn futures prices are impacted by a variety of factors. These include, but are not limited to, the harvest in the fall, the planting conditions in the spring, and the weather throughout the critical germination and growing periods. Prices for corn futures are affected by the availability and demand for substitute agricultural commodities, including soybeans and wheat, and the demand for corn as an additive for fuel, through the production of ethanol. The price of corn futures contracts is also influenced by global economic conditions, including the demand for exports to other countries. Such factors will impact the performance of the Fund and the results of operations on an ongoing basis. The Sponsor cannot predict the impact of such factors.

 

The Teucrium Natural Gas Fund

 

For the quarter ended June 30, 2013, NAGS had a total loss of $(416,068) compared to a total income of $134,345 for the quarter ended June 30, 2012 and a total gain of $382,298 for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund decreased from $11.83 on June 30, 2012 to $11.17 on June 30, 2013, from $11.56 on December 31, 2012, and from $12.60 on March 31, 2013. The NAV per share in the three months ended June 30, 2012 had increased $0.81, an increase which is reflected in the income for that quarter. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

In general, the price of Natural Gas Futures had been generally falling since early 2011, reaching a multi-year low before stabilizing in the spring of 2012; after peaking for the season in the spring 2013, the price of Natural Gas Futures fell as the cold weather season ended and inventories increased.

 

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. Total expenses for the quarter ended June 30, 2013 were $13,739; total expenses for the same quarter in 2012 were $8,942 and for the quarter ended March 31, 2013 were $14,930. For the six months ended June 30, 2013, the total expenses were $28,669 compared to $14,738 for the same period in 2012. The total expense ratio for all these periods was approximately 1.50% as outlined in the July 29, 2011 8-K. Of the total expenses in the quarter ending June 30, 2013, $9,358 was attributable to payment of the management fee to the Sponsor; this expense was $19,540 for the six month period in 2013. There was no management fee recorded in the comparable quarter or six month period of 2012. The management fee for the quarter ended March 31, 2013 was $10,182. The management fee is calculated at an annual rate of 1% of the Fund’s daily average net assets.

 

The Sponsor paid approximately $17,200 of expenses in the quarter ending June 30, 2013 and $36,300 for the six month period that normally would have been borne by the Fund. For the quarter and six months ended June 30, 2012 respectively, the Sponsor waived management fees of approximately $6,000 and $10,000. In addition for both periods in 2012, the Sponsor paid other expenses on behalf of the Fund of approximately $8,000. In general, the increase in total expenses from 2013 to 2012 was the result of higher assets under management. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management.

 

Shares outstanding on June 30, 2013 of 300,004 was the same as on March 31, 2013 and June 30, 2013; it was down 25% from the December 31, 2012 balance of 400,004.

 

Natural gas prices fluctuate seasonally.  For example, in some parts of the United States and other markets, the natural gas demand for power peaks during the cold winter months, with market prices peaking at that time.  As a result, in the future, the overall price of natural gas may

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fluctuate substantially on a seasonal and quarterly basis and thus make consecutive period to period comparisons less relevant. In addition, weather patterns and government policy may impact the demand and or supply of natural gas. Such factors will impact the performance of the Fund and the results of operations on an ongoing basis. The Sponsor cannot predict the impact of such factors.

 

The Teucrium WTI Crude Oil Fund

 

For the quarter ended June 30, 2013 CRUD had a total loss of $(62,392) compared to a total loss of $(472,600) for the quarter ended June 30, 2012 and a total gain of $43,554 for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund increased from $38.57 on June 30, 2012 to $39.20 on June 30, 2013, but decreased from $39.87 on December 31, 2012, and from $40.60 on March 31, 2013. The NAV per share in the three months ended June 30, 2012 had decreased $7.86, a decrease which is reflected in the income for that quarter. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

In general, the price of WTI Crude Oil has fallen relative to prices in early 2012 in response to the renewed fears regarding the prospects for global economic growth; the price of futures in the first half of 2013 was roughly equal to those toward the end of 2012.

 

Effective August 1, 2012 the Sponsor reduced the daily expense accruals for the Fund from $252 per day to $50 per day. Effective January 1, 2013, the Sponsor initiated daily expense accruals, including any management fee, equal to 1.5% of total net assets for the Fund on an annual basis. Total expenses for the quarter ended June 30, 2013 were $7,339; total expenses for the same quarter in 2012 were $57,220 and for the quarter ended March 31, 2013 were $7,427. For the six months ended June 30, 2013, the total expenses were $14,776 compared to $126,323 for the same period in 2012. The total expense ratio for the six months ended June 30, 2013 was 1.50% compared to the 7.59% for the same period in 2012. Of the total expenses in the quarter or six months ended June 30, 2013 none was attributable to payment of the management fee. The management fee recorded in the comparable quarter or six month period of 2012 was $6,810 and $16,672 respectively. There was no management fee for the quarter ended March 31, 2013. The management fee is calculated at an annual rate of 1% of the Fund’s daily average net assets.

 

The Sponsor paid approximately $11,000 of expenses in the quarter ending June 30, 2013 and $28,000 for the six month period that normally would have been borne by the Fund. In addition, for these periods, the Sponsor waived management fees of approximately $5,000 and $10,000. For both periods in 2012, the Sponsor paid expenses on behalf of the Fund of approximately $14,500. In general, the decrease in total expenses from 2013 to 2012 was the result of expenses paid by the Sponsor and the waiving of management fees.

 

The structure of the Fund and the nature of the expenses are such that as total net assets grow, there is a scalability of expenses that may allow the total expense ratio to be reduced. As the Sponsor has initialed a percentage based daily expense accrual for the Fund, even if total net assets for the Fund fall, the total expense ratio of the Fund will not increase. The Sponsor can elect to adjust the daily expense accruals at its discretion. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management.

 

Shares outstanding remained constant at 50,002 for the periods ended June 30, 2012, March 31, 2013 and June 30, 2013; this represents a minimum level of shares outstanding for the Fund.

 

The risks and hazards that are inherent in oil production may cause the price of crude oil to fluctuate widely. Price movements for crude oil are influenced by, among other things, many operating risks. Such operating risks include, but are not limited to, risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, ruptures and discharges of toxic gases. Crude oil operations are also subject to various U.S. federal, state and local regulations that materially affect operations. Global political risks, including geopolitical conflicts and war, and global economic forecasts could cause the price of WTI light sweet crude oil to fluctuate greatly. Such factors will impact the performance of the Fund and the results of operations on an ongoing basis. The Sponsor cannot predict the impact of such factors.

The Teucrium Soybean Fund

  

For the quarter ended June 30, 2013, SOYB had a total income of $56,902 compared to a total income of $43,907 for the quarter ended June 30, 2012 and a total loss of $(76,603) for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund decreased from $24.20 on June 30, 2012 to $23.72 on June 30, 2013, from $24.13 on December 31, 2012. The NAV per share on June 30, 2013 increased slightly from $23.65 on March 31, 2013. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of

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contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

The decrease in the NAV per share when compared to the periods ending June 30, 2012 and December 31, 2012 has been driven principally by updates to the USDA’s outlook for soybean prices, supply and demand. In general, the USDA’s estimate of soybean production in the United States for the crop year 2013-14 is improved over last year’s production which was impacted by the drought in the Midwest. A summary of the USDA’s most recent monthly report, which was released on July 11, 2013, is presented in the Market Outlook section of this filing.

 

For the quarter ended June 30, 2013, SOYB had total expenses of $76,305 compared to $150,133 for the quarter ended June 30, 2012 and $92,123 for the quarter ended March 31, 2013. This decrease of $73,828 for the quarter year over year was driven primarily by decreases in the accruals for professional fees and for custodian fees and expenses; these were partially offset by an increase in accruals for distribution and marketing fees. The Sponsor has reduced the overall costs for operating the Funds over the period. The increase in business permits and license fees resulted principally from a timing difference in accruals for fees to the New York Stock Exchange. The increase in brokerage commissions in the current period reflects the Sponsor’s most current estimate, taking into account contract rolls. Total expenses for the three months ended June 30, 2013 decreased by approximately $16,000 over the period ended March 31, 2013. This was driven principally by a reduction in accruals for distribution and marketing fees. For this quarter in 2013, the Sponsor paid approximately $5,700 of expenses that would normally have been paid by the Fund. There were no such expenses in the same quarter of 2012.

For the six months ended June 30, 2013, SOYB had total expenses of $168,428 compared to $213,488 for the six months ended June 30, 2012; for this period in 2013, the Sponsor paid approximately $5,700 in expenses that would have been paid by the Fund; for 2012 there were $4,200 of such expenses. The decrease of approximately $45,000 for the six months year over year was driven primarily by decreases of approximately $61,000 in accruals for custodian fees and expenses resulting from a renegotiated contract and $33,000 in accruals for professional fees. These were partially offset by an increase of approximately $15,000 in management fees as a result of higher average net assets. The Sponsor has reduced the overall costs for operating the Funds over the twelve-month period.

The total expense ratio for the six-month period ended June 30, 2013 was 5.14% while it was 12.11% for the period ended June 30, 2012. This lower expense ratio was driven by an increase in average net assets and a reduction in total expenses. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management. The Sponsor has increased the expense accruals per day by $500 effective July 1, 2013.

Shares outstanding increased by 175% period over period from 100,004 on June 30, 2012 to 275,004 on June 30, 2013. This increase was due primarily to a focus on soybean production resulting from the drought conditions in the United States in the summer of 2012, tempered slightly by macro market trends which saw a shift, in general, from commodities to other investment classes, a concern about the possibility of continued global economic growth, particularly in developing nations, which could sustain demand for agricultural commodities at current prices, and the more favorable 2013 soybean production situation in the United States. Shares outstanding were flat from March 31, 2013 to June 30, 2013.

 

The seasonality patterns for soybean futures prices are impacted by a variety of factors. These include, but are not limited to, the harvest in the fall, the planting conditions in the spring, and the weather throughout the critical germination and growing periods. Prices for soybean futures are affected by the availability and demand for substitute agricultural commodities, including corn and wheat. The price of soybean futures contracts is also influenced by global economic conditions, including the demand for exports to other countries. Such factors will impact the performance of the Fund and the results of operations on an ongoing basis. The Sponsor cannot predict the impact of such factors.

 

The Teucrium Sugar Fund

  

For the quarter ended June 30, 2013 CANE had a total loss of $(173,905) compared to a total loss of $(662,367) for the quarter ended June 30, 2012 and a total loss of $(208,642) for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund decreased from $19.30 on June 30, 2012 to $14.92 on June 30, 2013, and from $17.81 on December 31, 2012, and from $16.12 on March 31, 2013. The NAV per share in the three months ended June 30, 2012 had decreased $4.47, a decrease which is reflected in the income for that quarter. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

This change in the NAV has been driven principally by estimates for an increase in the Brazilian sugar cane crop for the current year. Brazil continues to be the largest producer of sugar cane. Estimates indicate that this year’s Brazilian harvest could be between 8-10% larger than last year’s.

 

Effective January 1, 2013, the Sponsor reduced the expense accruals for the Fund to reflect the impact of operational efficiencies undertaken by the Sponsor and the impact of renegotiated contracts. These daily expense accruals, including any management fee, are targeted to equal

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approximately 1.5% of total net assets for the Fund on an annual basis. Total expenses for the quarter ended June 30, 2013 were $9,357; total expenses for the same quarter in 2012 were $147,141 and for the quarter ended March 31, 2013 were $8,729. For the six months ended June 30, 2013, the total expenses were $18,086 compared to $210,785 for the same period in 2012. The total expense ratio for the six months ended June 30, 2013 was 1.54% compared to the 15.14% for the same period in 2012. Of the total expenses in the quarter or six months ended June 30, 2013 none was attributable to payment of the management fee. The management fee recorded in the comparable quarter or six month period of 2012 was $7,846 and $14,055 respectively. There was no management fee for the quarter ended March 31, 2013. The management fee is calculated at an annual rate of 1% of the Fund’s daily average net assets.

 

The Sponsor paid approximately $19,200 of expenses in the quarter ending June 30, 2013 and $37,600 for the six month period that normally would have been borne by the Fund. In addition, for these periods, the Sponsor waived management fees of approximately $5,900 and $11,600. For these periods in 2012, the Sponsor paid expenses on behalf of the Fund of approximately $11,500 and $15,500 respectively. In general, the decrease in total expenses from 2013 to 2012 was the result of a higher level of expenses paid by the Sponsor and the waiving of management fees.

 

The structure of the Fund and the nature of the expenses are such that as total net assets grow, there is a scalability of expenses that may allow the total expense ratio to be reduced. As the Sponsor has initialed a percentage based daily expense accrual for the Fund, even if total net assets for the Fund fall, the total expense ratio of the Fund will not increase. The Sponsor can elect to adjust the daily expense accruals at its discretion. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management.

 

Shares outstanding increased by approximately 250% period over period from 50,004 on June 30, 2012 to 175,004 on June 30, 2013. Shares outstanding increased by 25,000 over March 31, 2013.

 

The Teucrium Wheat Fund

  

For the quarter ended June 30, 2013, WEAT had a total loss of $(448,080) compared to a total loss of $(71,026) for the quarter ended June 30, 2012 and a total loss of $(823,742) for the quarter ended March 31, 2013. The change in total income was driven by a change in the value of the underlying commodity contracts which generated realized and unrealized losses. The NAV per share of the Fund decreased from $22.08 on June 30, 2012 to $17.16 on June 30, 2013, from $21.25 on December 31, 2012, and from $18.41 on March 31, 2013. The NAV per share in the three months ended June 30, 2012 had increased $.66, an increase which is reflected in the income for that quarter. Realized gain or loss on trading of commodity futures contracts is a function of: 1) the change in the price of the particular contracts sold as part of a “roll” in contracts as the nearest to expire contracts are exchanged for the appropriate contract given the investment objective of the fund, 2) the change in the price of particular contracts sold in relation to redemption of shares, 3) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark and 4) the number of contracts held and then sold for either circumstance aforementioned. Unrealized gain or loss on trading of commodity futures contracts is a function of the change in the price of contracts held on the final date of the period versus the purchase price for each contract and the number of contracts held in each contract month. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

The decrease in the NAV per share when compared to the periods ending June 30, 2012, December 31, 2012 and March 31, 2013 has been driven principally by updates to the USDA’s outlook for global wheat prices, supply and demand. In general, the USDA’s estimate of wheat production worldwide for the crop year 2013-14 is significantly improved over last year’s production which was impacted by the unfavorable weather conditions. A summary of the USDA’s most recent monthly report, which was released on July 11, 2013, is presented in the Market Outlook section of this filing.

 

For the quarter ended June 30, 2013, WEAT had total expenses of $76,384 compared to $150,047 for the quarter ended June 30, 2012 and $60,289 for the quarter ended March 31, 2013. This decrease of $73,663 for the quarter year over year was driven primarily by decreases in the accruals for professional fees and for custodian fees and expenses. The Sponsor has reduced the overall costs for operating the Funds over the period. The increase in business permits and license fees resulted principally from a timing difference in accruals for fees to the New York Stock Exchange. The increase in brokerage commissions in the current period reflects the Sponsor’s most current estimate, taking into account contract rolls. Total expenses for the quarter ended June 30, 2013 increased by approximately $16,000 over the period ended March 31, 2013. This was driven by accrual increases in professional fees and distribution and marketing expenses. For this quarter in 2013, the Sponsor paid approximately $5,600 of expenses that would normally have been paid by the Fund. There were $500 of such expenses in the same quarter of 2012.

For the six months ended June 30, 2013, WEAT had total expenses of $136,673 compared to $213,175 for the six months ended June 30, 2012; for this period in 2013, the Sponsor paid approximately $5,600 in expenses that would have been paid by the Fund; for 2012 there were $4,200 of such expenses. The decrease of approximately $76,500 for the six months year over year was driven primarily by decreases of approximately $61,000 in the accruals for custodian fees and expenses and $29,000 in accruals for professional fees. These were partially offset by an increase of approximately $13,000 in management fees resulting from higher average net assets. The Sponsor has reduced the overall costs for operating the Funds over the twelve-month period.

The total expense ratio for the six-month period ended June 30, 2013 was 4.60% while it was 12.70% for the period ended June 30, 2012. This lower expense ratio was driven by an increase in average net assets and a reduction in total expenses. Other than the management fee payable to the Sponsor and the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and

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up to one year, or commitments regardless of the level of assets under management. The Sponsor has increased the expense accruals per day by $500 effective July 1, 2013.

Shares outstanding increased by 220% period over period from 125,004 on June 30, 2012 to 400,004 on June 30, 2013. This increase was due primarily to a focus on wheat production resulting from the drought conditions in the United States in the summer of 2012, tempered slightly by macro market trends which saw a shift, in general, from commodities to other investment classes, a concern about the possibility of continued global economic growth, particularly in developing nations, which could sustain demand for agricultural commodities at current prices, and the more favorable 2013 wheat production situation across the globe. Shares outstanding increased by 25,000 from March 31, 2013 to June 30, 2013.

 

The seasonality patterns for wheat futures prices are impacted by a variety of factors. These include, but are not limited to, the harvest in the fall, the planting conditions in the spring, and the weather throughout the critical germination and growing periods. Prices for wheat futures are affected by the availability and demand for substitute agricultural commodities, including corn and soybeans. The price of wheat futures contracts is also influenced by global economic conditions, including the demand for exports to other countries. Such factors will impact the performance of the Fund and the results of operations on an ongoing basis. The Sponsor cannot predict the impact of such factors.

 

The Teucrium Agricultural Fund

 

TAGS commenced operations on March 28, 2012 and operated for only a minimal number of days in the first quarter of that year. Therefore, comparisons of income and expenses for the six months ended June 30, 2013 and 2012 are not presented below as they would not be meaningful.

  

For the quarter ended June 30, 2013, TAGS had a total loss of $(106,767) compared to a total loss of $(1,101,469) for the quarter ended June 30, 2012. The primary difference was the $(971,557) realized loss generated by the redemption of shares in the second quarter of 2012. The NAV of the Fund decreased from $49.59 on June 30, 2012 to $42.56 on June 30, 2013, and from $48.73 on December 31, 2012 and from $44.75 on March 31, 2013. Realized gain or loss on the securities of the Underlying Funds is a function of: 1) the change in the price of particular contracts sold in relation to redemption of shares, and 2) the gain or loss associated with rebalancing trades which are made to ensure conformance to the benchmark. Unrealized gain or loss on the securities of the Underlying Funds is a function of the change in the price of shares held on the final date of the period versus the purchase price for each and the number held. The Sponsor has a static benchmark as described above and trades futures contracts to adhere to that benchmark and to adjust for the creation or redemption of shares.

This change in the NAVs of the Underlying Funds has been driven principally by updates to the USDA’s outlook for corn, soybean and wheat prices, supply and demand. In addition, the price of sugar future contracts also fell in the first half of 2013 as a result of the anticipated increase in the Brazilian sugar cane harvest. Summaries of the USDA’s most recent monthly report for corn, soybeans and wheat, which was released on July 11, 2013, are presented in the Market Outlook section of this filing.

Total expenses for the quarter ended June 30, 2013 were $2,768 and $15,107 for the quarter ended June 30, 2012. The Fund does not pay a management fee to the Sponsor. In the current quarter, the Sponsor paid approximately $21,200 of expenses that normally would have been borne by the Fund. For the six months ended June 30, 2013, the Sponsor has paid approximately $35,800 of expenses on behalf of the Fund. For the quarter ended June 30, 2012, the Sponsor paid $500 of expenses on behalf of the Fund. Other than the brokerage commissions, most of the expenses incurred by the Fund are associated with the day-to-day operation of the Fund and the necessary functions related to regulatory compliance. These are generally based on contracts, which extend for some period of time and up to one year, or commitments regardless of the level of assets under management. The Sponsor can elect to adjust the daily expense accruals at its discretion.

 

Shares outstanding remained constant at 50,002 for the periods ended June 30, 2012, March 31, 2013 and June 30, 2013; this represents a minimum level of shares outstanding for the Fund.

 

Market Outlook

 

The Corn Market

 

Corn is the most widely produced livestock feed grain in the United States, and the majority of the United States’ corn crop is used in livestock feed.  Corn is also processed into food and industrial products, including starch, sweeteners, corn oil, beverages and industrial alcohol.  Additionally, corn is used in ethanol production.

The United States is the world’s leading producer and exporter of corn.  For the Crop Year 2011-2012, the United States produced approximately 36% of all the corn globally; about 88% of the U.S. produced corn was sold domestically, while approximately 12% was exported.  For 2011-2012, global production of 883.25 Million Metric Tons (MMT) was exceeded by consumption of 879.11 MMT.  Besides the United States for the Crop Year 2011-2012, other principal world corn exporters included Argentina and South Africa.  Brazil, Canada, the Ukraine and China also produced significant corn exports.

 

Standard Corn Futures Contracts trade on the CBOT in units of 5,000 bushels, although 1,000 bushel “mini-corn” Corn Futures Contracts also trade.  Three grades of corn are deliverable under CBOT Corn Futures Contracts:  Number 1 yellow, which may be delivered at 1.5 cents over the contract price; Number 2 yellow, which may be delivered at the contract price; and Number 3 yellow, which may be delivered at 1.5 cents under the contract price.  There are five months each year in which CBOT Corn Futures Contracts expire:  March, May, July, September and December.

 

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If the futures market is in a state of backwardation (i.e., when the price of corn in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing corn prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing corn prices or the price relationship between the spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the corn futures markets have experienced periods of both contango and backwardation. Frequently, whether contango or backwardation exists is a function, among other factors, of the seasonality of the corn market and the corn harvest cycle.

 

The United States Department of Agriculture (“USDA”) publishes weekly, monthly, quarterly and annual updates for U.S. domestic and worldwide corn production and consumption.  These reports are available on the USDA’s website, www.usda.gov, at no charge.  On July 11, 2013, the USDA released its monthly World Agricultural and Supply and Demand Estimates for the Crop Year 2013-14. The USDA estimated that the yield per acre for U.S. production would be 156.5 bushels per acre with 97.4 million acres planted and 89.1 million acres harvested. The total domestic supply of corn is estimated to be 14,709 million bushels with total usage, including exports, forecast at 12,750 million bushels. The supply for 2013-14 is a significant increase over the 11,929 estimated for 2012-13 while usage is estimated to be basically flat period over period. The USDA projects that the resulting “Ending Stocks” or inventory will be 1,959 million bushels, up significantly from the 989 million bushels for the 2011-12 Crop Year and from the 729 million bushels estimated for the 2012-2013 Crop Year.  The USDA’s projected “Carry-out Days Supply,” which is defined as the Ending Stocks divided by the demand per day, is projected at 56.1 days for 2013-14, up significantly from the 23.8 days estimated for 2012-2013. 

 

Global corn production as projected by the USDA is estimated to increase from 855 MMT in 2012-13 to 960 MMT in 2013-14. Usage in 2012-13 exceeded production by 8 MMT in 2012-13, and this year production is projected to exceed usage by approximately 23 MMT.

 

Natural Gas and the Natural Gas Market

 

Natural gas accounts for almost a quarter of U.S. energy consumption.  The price of natural gas is established by the supply and demand conditions in the North American market, and more particularly, in the main refining center of the U.S. Gulf Coast.

 

Natural gas has limited means of transportation and distribution and therefore is not a commodity with a “global” price.  As a result, the natural gas market is mostly affected by events that happen locally or are confined to the North American Continent.  The primary means for transporting natural gas is through pipeline, although natural gas may be liquefied in order to be transported outside the pipeline structure.

 

There are four main costs, therefore prices, associated with natural gas – wellhead price, transport (long-distance and local distribution), storage and delivery.  Wellhead prices are deregulated in North America.  Transportation costs are regulated by the National Energy Boards and local regulators regulate local distribution costs.  Prices are also measured for different end-users such as residential usage, commercial, industrial or electrical utility.  The largest share of the final price to all end-users is the distribution costs due to the limited means of distribution.  Most large commercial users buy natural gas directly from producers or market makers, thereby reducing price.

 

Both weather and population changes affect consumption of natural gas.  In addition, alternative fuels and competition from other sources of energy such as oil, wind energy and coal can affect the price of natural gas.

 

The natural gas market essentially constitutes an auction, where the highest bidder wins the supply.  When markets are “strong” ( i.e., when demand is high and/or supply is low), the bidder must be willing to pay a higher premium to capture the supply.  When markets are “weak” (i.e., when demand is low and/or supply is high), a bidder may choose not to outbid competitors, waiting instead for later, possibly lower priced, supplies.  Demand for natural gas by consumers, as well as agricultural, manufacturing and transportation industries, determines overall demand for natural gas.  Since the precursors of product demand are linked to economic activity, natural gas demand will tend to reflect economic conditions.

 

The NYMEX is the world’s largest physical commodity futures exchange and the dominant market for the trading of energy and precious metals.  The Natural Gas Futures Contracts trades in units of 10,000 MMBtu and is based on delivery at the Henry Hub in Louisiana, the nexus of 16 intra- and interstate natural gas pipeline systems that draw supplies from the region’s prolific gas deposits.  The pipelines serve markets throughout the U.S. East Coast, the Gulf Coast, the Midwest and up to the Canadian border.

 

Over time, the price of natural gas fluctuates based on a number of market factors, including demand for the commodity relative to its supply. The value of Natural Gas contracts likewise fluctuates in reaction to a number of market factors. If investors seek to maintain their holdings in Natural Gas contracts with a roughly constant expiration profile and not take delivery of the natural gas, they must on an ongoing basis sell their current positions as they approach expiration and invest in later-to-expire contracts.

 

If the futures market is in a state of backwardation (i.e., when the price of natural gas in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing natural gas prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing natural gas prices or the price relationship between the

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spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the natural gas futures markets have experienced periods of extreme contango but very few periods with backwardation. Since early 2008, the deepest contango structure has historically occurred during September or October. It is during these periods natural gas storage reaches its highest level as the market tries to build the optimal inventory for the upcoming winter heating season.

 

The United States Energy Information Administration (“EIA”) publishes daily, weekly, monthly and annual information regarding the natural gas industry, usage and supply estimates. The information is available on the EIA’s website, www.eia.gov, at no charge.

 

WTI Light Sweet Crude Oil and the Oil Industry

 

WTI light, sweet crude oil comprises a blend of several U.S. domestic streams of crude oil delivered to Cushing, Oklahoma, where there are many intersecting pipelines and storage facilities, along with easy access to refiners and suppliers.  WTI light, sweet crude oil flows both inbound and outbound from Cushing.

 

Light sweet crudes are preferred by refiners because of the low sulfur content and relatively high yields of high-value products such as gasoline, diesel fuel, heating oil, and jet fuel.  The price of light sweet crude oil has historically exhibited periods of significant volatility. 

 

Demand for petroleum products by consumers, as well as agricultural, manufacturing and transportation industries, determines demand for crude oil by refiners.  Since product demand is linked to economic activity, crude oil demand will tend to reflect economic conditions.  According to the September 2012 Annual Energy Review published by the U.S. Energy Information Administration, for 2011, about 70% of petroleum was used for transportation, 24% by industry, 5% for residential and 1% for electricity production.  Changes in consumer behavior, such as mass transportation initiatives, alternative fuels, and change in economic standards in China and India may change petroleum consumption.  In addition, other factors such as weather also influence product and crude oil demand.

 

WTI Crude Oil Futures contracts are most widely traded on the NYMEX and the ICE exchanges in 1,000 barrel contracts.

 

Crude oil supply is determined by economic, political and environmental factors. Oil prices (along with drilling costs, availability of attractive prospects for drilling, taxes and technology, among other factors) determine exploration and development spending, which influence output capacity with a lag.  In the short run, production decisions by OPEC also affect supply and prices.  Oil export embargoes represent other routes through which political developments move the market.  Oil extraction may also have a significant impact on the environment, from accidents and routine activities such as seismic exploration and drilling.  It is not possible to predict the aggregate effect of all or any combination of these factors.

 

If the futures market is in a state of backwardation (i.e., when the price of crude oil in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing crude oil prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing crude oil prices or the price relationship between the spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the crude oil futures markets have experienced periods of both contango and backwardation. During 2006 and the first half of 2007, the crude oil futures markets experienced contango. However, starting early in the third quarter 2007, the crude oil futures markets moved into backwardation and remained in backwardation until late in the second quarter 2008 when the crude oil futures markets moved into contango. The crude oil markets remained in contango until late third quarter 2008, when they moved into backwardation. The crude oil markets moved back into contango for the balance of 2008, reaching supercontango in December 2008. Crude oil since early 2009 has fluctuated between mild contango, spiking into deep contango for several weeks at a time during third and fourth quarters of 2009, second and third quarters 2010 and finally the last major contango during first quarter 2011. Since this point the crude oil markets continue to see moderate contango structure in the market.

 

The United States Energy Information Administration (“EIA”) publishes daily, weekly, monthly and annual information regarding the crude oil industry, usage and supply estimates. The information is available on the EIA’s website, www.eia.gov, at no charge.

 

The Soybean Market

 

Global soybean production is concentrated in the central U.S., Brazil, Argentina, and China.  The United States Department of Agriculture has estimated that, for the Crop Year 2011-2012, the United States produced approximately 84.19 MMT of soybeans or approximately 35% of estimated world production, with Brazil producing approximately 28% for 2011-2012 and Argentina almost 17%. For 2011-2012, global production of 239.15 MMT exceeded the consumption of 256.09 MMT. 

 

The soybean processing industry converts soybeans into soybean meal, soybean hulls, and soybean oil.  Soybean meal and soybean hulls are processed into soy flour or soy protein, which are used, along with other commodities, by livestock producers and the farm fishing industry as feed.  Soybean oil is sold in multiple grades and is used by the food, petroleum and chemical industries.  The food industry uses soybean oil in cooking and salad dressings, baking and frying fats, and butter substitutes, among other uses.  In addition, the soybean industry continues to introduce soy-based products as substitutes to various petroleum-based products including lubricants, plastics, ink, crayons and candles.  Soybean oil is also converted to biodiesel for use as fuel.

 

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Standard Soybean Futures Contracts trade on the CBOT in units of 5,000 bushels, although 1,000 bushel “mini-sized” Soybean Futures Contracts also trade.  Three grades of soybean are deliverable under CBOT Soybean Futures Contracts:  Number 1 yellow, which may be delivered at 6 cents per bushel over the contract price; Number 2 yellow, which may be delivered at the contract price; and Number 3 yellow, which may be delivered at 6 cents per bushel under the contract price.  There are seven months each year in which CBOT Soybean Futures Contracts expire:  January, March, May, July, August, September and November.

 

If the futures market is in a state of backwardation (i.e., when the price of soybeans in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing soybean prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing soybean prices or the price relationship between the spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the soybeans futures markets have experienced periods of both contango and backwardation. Frequently, whether contango or backwardation exists is a function, among other factors, of the seasonality of the soybean market and the soybean harvest cycle.

 

The United States Department of Agriculture (“USDA”) publishes weekly, monthly, quarterly and annual updates for U.S. domestic and worldwide soybean production and consumption.  These reports are available on the USDA’s website, www.usda.gov, at no charge.  On July 11, 2013, the USDA released its monthly World Agricultural and Supply and Demand Estimates for the Crop Year 2013-14. The USDA estimated that the yield per acre for U.S. production would be 44.5 bushels per acre with 77.7 million acres planted and 76.9 million acres harvested. The yield per acre in the July report is a significant improvement from the 39.6 bushels per acre estimated for the 2012-13 Crop Year; the improvement is a result of improvements in the 2012 drought conditions in the principal soybean growing areas of the US. The total domestic supply of soybeans is estimated to be 3,560 million bushels with total usage, including exports, forecast at 3,264 million bushels.  The USDA projects that the resulting “Ending Stocks” or inventory will be 295 million bushels, up significantly from the 169 million bushels for the 2011-12 Crop Year, and from the 125 million bushels estimated for the 2012-2013 Crop Year.  The USDA’s projected “Carry-out Days Supply,” which is defined as the Ending Stocks divided by the demand per day, is projected at 33 days for 2013-14, up from the 14.8 days estimated for 2012-2013.

 

Global soybean production as projected by the USDA is estimated to increase from 268 MMT in 2012-13 to 286 MMT in 2013-14. Production in both 2012-13 and this year is projected to exceed usage.

 

 

The Sugar Market

Sugarcane accounts for about 70% of the world’s sugar production, and sugar beets account for the remainder of the world’s sugar production.  Sugar manufacturers use sugar beets and sugarcane as the raw material from which refined sugar (sucrose) for industrial and consumer use is produced.  Sugar is produced in various forms, including granulated, powdered, liquid, brown, and molasses.  The food industry (in particular, producers of baked goods, beverages, cereal, confections, and dairy products) uses sugar and sugarcane molasses to make sugar-containing food products.  Sugar beet pulp and molasses products are used as animal feed ingredients.  Ethanol is an important by-product of sugarcane processing.  Additionally, the material that is left over after sugarcane is processed is used to manufacture paper, cardboard, and “environmentally friendly” eating utensils.  

 

In 2009, the leading producers of sugarcane were Brazil, India, Thailand and China, with Brazil producing nearly one-quarter of the world’s sugarcane.  The principal world producers of sugar beets in 2008 included the European Union, the United States and Russia.

The Sugar No. 11 Futures Contract is the world benchmark contract for raw sugar trading.  This contract prices the physical delivery of raw cane sugar, delivered to the receiver’s vessel at a specified port within the country of origin of the sugar.  Sugar No. 11 Futures Contracts trade on the ICE Futures and the NYMEX in units of 112,000 pounds. 

 

If the futures market is in a state of backwardation (i.e., when the price of sugar in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing soybean prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing sugar prices or the price relationship between the spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the sugar futures markets have experienced periods of both contango and backwardation. Frequently, whether contango or backwardation exists is a function, among other factors, of the seasonality of the sugar market and the sugar harvest cycle.

 

The United States Department of Agriculture (“USDA”) publishes two major reports annually on U.S. domestic and worldwide sugar production and consumption. These are usually released in November and May. In addition, the USDA publishes periodic, but not as comprehensive, reports on sugar monthly. All of these reports are available on the USDA’s website, www.usda.gov, at no charge.  

 

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The Wheat Market

 

Wheat is used to produce flour, the key ingredient for breads, pasta, crackers and many other food products, as well as several industrial products such as starches and adhesives.  Wheat by-products are used in livestock feeds.  Wheat is the principal food grain produced in the United States, and the United States’ output of wheat is typically exceeded only by that of China, the European Union and India.  For 2011-12, Russia’s production of wheat exceeded that of the United States. Typically, almost half of the U.S. wheat crop is exported, although the United States also imports some wheat, principally from Canada. Global wheat production was 697.17 MMT for 2011-2012, which was basically equal to consumption of 696.92 MMT.

 

There are several types of wheat grown in the U.S., which are classified in terms of color, hardness, and growing season.  CBOT Wheat Futures Contracts call for delivery of #2 soft red winter wheat, which is generally grown in the eastern third of the United States, but other types and grades of wheat may also be delivered  (Grade #1 soft red winter wheat, Hard Red Winter, Dark Northern Spring and Northern Spring wheat may be delivered at 3 cents premium per bushel over the contract price and #2 soft red winter wheat, Hard Red Winter, Dark Northern Spring and Northern Spring wheat may be delivered at the contract price.) Winter wheat is planted in the fall and is harvested in the late spring or early summer of the following year, while spring wheat is planted in the spring and harvested in late summer or fall of the same year.

 

Standard Wheat Futures Contracts trade on the CBOT in units of 5,000 bushels, although 1,000 bushel “mini-wheat” Wheat Futures Contracts also trade.  There are five months each year in which CBOT Wheat Futures Contracts expire: March, May, July, September and December.

 

If the futures market is in a state of backwardation (i.e., when the price of wheat in the future is expected to be less than the current price), the Fund will buy later-to-expire contracts for a lower price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no changes to either prevailing wheat prices or the price relationship between immediate delivery, soon-to-expire contracts and later-to-expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant, the differences would continue to increase. If the futures market is in contango, the Fund will buy later-to-expire contracts for a higher price than the sooner-to-expire contracts that it sells. Hypothetically, and assuming no other changes to either prevailing wheat prices or the price relationship between the spot price, soon-to-expire contracts and later-to-expire contracts, the value of a contract will fall as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. Historically, the wheat futures markets have experienced periods of both contango and backwardation. Frequently, whether contango or backwardation exists is a function, among other factors, of the seasonality of the wheat market and the wheat harvest cycle.

 

The United States Department of Agriculture (“USDA”) publishes weekly, monthly, quarterly and annual updates for U.S. domestic and worldwide wheat production and consumption.  These reports are available on the USDA’s website, www.usda.gov, at no charge.  On July 11, 2013, the USDA released its monthly World Agricultural and Supply and Demand Estimates for the Crop Year 2013-14. The USDA estimated that the yield per acre for U.S. production would be 46.2 bushels per acre with 56.5 million acres planted and 45.7 million acres harvested.  The total domestic supply of wheat is estimated to be 2,962 million bushels with total usage, including exports, forecast at 2,386 million bushels.  The USDA projects that the resulting “Ending Stocks” or inventory will be 576 million bushels, down significantly from the 743 million bushels for the 2011-12 Crop Year, and from the 718 million bushels estimated for the 2012-2013 Crop Year.  The USDA’s projected “Carry-out Days Supply,” which is defined as the Ending Stocks divided by the demand per day, is projected at 88.1 days for 2013-14, down from the 108.5 days in 2012-2013.

 

Global wheat production as projected by the USDA is estimated to increase from 655 MMT in 2012-13 to 698 MMT in 2013-14. Usage in 2012-13 exceeded supply by approximately 25 MMT and is estimated to be roughly equal to production this year.

 

Calculating NAV

 

The NAV of each Fund is calculated by:

 

  • Taking the current market value of its total assets, and

 

  • Subtracting any liabilities.

 

The Administrator, the Bank of New York Mellon, calculates the NAV of each Fund once each trading day.  It calculates NAV as of the earlier of the close of the New York Stock Exchange or 4:00 p.m., New York time.  The NAV for a particular trading day will be released after 4:15 p.m., New York time.

 

In determining the value of the Futures Contracts for each Fund, the Administrator uses the closing price on the exchange on which the commodity is traded. The Administrator determines the value of all other investments for each Fund as of the earlier of the close of the New York Stock Exchange or 4:00 p.m., New York time, in accordance with the current Services Agreement between the Administrator and the Trust. 

 

The value of Cleared Swaps and over-the-counter Interests will be determined based on the value of the commodity or Futures Contract underlying such Interest, except that a fair value may be determined if the Sponsor believes that a Fund is subject to significant credit risk relating to the counterparty to such Interest. For purposes of financial statements and reports, the Sponsor will recalculate the NAV of a specific Fund where necessary to reflect the “fair value” of a Futures Contract when the Futures Contract of such Fund closes at its price fluctuation limit for

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the day. Treasury Securities held by the Fund are valued by the Administrator using values received from recognized third-party vendors (such as Reuters) and dealer quotes.  The NAV includes any unrealized profit or loss on open Interests and any other credit or debit accruing to each Fund but unpaid or not received by the Fund.

 

In addition, in order to provide updated information relating to the Funds for use by investors and market professionals, the NYSE Arca calculates and disseminates throughout the trading day an updated indicative fund value for each Fund. The indicative fund value is calculated by using the prior day’s closing NAV per share of the Fund as a base and updating that value throughout the trading day to reflect changes in the value of the Fund’s commodity Interests during the trading day.  Changes in the value of Treasury Securities and cash equivalents will not be included in the calculation of indicative value.  For this and other reasons, the indicative fund value disseminated during NYSE Arca trading hours should not be viewed as an actual real time update of the NAV for each Fund.  The NAV is calculated only once at the end of each trading day.  

 

The indicative fund value is disseminated on a per share basis every 15 seconds during regular NYSE Arca trading hours of 9:30 a.m., New York time, to 4:00 p.m., New York time.  The CBOT, the NYMEX and the ICE are generally open for trading only during specified hours which vary by exchange and may be adjusted by the exchange. However, the futures markets on these exchanges do not currently operate twenty-four hours per day. In addition, there may be some trading hours which may be limited to electronic trading only. This means that there is a gap in time at the beginning and the end of each day during which the Fund’s Shares are traded on the NYSE Arca, when, for example, real-time CBOT trading prices for Corn Futures Contracts traded on such Exchange are not available.  As a result, during those gaps there will be no update to the indicative fund values. The most current trading hours for each exchange may be found on the website of that exchange.

 

The NYSE Arca disseminates the indicative fund value through the facilities of CTA/CQ High Speed Lines.  In addition, the indicative fund value is published on the NYSE Arca’s website and is available through on-line information services such as Bloomberg and Reuters.

 

Dissemination of the indicative fund values provides additional information that is not otherwise available to the public and is useful to investors and market professionals in connection with the trading of Shares of the Funds on the NYSE Arca.  Investors and market professionals are able throughout the trading day to compare the market price of each Fund and its indicative fund value.  If the market price of the Shares of a Fund diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades.  For example, if a Fund appears to be trading at a discount compared to the indicative fund value, a market professional could buy a Fund’s Shares on the NYSE Arca, aggregate them into Redemption Baskets, and receive the NAV of such Shares by redeeming them to the Trust.  Such arbitrage trades can tighten the tracking between the market price of a Fund and the indicative fund value and thus can be beneficial to all market participants.

 

Critical Accounting Policies

 

The Trust’s critical accounting policies for all the Funds are as follows:

 

  1. Preparation of the financial statements and related disclosures in conformity with U.S. generally-accepted accounting principles (“GAAP”) requires the application of appropriate accounting rules and guidance, as well as the use of estimates, and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense and related disclosure of contingent assets and liabilities during the reporting period of the consolidated financial statements and accompanying notes. The Trust’s application of these policies involves judgments and actual results may differ from the estimates used.

 

  1. The Sponsor has determined that the valuation of Commodity Interests that are not traded on a U.S. or internationally recognized futures exchange (such as swaps and other over-the-counter contracts) involves a critical accounting policy.  The values which are used by the Funds for futures contracts will be provided by the commodity broker who will use market prices when available, while over-the-counter contracts will be valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date.  Values will be determined on a daily basis.

 

  1. Commodity futures contracts held by the Funds and 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 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.

 

  1. Cash equivalents are highly-liquid investments with original maturity dates of three months or less at inception.  The Funds reported cash equivalents in the statements of assets and liabilities at market value, or at carrying amounts that approximate fair value, because of their highly-liquid nature and short-term maturities. The Funds have a substantial portion of its assets on deposit with banks. Assets deposited with the bank may, at times, exceed federally insured limits. 

 

  1. The use of fair value to measure financial instruments, with related unrealized gains or losses recognized in earnings in each period is fundamental to the Trust’s financial statements. In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

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In determining fair value, the Trust uses various valuation approaches.  In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Trust.  Unobservable inputs reflect the Trust’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels: a) Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 securities.  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, b) Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly, and c) Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. See the notes within the financial statements for further information.

 

The Funds and the Trust record their derivative activities at fair value. Gains and losses from derivative contracts are included in the statement of operations.  Derivative contracts include futures contracts related to commodity prices. Futures, which are listed on a national securities exchange, such as the CBOT or the New York Mercantile Exchange (“NYMEX”), or reported on another national market, are generally categorized in Level 1 of the fair value hierarchy.  OTC derivatives contracts (such as forward and swap contracts) which may be valued using models, depending on whether significant inputs are observable or unobservable, are categorized in Levels 2 or 3 of the fair value hierarchy.

 

  1. Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.

 

  1. Margin is the minimum amount of funds that must be deposited by a commodity interest trader with the trader’s broker to initiate and maintain an open position in futures contracts. A margin deposit acts to assure the trader’s performance of the futures contracts purchased or sold. Futures contracts are customarily bought and sold on initial margin that represents a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margin requirements, price fluctuations occurring in the futures markets may create profits and losses that, in relation to the amount invested, are greater than are customary in other forms of investment or speculation. As discussed below, adverse price changes in the futures contract may result in margin requirements that greatly exceed the initial margin. In addition, the amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which the contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms, such as the Funds’ clearing brokers, carrying accounts for traders in commodity interest contracts generally require higher amounts of margin as a matter of policy to further protect themselves. Over-the-counter trading generally involves the extension of credit between counterparties, so the counterparties may agree to require the posting of collateral by one or both parties to address credit exposure.

 

When a trader purchases an option, there is no margin requirement; however, the option premium must be paid in full. When a trader sells an option, on the other hand, he or she is required to deposit margin in an amount determined by the margin requirements established for the underlying interest and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to spreads and conversions, which are complex trading strategies in which a trader acquires a mixture of options positions and positions in the underlying interest.

 

Ongoing or “maintenance” margin requirements are computed each day by a trader’s clearing broker. When the market value of a particular open futures contract changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the broker. If the margin call is not met within a reasonable time, the broker may close out the trader’s position. With respect to the Funds’ trading, the Funds (and not its shareholders personally) are subject to margin calls.

 

Finally, many major U.S. exchanges have passed certain cross margining arrangements involving procedures pursuant to which the futures and options positions held in an account would, in the case of some accounts, be aggregated, and margin requirements would be assessed on a portfolio basis, measuring the total risk of the combined positions.

 

  1. Due from/to broker for investments in securities are securities transactions pending settlement. The Trust and TAGS are subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The management of the Trust and the Funds monitors the financial condition of such brokers and does not anticipate any losses from these counterparties. Since the inception of the Fund, the principal broker through which the Trust and TAGS clear securities transactions for TAGS is the Bank of New York Mellon Capital Markets.

 

  1. The investment objective of TAGS is to have the daily changes in percentage terms of the Net Asset Value (“NAV”) of its common units (“Shares”) reflect the daily changes in percentage terms of a weighted average (the “Underlying Fund Average”) of the NAVs per share of four other commodity pools that are series of the Trust and are sponsored by the Sponsor: the Teucrium Corn Fund, the Teucrium Wheat Fund, the Teucrium Soybean Fund and the Teucrium Sugar Fund (collectively, the “Underlying Funds”).  The Underlying Fund Average will have a weighting of 25% to each Underlying Fund, and the Fund’s assets will be rebalanced, generally on a daily basis, to maintain the approximate 25% allocation to each Underlying Fund. As such, TAGS will buy, sell and hold as part of its normal operations shares of the four Underlying Funds. The Trust excludes the shares of the other series of the Trust owned by the
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Teucrium Agricultural Fund from its statements of assets and liabilities. The Trust excludes the net change in unrealized appreciation or depreciation on securities owned by the Teucrium Agricultural Fund from its statements of operations. Upon the sale of the Underlying Funds by the Teucrium Agricultural Fund, the Trust includes any realized gain or loss in its statements of changes in net assets. 

 

  1. 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.

 

Credit Risk

 

When any of the Funds enters into Commodity Interests, it is exposed to the credit risk that the counterparty will not be able to meet its obligations. For purposes of credit risk, the counterparty for the Futures Contracts traded on the CBOT, the NYMEX, and the ICE and for Cleared Swaps is the clearinghouse associated with those exchanges. In general, clearinghouses are backed by their members who may be required to share in the financial burden resulting from the nonperformance of one of their members, which should significantly reduce credit risk. Some foreign exchanges are not backed by their clearinghouse members but may be backed by a consortium of banks or other financial institutions. Unlike in the case of exchange-traded futures contracts, the counterparty to an over-the-counter Corn Interest contract is generally a single bank or other financial institution. As a result, there is greater counterparty credit risk in over-the-counter transactions. There can be no assurance that any counterparty, clearing house, or their financial backers will satisfy their obligations to the Fund.

 

The Sponsor attempts to manage the credit risk of each Fund by following certain trading limitations and policies. In particular, each Fund intends to post margin and collateral and/or hold liquid assets that will be equal to approximately the face amount of the Interests it holds. The Sponsor has implemented procedures that include, but are not limited to, executing and clearing trades and entering into over-the-counter transactions only with parties it deems creditworthy and/or requiring the posting of collateral by such parties for the benefit of each Fund to limit its credit exposure.

 

Any commodity broker for and of the Funds, when acting as the FCM in accepting orders to purchase or sell futures contracts on United States exchanges, will be required by CFTC regulations to separately account for and treat as belonging to the Fund all of the Fund’s assets that relate to domestic futures contract trading. These commodity brokers are not allowed to commingle the assets of that Fund with the commodity broker’s other assets, although commodity brokers are allowed to commingle the assets of multiple customers in a bulk segregated account. In addition, the CFTC requires commodity brokers to hold in a secure account the assets of each Fund related to foreign futures contract trading.

 

On November 14, 2012, the CFTC proposed new regulations that would require enhanced customer protections, risk management programs, internal monitoring and controls, capital and liquidity standards, customer disclosures, and auditing and examination programs for FCMs. The proposed rules are intended to afford greater assurances to market participants that: customer segregated funds and secured amounts are protected; customers are provided with appropriate notice of the risks of futures trading and of the FCMs with which they may choose to do business; FCMs are monitoring and managing risks in a robust manner; the capital and liquidity of FCMs are strengthened to safeguard their continued operations; and the auditing and examination programs of the CFTC and the SROs are monitoring the activities of FCMs in a thorough manner. The final regulations have not yet been adopted.

 

Liquidity and Capital Resources

 

The Funds do not anticipate making use of borrowings or other lines of credit to meet their obligations.   The Funds meet their liquidity needs in the normal course of business from the proceeds of the sale of their investments or from the cash, cash equivalents and/or the Treasuries Securities that they intend to hold.   The Funds’ liquidity needs include: redeeming their shares, providing margin deposits for existing Futures Contracts or the purchase of additional Futures Contracts, posting collateral for over-the-counter Commodity Interests, and paying expenses.

 

The Funds generate cash primarily from (i) the sale of Creation Baskets and (ii) interest earned on cash, cash equivalents and their investments in Treasuries Securities.   Generally, all of the net assets of the Funds are allocated to trading in Commodity Interests.  Most of the assets of the Funds are held in Treasury Securities, cash and/or cash equivalents that could or are used as margin or collateral for trading in Commodity Interests.  The percentage that such assets bear to the total net assets will vary from period to period as the market values of the Commodity Interests change. Interest earned on interest-bearing assets of a Fund are paid to that Fund.

 

The investments of a Fund in Commodity Interests are subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons.  For example, U.S. futures exchanges limit the fluctuations in the prices of certain Futures Contracts during a single day by regulations referred to as “daily limits.”  During a single day, no trades may be executed at prices beyond the daily limit.  Once the price of such a Futures Contract has increased or decreased by an amount equal to the daily limit, positions in the contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit.  Such market conditions could prevent the Fund from promptly liquidating a position in Futures Contracts.

 

Market Risk

 

Trading in Commodity Interests such as Futures Contracts will involve the Funds entering into contractual commitments to purchase or sell specific amounts of commodities at a specified date in the future.  The gross or face amount of the contracts is expected to significantly exceed the future cash requirements of each Fund as each Fund intends to close out any open positions prior to the contractual expiration date.  As a result, each Fund’s market risk is the risk of loss arising from the decline in value of the contracts, not from the need to make delivery under the contracts.  The Funds consider the “fair value” of derivative instruments to be the unrealized gain or loss on the contracts.  The market risk

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associated with the commitment by the Funds to purchase a specific commodity will be limited to the aggregate face amount of the contracts held.

 

The exposure of the Funds to market risk will depend on the market price of the specific commodities held by the Fund. The market price of the commodities depends in part on the volatility of interest rates and foreign exchange rates and the liquidity of the commodity-specific markets. 

 

Over-the-Counter Derivatives Risk

 

In addition to futures contracts, options on futures contracts and cleared swaps, derivative contracts that are tied to various commodities, are entered into outside of public exchanges. These “over-the-counter” contracts are entered into between two parties in private contracts. Unlike Futures Contracts and Cleared Swaps, which are guaranteed by a clearing organization, each party to an over-the-counter derivative contract bears the credit risk of the other party, i.e., the risk that the other party will not be able to perform its obligations under its contract.

 

Some over-the-counter derivatives contracts contain relatively standardized terms and conditions and are available from a wide range of participants. Others have highly customized terms and conditions and are not as widely available. While the Fund may enter into these more customized contracts, the Fund will only enter into over-the-counter contracts containing certain terms and conditions, as discussed further below, that are designed to minimize the credit risk to which the Fund will be subject and only if the terms and conditions of the contract are consistent with achieving the Fund’s investment objective of closely tracking the Benchmark. The over-the-counter contracts that the Fund may enter into will take the form of either forward contracts or swaps.

 

A forward contract is a contractual obligation to purchase or sell a specified quantity of a commodity at or before a specified date in the future at a specified price and, therefore, is economically similar to a futures contract. Unlike futures contracts, however, forward contracts are typically traded in the over-the-counter markets. In some instances, such contracts may provide for cash settlement instead of making or taking delivery of the underlying commodity. Forward contracts for a given commodity are generally available for various amounts and maturities and are subject to individual negotiation between the parties involved. Moreover, generally there is no direct means of offsetting or closing out a forward contract by taking an offsetting position as one would a futures contract on a U.S. exchange. If a trader desires to close out a forward contract position, he generally will establish an opposite position in the contract but will settle and recognize the profit or loss on both positions simultaneously on the delivery date. Thus, unlike in the futures contract market where a trader who has offset positions will recognize profit or loss immediately, in the forward market a trader with a position that has been offset at a profit will generally not receive such profit until the delivery date, and likewise a trader with a position that has been offset at a loss will generally not have to pay money until the delivery date. However, in some instances such contracts may provide a right of offset that will allow for the receipt of profit and payment for losses prior to the delivery date.

 

Like a Cleared Swap, an over-the-counter swap agreement is a bilateral contract to exchange a periodic stream of payments determined by reference to a notional amount, with payment typically made between the parties on a net basis. For instance, in the case of a corn swap, the Fund may be obligated to pay a fixed price per bushel of corn multiplied by a notional number of bushels and be entitled to receive an amount per bushel equal to the current value of an index of corn prices, the price of a specified Corn Futures Contract, or the average price of a group of Corn Futures Contracts such as the Benchmark (times the same notional number of bushels). Unlike Cleared Swaps, however, each party to the swap is subject to the credit risk of the other party. The Funds only enter into over-the-counter swaps on a net basis, where the two payment streams are netted out on a daily basis, with the parties receiving or paying, as the case may be, only the net amount of the two payments. Swaps do not generally involve the delivery of underlying assets or principal. Accordingly, a Fund’s risk of loss with respect to an over-the-counter swap generally is limited to the net amount of payments that the counterparty is contractually obligated to make less any collateral deposits the Fund is holding.

 

To reduce the credit risk that arises in connection with over-the-counter contracts, a Fund generally enters into an agreement with each counterparty based on the Master Agreement published by the International Swaps and Derivatives Association, Inc. that provides for the netting of the Fund’s overall exposure to its counterparty and for daily payments based on the marked to market value of the contract.

 

The creditworthiness of each potential counterparty will be assessed by the Sponsor. The Sponsor assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an over-the-counter contract pursuant to guidelines approved by the Sponsor. The creditworthiness of existing counterparties will be reviewed periodically by the Sponsor. The Sponsor’s President and Chief Investment Officer has over 25 years of experience in over-the-counter derivatives trading, including the counterparty creditworthiness analysis inherent therein, and the Sponsor’s Chief Executive Officer, through his prior experience as a Chief Financial Officer and Treasurer, has extensive experience evaluating the creditworthiness of business partners and counterparties to commercial and derivative contracts. Notwithstanding this experience, there is no guarantee that the Sponsor’s creditworthiness analysis will be successful and that counterparties selected for Fund transactions will not default on their contractual obligations.

 

A Fund also may require that a counterparty be highly rated and/or provide collateral or other credit support. The Sponsor on behalf of a Fund may enter into over-the-counter contracts with various types of counterparties, including: (a) banks regulated by a United States federal bank regulator, (b) broker-dealers regulated by the SEC, (c) insurance companies domiciled in the United States, (d) producers of commodities, such as farmers and related agricultural enterprises, (e) users of commodities, for example for corn, such as producers of prepared food products and ethanol producers, (f) any other person (including affiliates of any of the above) who are engaged to a substantial degree in the business of trading commodities. Certain of these types of counterparties will not be subject to regulation by the CFTC or any other significant federal or state regulatory structure. While it is the Sponsor’s preference to use regulated entities as counterparties, the Sponsor primarily considers creditworthiness in selecting counterparties rather than the primary business of the prospective counterparty or the regulatory structure to which it is subject.

 

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Regulatory Environment

 

The regulation of futures markets, futures contracts and futures exchanges has historically been comprehensive.  The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading.

 

The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the United States. There is a possibility of future regulatory changes within the United States altering, perhaps to a material extent, the nature of an investment in the Funds, or the ability of a Fund to continue to implement its investment strategy. In addition, various national governments outside of the United States have expressed concern regarding the disruptive effects of speculative trading in the commodities markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Funds is impossible to predict but could be substantial and adverse.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd- Frank Act”), which was enacted in response to the economic crisis of 2008 and 2009, significantly alters the regulatory regime to which the securities and commodities markets are subject. In particular, the Dodd-Frank Act alters the regulation of commodity interests. Provisions of the new law include the requirement that position limits be established on a wide range of commodity interests, including energy-based, metal and agricultural commodity futures contracts, options on such futures contracts and cleared and uncleared swaps that are economically equivalent to such futures contracts and options (“Reference Contracts”); new registration and recordkeeping requirements for swap market participants; capital and margin requirements for “swap dealers” and “major swap participants,” as determined by the new law and applicable regulations; and the mandatory use of clearinghouse mechanisms for sufficiently standardized swap transactions that are currently entered into in the over-the-counter market. On November 28, 2012 the CFTC issued its final clearing determination requiring that certain credit default swaps and interest rate swaps be cleared by registered derivatives clearing organizations (DCOs). This is the CFTC’s first clearing determination under the Dodd-Frank Act and became effective February 11, 2013. On March 11, 2013, “swap dealers,” “major swap participants,” and certain active funds will be required to clear certain credit default swaps and interest rate swaps. Determinations on other types of swaps are expected in the future and, when finalized, could require the Fund to centrally clear certain over-the-counter instruments presently entered into and settled on a bi-lateral basis.

 

In late 2011, the CFTC adopted rules that impose new position limits on Reference Contracts involving 28 energy, metals and agricultural commodities (the “Position Limit Rules”). The Position Limit Rules were scheduled to become effective on October 12, 2012. However, on September 28, 2012, the United States District Court for the District of Columbia vacated these regulations on the basis of ambiguities in the provisions of the Commodity Exchange Act (“CEA”) (as modified by the Dodd-Frank Act) upon which the regulations were based. In its September 28th decision, the court remanded the Position Limit Rules to the CFTC with instructions to use its expertise and experience to resolve the ambiguities in the statute. On November 15, 2012, the CFTC indicated that it will move forward with an appeal of the District Court’s decision to vacate the Position Limit Rules. At this time, it is not possible to predict how the CFTC’s appeal could affect the Fund, but it may be substantial and adverse. Furthermore, until such time as the appeal is resolved or, if applicable revisions to the Position Limit Rules are proposed and adopted, the regulatory architecture in effect prior to the enactment of the Position Limit Rules will govern transactions in commodities and related derivatives. Under that system, the CFTC enforces federal limits on speculation in agricultural products (e.g., corn, wheat and soy), while futures exchanges enforce position limits and accountability levels for agricultural and certain energy products (e.g., oil and gas). As a result, the Fund may be limited with respect to the size of its investments in any commodities subject to these limits. Finally, subject to certain narrow exceptions, the vacated Position Limit Rules would have required the aggregation, for purposes of the position limits, of all positions in the 28 Reference Contracts held by a single entity and its affiliates, regardless of whether such positions existed on U.S. futures exchanges, non-U.S. futures exchanges, in cleared swaps or in over-the-counter swaps. The CFTC is presently considering new aggregation rules, under a rulemaking proposal that is distinct from the Position Limit Rules. At this time, it is unclear how any modified aggregation rules may affect the Fund, but it may be substantial and adverse. By way of example, the aggregation rules in combination with any potential revised Position Limit Rules may negatively impact the ability of the Fund to meet its investment objectives through limits that may inhibit the Sponsor’s ability to sell additional Creation Baskets of the Fund.

 

The CFTC, along with the SEC and other federal regulators, has been tasked with developing the rules and regulations enacting the provisions noted above. To date, the CFTC has issued proposed versions of all of the rules it is required to promulgate under the Dodd-Frank Act, but it continues to issue proposed versions of additional rules that it has authority to promulgate. In addition, the CFTC has begun to issue final rules under the Dodd-Frank Act, including rules relating to recordkeeping and reporting of swap transactions, mandatory clearing of certain classes of credit default swaps and interest rate swaps, as well as the definition of key terms such as “swap” and “swap dealer.” Final rules are likely to continue to be adopted throughout 2013.

 

The CFTC published final rules on February 17, 2012 and April 3, 2012 that require “swap dealers” and "major swap participants” to: 1) adhere to business conduct standards, 2) implement policies and procedures to ensure compliance with the Commodity Exchange Act and 3) maintain records of such compliance. These new requirements may impact the documentation requirements for both cleared and non-cleared swaps and cause swap dealers and major swap participants to face increased compliance costs that, in turn, may be passed along to counterparties, such as the Funds, in the form of higher fees and expenses that relate to trading swaps.

 

On December 18, 2012, the CFTC deferred the compliance date for many of the Dodd-Frank's external business conduct standards from December 31, 2012 to May 1, 2013, and for some requirements to July 1, 2013, providing swap dealers an additional 4 to 6 months from the original compliance date.

 

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On December 5, 2012, the CFTC's Division of Market Oversight issued a letter providing swap dealers with time-limited no-action relief from swap data reporting obligations with respect to equity swaps, foreign exchange swaps and other commodity swaps. For these asset classes, the letter provides swap dealers with reporting relief (i) with respect to real-time price reporting and regular swap reporting (under Part 43 and Part 45 of the CFTC's regulations, respectively), until February 28, 2013, and (ii) historical swap reporting requirements (under Part 46 of the CFTC's regulations) until March 30, 2013.

 

On December 21, 2012 the CFTC's Division of Market Oversight issued two letters providing certain swap dealers with time-limited no-action relief from some swap data reporting obligations. One letter provides relief from reporting requirements for branches of swap dealers located in emerging markets who encounter technical difficulties in complying with the reporting rules. The letter also provides that swap dealers may delay reporting compliance for certain complex and exotic swaps until April 30, 2013.

 

Under a second letter, all swap dealers had until May 29, 2013 to report certain information about their counterparties, including: status as a major swap participant, a financial entity, a U.S. Person or a commercial end-user.

 

Management believes that as June 30, 2013 it had fulfilled in a timely manner all Dodd-Frank reporting requirements, both historical and on-going, for the categories under which the firm operates and is registered.

 

The effect of future regulatory change on the Funds, and the exact timing of such changes, is impossible to predict but it may be substantial and adverse. Specifically, the new law, the rules that have been promulgated thereunder, and the rules that are expected to be promulgated may negatively impact the ability of the Funds to meet their investment objectives, either through position limits or requirements imposed on them and/or on their counterparties. In particular, new position limits imposed on the Funds or any counterparties may impact the ability of the Funds to invest in a manner that most efficiently meets its investment objective. New requirements, including capital imposed on the counterparties of the Funds and the mandatory clearing and margining of swaps, may increase the cost of the Fund’s investments and doing business.

 

In addition, considerable regulatory attention has recently been focused on non-traditional publicly distributed investment pools such as the Funds. Furthermore, various national governments have expressed concern regarding the disruptive effects of speculative trading in certain commodity markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Funds is impossible to predict, but could be substantial and adverse.

 

Off Balance Sheet Financing

 

As of June 30, 2013, neither the Trust nor any of the Funds has any loan guarantees, credit support or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions relating to certain risks service providers undertake in performing services which are in the best interests of the Funds.  While the exposure of each Fund under these indemnification provisions cannot be estimated, they are not expected to have a material impact on the financial positions of each Fund.

 

Redemption Basket Obligation

 

Other than as necessary to meet the investment objective of the Funds and pay the contractual obligations described below, the Funds will require liquidity to redeem Redemption Baskets. Each Fund intends to satisfy this obligation through the transfer of cash of the Fund (generated, if necessary, through the sale of Treasury Securities) in an amount proportionate to the number of units being redeemed.

 

Contractual Obligations

 

The primary contractual obligations of each Fund will be with the Sponsor and certain other service providers.  Except for TAGS, which has no management fee, the Sponsor, in return for its services, will be entitled to a management fee calculated as a fixed percentage of each Fund’s NAV, currently 1.00% of its average net assets.  Each Fund will also be responsible for all ongoing fees, costs and expenses of its operation, including (i) brokerage and other fees and commissions incurred in connection with the trading activities of the Fund; (ii) expenses incurred in connection with registering additional Shares of the Fund or offering Shares of the Fund; (iii) the routine expenses associated with the preparation and, if required, the printing and mailing of monthly, quarterly, annual and other reports required by applicable U.S. federal and state regulatory authorities, Trust meetings and preparing, printing and mailing proxy statements to Shareholders; (iv) the payment of any distributions related to redemption of Shares; (v) payment for routine services of the Trustee, legal counsel and independent accountants; (vi) payment for routine accounting, bookkeeping, custodial and transfer agency services, whether performed by an outside service provider or by affiliates of the Sponsor; (vii) postage and insurance; (viii) costs and expenses associated with client relations and services; (ix) costs of preparation of all federal, state, local and foreign tax returns and any taxes payable on the income, assets or operations of the Fund; and (xi) extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto).  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. 

 

While the Sponsor has agreed to pay registration fees to the SEC, FINRA and any other regulatory agency in connection with the offer and sale of the Shares offered through each Fund’s prospectus, the legal, printing, accounting and other expenses associated with such registrations, and the initial fee of $5,000 for listing the Shares on the NYSE Arca, each Fund will be responsible for any registration fees and related expenses incurred in connection with any future offer and sale of Shares of the Fund in excess of those offered through its prospectus.

 

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Any general expenses of the Trust will be allocated among the Funds and any other series of the Trust as determined by the Sponsor in its sole and absolute discretion.  The Trust is also responsible for extraordinary expenses, including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto.  The Trust and/or the Sponsor may be required to indemnify the Trustee, Distributor or Administrator under certain circumstances.

 

The parties cannot anticipate the amount of payments that will be required under these arrangements for future periods as the NAV and trading levels to meet investment objectives for each Fund will not be known until a future date.  These agreements are effective for a specific term agreed upon by the parties with an option to renew, or, in some cases, are in effect for the duration of each Fund’s existence.  The parties may terminate these agreements earlier for certain reasons listed in the agreements.

 

Benchmark Performance

 

The Funds are new and have a limited operating history. Investing in commodity interests, or the Underlying Funds in the case of TAGS, subjects the Funds to the risks of the underlying commodities market, and this could result in substantial fluctuations in the price of each Fund’s Shares. Unlike mutual funds, the Funds generally will not distribute dividends to Shareholders. Investors may choose to use the Funds as a means of investing indirectly in the underlying commodities, and there are risks involved in such investments. The Sponsor has limited experience operating a commodity pool. Investors may choose to use the Funds as vehicles to hedge against the risk of loss, and there are risks involved in hedging activities.

 

During the period from January 1, 2013 through June 30, 2013 the average daily change in the NAV of each Fund was within plus/minus 10 percent of the average daily change in the Benchmark of each Fund, as stated in the applicable prospectus for each Fund.

 

Frequency Distribution of Premiums and Discounts: NAV versus the 4pm Bid/Ask Midpoint on the NYSE Arca

 

CORN

 

 

The performance data above for the Teucrium Corn Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. The NAV reflected on this graph has been adjusted for March 31, 2013, when Corn Futures Contracts traded on the CBOT which were due to settle on July 12, 2013 (the “JUL13 Corn Contracts”) were in a “limit down” condition, and, in the opinion of the Trust and the Fund, the reported value at the close of market on that day did not fairly value the JUL13 Corn Contracts held by CORN. Therefore, the Trust and the Fund have used alternative verifiable sources to value the JUL13 Corn Contracts on March 31, 2013 and the NAV of the Fund for that date.

 

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NAGS  

 

 

 

The performance data above for the Teucrium Natural Gas Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted.  

 

CRUD

 

  

The performance data above for the Teucrium WTI Crude Oil Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted.

 

 

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SOYB

 

 

The performance data above for the Teucrium Soybean Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted.

 

CANE

 

 

 

The performance data above for the Teucrium Sugar Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted.

 

 

WEAT

 

 

  

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The performance data above for the Teucrium Wheat Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted.

 

TAGS

 

The performance data above for the Teucrium Agricultural Fund represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund’s Shares will fluctuate so that an investor's Shares, when sold, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. The NAV reflected on this graph have been adjusted for March 31, 2013, when Corn Futures Contracts traded on the CBOT which were due to settle on July 12, 2013 (the “JUL13 Corn Contracts”) were in a “limit down” condition, and, in the opinion of the Trust and the Fund, the reported value at the close of market on that day did not fairly value the JUL13 Corn Contracts held by CORN, one of the Underlying Funds held by TAGS. Therefore, the Trust and the Fund have used alternative verifiable sources to value the JUL13 Corn Contracts on March 31, 2013 and the NAV of the Fund for that date. 

 

As of August 2, 2012,TAGS has 50,002 shares currently outstanding; this represents the minimum number of shares and, thus, no shares can be redeemed until additional shares have been created. This situation has, over the past 12 months, generated a situation in which the spread between bid/ask midpoint at 4pm and the NAV falls outside of the “1 to 49” or “-1 to -49” range. The situation does not affect the actual NAV of the Fund.

 

Description

 

The above frequency distribution charts presents information about the difference between the daily market price for Shares of each Fund and the Fund's reported Net Asset Value per share. The amount that a Fund's market price is above the reported NAV is called the premium. The amount that a Fund's market price is below the reported NAV is called the discount. The market price is determined using the midpoint between the highest bid and the lowest offer on the listing exchange, as of the time that a Fund's NAV is calculated (usually 4:00 p.m., New York time). The horizontal axis of the chart shows the premium or discount expressed in basis points. The vertical axis indicates the number of trading days in the period covered by the chart. Each bar in the chart shows the number of trading days in which a Fund traded within the premium/discount range indicated.  

 

*A unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

 

NEITHER THE PAST PERFORMANCE OF A FUND NOR THE PRIOR INDEX LEVELS AND CHANGES, POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND’S FUTURE PERFORMANCE.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market Risk

  

Trading in Commodity Interests such as Futures Contracts will involve the Funds entering into contractual commitments to purchase or sell specific amounts of commodities at a specified date in the future.  The gross or face amount of the contracts is expected to significantly exceed the future cash requirements of each Fund as each Fund intends to close out any open positions prior to the contractual expiration date.  As a result, each Fund’s market risk is the risk of loss arising from the decline in value of the contracts, not from the need to make delivery under the contracts.  The Funds consider the “fair value” of derivative instruments to be the unrealized gain or loss on the contracts.  The market risk associated with the commitment by the Funds to purchase a specific commodity will be limited to the aggregate face amount of the contracts held.

 

The exposure of the Funds to market risk will depend primarily on the market price of the specific commodities held by the Fund. The market price of the commodities depends in part on the volatility of interest rates and foreign exchange rates and the liquidity of the commodity-specific markets.

 

141
 

TAGS is subject to the risks of the commodity-specific futures contracts of the Underlying Funds as the fair value of its holdings is based on the NAV of each of the Underlying Funds, each of which is directly impacted by the factors discussed above.

 

The tables below present a quantitative analysis of hypothetical impact of price decreases and increases in each of the commodity futures contracts held by each of the Funds, or the Underlying Funds in the case of TAGS, on the actual holdings and NAV per share as of June 30, 2013. For purposes of this analysis, all futures contracts held by the Funds and the Underlying Funds are assumed to change by the same percentage. In addition, the cash held by the Funds and any management fees paid to the Sponsor are assumed to remain constant and not impact the NAV per share. There may be very slight and immaterial differences, due to rounding, in the tables presented below.

 

CORN:

 

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
CBOT Corn Futures Sept13 494 $5.4725 $13,517,075 $12,165,368 $11,489,514 $10,813,660 $14,868,783 $15,544,636 $16,220,490
CBOT Corn Futures Dec13 453 $5.1100 $11,574,150 $10,416,735 $9,838,028 $9,259,320 $12,731,565 $13,310,273 $13,888,980
CBOT Corn Futures Dec14 516 $5.2975 $13,667,550 $12,300,795 $11,617,418 $10,934,040 $15,034,305 $15,717,683 $16,401,060
     Total CBOT Corn Futures     $38,758,776 $34,882,898 $32,944,959 $31,007,020 $42,634,653 $44,572,591 $46,510,530
                   
Shares outstanding     1,000,004 1,000,004 1,000,004 1,000,004 1,000,004 1,000,004 1,000,004
                   
Net Asset Value per Share
attributable directly to
CBOT Corn Futures		     $38.76 $34.88 $32.94 $31.01 $42.63 $44.57 $46.51
Total Net Asset Value
per Share as reported		     $38.70            
Change in the Net Asset
Value per Share		       $(3.88) $(5.81) $(7.75) $3.88 $5.81 $7.75
                   
Percent Change in the
Net Asset Value per Share		       -10.02% -15.02% -20.03% 10.02% 15.02% 20.03%

 

 

NAGS:

 

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
Henry Hub NYMEX
Natural Gas Futures Mar14		 22 $3.8730 $852,060 $766,854 $724,251 $681,648 $937,266 $979,869 $1,022,472
Henry Hub NYMEX
Natural Gas Futures Apr14		 22 $3.7930 $834,460 $751,014 $709,291 $667,568 $917,906 $959,629 $1,001,352
Henry Hub NYMEX
Natural Gas Futures Oct13		 23 $3.5720 $821,560 $739,404 $698,326 $657,248 $903,716 $944,794 $985,872
Henry Hub NYMEX
Natural Gas Futures Nov13		 23 $3.6460 $838,580 $754,722 $712,793 $670,864 $922,438 $964,367 $1,006,296
     Total Henry Hub NYMEX
Natural Gas Futures		     $3,346,660 $3,011,994 $2,844,661 $2,677,328 $3,681,326 $3,848,659 $4,015,992
                   
Shares outstanding     300,004 300,004 300,004 300,004 300,004 300,004 300,004
                   
Net Asset Value per Share
attributable directly to
NYMEX Natural Gas Futures		     $11.16 $10.04 $9.48 $8.92 $12.27 $12.83 $13.39
Total Net Asset Value
per Share as reported		     $11.17            
Change in the Net Asset
Value per Share		       $(1.12) $(1.67) $(2.23) $1.12 $1.67 $2.23
                   
Percent Change in the
Net Asset Value per Share		       -9.99% -14.98% -19.97% 9.99% 14.98% 19.97%

 

 

CRUD:

  

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
WTI Crude Oil Futures Dec13 7 $94.3800 $660,660 $594,594 $561,561 $528,528 $726,726 $759,759 $792,792
WTI Crude Oil Futures Jun14 7 $90.7400 $635,180 $571,662 $539,903 $508,144 $698,698 $730,457 $762,216
WTI Crude Oil Futures Dec14 8 $88.2200 $705,760 $635,184 $599,896 $564,608 $776,336 $811,624 $846,912
     Total WTI Crude Oil Futures     $2,001,600 $1,801,440 $1,701,360 $1,601,280 $2,201,760 $2,301,840 $2,401,920
                   
Shares outstanding     50,002 50,002 50,002 50,002 50,002 50,002 50,002
                   
Net Asset Value per Share
attributable directly to
WTI Crude Oil Futures		     $40.03 $36.03 $34.03 $32.02 $44.03 $46.03 $48.04
Total Net Asset Value per
Share as reported		     $39.20            
Change in the Net Asset
Value per Share		       $(4.00) $(6.00) $(8.01) $4.00 $6.00 $8.01
                   
Percent Change in the
Net Asset Value per Share		       -10.21% -15.32% -20.42% 10.21% 15.32% 20.42%

 

 

142
 

SOYB:

 

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
CBOT Soybean Futures Nov13 37 $12.5200 $2,316,200 $2,084,580 $1,968,770 $1,852,960 $2,547,820 $2,663,630 $2,779,440
CBOT Soybean Futures Jan14 31 $12.5675 $1,947,963 $1,753,166 $1,655,768 $1,558,370 $2,142,759 $2,240,157 $2,337,555
CBOT Soybean Futures Nov14 37 $12.2725 $2,270,413 $2,043,371 $1,929,851 $1,816,330 $2,497,454 $2,610,974 $2,724,495
     Total CBOT Soybean Futures     $6,534,575 $5,881,118 $5,554,389 $5,227,660 $7,188,033 $7,514,761 $7,841,490
                   
Shares outstanding     275,004 275,004 275,004 275,004 275,004 275,004 275,004
                   
Net Asset Value per Share
attributable directly to
CBOT Soybean Futures		     $23.76 $21.39 $20.20 $19.01 $26.14 $27.33 $28.51
Total Net Asset Value per
Share as reported		     $23.72            
Change in the Net Asset
Value per Share		       $(2.38) $(3.56) $(4.75) $2.38 $3.56 $4.75
                   
Percent Change in the
Net Asset Value per Share		       -10.02% -15.03% -20.04% 10.02% 15.03% 20.04%

 

 

CANE:

 

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
ICE #11 Sugar Futures Mar14 46 $0.1774 $913,965 $822,568 $776,870 $731,172 $1,005,361 $1,051,060 $1,096,758
ICE #11 Sugar Futures May14 39 $0.1771 $773,573 $696,216 $657,537 $618,858 $850,930 $889,609 $928,287
ICE #11 Sugar Futures Mar15 45 $0.1826 $920,304 $828,274 $782,258 $736,243 $1,012,334 $1,058,350 $1,104,365
     Total ICE #11 Sugar Futures     $2,607,842 $2,347,057 $2,216,665 $2,086,273 $2,868,626 $2,999,018 $3,129,410
                   
Shares outstanding     175,004 175,004 175,004 175,004 175,004 175,004 175,004
                   
Net Asset Value per Share
attributable directly to
ICE #11 Sugar Futures		     $14.90 $13.41 $12.67 $11.92 $16.39 $17.14 $17.88
Total Net Asset Value
per Share as reported		     $14.92            
Change in the Net Asset
Value per Share		       $(1.49) $(2.24) $(2.98) $1.49 $2.24 $2.98
                   
Percent Change in the
Net Asset Value per Share		       -9.99% -14.99% -19.98% 9.99% 14.99% 19.98%

 

 

WEAT:

 

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Contracts
Held		 Closing Price Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount Notional Amount
CBOT Wheat Futures Sept13 73 $6.5775 $2,400,788 $2,160,709 $2,040,669 $1,920,630 $2,640,866 $2,760,906 $2,880,945
CBOT Wheat Futures Dec13 61 $6.7150 $2,048,075 $1,843,268 $1,740,864 $1,638,460 $2,252,883 $2,355,286 $2,457,690
CBOT Wheat Futures Dec14 68 $7.1100 $2,417,400 $2,175,660 $2,054,790 $1,933,920 $2,659,140 $2,780,010 $2,900,880
     Total CBOT Wheat Futures     $6,866,263 $6,179,636 $5,836,323 $5,493,010 $7,552,889 $7,896,202 $8,239,515
                   
Shares outstanding     400,004 400,004 400,004 400,004 400,004 400,004 400,004
                   
Net Asset Value per Share
attributable directly to
CBOT Wheat Futures		     $17.17 $15.45 $14.59 $13.73 $18.88 $19.74 $20.60
Total Net Asset Value
per Share as reported		     $17.16            
Change in the Net Asset
Value per Share		       $(1.72) $(2.57) $(3.43) $1.72 $2.57 $3.43
                   
Percent Change in the
Net Asset Value per Share		       -10.00% -15.00% -20.01% 10.00% 15.00% 20.01%

 

 

 TAGS:

  June 30, 2013 as Reported 10% Decrease 15% Decrease 20% Decrease 10% Increase 15% Increase 20% Increase
Holdings as of June 30, 2013 Number of
Shares
Held		 Closing NAV Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value
Teucrium Wheat Fund 30,437 $17.1649 $522,448 $470,203 $444,081 $417,958 $574,693 $600,815 $626,938
Teucrium Corn Fund 13,408 $38.7043 $518,947 $467,053 $441,105 $415,158 $570,842 $596,789 $622,737
Teucrium Soybean Fund 22,656 $23.7186 $537,369 $483,632 $456,763 $429,895 $591,105 $617,974 $644,842
Teucrium Sugar Fund 36,274 $14.9151 $541,030 $486,927 $459,876 $432,824 $595,133 $622,185 $649,236
     Total value of shares
of the Underlying Funds		     $2,119,794 $1,907,815 $1,801,825 $1,695,835 $2,331,774 $2,437,763 $2,543,753
                   
Shares outstanding     50,002 50,002 50,002 50,002 50,002 50,002 50,002
                   
Net Asset Value per Share
attributable directly to shares
of the Underlying Funds		     $42.39 $38.15 $36.04 $33.92 $46.63 $48.75 $50.87
Total Net Asset Value
per Share as reported		     $42.56            
Change in the Net Asset
Value per Share		       $(4.24) $(6.36) $(8.48) $4.24 $6.36 $8.48
                   
Percent Change in the
Net Asset Value per Share		       -9.96% -14.94% -19.92% 9.96% 14.94% 19.92%

 

 

 

143
 

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 various 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.

 

The Dodd-Frank Act requires the CFTC, the SEC and the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit System and the Federal Housing Finance Agency (collectively, the “Prudential Regulators”) to establish “both initial and variation margin requirements on all swaps that are not cleared by a registered clearing organization” (i.e., uncleared or over-the-counter swaps). The proposed rules would require swap dealers and major swap participants to collect both variation and initial margin from their financial entity counterparties such as the Funds or Underlying Funds but would not require these swap dealers or major swap participants to post variation margin or initial margin to the Funds or Underlying Funds.  The CFTC and the Prudential Regulators have proposed rules addressing margin requirements but have not implemented any rules on these issues.

 

During the three months ended June 30, 2013, neither the Sponsor nor the Trust employed any hedging methods such as those described above as all of its investments were made over an exchange. Therefore, during such period, the Funds were not exposed to counterparty risk.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Trust and each Fund maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the Trust’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms for both the Trust and each Fund thereof.

 

Management of the Sponsor of the Teucrium Funds (“Management”), including Dale Riker, its Principal Executive Officer and Barbara Riker, its Principal Financial Officer, who perform functions equivalent to those of a principal executive officer and principal financial officer of the Trust if the Trust had any officers, have evaluated the effectiveness of the design and operation of the Trust’s and each Fund’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, and, based upon that evaluation, concluded that the Trust’s and each Fund’s disclosure controls and procedures were effective to ensure that information the Trust is required to disclose in the reports that it files or submits with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated to management of the Sponsor, as appropriate, to allow timely decisions regarding required disclosure.  The scope of the evaluation of the effectiveness of the design and operation of its disclosure controls and procedures covers both the Trust and each Fund thereof.

 

The certifications of the Chief Executive Officer and Chief Financial Officer are applicable to each Fund individually as well as the Trust as a whole.

 

144
 

Changes in Internal Control over Financial Reporting

 

There has been no change in internal controls over the financial reporting (as defined in the Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the Trust’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

  

PART II. OTHER INFORMATION

 

Item 1.      Legal Proceedings.

 

None.

 

Item 1A. Risk Factors

 

The commodity interests in which each of the Funds invests, and in which TAGS invests indirectly through the Shares of the Underlying Funds, are referred to as Commodity Interests and for each Fund individually as the specific commodity interests, e.g. Corn Interests.

 

Risks Applicable to all Funds

 

145
 

 

146
 

147
 

 

148
 

 

 

oA Fund may not always be able to liquidate its positions in its investments at the desired price. As to futures contracts, it may be difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Limits imposed by futures exchanges or other regulatory organizations, such as accountability levels, position limits and price fluctuation limits, may contribute to a lack of liquidity with respect to some exchange-traded commodity Interests. In addition, over-the-counter contracts and cleared swaps may be illiquid because they are contracts between two parties and generally may not be transferred by one party to a third party without the counterparty’s consent. Conversely, a counterparty may give its consent, but the Fund still may not be able to transfer an over-the-counter Commodity Interest to a third party due to concerns regarding the counterparty’s credit risk.

 

oA market disruption, such as a foreign government taking political actions that disrupt the market in its currency, its commodity production or exports, or in another major export, can also make it difficult to liquidate a position. Unexpected market illiquidity may cause major losses to investors at any time or from time to time. In addition, no Fund intends at this time to establish a credit facility, which would provide an additional source of liquidity, but instead will rely only on the Treasury Securities, cash and/or cash equivalents that it holds to meet its liquidity needs. The anticipated large value of the positions in a specific Commodity Interest that the Sponsor will acquire or enter into for a Fund increases the risk of illiquidity. Because Commodity Interests may be illiquid, a Fund’s holdings may be more difficult to liquidate at favorable prices in periods of illiquid markets and losses may be incurred during the period in which positions are being liquidated.

 

 

149
 

 

 

 

 

150
 
oA minimum number of baskets and associated Shares are specified for each Fund in its Form S-1. Once that minimum number of Shares outstanding is reached, there can be no further redemptions until there has been a Creation Basket.

 

 

151
 

 

152
 

 

 

Risks Specific to the Teucrium Corn Fund

 

153
 

 

oThe CFTC and U.S. designated contract markets such as the CBOT may establish position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which an investment by the Fund is not) may hold, own or control. For example, the current position limit for investments at any one time in Corn Futures Contracts are 600 spot month contracts, 33,000 contracts expiring in any other single month, and 33,000 total for all months. Cleared Corn Swaps are subject to position limits that are substantially identical to, but measured separately from, the limits on Corn Futures Contracts. These position limits are fixed ceilings that the Fund would not be able to exceed without specific CFTC authorization.

 

oIn addition to position limits, the exchanges set daily price fluctuation limits on futures contracts. The daily price fluctuation limit establishes the maximum amount that the price of futures contracts may vary either up
154
 
 or down from the previous day’s settlement price. Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

oFor example, the CBOT imposes a $2,000 per contract price fluctuation limit for Corn Futures Contracts. This limit is initially based off of the previous trading day’s settlement price. If two or more Corn Futures Contract months within the first five listed non-spot contracts close at the limit, the daily price limit increases to $3,000 per contract for the next business day.

oAll of these limits may potentially cause a tracking error between the price of the Shares and the Benchmark. This may in turn prevent you from being able to effectively use the Fund as a way to hedge against corn-related losses or as a way to indirectly invest in corn.

oThe Fund does not intend to limit the size of the offering and will attempt to expose substantially all of its proceeds to the corn market utilizing Corn Interests. If the Fund encounters position limits, accountability levels, or price fluctuation limits for Corn Futures Contracts and/or Cleared Corn Swaps on the CBOT, it may then, if permitted under applicable regulatory requirements, purchase Other Corn Interests and/or Corn Futures Contracts listed on foreign exchanges. However, the Corn Futures Contracts available on such foreign exchanges may have different underlying sizes, deliveries, and prices. In addition, the Corn Futures Contracts available on these exchanges may be subject to their own position limits and accountability levels. In any case, notwithstanding the potential availability of these instruments in certain circumstances, position limits could force the Fund to limit the number of Creation Baskets that it sells.

 

  

Risks Specific to the Teucrium Natural Gas Fund

 

 

 

oUnexpected drilling conditions;

 

oPressure or irregularities in formations;

oEquipment failures or repairs;

oFires or other accidents;

oPipeline ruptures or spills;

oShortages or delays in the availability of drilling rigs and the delivery of equipment;

oAdverse weather conditions;

oPolitical conflicts;
155
 
oCompliance with government regulations; and

oEnvironmental hazards, including natural gas leaks, ruptures and discharges of toxic gases.

 

 

 

 

oThe CFTC and designated contract markets such as the NYMEX and the ICE may establish accountability levels and position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control may hold, own or control (other than as a hedge, which an investment by the Fund is not).  For example, the current accountability level for investments at any one time in Natural Gas Futures Contracts is 12,000 contracts for all months combined and 6,000 contracts for any one month.  While this is not a fixed ceiling, it is a threshold above which the NYMEX may exercise scrutiny and control over an investor, including limiting an investor to holding no more than 12,000 Natural Gas Futures Contracts.

 

oWith regard to position limits, the NYMEX limits an investor from holding more than 1,000 net futures in the last three days of trading in the near month contract to expire. It is unlikely that the Fund will be subject to such position limits because of the Fund’s investment strategy to “roll” from the near month contract to expire to the same month of the following year during the period beginning two weeks from the expiration of the contract. On November 18, 2011, the CFTC adopted regulations that will impose position limits on energy futures contracts, including Natural Gas Futures Contracts. The initial spot month position limit of a combined 1,000 Natural Gas Futures Contracts and economically equivalent swaps will not be effective until 60 days after the CFTC further defines the term “swap.” Non-spot month position limits will be determined based on a survey of at least 12 months of the deliverable supply of
156
 
 natural gas. It is not possible at this time to predict when the CFTC will make these regulations effective. The Sponsor does not believe that the proposed rules, if adopted, will have any material impact on the Fund’s investment objective.

oThe Cleared Natural Gas Swaps that are most comparable to the Benchmark Component Futures Contracts are subject to accountability levels that are substantially identical to, but are currently measured separately from, the accountability levels on Natural Gas Futures Contracts. Accountability levels are imposed by the ICE of 48,000 contracts for all months (12,000 NYMEX NG contract equivalents), 24,000 contracts for any one month (6,000 NYMEX NG contract equivalents), and 4,000 contracts for the spot month (1,000 NYMEX NG contract equivalents). Exemptions may be obtained from these accountability levels for bona fide hedging, risk management and spread positions. The Fund’s ability to rely on these Cleared Natural Gas Swaps may be further limited when the position limit rules discussed above become effective.

oIn addition to accountability levels and position limits, the exchanges may also set price fluctuation limits on futures contracts.  The price fluctuation limit establishes the maximum amount that the price of futures contracts may vary either up or down from the previous day’s settlement price or from the price at which the limit was last imposed.  When a price fluctuation limit is in effect for a particular futures contract, no trades may be made at a price beyond that limit.

oMore specifically, the NYMEX imposes a $1.50 per MMBtu ($15,000 per contract) price fluctuation limit for Natural Gas Futures Contracts. This limit is initially based off of the previous NYMEX trading day’s settlement price. If any of the first three contract months for a Natural Gas Futures Contract is traded, bid or offered at the limit, trading is halted for five minutes. When trading resumes it begins at the point where the limit was imposed and the limit is reset to be $1.50 per MMBtu in either direction of that point. If another halt were triggered, the market would continue to be expanded by $1.50 per MMBtu in either direction after each successive five-minute trading halt. There is not maximum price fluctuation limit during any one trading session.

oAll of these limits may potentially cause a tracking error between the price of the Shares and the Benchmark.  This may in turn prevent you from being able to effectively use the Fund as a way to hedge against natural gas-related losses or as a way to indirectly invest in natural gas.

oIf the Fund encounters position limits, accountability levels, or price fluctuation limits for Natural Gas Futures Contracts on the NYMEX or Cleared Natural Gas Swaps on the ICE, it may then, if permitted under applicable regulatory requirements, purchase Natural Gas Interests, including Natural Gas Futures Contracts listed on foreign exchanges.  However, the Natural Gas Futures Contracts available on such foreign exchanges may have different underlying sizes, deliveries, and prices.  The Natural Gas Futures Contracts available on such foreign exchanges may be subject to their own position limits and accountability levels.  In any case, notwithstanding the potential availability of these instruments in certain circumstances, position limits could force the Fund to limit the number of Creation Baskets that it sells.

 

Risks Specific to the Teucrium WTI Crude Oil Fund

 

othe economic activity of users - as certain economies expand, oil consumption and prices increase, and as economies contract (in a recession or depression), oil demand and prices fall;

 

othe increases in oil production due to price increases making it more economical to extract oil from additional sources which may later stabilize further price increases;
157
 
odecisions of the cartel of oil producing countries (e.g., OPEC, the Organization of the Petroleum Exporting Countries) to produce more or less oil;

omechanical difficulties or shortages or delays in the delivery of drilling rigs and other equipment;

orefinery capacity;

ocompliance with government regulations;

oadverse weather conditions;

opolitical conflicts - including war;

otitle issues;

othe cancellation, shortening or delaying of crude oil drilling and production activities;

onot finding commercially productive crude oil reservoirs;

ooperating risks including risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards; and

oenvironmental hazards including oil spills, ruptures and the discharge of toxic gases.

 

158
 

 

Risks Specific to the Teucrium Soybean Fund

  

oThe price and availability of soybeans is influenced by economic and industry conditions, including but not limited to supply and demand factors such as: crop disease; weed control; water availability; various planting, growing, or harvesting problems; severe weather conditions such as drought, floods, heavy rains, frost, or natural disasters that are difficult to anticipate and which cannot be controlled; uncontrolled fires, including arson; challenges in doing business with foreign companies; legal and regulatory restrictions; transportation costs; interruptions in energy supply; currency exchange rate fluctuations; and political and economic instability.  Additionally, demand for soybeans is affected by changes in international, national, regional and local economic conditions, and demographic trends.  The increased production of soybean crops in South America and the rising demand for soybeans in emerging nations such as China and India have increased competition in the soybean market.

 

oThe supply of soybeans could be reduced by the spread of soybean rust.  Soybean rust is a wind-borne fungal disease that attacks soybeans.  Although soybean rust can be killed with chemicals, chemical treatment increases production costs for farmers.
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oSoybean production is subject to United States and foreign policies and regulations that materially affect operations.  Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives, acreage control, and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain crops, the location and size of crop production, the volume and types of imports and exports, and industry profitability.  Additionally, soybean production is affected by laws and regulations relating to, but not limited to, the sourcing, transporting, storing and processing of agricultural raw materials as well as the transporting, storing and distributing of related agricultural products.  Soybean producers also may need to comply with various environmental laws and regulations, such as those regulating the use of certain pesticides.  In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions.

oBecause processing soybean oil can create trans-fats, the demand for soybean oil may decrease due to heightened governmental regulation of trans-fats or trans-fatty acids.  The U.S. Food and Drug Administration currently requires food manufacturers to disclose levels of trans-fats contained in their products, and various local governments have enacted or are considering restrictions on the use of trans-fats in restaurants.  Several food processors have either switched or indicated an intention to switch to oil products with lower levels of trans-fats or trans-fatty acids.

oIn recent years, there has been increased global interest in the production of biofuels as alternatives to traditional fossil fuels and as a means of promoting energy independence.  Soybeans can be converted into biofuels such as biodiesel.  Accordingly, the soybean market has become increasingly affected by demand for biofuels and related legislation.

oThe costs related to soybean production could increase and soybean supply could decrease as a result of restrictions on the use of genetically modified soybeans, including requirements to segregate genetically modified soybeans and the products generated from them from other soybean products.

oSeasonal fluctuations in the price of soybeans may cause risk to an investor because of the possibility that Share prices will be depressed because of the soybean harvest cycle.  In the futures market, fluctuations are typically reflected in contracts expiring in the harvest season (i.e., contracts expiring during the fall are typically priced lower than contracts expiring in the winter and spring).  Thus, seasonal fluctuations could result in an investor incurring losses upon the sale of Fund Shares, particularly if the investor needs to sell Shares when the Benchmark Component Futures Contracts are, in whole or part, Soybean Futures Contracts expiring in the fall.

oThe CFTC and U.S. designated contract markets may establish position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which an investment by the Fund is not) may hold, own or control.  For example, the current position limit for investments at any one time in the Soybean Futures Contracts are 600 spot month contracts, 15,000 contracts expiring in any other single month, and 15,000 total for all months.  Cleared Soybean Swaps (i.e., Soybean Calendar Swaps as currently offered on the CBOT) are subject to position limits that are similar to, but currently measured separately from, the limits on Soybean Futures Contracts.  The position limits for Cleared Soybeans Swaps are 6,500 contracts expiring in any single month and 10,000 contracts total for all months. These position limits are fixed ceilings that the Fund would not be able to exceed without specific CFTC authorization. Additionally, the Fund’s ability to rely on these Cleared Soybean Swaps may be further limited when the position limit rules become effective.

oIn addition to position limits, the exchanges set daily price fluctuation limits on futures contracts.  The daily price fluctuation limit establishes the maximum amount that the price of futures contracts may vary either up or down from the previous day’s settlement price.  Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

oCurrently, the CBOT imposes an initial $3,500 per contract maximum daily price fluctuation limit on Soybean Futures Contracts.  This limit is based off the previous trading day’s settlement price.  If two or more Soybean Futures Contract months within the first seven listed non-spot contracts close at the limit, the daily price limit increases to $5,250 per contract for the next business day and to $8,000 per contract for the next business day if the limit is met again.

oAll of these limits may potentially cause a tracking error between the price of the Shares and the Benchmark.  This may in turn prevent you from being able to effectively use the Fund as a way to hedge against soybean-related losses or as a way to indirectly invest in soybeans.

oIf the Fund encounters position limits or price fluctuation limits for Soybean Futures Contracts and/or Cleared Soybean Swaps on the CBOT, it may then, if permitted under applicable regulatory requirements, purchase Other Soybean Interests and/or Soybean Futures Contracts listed on foreign exchanges.  However, the Soybean Futures
160
 
 Contracts available on such foreign exchanges may have different underlying sizes, deliveries, and prices.  In addition, the Soybean Futures Contracts available on these exchanges may be subject to their own position limits or similar restrictions.  In any case, notwithstanding the potential availability of these instruments in certain circumstances, position limits could force the Fund to limit the number of Creation Baskets that it sells.

Risks Specific to the Teucrium Sugar Fund

 

oU.S. designated contract markets such as the ICE Futures and the NYMEX have established position limits and accountability levels on the maximum net long or net short Sugar Futures Contracts that any person or group of persons under common trading control may hold, own or control.  For example, the current ICE Futures-established position limit level for investments in Sugar No. 11 Futures Contracts for the spot month, which is defined as on and
161
 
 after the second business day following the expiration of the regular option contract traded on the expiring futures contract, is 5,000, the accountability level for investments in ICE Sugar No. 11 Futures Contracts for any one month is 10,000, and the accountability level for all combined months is 15,000. While accountability levels are not fixed ceilings, they are thresholds above which the exchange may exercise greater scrutiny and control over an investor, including limiting an investor to holding no more Sugar No. 11 Futures Contracts than the amount established by the accountability level.  ICE Cleared Sugar Swaps are subject to a level of 10,000 swap positions for any single month and all months combined.  This limit is currently measured separately from the accountability levels on Sugar No. 11 Futures Contracts.  The Fund does not intend to invest in Sugar Futures Contracts or Cleared Sugar Swaps in excess of any applicable accountability levels.

oPosition limits generally impose a fixed ceiling on aggregate holdings in futures contracts relating to a particular commodity, and may also impose separate ceilings on contracts expiring in any one month, contracts expiring in the spot month, and/or contracts in certain specified final days of trading. The CFTC has not currently set position limits for Sugar Futures Contracts, and the ICE Futures and the NYMEX have established position limits only on spot month Sugar No. 11 Futures Contracts. For example, the ICE Futures’ position limit for Sugar No. 11 Futures Contracts is 5,000 spot month contracts, whereas the NYMEX Sugar No. 11 Futures limit is 1,000 contracts, generally applicable only during the last month before expiration and limits on 9,000 contracts for a single month or cumulative amount. All Sugar Futures Contracts held under the control of the Sponsor, including those held by any future series of the Trust, will be aggregated in determining the application of these position limits. However, because spot month contracts are not Benchmark Component Futures Contracts and the Fund’s roll strategy calls for the sale of all spot month Sugar No. 11 Futures Contracts prior to the time the position limits would become applicable, it is unlikely that position limits on Sugar Futures Contracts will come into play.

oIn addition to accountability levels and position limits, exchanges may establish daily price fluctuation limits on futures contracts.  The daily price fluctuation limit establishes the maximum amount that the price of futures contracts may vary either up or down from the previous day’s settlement price.  Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.  Currently, the ICE Futures and the NYMEX have not imposed maximum daily price fluctuation limits on Sugar Futures Contracts.

oAll of these limits may potentially cause a tracking error between the price of the Shares and the Benchmark.  This may in turn prevent you from being able to effectively use the Fund as a way to hedge against sugar-related losses or as a way to indirectly invest in sugar.

oIf the Fund encounters accountability levels, position limits, or price fluctuation limits for Sugar Futures Contracts and/or Cleared Sugar Swaps on ICE Futures, it may then, if permitted under applicable regulatory requirements, purchase Other Sugar Interests and/or Sugar Futures Contracts listed on the NYMEX or foreign exchanges.  However, the Sugar Futures Contracts available on such foreign exchanges may have different underlying sizes, deliveries, and prices.  In addition, the Sugar Futures Contracts available on these exchanges may be subject to their own position limits and accountability levels.  In any case, notwithstanding the potential availability of these instruments in certain circumstances, position limits could force the Fund to limit the number of Creation Baskets that it sells.

Risks Specific to the Teucrium Wheat Fund

  

oThe price and availability of wheat is influenced by economic and industry conditions, including but not limited to supply and demand factors such as: crop disease; weed control; water availability; various planting, growing, or harvesting problems; severe weather conditions such as drought, floods, or frost that are difficult to anticipate and which cannot be controlled.  Demand for food products made from wheat flour is affected by changes in consumer
162
 
  tastes, national, regional and local economic conditions, and demographic trends.  More specifically, demand for such food products in the United States is relatively unaffected by changes in wheat prices or disposable income, but is closely tied to tastes and preferences.  For example, in recent years the increase in the popularity of low-carbohydrate diets caused the consumption of wheat flour to decrease rapidly before rebounding somewhat after 2005.  Export demand for wheat fluctuates yearly, based largely on crop yields in the importing countries.

oWheat production is subject to United States federal, state and local policies and regulations that materially affect operations.  Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives, acreage control, and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain crops, the location and size of crop production, the volume and types of imports and exports, the availability and competitiveness of feedstocks as raw materials, and industry profitability.  Additionally, wheat production is affected by laws and regulations relating to, but not limited to, the sourcing, transporting, storing and processing of agricultural raw materials as well as the transporting, storing and distributing of related agricultural products.  U.S. wheat producers also must comply with various environmental laws and regulations, such as those regulating the use of certain pesticides, and local laws that regulate the production of genetically modified crops.  In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions.

oSeasonal fluctuations in the price of wheat may cause risk to an investor because of the possibility that Share prices will be depressed because of the wheat harvest cycle.  In the United States, the market for winter wheat, the type of wheat upon which CBOT Wheat Futures Contracts are based, is at its lowest point, and wheat prices are lowest, shortly before and during the harvest (in the spring or early summer), due to the high supply of wheat in the market.  Conversely, winter wheat prices are generally highest in the fall or early winter, when the wheat harvested that year has largely been sold and used.  In the futures market, these seasonal fluctuations are typically reflected in contracts expiring in the relevant season (e.g., contracts expiring during the harvest season are typically priced lower than contracts expiring in the fall and early winter).  Thus, seasonal fluctuations could result in an investor incurring losses upon the sale of Fund Shares, particularly if the investor needs to sell Shares when the Benchmark Component Futures Contracts are, in whole or part, Wheat Futures Contracts expiring in the spring.

 

163
 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

 

  (a) On July 31, 2010, for all Funds listed below except the Teucrium Agricultural Fund for which the contribution was made on April 1, 2011, the Sponsor made the following capital contributions and received the following shares for that contribution prior to each Fund’s commencement of operations; such shares were sold in private offerings exempt from registration under Section 4(2) of the Securities Act of 1933, as amended:

 

  1. a $100 capital contribution to the Teucrium WTI Crude Oil Fund, a separate series of the Trust, in exchange for two shares of such fund;

 

  2. a $100 capital contribution to the Teucrium Natural Gas Fund, another series of the Trust, in exchange for four shares of such fund;

 

  3. a $100 capital contribution to the Teucrium Soybean Fund, another series of the Trust, in exchange for four shares of such fund;

 

 

  4. a $100 capital contribution to the Teucrium Sugar Fund, another series of the Trust, in exchange for four shares of such fund; and

 

  5. a $100 capital contribution to the Teucrium Wheat Fund, another series of the Trust, in exchange for four shares of such fund.

 

  6. a $100 capital contribution to the Teucrium Agricultural Fund, another series of the Trust, in exchange for two shares of such fund.

 

  (b) The original registration statement on Form S-1 registering 30,000,000 common units, or “Shares,” of the Teucrium Corn Fund (File No. 333-162033) was declared effective on June 7, 2010. A second registration statement on Form S-1 (File No. 333-187463) which replaced the original registration statement was declared effective on April 30, 2013. From June 9, 2010 (the commencement of operations) through June 30, 2013, 5,200,000 Shares of the Fund were sold at an aggregate offering price of $213,109,570. The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund from June 9, 2010 (the commencement of operations) through June 30, 2013 in an amount equal to $368,296, resulting in net offering proceeds of $212,741,274. The offering proceeds were invested in corn futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

 

The registration statement on Form S-1 registering 40,000,000 common units, or “Shares,” of Teucrium Natural Gas Fund (File No. 333-167593) was declared effective on October 22, 2010.  A second registration statement on Form S-1 (File No. 333-187434) which replaced the original registration statement was declared effective on April 30, 2013. From February 1, 2011 (the commencement of the offering) through June 30, 2013, 400,000 Shares of the Fund were sold at an aggregate offering price of $7,420,546.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $41,442, resulting in net offering proceeds of $7,379,104.    The offering proceeds were invested in natural gas futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

 

The registration statement on Form S-1 registering 15,000,000 common units, or “Shares,” of Teucrium WTI Crude Oil Fund (File No. 333-167594) was declared effective on October 22, 2010.  A second registration statement on Form S-1 (File No. 333-187435) which replaced the original registration statement was declared effective on April 30, 2013. From February 23, 2011 (the commencement of the offering) through June 30, 2013, 125,000 Shares of the Fund were sold at an aggregate offering price of $6,077,099.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $66,040, resulting in net offering proceeds of $6,011,059.    The offering proceeds were invested in crude oil futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

The registration statement on Form S-1 registering 10,000,000 common units, or “Shares,” of Teucrium Soybean Fund (File No. 333-167590) was declared effective on June 17, 2011. From September 19, 2011 (the commencement of the offering) through June 30, 2013, 850,000 Shares of the Fund were sold at an aggregate offering price of $21,186,252.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $22,797, resulting in net offering proceeds of $21,163,455.    The offering proceeds were invested in soybean futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

The registration statement on Form S-1 registering 10,000,000 common units, or “Shares,” of Teucrium Sugar Fund (File No. 333-167585) was declared effective on June 17, 2011. From September 19, 2011 (the commencement of the offering) through June 30, 2013, 400,000 Shares of the Fund were sold at an aggregate offering price of $8,609,407.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $8,607, resulting in net offering proceeds of $8,600,800.    The offering proceeds were invested in sugar futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

 

164
 

The registration statement on Form S-1 registering 10,000,000 common units, or “Shares,” of Teucrium Wheat Fund (File No. 333-167591) was declared effective on June 17, 2011. From September 19, 2011 (the commencement of the offering) through June 30, 2013, 675,000 Shares of the Fund were sold at an aggregate offering price of $14,480,109.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $16,951, resulting in net offering proceeds of $14,463,158.    The offering proceeds were invested in wheat futures contracts and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

The registration statement on Form S-1 registering 5,000,000 common units, or “Shares,” of Teucrium Agricultural Fund (File No. 333-173691) was declared effective on February 10, 2012. From March 28, 2012 (the commencement of the offering) through June 30, 2013, 350,000 Shares of the Fund were sold at an aggregate offering price of $17,706,578.  The Fund paid fees to Foreside Fund Services, LLC for its services to the Fund through June 30, 2013 in an amount equal to $2,754, resulting in net offering proceeds of $17,703,824.    The offering proceeds were invested in Shares of the Underlying Funds and cash and cash equivalents in accordance with the Fund’s investment objective stated in the prospectus.

 

  (c) The following chart shows the number of Shares redeemed by Authorized Participants for the three months ended June 30, 2013:

 

Issuer Purchases of CORN Shares:

               Maximum Number (or
            Total Number of  Approximate Dollar
        Average   Shares Purchased  Value) of Shares that
    Total Number of   Price   as Part of Publicly  May Yet Be Purchased
    Shares   Paid per   Announced Plans  Under the Plans or
Period   Purchased   Share   or Programs  Programs
April 1, 2013 to April 30, 2013    100,000   $39.89   N/A  N/A
May 1, 2013 to May 31, 2013    25,000   $39.39   N/A  N/A
June 1, 2013 to June 30, 2013    -   $-   N/A  N/A
Total    125,000   $39.79       

 

 

Issuer Purchases of SOYB Shares:

Period   Total Number of
Shares
Purchased		   Average
Price
Paid per
Share		   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs		  Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
April 1, 2013 to April 30, 2013    -   $-   N/A  N/A
May 1, 2013 to May 31, 2013    25,000   $23.10   N/A  N/A
June 1, 2013 to June 30, 2013    -   $-   N/A  N/A
Total    25,000   $23.10       

 

 

Issuer Purchases of WEAT Shares:

Period   Total Number of
Shares
Purchased		   Average
Price
Paid per
Share		   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs		  Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
April 1, 2013 to April 30, 2013    50,000   $18.10   N/A  N/A
May 1, 2013 to May 31, 2013    -   $-   N/A  N/A
June 1, 2013 to June 30, 2013    25,000   $17.93   N/A  N/A
Total    75,000   $18.05       

 

Issuer Purchases of NAGS Shares: Nothing to Report 

 

Issuer Purchases of TAGS Shares: Nothing to Report 

 

Issuer Purchases of CRUD Shares: Nothing to Report

 

Issuer Purchases of CANE Shares: Nothing to Report

 

Item 3.     Defaults Upon Senior Securities

 

None.

 

165
 

Item 4.     Mine Safety Disclosures

 

None.

 

Item 5.     Other Information

 

(a) None.

(b) Not Applicable.

 

Item 6.            Exhibits

 

The following exhibits are filed as part of this report as required under Item 601 of Regulation S-K:

 

3.1   Second Amended and Restated Declaration of Trust and Trust Agreement of the Registrant. (1)
     
3.2   Certificate of Trust of the Registrant. (2)
     
3.3   Instrument Establishing the Fund. (3)
     
10.1   Form of Authorized Purchaser Agreement. (6)
     
10.2   Distribution Services Agreement. (1)
     
10.3   Amended and Restated Distribution Services Agreement. (4)
     
10.4   Amendment to Amended and Restated Distribution Services Agreement. (4)
     
10.5   Second Amendment to Amended and Restated Distribution Services Agreement (4)
     
10.6   Third Amendment to Amended and Restated Distribution Services Agreement (7)
     
10.7   Global Custody Agreement. (5)
     
10.8   Services Agreement. (5)
     
10.9   Transfer Agency and Service Agreement. (5)
     
31.1  

Certification by the Principal Executive Officer of the Registrant pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. (8)

 

31.2   Certification by the Principal Financial Officer of the Registrant pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. (8)
     
32.1   Certification by the Principal Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (8) 
     
32.2   Certification by the Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (8)
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema

 

101.CAL

  

 

XBRL Taxonomy Extension Calculation Linkbase

     
101.DEF   XBRL Taxonomy Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

166
 
  (1) Previously filed as like-numbered exhibit to Post-Effective Amendment No. 1 to Registration Statement No. 333-162033, filed on October 22, 2010 and incorporated by reference herein.

 

  (2) Previously filed as like-numbered exhibit to Registration Statement No. 333-162033, filed on September 21, 2009 and incorporated by reference herein.

 

  (3) Previously filed as like-numbered exhibit to Post-Effective Amendment No. 1 to Registration Statement No. 333-167590, filed on March 9, 2011 and incorporated by reference herein.

 

  (4) Previously filed as like-numbered exhibit to Registrant’s Current Report on Form 8-K for the Teucrium Corn Fund, filed on October 31, 2011 and incorporated by reference herein.

 

  (5) Previously filed as like-numbered exhibit to Pre-Effective Amendment No. 3 to Registration Statement No. 333-162033, filed on March 29, 2010 and incorporated by reference herein.
     
  (6) Previously filed as like-numbered exhibit to Pre-Effective Amendment No. 1 to Registration Statement No. 333-173691, filed on December 5, 2011.

 

  (7) Previously filed as like-numbered exhibit to Pre-Effective Amendment No. 1 to Registration Statement No. 333-187463, filed on April 30, 2013
     
  (8) Filed herewith.

 

167
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Teucrium Commodity Trust (Registrant)
   
By: Teucrium Trading, LLC
  its Sponsor
   
By: /s/ Barbara Riker  
Name: Barbara Riker
  Chief Financial Officer
   
  Date: August 9, 2013

 

168