Description of United States 12 Month Oil Fund, LP and the General Risks of the Offering
An investment in the Units issued by the United States 12 Month Oil Fund® LP (USL), involves risks. Some of the risks you may face are summarized below. A more extensive discussion of the risks associated with investing directly or indirectly in USL, appears in the Prospectus preceding or accompanying this Disclosure document.
- Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income and gains to their investors, USL generally does not distribute cash to limited partners or other unitholders. You should not invest in USL if you will need cash distributions from USL to pay taxes on your share of income and gains of USL, if any, or for any other reason.
- You may not be able to effectively use USL as a way to hedge against crude oil-related losses or as a way to indirectly invest in crude oil if the following were to occur:
- Changes in USL's NAV do not correlate with changes in the average of the prices of the Benchmark Oil Futures Contracts;
- Changes in the price of units may cause the units to trade at a price that is above or below USL's NAV per unit. Accordingly, changes in the price of units may substantially vary from the changes in the spot price of light, sweet crude oil.
- The Benchmark Oil Futures Contracts may not correlate with the spot price of light, sweet crude oil and this could cause changes in the price of the units to substantially vary from the changes in the spot price of light, sweet crude oil.
- Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause a tracking error, which could cause the price of units to substantially vary from the average of the prices of the Benchmark Oil Futures Contracts.
- The price relationship between the near month contract to expire and the other monthly contracts that compose the Benchmark Oil Futures Contracts will vary and may impact both the total return over time of USL's NAV, as well as the degree to which its total return tracks other crude oil price indices' total returns.
- Investing in USL for purposes of hedging may subject you to risks, including the possibility of losing the benefit of favorable market movements.
- The design of USL's Benchmark Oil Futures Contracts consist of the near month contract to expire and the contracts for the following 11 months, except during the last two weeks of the current month when the near month contract is sold and replaced by the futures contract for the thirteenth month following the current month. In the event of a crude oil futures market where near month contracts trade at a higher price than the price of contracts that expire later in time, a situation described as "backwardation" in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to rise as it approaches expiration. As a result, the total return of the Benchmark Oil Futures Contracts would tend to track higher. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than the price of contracts that expire later in time, a situation described as "contango" in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. As a result the total return of the Benchmark Oil Futures Contracts would tend to track lower. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USL's NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact on USL's NAV and total return. Furthermore, a portfolio that consists of twelve different monthly contracts, ranging in a "strip" from the first month to the twelfth month, will be impacted differently by contango and backwardation than a portfolio that consists of just the first month contract
- The structure and operation of USL may involve conflicts of interest. For example, a conflict may arise because the General Partner and its principals and affiliates may trade for themselves. In addition, the General Partner has sole current authority to manage the investments and operations, which may create a conflict with the unitholders' best interests. The General Partner/Sponsor may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on The General Partner may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on the United States Oil Fund, LP, the United States Short Oil Fund, LP, the United States Brent Oil Fund, LP, the United States Natural Gas Fund, LP, the United States 12 Month Natural Gas Fund, LP, the United States Gasoline Fund, LP, the United States Heating Oil Fund, LP, the United States Commodity Index Fund, the United States Copper Index Fund and the United States Agriculture Index Fund, the other commodity pools that it manages, or any other commodity pool the General Partner may form and manage in the future.
- You will have no rights to participate in the management of USL and will have to rely on the duties and judgment of the General Partner to manage USL.
- USL pays fees and expenses that are incurred regardless of whether it is profitable.
- If the General Partner causes or permits USL to become leveraged, you could lose all or substantially all of your investment if USL's trading positions suddenly turn unprofitable.
- USL may also invest in Other Crude Oil-Related Investments, many of which are negotiated contracts that are not as liquid as Oil Futures Contracts and expose USL to credit risk that its counterparty may not be able to satisfy its obligations to USL.
*Some risks listed above may be mitigated due to rules proposed by the CFTC and SEC as promulgated under the Dodd-Frank Act. For a discussion of these risks and others, please see the current Prospectus.