Fund Objective & Key Features
The United States 12 Month Oil Fund® LP (USL) is an exchange-traded security that is designed to track the movements of West Texas Intermediate ("WTI") light, sweet crude oil. USL issues units that may be purchased and sold on the NYSE Arca.
The investment objective of USL is for the daily changes in percentage terms of its units' net asset value ("NAV") to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of the 12 futures contracts for light, sweet crude oil traded on the NYMEX, consisting of the near month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months' contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following 11 consecutive months (the "Benchmark Futures Contract"), less USL's expenses. When calculating the daily movement of the average price of the 12 contracts, each contract month will be equally weighted.
The portfolio consists of listed crude oil futures contracts and other oil-related futures and may consist of forwards and swap contracts. These investments will be collateralized by cash, cash equivalents and US government obligations with remaining maturities of two years or less.
USL's Key Features
- USL provides a vehicle to hedge crude oil movements or to take directional positions on oil prices
- USL offers the convenience of an exchange-traded security listed on the NYSE Arca
- USL permits commodity-like exposure without using a commodity futures account
- USL provides "equity-like" order flexibility, including market, limit, stop, stop limit and Good-Til-Cancelled (GTC) orders
- USL provides Market Price, NAV, and Portfolio Holdings on a daily basis
USL's Creation & Redemption Process
- Creation/redemption basket size: 50,000 units
- Through December 31, 2012, transaction charge for each AP order is $350 (per order, not per basket)
- Order cut-off for APs is 12:00 pm ET
- USL's NAV is calculated generally around 4:00 pm ET
- Settlement is T+3
- Custodian is Brown Brothers Harriman & Co.
- Marketing Agent is ALPS Distributors, Inc.
U.S. Federal Income Tax Considerations
A summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of units in USL, and the U.S. federal income tax treatment of USL, is set forth in the Prospectus.
Each prospective investor is advised to consult its own tax advisor as to the U.S. federal income tax consequences of an investment in USL to the investor and as to applicable state, local or foreign taxes.
Tax Status of USL
USL is organized is organized and operates as a limited partnership in accordance with the provisions of LP Agreement applicable state law. Under the Internal Revenue Code of 1986, as amended (the "Code"), an entity classified as a partnership that is deemed to be a "publicly traded partnership" is generally taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded partnership whose gross income for each taxable year of its existence consists of at least 90% "qualifying income" ("qualifying income exception"). For this purpose, section 7704 defines "qualifying income" as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, "qualifying income" includes income and gains from such commodities and futures, forwards and options with respect to commodities. USL and the General Partner have represented the following to Reed Smith LLP:
- At least 90% of USL's gross income for each taxable year will constitute "qualifying income" within the meaning of Code section 7704 (as described above);
- USL will be organized and operated in accordance with its governing agreements and applicable law; and
- USL has not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes.
Based in part on these representations, Reed Smith LLP is of the opinion that USL will be classified as a partnership for federal income tax purposes and that it will not be taxable as a corporation for such purposes.
If USL failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the Internal Revenue Service to be inadvertent and that is cured within a reasonable time after discovery, USL would be taxable as a corporation for federal income tax purposes and would pay federal income tax on its income at regular corporate rates. In that event, unitholders would not report their share of USL's income or loss on their returns. In addition, distributions to unitholders would be treated as dividends to the extent of USL's current and accumulated earnings and profits. To the extent a distribution exceeded USL's earnings and profits, the distribution would be treated as a return of capital to the extent of a unitholder's basis in its units, and thereafter as gain from the sale of units. Accordingly, if USL were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in USL and on the value of the units.
The foregoing is only a partial summary of the federal income tax consequences of an investment in USL. The full summary can be found in the Prospectus.
|USL Data||as of 06/19/2013|
|Minimum Trade Size||1 share|
|Administrator||Brown Brothers Harriman & Co.|
|Distributor||ALPS Distributors, Inc.|
|General Partner||United States Commodity Funds, LLC|
|Management Expense Ratio||0.60%|
*There are special risks associated with margin investing. Please ask your financial advisor for more information about these risks.