Filed Pursuant to Rule 424(b)(3)

Registration No. 333-214825

 

United States 3x Oil Fund*

30,000,000 Shares

*Principal U.S. Listing Exchange: NYSE Arca, Inc.

 

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

 

The United States 3x Oil Fund (the “Fund”), a series of the USCF Funds Trust, is a fund that issues shares that trade on NYSE Arca Equities, Inc. (“NYSE”). The investment objective of the Fund is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect three times (3x) the daily change in percentage terms of the price of a specified short-term futures contract on light, sweet crude oil called the “Benchmark Oil Futures Contract.” The Benchmark Oil Futures Contract is the futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange (the “NYMEX”), traded under the trading symbol “CL” (for WTI Crude Oil futures), that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire. The Fund seeks a return that is 300% of the return of the Benchmark Oil Futures Contract for a single day. The Fund should not be expected to provide 300% of the cumulative return for the Benchmark Oil Futures Contract for periods greater than a day.

 

The Fund will seek to achieve its investment objective by primarily investing in futures contracts for light, sweet crude oil that are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”).

 

The Fund will, to a lesser extent and in view of regulatory requirements and/or market conditions:

 

(i) next invest in (a) cleared swap transactions based on the Benchmark Oil Futures Contract, (b) non-exchange traded (“over-the-counter” or “OTC”), negotiated swap contracts that are based on the Benchmark Oil Futures Contract, and (c) forward contracts for oil;
     
(ii) followed by investments in futures contracts for other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels, each of which are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges as well as cleared swap transactions and OTC swap contracts valued based on the foregoing; and

 

(iii) finally, invest in exchange-traded cash settled options on Oil Futures Contracts.
     

All such other investments are referred to as “Other Oil-Related Investments” and, together with Oil Futures Contracts, are “Oil Interests.” The Fund will support its investments by holding the amounts of its margin, collateral and other requirements relating to these obligations in short-term obligations of the United States of two years or less (“Treasuries”), cash and cash equivalents. The majority of the Fund’s assets will be held in Treasuries, cash and/or cash equivalents.

The Fund pays its sponsor, United States Commodity Funds LLC (“USCF”), a limited liability company, a management fee and incurs certain other costs. The address of both USCF and the Fund is 1999 Harrison Street, Suite 1530, Oakland, CA 94612. The telephone number for both USCF and the Fund is 510.522.9600. In order for a hypothetical investment in shares to breakeven over the next 12 months, assuming a selling price of $25.00 the investment would have to generate 0.91 % return or $ 0.23.

The Fund is an exchange traded fund. This means that most investors who decide to buy or sell shares of the Fund place their trade orders through their brokers and may incur customary brokerage commissions and charges. Shares of the Fund trade on NYSE under the ticker symbol “USOU” and are bought and sold throughout the trading day at bid and ask prices like other publicly traded securities.

 

Shares will trade on NYSE after they are initially purchased by “Authorized Participants,” institutional firms that purchase shares in blocks of 50,000 shares called “baskets” through the Fund’s marketing agent, ALPS Distributors, Inc. (the “Marketing Agent”). The initial price per share will be $25, the initial price per basket will be $1,250,000, and RBC Capital Markets, LLC is the initial Authorized Participant. Thereafter, the price of a basket will be equal to the NAV of 50,000 shares on the day that the order to purchase the basket is accepted by the Marketing Agent. The NAV per share will be calculated by taking the current market value of the Fund’s total assets (after close of NYSE) subtracting any liabilities and dividing that total by the total number of outstanding shares. Authorized Participants that do offer to the public shares from the baskets they create will do so at per-share offering prices that are expected to reflect, among other factors, the trading price of the shares on NYSE, the NAV of the shares at the time the Authorized Participant purchased the Creation Baskets, the NAV of the shares 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 Oil Futures Contract market and the market for Other Oil-Related Investments. Please see below for additional information. The offering of the Fund’s shares will be a “best efforts” offering, which means that no Authorized Participant is required to purchase a specific number or dollar amount of shares nor is the Marketing Agent required to facilitate any specific number or dollar amount of creation or redemption orders for baskets.

USCF will pay the Marketing Agent a service fee. Aggregate compensation paid to the Marketing Agent and any affiliate of USCF for marketing and/or distribution-related services in connection with this offering of shares will not exceed ten percent (10%) of the gross proceeds of the offering.

 

The Fund is not appropriate for all investors and presents many different risks than other types of funds, including risks associated with the use of leverage. The Fund is intended to be a daily trading tool for sophisticated investors to manage daily trading risks. The Fund uses leverage and should produce returns for a single day that are more volatile than that of the Benchmark Oil Futures Contract. Additionally, the Fund is designed to achieve its stated investment objective on a daily basis, but its performance over different periods of time can differ significantly from its stated daily objective. The Fund is riskier than securities that have intermediate or long-term investment objectives, and may not be suitable for investors who plan to hold shares of the Fund for a period other than one day. The return of the Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from the 300% of the performance of the Benchmark Oil Futures Contract for the same period. Daily compounding of the Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to the Fund’s return for a period as the return of the Benchmark Oil Futures Contract. Accordingly, the Fund should be purchased only by knowledgeable investors who understand the potential consequences of seeking daily compounding leveraged long investment results. Investors should actively and frequently monitor their investments in the Fund, even intra-day. It is possible that you will suffer significant losses in the Fund even if the long-term performance of the Benchmark Oil Futures Contract is positive.

Investors who buy or sell shares during the day from their broker may do so at a premium or discount relative to the market value of the underlying Benchmark Oil Futures Contracts in which the Fund invests due to supply and demand forces at work in the secondary trading market for shares. Investing in the Fund involves risks similar to those involved with leveraged exposure to the Benchmark Oil Futures Contracts, and other significant risks. See “ Risk Factors Involved with an Investment in the Fund ” beginning on page 6.

The offering of the Fund’s shares is registered with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Act of 1933 (the “1933 Act”). The offering is intended to be a continuous offering and is not expected to terminate until all of the registered shares have been sold or three years from the date of the original offering, whichever is earlier, unless extended as permitted under the rules under the 1933 Act, although the offering may be temporarily suspended if and when no suitable investments for the Fund are available or practicable. The Fund is not an investment company registered under the Investment Company Act of 1940 (“1940 Act”) and is not subject to regulation under such Act.

NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED IN THIS PROSPECTUS, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Fund is a commodity pool and USCF is a commodity pool operator subject to regulation by the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) under the Commodities Exchange Act (“CEA”).

The date of this prospectus is July 19, 2017

 

 
 

COMMODITY FUTURES TRADING COMMISSION

 

RISK DISCLOSURE STATEMENT

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 56 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 57.

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 6.

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL RISK.

HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.

IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.

 

 
 

TABLE OF CONTENTS

 

    Page  
Disclosure Document:        
PROSPECTUS SUMMARY     1  
The Trust and the Fund     1  
The Fund’s Investment Objective and Strategy     1  
What Is the “Benchmark Oil Futures Contract”?     1  
Principal Investment Risks of an Investment in the Fund     3  
The Fund’s Fees and Expenses     5  
RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE FUND     6  
Risks Related to Leveraged Investments     6  
Investment Risk     7  
Correlation Risk     7  
Tax Risk     10  
OTC Contract Risk     12  
Compounding Risk     13  
Other Risks     19  
ADDITIONAL INFORMATION ABOUT THE FUND, ITS INVESTMENT OBJECTIVE AND INVESTMENTS     26  
Impact of Contango and Backwardation on Total Returns     27  
Trading Methodology     29  
What are the Trading Policies of the Fund?     30  
The Fund’s Operations     48  
USCF and its Management and Traders     48  
The Fund’s Service Providers     52  
Custodian, Registrar, Transfer Agent, and Administrator     53  
Delaware Trustee     54  
Marketing Agent     54  
Relationship with Charles Schwab & Co., Inc.     54  
Futures Commission Merchant     54  
The Fund’s Fees and Expenses     56  
Breakeven Analysis     57  
Conflicts of Interest     58  
Ownership or Beneficial Interest in the Fund     59  
Fiduciary and Regulatory Duties of USCF     59  
Liability and Indemnification     60  
Provisions of Law     61  
Management; Voting by Shareholders     62  
Meetings     62  
Termination Events     62  
Books and Records     63  
Statements, Filings, and Reports to Shareholders     63  
Fiscal Year     64  
Governing Law; Consent to Delaware Jurisdiction     64  
Legal Matters     64  
U.S. Federal Income Tax Considerations     64  
Tax Consequences of Disposition of Shares     69  
Other Tax Matters     70  
Investment by ERISA Accounts     74  
Form of Shares     76  
Transfer of Shares     76  
Inter-Series Limitation on Liability     77  
Recognition of the Trust in Certain States     77  
What is the Plan of Distribution?     77  
Calculating Per Share NAV     78  
Creation and Redemption of Shares     79  
Use of Proceeds     84  
Additional Information About the Benchmark Oil Futures Contracts and the Fund’s Trading Program     84  
Information You Should Know     85  
Summary of Promotional and Sales Material     85  
Intellectual Property     85  
Where You Can Find More Information     85  
DEALER PROSPECTUS DELIVERY OBLIGATION     86  
Statement Regarding Forward-Looking Statements     86  
Privacy Policy     86  
Appendix A     A-1  
Glossary of Defined Terms     A-1  

 

 
 

PROSPECTUS SUMMARY

This is only a summary of the prospectus and, while it contains material information about the Fund and its shares, it does not contain or summarize all of the information about the Fund and its shares contained in this prospectus that is material and/or which may be important to you. You should read this entire prospectus, including “Risk Factors Involved with an Investment in the Fund” beginning on page 6, before making an investment decision about the shares. For a glossary of defined terms, see Appendix A.

 

The Fund is not appropriate for all investors and present different risks than other types of funds, including risks associated with the effects of leveraged investing. An investor should only consider an investment in the Fund if he or she understands the consequences of seeking daily leveraged investment results. The Fund seeks to return (before fees and expenses) a multiple (3x) of the performance of the Benchmark Oil Futures Contract for a single day, not for any other period. The return of the Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from the Fund’s multiple times the return of the Benchmark Oil Futures Contract for the same period. Daily compounding of the Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to the Fund’s return for a period as the return of the Benchmark Oil Futures Contract. The Fund uses leverage and should produce returns for a single day that are more volatile than that of the Benchmark Oil Futures Contract. For example, the return of the Fund for a single day should be approximately three times as volatile as the return of a fund for a single day with an objective of matching the same Benchmark Oil Futures Contract. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily.

 

The Trust and the Fund

 

The USCF Funds Trust (the “Trust”) is a Delaware statutory trust formed on March 2, 2016 pursuant to the Delaware Statutory Trust Act. The United States 3x Oil Fund (the “Fund”) formed on June 23, 2017, is one of the series of the Trust (each such series, a “REX Fund” and together, the “REX Funds”). The Fund is a commodity pool that continuously issues common shares of beneficial interest that may be purchased and sold on NYSE . The Trust and the Fund operate pursuant to the Trust’s Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”), dated as of June 23, 2017. Wilmington Trust, National Association, a national banking association, with its principal place of business in the State of Delaware, is the Delaware trustee of the Trust. The Trust and the Fund are managed and controlled by USCF. USCF is a limited liability company formed in Delaware on May 10, 2005, 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”).

The Fund’s Investment Objective and Strategy

 

The investment objective of the Fund will be for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect three times (3x) the daily change in percentage terms of the price of a specified short-term futures contract on light, sweet crude oil (the “Benchmark Oil Futures Contract”) less the Fund’s expenses. To achieve this objective, USCF will endeavor to have the notional value of the Fund’s aggregate exposure to the Benchmark Oil Futures Contract at the close of each trading day approximately equal to 300% of the Fund’s NAV. The Fund will seek a return that is 300% of the return of the Benchmark Oil Futures Contract for a single day and does not seek to achieve its stated investment objective over a period of time greater than one day. The pursuit of daily leveraged investment goals means that the return of the Fund for a period longer than a full trading day may have no resemblance to 300% of the return of the Benchmark Oil Futures Contract for a period of longer than a full trading day because the aggregate return of the Fund is the product of the series of each trading day’s daily returns.

 

What Is the “Benchmark Oil Futures Contract”?

 

The Benchmark Oil Futures Contract is the futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange (the “NYMEX”), traded under the trading symbol “CL” (for WTI Crude Oil futures), that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire.

 

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How Does the Fund Intend to Meet Its Investment Objectives?

 

The Fund will seek to achieve its investment objective by primarily investing in futures contracts for light, sweet crude oil that are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”).

 The Fund will, to a lesser extent and in view of regulatory requirements and/or market conditions:

(i) next invest in (a) cleared swap transactions based on the Benchmark Oil Futures Contract, (b) non-exchange traded (“over-the-counter” or “OTC”), negotiated swap contracts that are based on the Benchmark Oil Futures Contract, and (c) forward contracts for oil;
     
(ii) followed by investments in futures contracts for other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels, each of which are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges as well as cleared swap transactions and OTC swap contracts valued based on the foregoing; and

 

(iii) finally, invest in exchange-traded cash settled options on Oil Futures Contracts.
     

All such other investments are referred to as “Other Oil-Related Investments” and, together with Oil Futures Contracts, are “Oil Interests.”

For the Fund to maintain a consistent 300% return versus the Benchmark Oil Futures Contract, the Fund’s holdings must be rebalanced on a daily basis by buying additional Oil Interests or selling Oil Interests that it holds. Such rebalancing will occur generally before or at the close of trading of the shares on the Exchange, at or as near as possible to that day’s settlement price, and will be disclosed on the Fund’s website as pending trades before the opening of trading on the Exchange the next business day and will be taken into account in the Fund’s intra-day Indicative Fund Value and reflected in the Fund’s end of day NAV on that business day.

 The Fund anticipates that, to the extent it invests in Oil Futures Contracts other than the Benchmark Oil Futures Contract or Other Oil-Related Investments, it will invest in futures, cleared and non-cleared swaps, and call and put options to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the price movements of the current Benchmark Oil Futures Contract. For example, if the Fund invested in diesel-heating oil futures contracts, it may also enter into a swap or forward contract that is valued based on the difference between the diesel-heating oil futures contract and the Benchmark Oil Futures Contract so that the investment in the diesel-heating oil futures contracts together with such swap would provide a return that more closely matches the movements in the price of the Benchmark Oil Futures Contract.

USCF currently anticipates that regulatory requirements such as accountability levels set by exchanges or position limits set by exchanges or by other regulators, such as the CFTC, and market conditions including those allowing the Fund to obtain greater liquidity or to execute transactions with more favorable pricing, could cause the Fund to invest in Other Oil-Related Investments.

The Fund will support its investments by holding the amounts of its margin, collateral and other requirements relating to these obligations in short-term obligations of the United States of two years or less (“Treasuries”), cash and cash equivalents. Cash equivalents are short-term instruments with maturities of less than three months and shall include the following: (i) certificates of deposit issued against funds deposited in a bank or savings and loan association; (ii) bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions; (iii) repurchase agreements and reverse repurchase agreements; (iv) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (v) commercial paper, which are short-term unsecured promissory notes; and (vi) money market funds.

The Fund may invest in money market funds, as well as Treasuries with a maturity date of two years or less, as an investment for assets not used for margin or collateral in the Oil Interests. The majority of the Fund’s assets will be held in Treasuries, cash and/or cash equivalents with the Custodian. 

2
 

The Fund will seek to invest in a combination of Oil Interests such that the daily changes in its NAV, measured in percentage terms, less the Fund’s expenses, will track three times (3x) the daily changes in the price of the Benchmark Oil Futures Contract, also measured in percentage terms. As a specific benchmark, USCF will endeavor to place the Fund’s trades in Oil Interests and otherwise manage the Fund’s investments so that the difference between “A” and “B” will be plus/minus 0.30 percent (0.30%) of “B”, where: 

A is the average daily percentage change in the Fund’s per share NAV for any period of thirty (30) successive valuation days, i.e., any NYSE trading day as of which the Fund calculates its per share NAV, less the Fund’s expenses; and

 

B is three times the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period.

 

The design of the Fund’s Benchmark Oil Futures Contract is such that every month it begins by using the near month contract to expire until the near month contract is within two weeks of expiration, when, over a four day period, it transitions to the next month contract to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close to expiration. In the event of a crude oil futures market where near month contracts trade at a higher price than next month to expire contracts (“backwardation” ), 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. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts (“contango”), 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.

USCF believes that market arbitrage opportunities will cause daily changes in the Fund’s share price on NYSE on a percentage basis, to closely track the daily changes in the Fund’s per share NAV on a percentage basis. The Fund will not seek to achieve its stated investment objective over a period of time greater than one day . The pursuit of daily leveraged investment goals means that the return of the Fund for a period longer than a full trading day may have no resemblance to 300% of the return of the Benchmark Oil Futures Contract for a period of longer than a full trading day because the aggregate return of the Fund is the product of the series of each trading day’s daily returns. During periods of market volatility, the volatility of the Benchmark Oil Futures Contract may affect the Fund’s return as much as or more than the return of the Benchmark Oil Futures Contract. Further, the return for investors that invest for periods less than a full trading day or for a period different than a trading day will not be the product of the return of the Fund’s stated investment objective and the performance of the Benchmark Oil Futures Contract for the full trading day. Additionally, investors should be aware that the Fund’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil. Natural market forces called contango and backwardation can impact the total return on an investment in the Fund’s shares relative to a hypothetical direct investment in crude oil and, in the future, it is likely that the relationship between the market price of the Fund’s shares and changes in the spot prices of light, sweet crude oil will continue to be so impacted by contango and backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning and storing crude oil, which could be substantial.)

Principal Investment Risks of an Investment in the Fund

 

An investment in the Fund involves a degree of risk. Some of the risks you may face are summarized below. A more extensive discussion of these risks appears beginning on page 6.

Investment Risk

 

Investors may choose to use the Fund as a means of investing indirectly in crude oil. There are significant risks and hazards inherent in the crude oil industry that may cause the price of crude oil to widely fluctuate.

Correlation Risk

 

To the extent that investors use the Fund as a means of indirectly investing in crude oil, there is the risk that the daily changes in the price of the Fund’s shares on the NYSE on a percentage basis, will not closely track the daily changes in the spot price of light, sweet crude oil on a percentage basis. This could happen if the price of shares traded on the NYSE does not correlate closely with the value of the Fund’s NAV; the changes in the Fund’s NAV do not correlate closely with the changes in the price of the Benchmark Oil Futures Contract; or the changes in the price of the Benchmark Oil Futures Contract do not closely correlate with the changes in the cash or spot price of crude oil. This is a risk because if these correlations do not exist, then investors may not be able to use the Fund as a cost-effective way to indirectly invest in crude oil or as a hedge against the risk of loss in crude oil-related transactions.

 

3
 

The price relationship between the near month contract to expire and the next month contract to expire that compose the Benchmark Oil Futures Contract will vary and may impact both the total return over time of the Fund’s NAV, as well as the degree to which its total return tracks other crude oil price indices’ total returns. In cases in which the near month contract’s price is lower than the next month contract’s price (a situation known as “contango” in the futures markets), 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. In cases in which the near month contract’s price is higher than the next month contract’s price (a situation known as “backwardation” in the futures markets), 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.

 

Compounding Risk

 

The Fund has a single-day investment objective. Because of daily rebalancing and the compounding of each day’s return over time, the return of the Fund for periods longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ from 300% of the return of the Benchmark Oil Futures Contract over the same period. The Fund may lose money if the Benchmark Oil Futures Contract performance is flat over time, and as a result of daily rebalancing, the volatility of the Benchmark Oil Futures Contract and the effects of compounding, it is even possible that the Fund will lose money over time while the level of the Benchmark Oil Futures Contract increases.

 

The Fund is designed to be utilized only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results and are willing to monitor their portfolios frequently. The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios.

 

Tax Risk

 

The Fund is organized and operated as a Delaware statutory trust, in accordance with the provisions of its Trust Agreement and applicable state law, but is taxed in a manner similar to a limited partnership and therefore, has a more complex tax treatment than conventional mutual funds.

Over-the-Counter (“OTC”) Contract Risk

 

The Fund may also invest in negotiated “OTC” contracts, which are not as liquid as exchange-traded futures contracts. OTC contracts expose the Fund to the risk that the Fund’s counterparty may not be able to satisfy its obligations to the Fund.

Other Risks

 

The Fund pays fees and expenses that are incurred regardless of whether it is profitable.

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, the Fund generally does not distribute cash to limited partners or other shareholders. You should not invest in the Fund if you will need cash distributions from the Fund to pay taxes on your share of income and gains of the Fund, if any, or for any other reason.

The Fund has no operating history, so there is no performance history to serve as a basis for you to evaluate an investment in the Fund.

You will have no rights to participate in the management of the Fund and will have to rely on the duties and judgment of USCF to manage the Fund.

The Fund is subject to actual and potential inherent conflicts involving USCF, the Marketing Agent, various commodity futures brokers and Authorized Participants. USCF’s officers, directors and employees do not devote their time exclusively to the Fund. USCF’s personnel are directors, officers or employees of other entities that may compete with the Fund for their services, including other commodity pools (funds) that USCF manages (these funds are referred to in this prospectus as the “Related Public Funds” and are identified in the Glossary). USCF could have a conflict between its responsibilities to the Fund and to those other entities. As a result of these and other relationships, parties involved with the Fund have a financial incentive to act in a manner other than in the best interest of the Fund and the shareholders.

 

4
 

The Fund’s Fees and Expenses

 

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You should note that you may pay brokerage fees on purchases and sales of the Fund’s shares, which are not reflected in the table. Authorized Participants will pay applicable creation and redemption fees. See “Creation and Redemption of Shares- Creation and Redemption Transaction Fee ,” page 83.

 

Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

 

    Fees and Expenses  
Management Fee (1)            1.35 %
Brokerage Fees (2)            0.49 %
Total Annual Fund Operating Expenses     1.84 %
         
(1) The Fund is contractually obligated to pay USCF a management fee based on daily net assets and paid monthly of 1.35% per annum on average net assets. Average daily net assets are calculated daily by taking the average of the total net assets of the Fund over the calendar year, i.e. , the sum of daily total net assets divided by the number of calendar days in the year. On days when markets are closed, the total net assets are the total net assets from the last day when the market was open.
(2) The Fund determined this estimate as follows based on the Fund having two blocks of 50,000 shares (“Creation Baskets”) sold and 100,000 shares outstanding. Assuming the price of a share is $25.00, the Fund would receive $2,500,000 upon the sale of a Creation Basket (100,000 shares multiplied by $25.00). Assuming no change in the settlement price of the contracts, the Fund would be required to sell and purchase positions in 150 futures contracts each month to support shares sold in the Creation Basket ($2,500,000 divided by the total value of the futures contracts at an assumed settlement price for the futures contract of $50,000, multiplied by 3 for the leverage). Assuming futures commission merchants charge approximately $3.22 per futures contract for each buy or sale, the monthly futures commission merchant commission charge per contract would be approximately $6.44 (except on the first month in which it would be approximately $3.22 because there is no roll), and the annual futures commission merchant commission charge per contract would be approximately $74.06. Assuming no change in the settlement price of the contracts, the Fund would sell and buy 150 futures contracts each month to support a Creation Basket, which means that the Fund’s annual commission charge per two Creation Baskets without rebalancing would be approximately $11,109 (150 contracts bought and sold * approximately $6.44 per month *11.5 months). The estimated daily rebalancing cost of 1% of holdings is $1,217 (1% * 150 contracts * 252, the number of NYSE trading days * $3.22). The Fund’s annual commission charge per two Creation Baskets with rebalancing is $12,326 (the annual commission charge plus the rebalancing cost). As a percentage of the total investment of $2,500,000 to support the issuance of two Creation Baskets, the Fund’s annual commission expense would be approximately 0.49% ($12,326 divided by $2,500,000 per annum).

 

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RISK FACTORS INVOLVED WITH AN INVESTMENT IN THE FUND

You should consider carefully the risks described below before making an investment decision. You should also refer to the other information included in this prospectus as well as information found in our periodic reports, which includes the Trust’s and the Fund’s financial statements and related notes.

Risks Related to Leveraged Investments

Due to the compounding of daily returns, the Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from the Fund multiple times the benchmark return for the period.

 

The investment objective of the Fund is for the daily changes in percentage terms of its per share NAV to reflect three times (3x) the daily change in percentage terms of the Benchmark Oil Futures Contract. The Fund seeks investment results for a single day only, as measured from NAV calculation time to NAV calculation time, and not for any other period. The return of the Fund for a period longer than a single day is the result of its return for each day compounded over the period, and usually will differ from three times (3x) the return of the Benchmark Oil Futures Contract for the same period. The Fund could lose money over time regardless of the performance of the Benchmark Oil Futures Contract, including as a result of daily rebalancing, the Benchmark Oil Futures Contract’s volatility, and compounding. Longer holding periods, higher volatility of the Benchmark Oil Futures Contract, and greater leverage each affect the impact of compounding on the Fund’s returns. Daily compounding of the Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to the Fund’s return for a period as the return of the Benchmark Oil Futures Contract.

The Fund uses leverage and should produce returns for a single day that are more volatile than that of the Benchmark Oil Futures Contract. For example, the return for a single day should be approximately three times as volatile for a single day as the return of a fund with an objective of matching the performance of the Benchmark Oil Futures Contract. The Fund is not appropriate for all investors and present different risks than other funds. The Fund uses leverage and is riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in the Fund if he or she understands the consequences of seeking daily leveraged investment results for a single day. Daily objective leveraged funds, if used properly and in conjunction with the investor’s view on the future direction and volatility of the markets, can be useful tools for investors who want to manage their exposure to various markets and market segments and who are willing to monitor and/or periodically rebalance their portfolios. Shareholders who invest in the Fund should actively manage and monitor their investments, as frequently as daily.

In general, during periods of higher volatility for the Benchmark Oil Futures Contract, compounding will cause the Fund’s results for periods longer than a single day to be less than three times (3x) the return of the Benchmark Oil Futures Contract. This effect becomes more pronounced as volatility increases. Conversely, in periods of lower volatility for the Benchmark Oil Futures Contract (particularly when combined with higher returns for the Benchmark Oil Futures Contract), the Fund’s returns over longer periods can be higher than three times (3x) the return of the Benchmark Oil Futures Contract. Actual results for a particular period, before fees and expenses, are also dependent on the magnitude of the return of the Benchmark Oil Futures Contract in addition to the volatility of the Benchmark Oil Futures Contract.

Intraday Price/Performance Risk.

The Fund is typically rebalanced at or about the time of its NAV calculation. As such, the intraday position of the Fund will generally be different from the Fund’s stated daily investment objective (i.e., 3x). When shares are bought intraday, the performance of the Fund’s shares until the Fund’s next NAV calculation will generally be greater than or less than the Fund’s stated daily multiple.

The use of leveraged positions could result in the total loss of an investor’s investment.

The Fund utilizes leverage in seeking to achieve its investment objective and will lose more money in market environments adverse to its respective daily investment objectives than funds that do not employ leverage. The use of leveraged positions could result in the total loss of an investor’s investment.

 

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For example, because the investment objective of the Fund is for the daily changes in percentage terms of its per share NAV to reflect three times (3x) the daily change in percentage terms of the Benchmark Oil Futures Contract, a single-day movement in the Benchmark Oil Futures Contract approaching 33% at any point in the day could result in the total loss or almost total loss of an investor’s investment if that movement is contrary to the investment objective of the Fund, even if the Benchmark Oil Futures Contract subsequently moves in an opposite direction, eliminating all or a portion of the movement. This would be the case with downward single-day or intraday movements in the Benchmark Oil Futures Contract, even if the Benchmark Oil Futures Contract maintains a level greater than zero at all times.

Investment Risk

 

The NAV of the Fund’s shares relates directly to the value of the Benchmark Oil Futures Contracts and other assets held by the Fund and fluctuations in the prices of these assets could materially adversely affect an investment in the Fund’s shares.

The net assets of the Fund consist primarily of investments in Oil Futures Contracts and, to a lesser extent, in Other Oil-Related Investments. The NAV of the Fund’s shares relates directly to the value of these assets (less liabilities, including accrued but unpaid expenses), which in turn relates to the price of light, sweet crude oil in the marketplace. Crude oil prices depend on local, regional and global events or conditions that affect supply and demand for oil.

Economic conditions impacting crude oil. The demand for crude oil correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on crude oil prices. Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth rates, periods of civil unrest, government austerity programs, or currency exchange rate fluctuations, can also impact the demand for crude oil. Sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European Union, and other events or conditions that impair the functioning of financial markets and institutions also may adversely impact the demand for crude oil.

Other crude oil demand-related factors. Other factors that may affect the demand for crude oil and therefore its price, include technological improvements in energy efficiency; seasonal weather patterns, which affect the demand for crude oil associated with heating and cooling; increased competitiveness of alternative energy sources that have so far generally not been competitive with oil without the benefit of government subsidies or mandates; and changes in technology or consumer preferences that alter fuel choices, such as toward alternative fueled vehicles.

Other crude oil supply-related factors. Crude oil prices also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil supply sources and technologies to enhance recovery from existing sources tends to reduce crude oil prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical manufacturing capacity may impact the supply of crude oil. World oil supply levels can also be affected by factors that reduce available supplies, such as adherence by member countries to the Organization of the Petroleum Exporting Countries (“OPEC”) production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies. Technological change can also alter the relative costs for companies in the petroleum industry to find, produce, and refine oil and to manufacture petrochemicals, which in turn may affect the supply of and demand for oil.

Other factors impacting the crude oil market. The supply of and demand for crude oil may also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by the development of alternative energy sources.

Price Volatility May Possibly Cause the Total Loss of Your Investment. Futures contracts have a high degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you could lose all or substantially all of your investment in the Fund.

Correlation Risk

Investors purchasing shares to hedge against movements in the price of crude oil will have an efficient hedge only if the price investors pay for their shares closely correlates with the price of crude oil. Investing in the Fund’s shares for hedging purposes involves the following risks:

 

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    The market price at which the investor buys or sells shares may be significantly less or more than NAV.

 

    Daily percentage changes in NAV may not closely correlate with daily percentage changes, on a leveraged basis in the price of the Benchmark Oil Futures Contract.

 

    Daily percentage changes in the price of the Benchmark Oil Futures Contract may not closely correlate with daily percentage changes in the price of light, sweet crude oil.
       

Further, in order to achieve a high degree of correlation with the Benchmark Oil Futures Contract, the Fund seeks to rebalance its portfolios daily to keep exposure consistent with its investment objectives. Being materially under- or overexposed to the Benchmark Oil Futures Contract may prevent the Fund from achieving a high degree of correlation with the Benchmark Oil Futures Contract. Market disruptions or closures, large amounts of assets into or out of the Fund, regulatory restrictions or extreme market volatility will adversely affect the Fund’s ability to adjust exposure to requisite levels. The target amount of portfolio exposure is impacted dynamically by the Benchmark Oil Futures Contract’s movements during each day. Because of this, it is unlikely that the Fund will be perfectly exposed (i.e., 3x) at the end of each day, and the likelihood of being materially under- or overexposed is higher on days when the benchmark levels are volatile near the close of the trading day.

In addition, unlike other funds that do not rebalance their portfolios as frequently, the Fund may be subject to increased trading costs associated with daily portfolio rebalancing in order to maintain appropriate exposure to the underlying benchmarks. Such costs include commissions paid to the FCMs, and may vary by FCM.

The market price at which investors buy or sell shares may be significantly less or more than NAV.

The Fund’s NAV per share will change throughout the day as fluctuations occur in the market value of the Fund’s portfolio investments. The public trading price at which an investor buys or sells shares during the day from their broker may be different from the NAV of the shares. Price differences may relate primarily to supply and demand forces at work in the secondary trading market for shares that are closely related to, but not identical to, the same forces influencing the prices of the light, sweet crude oil and the Benchmark Oil Futures Contract at any point in time. USCF expects that exploitation of certain arbitrage opportunities by Authorized Participants and their clients and customers will tend to cause the public trading price to track NAV per share closely over time, but there can be no assurance of that.

The NAV of the Fund’s shares may also be influenced by non-concurrent trading hours between the NYSE and the various futures exchanges on which crude oil is traded. While the shares trade on the NYSE from 9:30 a.m. to 4:00 p.m. Eastern Time, the trading hours for the futures exchanges on which light, sweet crude oil trade may not necessarily coincide during all of this time. For example, while the shares trade on the NYSE until 4:00 p.m. Eastern Time, liquidity in the global light sweet crude market will be reduced after the close of the NYMEX at 2:30 p.m. Eastern Time. As a result, during periods when the NYSE is open and the futures exchanges on which light, sweet crude oil is traded are closed, trading spreads and the resulting premium or discount on the shares may widen and, therefore, increase the difference between the price of the shares and the NAV of the shares.

Daily percentage changes in the Fund’s NAV may not correlate with daily percentage changes, on a leveraged basis, in the price of the Benchmark Oil Futures Contract.

It is possible that the daily percentage changes in the Fund’s NAV per share may not closely correlate, on a leveraged basis, to daily percentage changes in the price of the Benchmark Oil Futures Contract. Non-correlation may be attributable to disruptions in the market for light, sweet crude oil, the imposition of position or accountability limits by regulators or exchanges, or other extraordinary circumstances. As the Fund approaches or reaches position limits with respect to the Benchmark Oil Futures Contract and other Oil Futures Contracts or in view of market conditions, the Fund may begin investing in Other Oil-Related Investments. In addition, the Fund is not able to replicate exactly the changes in the price of the Benchmark Oil Futures Contract because the total return generated by the Fund is reduced by expenses and transaction costs, including those incurred in connection with the Fund’s trading activities, and increased by interest income from the Fund’s holdings of Treasuries (defined below). Tracking the Benchmark Oil Futures Contract requires trading of the Fund’s portfolio with a view to tracking the Benchmark Oil Futures Contract over time and is dependent upon the skills of USCF and its trading principals, among other factors.

Daily percentage changes in the price of the Benchmark Oil Futures Contract may not correlate with daily percentage changes in the spot price of light, sweet crude oil.

The correlation between changes in prices of the Benchmark Oil Futures Contract and the spot price of crude oil may at times be only approximate. The degree of imperfection of correlation depends upon circumstances such as variations in the speculative oil market, supply of and demand for Oil Futures Contracts (including the Benchmark Oil Futures Contract) and Other Oil-Related Investments, and technical influences in oil futures trading.

 

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Natural forces in the oil futures market known as “backwardation” and “contango” may increase the Fund’s tracking error and/or negatively impact total return.

The design of the Fund’s Benchmark Oil Futures Contract is such that every month it begins by using the near month contract to expire until the near month contract is within two weeks of expiration, when, over a four day period, it transitions to the next month contract to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close to expiration. In the event of a crude oil futures market where near month contracts trade at a higher price than next month to expire contracts, 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. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, 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. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may cause the total return of the Fund’s per share NAV to vary significantly. Moreover, absent the impact of rising or falling oil prices, a prolonged period of contango could have a significant negative impact on the Fund’s per share NAV and total return and investors could lose part or all of their investment. See “Additional Information About the Fund, its Investment Objective and Investments” for a discussion of the potential effects of contango and backwardation.

Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error, which could cause the price of shares to substantially vary from the price of the Benchmark Oil Futures Contract.

 

Designated contract markets, such as the NYMEX and ICE Futures Europe have established 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 (other than as a hedge, which an investment by the Fund is not) may hold, own or control. These levels and position limits apply to the futures contracts that the Fund invests in to meet its investment objective. In addition to accountability levels and position limits, the NYMEX and ICE Futures Europe also set daily price limits on futures contracts. The daily price fluctuation limit establishes the maximum amount that the price of a futures contract 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.

 

The accountability levels for the Benchmark Oil Futures Contract and other Oil Futures Contracts traded on U.S.-based futures exchanges, such as the NYMEX, are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s positions. The current accountability level for investments for any one-month in the Benchmark Oil Futures Contract is 10,000 contracts and the all month accountability level is 20,000 contracts. The current ICE Futures Europe accountability level for any one month in the ICE WTI Crude Futures Contract (the most comparable future to the Benchmark Oil Futures contract) is 10,000 contracts and the all month accountability level is 20,000 contracts. If the Fund and the Related Public Funds exceed these accountability levels for investments in the Benchmark Oil Futures Contracts, the NYMEX and ICE Futures Europe will monitor such exposure and may ask for further information on their activities, including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of the Fund and the Related Public Funds. If deemed necessary by the NYMEX and/or ICE Futures Europe, The Fund could be ordered to reduce its aggregate net futures contracts back to the accountability level. At this time, given the size of the oil futures market, it is unlikely that a fund or its Related Public Fund will exceed the above accountability levels.

 

USCF also serves as general partner or sponsor of the United States Natural Gas Fund, LP (“UNG”), the United States Oil Fund (“USO”), the United States 12 Month Oil Fund, LP (“USL”), the United States Gasoline Fund, LP (“UGA”), the United States Diesel-Heating Oil Fund, LP (“UHN”), the United States Short Oil Fund, LP (“DNO”), the United States 12 Month Natural Gas Fund, LP (“UNL”), the United States Brent Oil Fund, LP (“BNO”), the United States Commodity Index Fund (“USCI”), the United States Copper Index Fund (“CPER”), the United States Agriculture Index Fund (“USAG”), the United States 3X Short Oil Fund (“USOD”), and the USCF Canadian Crude Oil Index Fund (“UCCO”). UCCO is currently in registration and has not commenced operations. UNG, USO, USL, UGA, UHN, DNO, UNL, BNO, USCI, CPER, and USAG are actively operating funds and all are listed on the NYSE, and referred to collectively herein as the “Related Public Funds.” The REX Funds are not included in the Related Public Funds; provided that upon the effectiveness of this registration statement on Form S-1, the Fund shall become one of the Related Public Funds.

 

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Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. In addition to accountability levels and position limits that may apply at any time, the NYMEX and ICE Futures Europe impose position limits on contracts held in the last few days of trading in the near month contract to expire. The relevant exchange current spot limit for the Benchmark Oil futures Contract and the ICE WTI Crude Oil futures contract is 3,000 contracts. It is unlikely that the Fund will run up against such position limits because The Fund’s investment strategy is to close out its positions and “roll” from the near month contract to expire to the next month contract during a four-day period beginning two weeks from expiration of the contract.

 

The CFTC has proposed to adopt limits on speculative positions in certain physical commodity futures and option contracts related to such futures and swaps that are economically equivalent to such contract futures (including energy contracts, such as the Benchmark Oil Futures Contracts (the “Position Limit Rules”). The Position Limit Rules would, among other things: identify which contracts are subject to speculative position limits; set thresholds that restrict the size of speculative positions that a person may hold in the spot month, other individual months, and all months combined; create an exemption for positions that constitute bona fide hedging transactions; impose responsibilities on designated contract markets (“DCMs”) and swap execution facilities (“SEFs”) to establish position limits or, in some cases, position accountability rules; and apply to both futures and swaps across four relevant venues: OTC, DCMs, SEFs as well as certain non-U.S. located platforms. The CFTC’s first attempt at finalizing the Position Limit Rules, in 2011, was successfully challenged by market participants in 2012 and, since then, the CFTC has reproposed them and solicited comments from market participants multiple times. At this time, it is unclear how the Position Limit Rules may affect the Fund, but the effect may be substantial and adverse. By way of example, the Position Limit Rules may negatively impact the ability of the Fund to meet its investment objectives through limits that may inhibit USCF’s ability to sell additional Creation Baskets of the Fund.

 

Until such time as the Position Limit Rules are adopted, the regulatory architecture in effect prior to the adoption of the Position Limit Rules will govern transactions in commodities and related. Under that system, the CFTC enforces federal limits on speculation in nine agricultural products (e.g., corn, wheat and soy), while futures exchanges establish and enforce position limits and accountability levels for other agricultural products and certain energy products (e.g., oil and natural gas). As a result, the Fund may be limited with respect to the size of its investments in any commodities subject to these limits.

 

Under existing and recently adopted CFTC regulations, for the purpose of position limits, a market participant is generally required, subject to certain narrow exceptions, to aggregate all positions for which that participant controls the trading decisions with all positions for which that participant has a 10 percent or greater ownership interest in an account or position, as well as the positions of two or more persons acting pursuant to an express or implied agreement or understanding with that market participant (the “Aggregation Rules”). The Aggregation Rules will also apply with respect to the Position Limit Rules if and when such Position Limit Rules are adopted.

All of these limits may potentially cause a tracking error between the price of the Fund’s shares and the price of the Benchmark Oil Futures Contract. This may in turn prevent investors from being able to effectively use the Fund as a way to hedge against crude oil-related losses or as a way to indirectly invest in crude oil.

The Fund has not limited the size of its offering and is committed to utilizing substantially all of its proceeds to purchase Oil Futures Contracts and Other Oil-Related Investments. If the Fund encounters accountability levels, position limits, or price fluctuation limits for Oil Futures Contracts on the NYMEX or ICE Futures Europe, it may then, if permitted under applicable regulatory requirements, purchase Oil Futures Contracts on other exchanges that trade listed crude oil futures or enter into swaps or other transactions to meet its investment objective. In addition, if the Fund exceeds accountability levels on either the NYMEX or ICE Futures Europe and is required by such exchanges to reduce its holdings, such reduction could potentially cause a tracking error between the price of the Fund’s shares and the price of the Benchmark Oil Futures Contract.

 

Tax Risk

 

An investor’s tax liability may exceed the amount of distributions, if any, on its shares.

 

Cash or property will be distributed at the sole discretion of USCF. USCF does not currently intend to make cash or other distributions with respect to shares. Investors will be required to pay U.S. federal income tax and, in some cases, state, local, or foreign income tax, on their allocable share of the Fund’s taxable income, without regard to whether they receive distributions or the amount of any distributions. Therefore, the tax liability of an investor with respect to its shares may exceed the amount of cash or value of property (if any) distributed.

 

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An investor’s allocable share of taxable income or loss may differ from its economic income or loss on its shares.

 

Due to the application of the assumptions and conventions applied by the Fund in making allocations for U.S. federal income tax purposes and other factors, an investor’s allocable share of the Fund’s income, gain, deduction or loss may be different than its economic profit or loss from its shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in it being taxed on amounts in excess of its economic income.

Items of income, gain, deduction, loss and credit with respect to shares could be reallocated, and for taxable periods beginning after December 31, 2017, the Fund could be liable for U.S. federal income tax, if the U.S. Internal Revenue Service (“IRS”) does not accept the assumptions and conventions applied by the Fund in allocating those items, with potential adverse consequences for an investor.

 

The U.S. tax rules pertaining to entities taxed as partnerships are complex and their application to large, publicly traded entities such as the Fund is in many respects uncertain. The Fund applies certain assumptions and conventions in an attempt to comply with the intent of the applicable rules and to report taxable income, gains, deductions, losses and credits in a manner that properly reflects shareholders’ economic gains and losses. These assumptions and conventions may not fully comply with all aspects of the Internal Revenue Code (the “Code”) and applicable Treasury Regulations, however, and it is possible that the IRS will successfully challenge the Fund’s allocation methods and require the Fund to reallocate items of income, gain, deduction, loss or credit in a manner that adversely affects investors. If this occurs, investors may be required to file an amended tax return and to pay additional taxes plus deficiency interest.

 

In addition, for periods beginning after December 31, 2017, the Fund may be liable for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment as a result of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gains to any investor and decreases in allocations of items of deduction, loss, or credit to any investor without any offset for any corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of deduction, loss, or credit to any investor. If the Fund is required to pay any U.S. federal income taxes on any imputed understatement, the resulting tax liability would reduce the net assets of the Fund and would likely have an adverse impact on the value of the shares. Under certain circumstances, the Fund may be eligible to make an election to cause the investors to take into account the amount of any imputed understatement, including any interest and penalties. The ability of a publicly traded partnership such as the Fund to make this election is uncertain. If the election is made, the Fund would be required to provide investors who owned beneficial interests in the shares in the year to which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjusted K-1s”). The investors would be required to take the adjustment into account in the taxable year in which the Adjusted K-1s are issued. For an additional discussion please see “U.S. Federal Income Tax Considerations – Other Tax Matters.”

The Fund could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of the shares.

 

The Trust, on behalf of the Fund, has received an opinion of counsel that, under current U.S. federal income tax laws, the Fund will be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that (i) at least 90 percent of the Fund’s annual gross income consists of “qualifying income” as defined in the Code, (ii) the Trust and the Fund is organized and operated in accordance with its governing agreements and applicable law and (iii) the Trust and the Fund does not elect to be taxed as a corporation for U.S. federal income tax purposes. Although USCF anticipates that the Fund will satisfy the “qualifying income” requirement for all of its taxable years, that result cannot be assured. The Fund has not requested and nor will the Fund request any ruling from the IRS with respect to its classification as a partnership not taxable as a corporation for U.S. federal income tax purposes. If the IRS were to successfully assert that the Fund is taxable as a corporation for U.S. federal income tax purposes in any taxable year, rather than passing through its income, gains, losses and deductions proportionately to shareholders, the Fund would be subject to tax on its net income for the year at corporate tax rates. In addition, although the Fund currently does not intend to make any distributions with respect to the shares any distributions would be taxable to shareholders as dividend income to the extent of the Fund’s current or accumulated earnings and profits. Subject to holding period and other requirements, any such dividend would be a qualifying dividend subject to U.S. federal income tax at the lower maximum tax rates applicable to long-term capital gains. Taxation of the Trust and the Fund as a corporation could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of the shares.

The Fund is organized and operated as a Delaware statutory trust in accordance with the provisions of its Trust Agreement and applicable state law, but is taxed in a manner similar to a limited partnership, and therefore, has a more complex tax treatment than conventional mutual funds.

 

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The Fund is organized and operated as a Delaware statutory trust in accordance with the provisions of its Trust Agreement and applicable state law, but is taxed in a manner similar to a limited partnership, and therefore, has a more complex tax treatment than conventional mutual funds. No U.S. federal income tax is paid by the Fund on its income. Instead, the Fund will furnish shareholders each year with tax information on IRS Schedule K-1 (Form 1065) and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable share of the income, gain, loss and deduction of the Fund. This must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from the Fund during the taxable year. A shareholder, therefore, may be allocated income or gain by the Fund but receive no cash distribution with which to pay the tax liability resulting from the allocation, or may receive a distribution that is insufficient to pay such liability.

In addition to U.S. federal income taxes, shareholders may be subject to other taxes, such as state and local income taxes, unincorporated business taxes, business franchise taxes and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which the Fund does business or owns property or where the shareholders reside. Although an analysis of those various taxes is not presented here, each prospective shareholder should consider their potential impact on its investment in the Fund. It is each shareholder’s responsibility to file the appropriate U.S. federal, state, local and foreign tax returns.

 

If the Fund is required to withhold tax with respect to any Non-U.S. shareholders, the cost of such withholding may be borne by all shareholders.

Under certain circumstances, the Fund may be required to pay withholding tax with respect to allocations to Non-U.S. shareholders. Although the Trust Agreement provides that any such withholding will be treated as being distributed to the Non-U.S. shareholder, the Fund may not be able to cause the economic cost of such withholding to be borne by the Non-U.S. shareholder on whose behalf such amounts were withheld since the Fund does not intend to make any distributions. Under such circumstances, the economic cost of the withholding may be borne by all shareholders, not just the shareholders on whose behalf such amounts were withheld. This could have a material impact on the value of the shares.

 

OTC Contract Risk

 

Currently, OTC transactions are subject to changing regulation.

 

A portion of the Fund’s assets may be used to trade OTC contracts, such as forward contracts, options, swaps or spot contracts. OTC contracts are typically contracts traded on a principal-to-principal, non-cleared basis through dealer markets that are dominated by major money center and investment banks and other institutions. The markets for OTC contracts rely upon the integrity of market participants in lieu of the additional regulation imposed by the CFTC on participants in the futures markets. While certain regulations adopted over the past several years are intended to provide additional protections to participants in the OTC market, complying with such regulations could have substantial and adverse effects on the Fund.

 

The Fund will be subject to credit risk with respect to counterparties to OTC contracts entered into by the Trust on behalf of the Fund or held by special purpose or structured vehicles.

 

The Fund faces the risk of non-performance by the counterparties to the OTC contracts. Unlike in futures contracts, the counterparty to these contracts is generally a single bank or other financial institution, rather than a clearing organization backed by a group of financial institutions. As a result, there will be greater counterparty credit risk in these transactions. A counterparty may not be able to meet its obligations to the Fund, in which case the Fund could suffer significant losses on these contracts.

If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Trust on behalf of the Fund may obtain only limited recovery or may obtain no recovery in such circumstances.

Valuing OTC derivatives may be less certain than actively traded financial instruments.

 

In general, valuing OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts and securities or cleared swaps because the price and terms on which such OTC derivatives are entered into or can be terminated are individually negotiated, and those prices and terms may not reflect the best price or terms available from other sources. In addition, while market makers and dealers generally quote indicative prices or terms for entering into or terminating OTC contracts, they typically are not contractually obligated to do so, particularly if they are not a party to the transaction. As a result, it may be difficult to obtain an independent value for an outstanding OTC derivatives transaction.

 

12
 

Compounding Risk

The Fund has a single-day investment objective, and the Fund’s performance for periods greater than a single day will be the result of each day’s returns compounded over the period, which is likely to be either better or worse than the performance of the Benchmark Oil Futures Contract times the stated multiple in the Fund’s investment objective, before accounting for fees and fund expenses. Compounding affects all investments, but it has a more significant effect on a leveraged fund. Particularly during periods of higher Benchmark Oil Futures Contract volatility, compounding will cause results for periods longer than a single day to vary from three times (3x) of the return of the Benchmark Oil Futures Contract. This effect becomes more pronounced as volatility increases. Fund performance for periods greater than a single day will be affected by the following factors: (i) Benchmark Oil Futures Contract volatility, (ii) Benchmark Oil Futures Contract performance, (iii) period of time, (iv) financing rates associated with exposure and (v) other Fund expenses.

The Fund is designed to be utilized only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results and are willing to monitor their portfolios frequently. The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios.

 

The Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from three times the Benchmark Oil Futures Contract return for the period as a result of compounding of daily returns.

 

The Fund has an investment objective of corresponding (before fees and expenses) to 3x or for the Fund’s related inverse fund, (“United States 3X Short Oil Fund”), an inverse multiple of -3x the performance of the Benchmark Oil Futures Contract for a given day. The Fund seeks investment results for a single day only, as measured from the calculation of the NAV for a particular day to the calculation of the NAV for the next day (see “Calculating Per Share NAV”). The return of the Fund for a period longer than a single day is the result of its return for each day compounded over the period, and usually will differ from three times (3x) or three times the inverse (-3x) for the United States 3X Short Oil Fund, of the return of the Benchmark Oil Futures Contract for the same period. The Fund will lose money if the Benchmark Oil Futures Contract’s performance is flat over time, and it is possible for the Fund to lose money over time regardless of the performance of the Benchmark Oil Futures Contract, as a result of daily rebalancing, the Benchmark Oil Futures Contract’s volatility and compounding. Longer holding periods, higher Benchmark Oil Futures Contract volatility, inverse exposure and greater leverage each affect the impact of compounding on the Fund’s returns. Daily compounding of the Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to the Fund’s return for a period as the return of the Fund’s underlying Benchmark Oil Futures Contract.

 

The Fund uses leverage and should produce returns for a single day that are more volatile than that of the Benchmark Oil Futures Contract. For example, the return for a single day of the Fund with a 3x multiple should be approximately three times as volatile for a single day as the return of the Fund with an objective of matching the same Benchmark Oil Futures Contract. The return for a single day of the United States 3X Short Oil Fund, with a -3x multiple should be approximately three times the inverse (-3x) of the return that would be expected of a fund with an objective of matching the same Benchmark Oil Futures Contract. The Fund is not appropriate for all investors and presents different risks than other funds. The Fund uses leverage and is riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in the Fund or the United States 3X Short Oil Fund if he or she understands the consequences of seeking daily leveraged or daily inverse leveraged investment results for a single day. Leveraged funds, if used properly and in conjunction with the investor’s view on the future direction and volatility of the markets, can be useful tools for investors who want to manage their exposure to various markets and market segments and who are willing to monitor and/or periodically rebalance their portfolios. Shareholders who invest in the Fund should actively manage and monitor their investments, as frequently as daily.

 

The hypothetical examples below illustrate how a leveraged fund’s returns can behave for periods longer than a single day, e.g., a fund that seeks to triple the daily performance of benchmark contract. On each day, the Fund performs in line with its objective (three times (3x) the benchmark’s daily performance before fees and expenses). Notice that, in the first example where there has been an overall benchmark loss for the period, over the entire seven-day period, the Fund’s total return is more than three times the loss of the period return of the Benchmark Oil Futures Contract. For the seven-day period, benchmark lost -3.26% while the Fund lost -11.19%, not -9.78% (or 3 x -3.26%)).

 

13
 
    Benchmark     Fund  
   

 Level

    Daily Performance     Daily Performance     Net Asset Value  
Start     100.00                     $ 100.00  
Day  1     97.00       -3.00 %     -9.00 %   $ 91.00  
Day 2     99.91       3.00 %     9.00 %   $ 99.19  
Day 3     96.91       -3.00 %     -9.00 %   $ 90.26  
Day 4     99.82       3.00 %     9.00 %   $ 98.39  
Day  5     96.83       -3.00 %     -9.00 %   $ 89.53  
Day  6     99.73       3.00 %     9.00 %   $ 97.59  
Day  7     96.74       -3.00 %     -9.00 %   $ 88.81  
Total Return             -3.26     -11.19        
                                 

Similarly, in another example (showing an overall benchmark gain for the period), over the entire seven-day period, the Fund’s total return is considerably less than triple that of the period return of the benchmark. For the seven-day period, benchmark gained 2.72% while the Fund gained 6.37% (versus 8.16% (or 3 x 2.72%)).

    Benchmark     Fund  
   

 Level

    Daily Performance     Daily Performance     Net Asset Value  
Start     100.00                     $ 100.00  
Day  1     103.00       3.00 %     9.00 %   $ 109.00  
Day 2     99.91       -3.00 %     -9.00 %   $ 99.19  
Day 3     102.91       3.00 %     9.00 %   $ 108.12  
Day 4     99.82       -3.00 %     -9.00 %   $ 98.39  
Day  5     102.81       3.00 %     9.00 %   $ 107.24  
Day  6     99.73       -3.00 %     -9.00 %   $ 97.59  
Day  7     102.72       3.00 %     9.00 %   $ 106.37  
Total Return             2.72     6.37        
                                 

These effects are caused by compounding, which exists in all investments, but has a more significant impact on leveraged funds. In general, during periods of higher benchmark volatility, compounding will cause the Fund’s results for periods longer than a single day to be less than three times (3x) the return of the Benchmark Oil Futures Contract (or for the Short Oil Fund, less than three times the inverse (-3x) of the return of the Benchmark Oil Futures Contract). This effect becomes more pronounced as volatility increases. Conversely, in periods of lower benchmark volatility (particularly when combined with higher Benchmark Oil Futures Contract returns), the Fund’s returns over longer periods can be higher than three times (3x) the return of the Benchmark Oil Futures Contract. Actual results for a particular period, before fees and expenses, are also dependent on the magnitude of the Benchmark Oil Futures Contract return in addition to the Benchmark volatility. These effects may be even greater with the United States 3X Short Oil Fund.

The graphs that follow illustrate this point. Each of the graphs shows a simulated hypothetical one year performance of the Benchmark Oil Futures Contract compared with the performance of the Fund and the United States 3X Short Oil Fund that perfectly achieves its daily investment objective on each day during the period. The graphs demonstrate that, for periods greater than a single day, the Fund is likely to underperform or outperform (but not match) the Benchmark Oil Futures Contract performance (or, for the United States 3X Short Oil Fund, the inverse of the Benchmark Oil Futures Contract) times the multiple stated as the daily Fund objective. Investors should understand the consequences of holding a daily rebalanced Fund for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the Benchmark Oil Futures Contract return times the Fund multiple can occur over periods as short as two days (each day as measured from daily NAV to the next daily NAV) and may also occur in periods shorter than a single day (when measured intraday as opposed to daily NAV to the next daily NAV) (see “Calculating Per Share NAV” below for additional details). To isolate the impact of daily leveraged, or for the United States 3X Short Oil Fund, inverse leveraged exposure, these graphs assume: a) no Fund expenses or transaction costs; b) borrowing/lending rates (to obtain required leveraged or inverse leveraged exposure) and cash reinvestment rates of zero percent; and c) the Fund consistently maintaining perfect exposure of 3x or, in the case of the United States 3X Short Oil Fund, -3x as of the fund’s NAV calculation time each day. If these assumptions were different, each funds’ performance would be different than that shown. If fund expenses, transaction costs and financing expenses greater than zero percent were included, each funds’ performance would also be different than shown. Each of the graphs also assumes a volatility rate of 33%, which is the approximate five-year historical volatility rate of the Benchmark Oil Futures Contract as of December 31, 2016. A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns. These graphs are presented to provide examples of what can occur if an investor choses to hold the funds for periods longer than one-day. They are not intended to suggest that longer holding periods such as one-year are an appropriate holding period.

 

14
 

LOGO  

The graph above shows a scenario where the Benchmark Oil Futures Contract, which exhibits day-to-day volatility, is flat or trendless over a year (i.e., provides a return of 0.1% over the course of the year), but the Fund (3x) and the United States 3X Short Oil Fund (-3x) are both significantly down.

  LOGO

The graph above shows a scenario where the Benchmark Oil Futures Contract, which exhibits day-to-day volatility, is down over the year, but the Fund (3x) is down less than three times the Benchmark Oil Futures Contract and the United States 3X Short Oil Fund (-3x) is up significantly less than three times the inverse of the Benchmark Oil Futures Contract.

 

15
 

LOGO  

The graph above shows a scenario where the Benchmark Oil Futures Contract, which exhibits day-to-day volatility, is up over the year, but the Fund (3x) is up significantly less than three times the Benchmark Oil Futures Contract and the United States 3X Short Oil Fund (-3x) is down less than three times the inverse of the Benchmark Oil Futures Contract.

 

The tables below illustrate the impact of two factors that affect a leveraged fund’s performance: benchmark volatility and benchmark return. Benchmark Oil Futures Contract volatility is a statistical measure of the magnitude of fluctuations in the returns of a benchmark and is calculated as the standard deviation of the natural logarithms of one plus the benchmark return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252). The tables show estimated Fund returns for a number of combinations of benchmark volatility and benchmark return over a one-year period. To isolate the impact of daily leveraged or inverse leveraged exposure, these tables assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged or inverse leveraged exposure) and cash reinvestment rates of zero percent; c) the Fund consistently maintaining perfect 3x, or -3x exposure for the United States 3X Short Oil Fund, as of the Fund’s NAV time each day and d) the volatility of the Benchmark Oil Futures Contract remains constant over time. If these assumptions were different, the Fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, each funds’ performance would be different than shown. The first table below shows an example in which each fund has an investment objective to correspond (before fees and expenses) to three times (3x) the daily performance of its benchmark. The Fund might be incorrectly expected to achieve a 30% return on a yearly basis if the benchmark return was 10%, absent the effects of compounding. However, as the table shows, with a benchmark volatility of 40%, the Fund would return -17.6%. In the charts below, shaded areas represent those scenarios where the Fund and the United States 3X Short Oil Fund, each discussed in the chart with the investment objective as described below, will outperform (i.e., return more than) the benchmark performance times the stated multiple in the investment objective of the Fund or the United States 3X Short Oil Fund, as applicable; conversely areas not shaded represent those scenarios where the Fund or the United States 3X Short Oil Fund, as applicable, will underperform (i.e., return less than) the benchmark performance times the multiple stated as the daily fund objective with respect to the Fund or the United States 3X Short Oil Fund, as applicable.

 

16
 

Expected Fund Return Over One Year for the Fund—(The Funds objective is only to seek daily investment results, before fees and expenses, that correspond to three times (3x) the daily performance of a benchmark. The Fund does not seek to match 3x the benchmark over a period longer than one day.)

 

                  Benchmark Volatility      
One Year
Benchmark
Performance
  Three Times (3x)
One Year
Benchmark
Performance
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%      70%  
-60%     -180 %     -93.6 %     -93.6 %     -93.8 %     -94.0 %     -94.3 %     -94.7 %     -95.1 %     -95.6 %     -96.0 %     -96.5 %     -97.0 %     -97.4 %     -97.8 %     -98.2 %     -98.5 %
-55%     -165 %     -90.9 %     -91.0 %     -91.2 %     -91.5 %     -91.9 %     -92.4 %     -93.0 %     -93.7 %     -94.4 %     -95.0 %     -95.7 %     -96.3 %     -96.9 %     -97.4 %     -97.9 %
-50%     -150 %     -87.5 %     -87.6 %     -87.9 %     -88.3 %     -88.9 %     -89.6 %     -90.5 %     -91.3 %     -92.3 %     -93.2 %     -94.1 %     -95.0 %     -95.8 %     -96.5 %     -97.1 %
-45%     -135 %     -83.4 %     -83.5 %     -83.9 %     -84.4 %     -85.2 %     -86.2 %     -87.3 %     -88.5 %     -89.7 %     -90.9 %     -92.1 %     -93.3 %     -94.3 %     -95.3 %     -96.2 %
-40%     -120 %     -78.4 %     -78.6 %     -79.0 %     -79.8 %     -80.8 %     -82.1 %     -83.5 %     -85.0 %     -86.6 %     -88.2 %     -89.8 %     -91.3 %     -92.7 %     -93.9 %     -95.0 %
-35%     -105 %     -72.5 %     -72.7 %     -73.3 %     -74.3 %     -75.6 %     -77.2 %     -79.0 %     -81.0 %     -83.0 %     -85.0 %     -87.0 %     -88.9 %     -90.7 %     -92.3 %     -93.7 %
-30%     -90 %     -65.7 %     -66.0 %     -66.7 %     -67.9 %     -69.6 %     -71.6 %     -73.8 %     -76.2 %     -78.8 %     -81.3 %     -83.8 %     -86.2 %     -88.4 %     -90.3 %     -92.1 %
-25%     -75 %     -57.8 %     -58.1 %     -59.1 %     -60.6 %     -62.6 %     -65.0 %     -67.8 %     -70.8 %     -73.9 %     -77.0 %     -80.1 %     -83.0 %     -85.7 %     -88.1 %     -90.3 %
-20%     -60 %     -48.8 %     -49.2 %     -50.3 %     -52.1 %     -54.6 %     -57.6 %     -60.9 %     -64.5 %     -68.3 %     -72.1 %     -75.8 %     -79.3 %     -82.6 %     -85.6 %     -88.2 %
-15%     -45 %     -38.6 %     -39.0 %     -40.4 %     -42.6 %     -45.5 %     -49.1 %     -53.1 %     -57.5 %     -62.0 %     -66.5 %     -71.0 %     -75.2 %     -79.1 %     -82.7 %     -85.9 %
-10%     -30 %     -27.1 %     -27.6 %     -29.3 %     -31.9 %     -35.3 %     -39.6 %     -44.3 %     -49.5 %     -54.9 %     -60.3 %     -65.6 %     -70.6 %     -75.2 %     -79.5 %     -83.2 %
-5%     -15 %     -14.3 %     -14.9 %     -16.8 %     -19.9 %     -24.0 %     -28.9 %     -34.5 %     -40.6 %     -46.9 %     -53.3 %     -59.5 %     -65.4 %     -70.9 %     -75.9 %     -80.3 %
0%     0 %     0.0 %     -0.7 %     -3.0 %     -6.5 %     -11.3 %     -17.1 %     -23.7 %     -30.8 %     -38.1 %     -45.5 %     -52.8 %     -59.6 %     -66.0 %     -71.8 %     -77.0 %
5%     15 %     15.8 %     14.9 %     12.3 %     8.2 %     2.7 %     -4.0 %     -11.6 %     -19.8 %     -28.4 %     -36.9 %     -45.3 %     -53.3 %     -60.7 %     -67.4 %     -73.4 %
10%     30 %     33.1 %     32.1 %     29.2 %     24.4 %     18.0 %     10.3 %     1.6 %     -7.8 %     -17.6 %     -27.5 %     -37.1 %     -46.3 %     -54.8 %     -62.5 %     -69.4 %
15%     45 %     52.1 %     51.0 %     47.6 %     42.2 %     34.9 %     26.1 %     16.1 %     5.3 %     -5.9 %     -17.2 %     -28.2 %     -38.6 %     -48.4 %     -57.2 %     -65.0 %
20%     60 %     72.8 %     71.5 %     67.7 %     61.5 %     53.3 %     43.3 %     31.9 %     19.7 %     6.9 %     -5.9 %     -18.4 %     -30.3 %     -41.3 %     -51.4 %     -60.3 %
25%     75 %     95.3 %     93.9 %     89.5 %     82.6 %     73.2 %     61.9 %     49.1 %     35.2 %     20.9 %     6.4 %     -7.7 %     -21.2 %     -33.7 %     -45.0 %     -55.1 %
30%     90 %     119.7 %     118.1 %     113.2 %     105.4 %     94.9 %     82.1 %     67.7 %     52.1 %     35.9 %     19.7 %     3.8 %     -11.3 %     -25.4 %     -38.1 %     -49.5 %
35%     105 %     146.0 %     144.2 %     138.8 %     130.0 %     118.2 %     104.0 %     87.8 %     70.4 %     52.2 %     34.0 %     16.2 %     -0.7 %     -16.4 %     -30.7 %     -43.4 %
40%     120 %     174.4 %     172.3 %     166.3 %     156.5 %     143.4 %     127.5 %     109.5 %     90.0 %     69.8 %     49.5 %     29.6 %     10.7 %     -6.8 %     -22.7 %     -36.9 %
45%     135 %     204.9 %     202.6 %     195.9 %     185.0 %     170.4 %     152.7 %     132.7 %     111.1 %     88.6 %     66.1 %     44.0 %     23.0 %     3.5 %     -14.2 %     -29.9 %
50%     150 %     237.5 %     235.0 %     227.5 %     215.5 %     199.3 %     179.8 %     157.6 %     133.7 %     108.8 %     83.8 %     59.4 %     36.2 %     14.6 %     -5.0 %     -22.4 %
55%     165 %     272.4 %     269.6 %     261.4 %     248.1 %     230.3 %     208.7 %     184.3 %     157.9 %     130.4 %     102.8 %     75.9 %     50.3 %     26.5 %     4.8 %     -14.4 %
60%     180 %     309.6 %     306.5 %     297.5 %     282.9 %     263.3 %     239.6 %     212.7 %     183.6 %     153.5 %     123.1 %     93.5 %     65.3 %     39.1 %     15.3 %     -5.8 %
                                                                                                                                 

Expected Fund Return over One Year for the United States 3X Short Oil Fund —(The United States 3X Short Oil Fund’s objective is only to seek daily investment results, before fees and expenses, that correspond to three times the inverse (-3x) of the daily performance of a benchmark. The United States 3X Short Oil Fund does not seek to match 3x the inverse of the benchmark over a period longer than one day.

 

17
 
                      Benchmark Volatility        
One Year
Benchmark
Performance
  Three Times the
Inverse (-3x) of
One Year
Benchmark
Performance
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%       70%   
-60%     180 %     1462.5 %     1439.2 %     1371.5 %     1265.2 %     1129.1 %     973.9 %     810.5 %     649.2 %     498.3 %     363.6 %     248.6 %     154.4 %     80.2 %     23.8 %     -17.4 %
-55%     165 %     997.4 %     981.1 %     933.5 %     858.8 %     763.2 %     654.2 %     539.5 %     426.2 %     320.2 %     225.6 %     144.9 %     78.7 %     26.6 %     -13.0 %     -42.0 %
-50%     150 %     700.0 %     688.1 %     653.4 %     599.0 %     529.3 %     449.8 %     366.2 %     283.6 %     206.3 %     137.4 %     78.5 %     30.3 %     -7.7 %     -36.6 %     -57.7 %
-45%     135 %     501.1 %     492.1 %     466.0 %     425.1 %     372.8 %     313.1 %     250.3 %     188.2 %     130.1 %     78.3 %     34.1 %     -2.1 %     -30.7 %     -52.4 %     -68.2 %
-40%     120 %     363.0 %     356.1 %     336.0 %     304.5 %     264.2 %     218.2 %     169.8 %     122.0 %     77.3 %     37.4 %     3.3 %     -24.6 %     -46.6 %     -63.3 %     -75.5 %
-35%     105 %     264.1 %     258.7 %     242.9 %     218.1 %     186.4 %     150.3 %     112.2 %     74.6 %     39.4 %     8.0 %     -18.8 %     -40.7 %     -58.0 %     -71.1 %     -80.7 %
-30%     90 %     191.5 %     187.2 %     174.6 %     154.7 %     129.3 %     100.4 %     69.9 %     39.8 %     11.6 %     -13.5 %     -34.9 %     -52.5 %     -66.4 %     -76.9 %     -84.6 %
-25%     75 %     137.0 %     133.5 %     123.2 %     107.1 %     86.5 %     62.9 %     38.1 %     13.7 %     -9.2 %     -29.7 %     -47.1 %     -61.4 %     -72.7 %     -81.2 %     -87.5 %
-20%     60 %     95.3 %     92.4 %     83.9 %     70.6 %     53.6 %     34.2 %     13.8 %     -6.3 %     -25.2 %     -42.0 %     -56.4 %     -68.2 %     -77.5 %     -84.5 %     -89.7 %
-15%     45 %     62.8 %     60.4 %     53.4 %     42.3 %     28.1 %     11.9 %     -5.1 %     -21.9 %     -37.7 %     -51.7 %     -63.7 %     -73.5 %     -81.2 %     -87.1 %     -91.4 %
-10%     30 %     37.2 %     35.1 %     29.2 %     19.9 %     7.9 %     -5.7 %     -20.1 %     -34.2 %     -47.5 %     -59.3 %     -69.4 %     -77.7 %     -84.2 %     -89.1 %     -92.7 %
-5%     15 %     16.6 %     14.9 %     9.8 %     1.9 %     -8.3 %     -19.8 %     -32.0 %     -44.1 %     -55.3 %     -65.4 %     -74.0 %     -81.0 %     -86.5 %     -90.8 %     -93.8 %
0%     0 %     0.0 %     -1.5 %     -5.8 %     -12.6 %     -21.3 %     -31.3 %     -41.7 %     -52.0 %     -61.7 %     -70.3 %     -77.7 %     -83.7 %     -88.5 %     -92.1 %     -94.7 %
5%     -15 %     -13.6 %     -14.9 %     -18.6 %     -24.5 %     -32.0 %     -40.6 %     -49.7 %     -58.6 %     -66.9 %     -74.4 %     -80.7 %     -85.9 %     -90.0 %     -93.2 %     -95.4 %
10%     -30 %     -24.9 %     -26.0 %     -29.2 %     -34.4 %     -40.9 %     -48.4 %     -56.2 %     -64.0 %     -71.2 %     -77.7 %     -83.2 %     -87.8 %     -91.3 %     -94.0 %     -96.0 %
15%     -45 %     -34.2 %     -35.2 %     -38.1 %     -42.6 %     -48.3 %     -54.8 %     -61.7 %     -68.5 %     -74.8 %     -80.5 %     -85.3 %     -89.3 %     -92.4 %     -94.8 %     -96.5 %
20%     -60 %     -42.1 %     -43.0 %     -45.5 %     -49.4 %     -54.5 %     -60.2 %     -66.3 %     -72.3 %     -77.8 %     -82.8 %     -87.1 %     -90.6 %     -93.3 %     -95.4 %     -96.9 %
25%     -75 %     -48.8 %     -49.6 %     -51.8 %     -55.3 %     -59.7 %     -64.8 %     -70.2 %     -75.4 %     -80.4 %     -84.8 %     -88.6 %     -91.7 %     -94.1 %     -95.9 %     -97.3 %
30%     -90 %     -54.5 %     -55.2 %     -57.1 %     -60.2 %     -64.2 %     -68.7 %     -73.5 %     -78.2 %     -82.6 %     -86.5 %     -89.8 %     -92.6 %     -94.8 %     -96.4 %     -97.6 %
35%     -105 %     -59.4 %     -60.0 %     -61.7 %     -64.5 %     -68.0 %     -72.1 %     -76.3 %     -80.5 %     -84.4 %     -87.9 %     -90.9 %     -93.4 %     -95.3 %     -96.8 %     -97.9 %
40%     -120 %     -63.6 %     -64.1 %     -65.7 %     -68.2 %     -71.3 %     -75.0 %     -78.8 %     -82.5 %     -86.0 %     -89.2 %     -91.9 %     -94.1 %     -95.8 %     -97.1 %     -98.1 %
45%     -135 %     -67.2 %     -67.7 %     -69.1 %     -71.3 %     -74.2 %     -77.5 %     -80.9 %     -84.3 %     -87.4 %     -90.3 %     -92.7 %     -94.7 %     -96.2 %     -97.4 %     -98.3 %
50%     -150 %     -70.4 %     -70.8 %     -72.1 %     -74.1 %     -76.7 %     -79.6 %     -82.7 %     -85.8 %     -88.7 %     -91.2 %     -93.4 %     -95.2 %     -96.6 %     -97.7 %     -98.4 %
55%     -165 %     -73.1 %     -73.5 %     -74.7 %     -76.5 %     -78.9 %     -81.5 %     -84.4 %     -87.1 %     -89.7 %     -92.0 %     -94.0 %     -95.6 %     -96.9 %     -97.9 %     -98.6 %
60%     -180 %     -75.6 %     -75.9 %     -77.0 %     -78.7 %     -80.8 %     -83.2 %     -85.8 %     -88.3 %     -90.7 %     -92.8 %     -94.6 %     -96.0 %     -97.2 %     -98.1 %     -98.7 %
                                                                                                                                 

The foregoing tables are intended to isolate the effect of benchmark volatility and benchmark performance on the return of the Fund or the United States 3X Short Oil Fund. The actual returns of the Fund or the United States 3X Short Oil Fund may be significantly greater or less than the returns shown above as a result of any of the factors discussed above or under the below risk factor describing correlation risks.

 

18
 

Other Risks

NYSE may halt trading in the Fund’s shares, which would adversely impact an investor’s ability to sell shares.

The Fund’s shares are listed for trading on NYSE under the market symbol “USOU.” Trading in shares may be halted due to market conditions or, in light NYSE rules and procedures, for reasons that, in the view of NYSE, make trading in shares inadvisable. In addition, trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified market decline. Additionally, there can be no assurance that the requirements necessary to maintain the listing of the Fund’s shares will continue to be met or will remain unchanged.

The lack of an active trading market for the Fund shares may result in losses on an investor’s investment in the Fund at the time the investor sells the shares.

Although the Fund’s shares are listed and traded on NYSE, there can be no guarantee that an active trading market for the shares will be maintained. If an investor needs to sell shares at a time when no active trading market for them exists, the price the investor receives upon sale of the shares, assuming they were able to be sold, likely would be lower than if an active market existed.

Certain of the Fund’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.  

Futures positions cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption, such as a foreign government taking political actions that disrupt the market for its currency, its crude oil production or exports, or another major export, can also make it difficult to liquidate a position. Because both Oil Futures Contracts and Other Oil-Related Investments may be illiquid, the Fund’s Oil Interests 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. The large size of the positions that the Fund may acquire increases the risk of illiquidity both by making its positions more difficult to liquidate and by potentially increasing losses while trying to do so.

OTC contracts that are not subject to clearing may be even less marketable than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, they are not transferable without the consent of the counterparty. These conditions make such contracts less liquid than standardized futures contracts traded on a commodities exchange and could adversely impact the Fund’s ability to realize the full value of such contracts. In addition, even if collateral is used to reduce counterparty credit risk, sudden changes in the value of OTC transactions may leave a party open to financial risk due to a counterparty default since the collateral held may not cover a party’s exposure on the transaction in such situations.

The Fund is not actively managed and tracks the Benchmark Oil Futures Contract during periods in which the price of the Benchmark Oil Futures Contract is flat or declining as well as when the price is rising.

The Fund is not actively managed by conventional methods. Accordingly, if the Fund’s investments in Oil Interests are declining in value, the Fund will not close out such positions except in connection with paying the proceeds to an Authorized Participant upon the redemption of a basket or closing out futures positions in connection with the monthly change in the Benchmark Oil Futures Contract. USCF will seek to cause the NAV of the Fund’s shares to track the Benchmark Oil Futures Contract during periods in which its price is flat or declining as well as when the price is rising.

Regulation of the commodity interests and energy markets is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect the Fund.

The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and futures 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. 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. In addition, various national governments outside of the United States have expressed concern regarding the disruptive effects of speculative trading in the energy markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Fund is impossible to predict, but it could be substantial and adverse.

 

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An investment in the Fund may provide little or no diversification benefits. Thus, in a declining market, the Fund may have no gains to offset losses from other investments, and an investor may suffer losses on an investment in the Fund while incurring losses with respect to other asset classes.

Historically, Oil Futures Contracts and Other Oil-Related Investments have generally been non-correlated to the performance of other asset classes such as stocks and bonds. Non-correlation means that there is a low statistically valid relationship between the performance of futures and other commodity interest transactions, on the one hand, and stocks or bonds, on the other hand.

However, there can be no assurance that such non-correlation will continue during future periods. If, contrary to historic patterns, the Fund’s performance were to move in the same general direction as the financial markets, investors will obtain little or no diversification benefits from an investment in the Fund’s shares. In such a case, the Fund may have no gains to offset losses from other investments, and investors may suffer losses on their investment in the Fund at the same time they incur losses with respect to other investments.

Variables such as drought, floods, weather, embargoes, tariffs and other political events may have a larger impact on crude oil prices and crude oil-linked instruments, including Oil Futures Contracts and Other Oil-Related Investments, than on traditional securities. These additional variables may create additional investment risks that subject the Fund’s investments to greater volatility than investments in traditional securities.

Non-correlation should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. There is no historical evidence that the spot price of crude oil and prices of other financial assets, such as stocks and bonds, are negatively correlated. In the absence of negative correlation, the Fund cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa.

Trading in international markets could expose the Fund to credit and regulatory risk.

 The Fund invests primarily in Oil Futures Contracts, a significant portion of which are traded on United States exchanges, including the NYMEX. However, a portion of the Fund’s trades may take place on markets and exchanges outside the United States. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. Trading on such non-U.S. markets or exchanges presents risks because they are not subject to the same degree of regulation as their U.S. counterparts, including potentially different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, the Fund is subject to the risk of adverse exchange-rate movements between the dollar and the functional currencies of such contracts. Additionally, trading on non-U.S. exchanges is subject to the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local economic declines and political instability. An adverse development with respect to any of these variables could reduce the profit or increase the loss earned on trades in the affected international markets.

USCF’s Limited Liability Agreement (“LLC Agreement”) provides limited authority to the Non-Management Directors, and any Director of USCF may be removed by USCF’s parent company, Wainwright Holdings, Inc. (“Wainwright”) which is a wholly owned subsidiary of Concierge Technologies Inc. (“Concierge”), a controlled public company where the majority of shares are owned by Nicholas Gerber along with certain other family members and certain other shareholders.

 

USCF’s Board of Directors currently consists of four Management Directors, each of whom are, also executive officers or employees of USCF, and three Non-Management Directors, each of whom are considered independent for purposes of applicable exchange and SEC rules. Under USCF’s LLC Agreement, the Non-Management Directors have only such authority as the Management Directors expressly confer upon them, which means that the Non-Management Directors may have less authority to control the actions of the Management Directors than is typically the case with the independent members of a company’s Board of Directors. In addition, any Director may be removed by written consent of Wainwright Holdings, Inc. (“Wainwright”), which is the sole member of USCF. The sole shareholder of Wainwright is Concierge Technologies Inc., a company publicly traded under the ticker symbol “CNCG”. Mr. Nicholas Gerber along with certain family members and certain other shareholders, own the majority of shares in Concierge, which is the sole shareholder of Wainwright, the sole member of USCF. Accordingly, although USCF is governed by the USCF Board of Directors, which consists of both Management Directors and Non-Management Directors, pursuant to the LLC Agreement, it is possible for Mr. Gerber to exercise his indirect control of Wainwright to effect the removal of any Director (including the Non-Management Directors which comprise the Audit Committee) and to replace that Director with another Director. Having control in one person could have a negative impact on USCF and the Fund, including their regulatory obligations.

 

20
 

There is a risk that the Fund will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such the Fund may not earn any profit.

 

The Fund is contractually obligated to pay a management fee to USCF, fees to brokers subject to a cap, and certain expenses regardless of whether the Fund’s activities are profitable. Accordingly, the Fund must earn trading gains sufficient to compensate for these fees and expenses before it can earn any profit.

Regulation of the commodity interests markets is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect the Fund.

 

The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and futures 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. 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. 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 Fund is impossible to predict, but it could be substantial and adverse.

The Trust is not a registered investment company so shareholders do not have the protections of the 1940 Act.

 

The Trust is not an investment company subject to the 1940 Act. Accordingly, investors do not have the protections afforded by that statute, which, for example, requires investment companies to have a majority of disinterested directors and regulates the relationship between the investment company and its investment manager.

 

The Fund will seek to achieve its investment objective by primarily investing in futures contracts for light, sweet crude oil that are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”).

 

The Fund will, to a lesser extent and in view of regulatory requirements and/or market conditions:

(i) next invest in (a) cleared swap transactions based on the Benchmark Oil Futures Contract, (b) non-exchange traded (“over-the-counter” or “OTC”), negotiated swap contracts that are based on the Benchmark Oil Futures Contract, and (c) forward contracts for oil;
     
(ii) followed by investments in futures contracts for other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels, each of which are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges as well as cleared swap transactions and OTC swap contracts valued based on the foregoing; and

 

(iii) finally, invest in exchange-traded cash settled options on Oil Futures Contracts.
     

All such other investments are referred to as “Other Oil-Related Investments” and, together with Oil Futures Contracts, are “Oil Interests.”

None of the commodity-based derivatives noted above are considered to be “securities” as defined by Section 2(a)(1) of the Securities Act of 1933 or under the Securities Exchange Act of 1934. Moreover, these types of commodity-based derivatives have not been interpreted as being securities under the Investment Company Act of 1940 by the SEC in no action letters or other interpretive notices, or pursuant to the jurisdictional accord between the SEC and the Commodity Futures Trading Commission. In addition, the cash, cash equivalents and Treasuries are not “investment securities” for purposes of determining whether or not an entity is an investment company required to be registered under the Investment Company Act of 1940. As a result, the Fund will not be investing in securities and will not be considered an “investment company” for purposes of the Investment Company Act of 1940.

 

21
 

The Fund has no operating history so there is no performance history to serve as a basis for you to evaluate an investment in the Fund.

 

The Fund is new and has no operating history. Therefore, you do not have the benefit of reviewing the past performance of the Fund as a basis to evaluate an investment in the Fund. The Sponsor’s current experience involves managing the Related Public Funds. The Sponsor’s results with the Related Public Funds may not be directly applicable to the Fund since the Fund has a different investment objective than the Related Public Funds.

The Fund and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders.

 

The Fund is subject to actual and potential inherent conflicts involving USCF, various commodity futures brokers, the Marketing Agent and any Authorized Participants. USCF’s officers, directors and employees do not devote their time exclusively to the Fund. These persons are directors, officers or employees of other entities that may compete with the Fund for their services. They could have a conflict between their responsibilities to the Fund and to those other entities. As a result of these and other relationships, parties involved with the Fund have a financial incentive to act in a manner other than in the best interests of the Fund and the shareholders. USCF has not established any formal procedure to resolve conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to such conflicts of interest to resolve them equitably. Although USCF attempts to monitor these conflicts, it is extremely difficult, if not impossible, for USCF to ensure that these conflicts do not, in fact, result in adverse consequences to the shareholders.

The Fund may also be subject to certain conflicts with respect to its Futures Commission Merchant (“FCM”), including, but not limited to, conflicts that result from receiving greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third party accounts traded through the FCM.

USCF’s officers, directors and employees do not devote their time exclusively to the Fund and could have a conflict between their responsibilities to the Fund and to the Related Public Funds.

 

The Fund and USCF may have inherent conflicts to the extent USCF attempts to maintain the Fund’s asset size in order to preserve its fee income and this may not always be consistent with the Fund’s objective of having the value of its shares’ NAV track, on a leveraged basis, changes in the value of the Benchmark Oil Futures Contracts.

USCF’s officers, directors and employees do not devote their time exclusively to the Fund. For example, USCF’s directors, officers and employees act in such capacity for other entities, including the Related Public Funds, that may compete with the Fund for their services. Accordingly, they could have a conflict between their responsibilities to the Fund and to other entities.

USCF has sole current authority to manage the investments and operations of the Fund. This authority to manage the investments and operations of the Fund may allow USCF to act in a way that furthers its own interests in conflict with the best interests of investors. Shareholders have very limited voting rights, which will limit the ability to influence matters such as amending the Trust Agreement, changing the Fund’s basic investment objective, dissolving the Fund, or selling or distributing the Fund’s assets.

The Fund and REX MLPshares, LLC (“REX”) may have conflicts of interest, which may permit REX to favor its own interests to the detriment of Fund shareholders.

REX may have conflicts of interest, which may permit it to favor its own interests to the detriment of shareholders. REX’s officers, directors and employees do not devote their time exclusively to the Fund or to REX MLPshares, LLC and also are directors, officers or employees of other entities that may compete with the Fund for their services. They could have a conflict between their responsibilities to the Fund and to those other entities. As a result of these and other relationships, parties involved with REX may have a financial incentive to act in a manner other than in the best interests of the Fund and the shareholders. USCF has not established any formal procedure to resolve REX conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to such conflicts of interest to resolve them equitably. Although USCF attempts to monitor these conflicts, it is extremely difficult, if not impossible, for USCF to ensure that these conflicts do not, in fact, result in adverse consequences to the Fund’s shareholders.

 

22
 

REX’s officers, directors and employees do not devote their time exclusively to the Fund and could have a conflict between their responsibilities to other entities.

REX’s officers, directors and employees do not devote their time exclusively to the Fund. Rather, REX’s directors, officers and employees act in various capacities for other entities, some of which may now, or in the future, compete with the Fund for their services. Accordingly, REX’s officers, directors and employees could have a conflict between their responsibilities to the Fund and to other entities.

USCF has sole current authority to manage the investments and operations of the Fund. However, REX may act in a way that furthers its own interests in conflict with the best interests of investors.

 

Investors cannot be assured of REX’s continued services, and discontinuance may be detrimental to the Fund.

 

Investors cannot be assured that REX will be willing or able to continue to service the Fund for any length of time. If REX discontinues its activities on behalf of the Fund, the Fund may be adversely affected.

 

Shareholders have only very limited voting rights and have the power to replace USCF only under specific circumstances. Shareholders do not participate in the management of the Fund and do not control USCF, so they do not have any influence over basic matters that affect the Fund.

 

Shareholders have very limited voting rights with respect to the Fund’s affairs and have none of the statutory rights normally associated with the ownership of shares of a corporation (including, for example, the right to bring “oppression” or “derivative” actions). Shareholders may elect a replacement sponsor only if USCF resigns voluntarily or loses its charter. Shareholders are not permitted to participate in the management or control of the Fund or the conduct of its business. Shareholders must therefore rely upon the duties and judgment of USCF to manage the Fund’s affairs. For example, the dissolution or resignation of USCF would cause the Fund to terminate unless, within 90 days of the event, shareholders holding shares representing at least 66 2/3% of the outstanding shares of the Fund elect to continue the Trust and appoint a successor sponsor. In addition, USCF may terminate the Fund if it determines that the Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Fund unreasonable or imprudent. However, no level of losses will require USCF to terminate the Fund. The Fund’s termination would result in the liquidation of its assets and the distribution of the proceeds thereof, first to creditors and then to the shareholders in accordance with their positive book capital account balances, after giving effect to all contributions, distributions and allocations for all periods, and the Fund could incur losses in liquidating its assets in connection with a termination.

The Fund could terminate at any time and cause the liquidation and potential loss of an investor’s investment and could upset the overall maturity and timing of an investor’s investment portfolio.

 

The Fund could terminate at any time, regardless of whether that the Fund has incurred losses, subject to the terms of the Trust Agreement. In particular, unforeseen circumstances, including the bankruptcy, dissolution, or removal of USCF as the sponsor of the Trust could cause the Fund to terminate unless a successor is appointed in accordance with the Trust Agreement. However, no level of losses will require USCF to terminate the Fund. The Fund’s termination would cause the liquidation and potential loss of an investor’s investment. Termination could also negatively affect the overall maturity and timing of an investor’s investment portfolio.

An unanticipated number of redemption requests during a short period of time could have an adverse effect on the Fund’s NAV.

 

If a substantial number of requests for redemption of a block of 50,000 shares (“Redemption Baskets”) are received by the Fund during a relatively short period of time, the Fund may not be able to satisfy the requests from the Fund assets not committed to trading. As a consequence, it could be necessary to liquidate positions in the Fund’s trading positions before the time that the trading strategies would otherwise dictate liquidation.

The Fund does not expect to make cash distributions.

 

The Fund does not intend to make any cash distributions and intends to reinvest any realized gains in additional Oil Interests rather than distributing cash to shareholders. Therefore, unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, the Fund generally does not expect to distribute cash to shareholders. An investor should not invest in the Fund if the investor will need cash distributions from the Fund to pay taxes on its share of income and gains of the Fund, if any, or for any other reason. Nonetheless, although the Fund does not intend to make cash distributions, the income earned from its investments held directly or posted as margin may reach levels that merit distribution, e.g., at levels where such income is not necessary to support its underlying investments in Oil Interests and investors adversely react to being taxed on such income without receiving distributions that could be used to pay such tax. If this income becomes significant then cash distributions may be made.

 

23
 

Money Market Reform

The SEC adopted Rule 2a-7 under the 1940 Act on July 23, 2014, which became effective on October 14, 2016, to reform money market funds (“MMFs”). While the new rule applies only to MMFs, it may indirectly affect institutional investors such as Fund. The new rule requires institutional prime MMFs to price their shares using market-based values instead of the amortized cost method (i.e., to use a “floating net asset value per share” or “floating NAV”). Government and retail funds can continue to use the amortized cost method to value their portfolio securities. Additionally, liquidity fees and gates allow an MMF’s board of directors to directly address runs on a fund. MMFs’ boards of directors are required to implement rules to discourage and prevent runs by investors through the use of redemption fees and gates (temporary suspension of redemptions). The fees and gates could be imposed on a fund whose portfolios fail to meet certain liquidity thresholds although they are optional for government MMFs. The Fund currently plans to invest in government MMFs, as well as Treasuries with a maturity date of two years or less, as an investment for assets not used for margin or collateral in the Futures Contracts. The Fund does not hold any non-government MMFs and, currently, does not anticipate investing in any non-government MMFs. The new rule further decreases the likelihood that the Fund would invest in any non-governmental MMFs. However, if the Fund were to make investments in non-government MMFs in the future, such investments could negatively impact the Fund because of the changes to MMFs resulting from the new rule.

The failure or bankruptcy of a clearing broker or the Fund’s Custodian could result in a substantial loss of the Fund’s assets and could impair the Fund in its ability to execute trades.

 

Under CFTC regulations, a clearing broker maintains customers’ assets in a bulk segregated account. If a clearing broker fails to do so, or even if the customers’ funds are segregated by the clearing broker but the clearing broker is unable to satisfy a substantial deficit in a customer account, the clearing broker’s other customers may be subject to risk of a substantial loss of their funds in the event of that clearing broker’s bankruptcy. In that event, the clearing broker’s customers, such as the Fund, are entitled to recover, even in respect of property specifically traceable to them, only a proportional share of all property available for distribution to all of that clearing broker’s customers. The bankruptcy of a clearing broker could result in the loss of the Fund’s assets posted with the clearing broker. The Fund may also be subject to the risk of the failure of, or delay in performance by, any exchanges and markets and their clearing organizations, if any, on which commodity interest contracts are traded.

In addition, to the extent the Fund’s clearing broker is required to post the Fund’s assets as margin to a clearinghouse, the margin will be maintained in an omnibus account containing the margin of all the clearing broker’s customers. If the Fund’s clearing broker defaults to a clearinghouse because of a default by one of the clearing broker’s other customers or otherwise, then the clearinghouse can look to all of the margin in the omnibus account, including margin posted by the Fund and any other non-defaulting customers of the clearing broker to satisfy the obligations of the clearing broker.

From time to time, clearing brokers may be subject to legal or regulatory proceedings in the ordinary course of their business. A clearing broker’s involvement in costly or time-consuming legal proceedings may divert financial resources or personnel away from the clearing broker’s trading operations, which could impair the clearing broker’s ability to successfully execute and clear the Fund’s trades.

In addition, the majority of the Fund’s assets are held in Treasuries, cash and/or cash equivalents with BBH&Co. (the “Custodian”). The insolvency of the Custodian could result in a loss of the Fund’s assets held by the Custodian, which, at any given time, could comprise a substantial portion of the Fund’s total assets.

The liability of USCF and the Trustee are limited under the Trust Agreement, and the value of the shares will be adversely affected if the Fund is required to indemnify the Trustee or USCF.

 

Under the Trust Agreement, the Trustee and USCF are not liable, and have the right to be indemnified, for any liability or expense incurred absent gross negligence or willful misconduct on the part of the Trustee or USCF or breach by USCF of the Trust Agreement, as the case may be. As a result, USCF may require the assets of the Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce the NAV of the Fund and the value of its shares.

 

24
 

Although the shares of the Fund are limited liability investments, certain circumstances such as bankruptcy or indemnification of the Fund by a shareholder will increase the shareholder’s liability.

 

The shares of the Fund are limited liability investments; shareholders may not lose more than the amount that they invest plus any profits recognized on their investment. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of the Fund any distribution they received at a time when the Fund was in fact insolvent or in violation of its Trust Agreement. In addition, a number of states do not have “statutory trust” statutes such as the Delaware statutes under which the Trust has been formed in the State of Delaware. It is possible that a court in such state could hold that, due to the absence of any statutory provision to the contrary in such jurisdiction, the shareholders, although entitled under Delaware law to the same limitation on personal liability as stockholders in a private corporation for profit organized under the laws of the State of Delaware, are not so entitled in such state. Finally, in the event the Trust or the Fund is made a party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection with any shareholder’s (or assignee’s) obligations or liabilities unrelated to the business of the Trust or the Fund, as applicable, such shareholder (or assignees cumulatively) is required under the Trust Agreement to indemnify the Trust or the Fund, as applicable, for all such liability and expense incurred, including attorneys’ and accountants’ fees.

 

The Fund is a series of the Trust and, as a result, a court could potentially conclude that the assets and liabilities of the Fund are not segregated from those of another series of the Trust, thereby potentially exposing assets in the Fund to the liabilities of another series of the Trust.

 

The Fund is a series of a Delaware statutory trust and not itself a separate legal entity. The Delaware Statutory Trust Act provides that if certain provisions are included in the formation and governing documents of a statutory trust organized in series and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records and are accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred by a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof. Conversely, none of the debts, liabilities, obligations and expenses incurred with respect to any other series thereof shall be enforceable against the assets of such series. USCF is not aware of any court case that has interpreted this Inter-Series Limitation on Liability or provided any guidance as to what is required for compliance. USCF intends to maintain separate and distinct records for the Fund and account for the Fund separately from any other series of the Trust, but it is possible a court could conclude that the methods used do not satisfy the Delaware Statutory Trust Act, which would potentially expose assets in one series to the liabilities of another series of the Trust.

USCF and the Trustee are not obligated to prosecute any action, suit or other proceeding in respect of the Fund property.

 

Neither USCF nor the Trustee is obligated to, although each may in its respective discretion, prosecute any action, suit or other proceeding in respect of the Fund property. The Trust Agreement does not confer upon shareholders the right to prosecute any such action, suit or other proceeding.

Third parties may infringe upon or otherwise violate intellectual property rights or assert that USCF has infringed or otherwise violated their intellectual property rights, which may result in significant costs and diverted attention.

 

It is possible that third parties might utilize the Fund’s intellectual property or technology, including the use of its business methods, trademarks and trading program software, without permission. USCF has a patent for the Fund’s business method and has registered its trademarks. The Fund does not currently have any proprietary software. However, if it obtains proprietary software in the future, any unauthorized use of the Fund’s proprietary software and other technology could also adversely affect its competitive advantage. The Fund may not have adequate resources to implement procedures for monitoring unauthorized uses of its patents, trademarks, proprietary software and other technology. Also, third parties may independently develop business methods, trademarks or proprietary software and other technology similar to that of USCF or claim that USCF has violated their intellectual property rights, including their copyrights, trademark rights, trade names, trade secrets and patent rights. As a result, USCF may have to litigate in the future to protect its trade secrets, determine the validity and scope of other parties’ proprietary rights, defend itself against claims that it has infringed or otherwise violated other parties’ rights, or defend itself against claims that its rights are invalid. Any litigation of this type, even if USCF is successful and regardless of the merits, may result in significant costs, divert its resources from the Fund, or require it to change its proprietary software and other technology or enter into royalty or licensing agreements.

 

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Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.  

With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Fund is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches of the Fund’s clearing broker or third party service provider (including, but not limited to, index providers, the administrator and transfer agent, the custodian), have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs.

In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Fund and its shareholders could be negatively impacted as a result. While the Fund has established business continuity plans, there are inherent limitations in such plans.

 

ADDITIONAL INFORMATION ABOUT THE FUND, ITS INVESTMENT OBJECTIVE AND INVESTMENTS

The Fund is a series of the Trust. The Trust operates pursuant to the terms of the Amended and Restated Declaration of Trust and Trust Agreement dated as of June 23, 2017 (“Trust Agreement”) which grants full management control of the Fund to USCF. The Fund maintains its main business office at 1999 Harrison Street, Suite 1530, Oakland, California 94612.

The Fund will seek to achieve its investment objective by primarily investing in futures contracts for light, sweet crude oil that are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”).

 

The Fund will, to a lesser extent and in view of regulatory requirements and/or market conditions:

 

(i) next invest in (a) cleared swap transactions based on the Benchmark Oil Futures Contract, (b) non-exchange traded (“over-the-counter” or “OTC”), negotiated swap contracts that are based on the Benchmark Oil Futures Contract, and (c) forward contracts for oil;

 

(ii) followed by investments in futures contracts for other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels, each of which are traded on the NYMEX, ICE Futures Europe or other U.S. and foreign exchanges as well as cleared swap transactions and OTC swap contracts valued based on the foregoing; and

 

(iii) finally, invest in exchange-traded cash settled options on Oil Futures Contracts.
     

All such other investments are referred to as “Other Oil-Related Investments” and, together with Oil Futures Contracts, are “Oil Interests.”

For the Fund to maintain a consistent 300% return versus the Benchmark Oil Futures Contract, the Fund’s holdings must be rebalanced on a daily basis by buying additional Oil Interests or selling Oil Interests that it holds. Such rebalancing will occur generally before or at the close of trading of the Shares on the Exchange, at or as near as possible to that day’s settlement price, and will be disclosed on the Fund’s website as pending trades before the opening of trading on the Exchange the next business day and will be taken into account in the Fund’s intra-day Indicative Fund Value and reflected in the Fund’s end of day NAV on that business day .

The Fund anticipates that, to the extent it invests in Oil Futures Contracts other than the Benchmark Oil Futures Contract or Other Oil-Related Investments, it will invest in futures, cleared and non-cleared swaps, and call and put options to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the price movements of the current Benchmark Oil Futures Contract. For example, if the Fund invested in diesel-heating oil futures contracts, it may also enter into a swap or forward contract that is valued based on the difference between the diesel-heating oil futures contract and the Benchmark Oil Futures Contract so that the investment in the diesel-heating oil futures contracts together with such swap would provide a return that more closely matches the movements in the price of the Benchmark Oil Futures Contract. The daily holdings of the Fund are available on the Fund’s website at http://www.uscfinvestments.com.

 

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The Fund invests in Oil Interests to the fullest extent possible without being unable to satisfy its current or potential margin or collateral obligations with respect to its investments in Oil Interests. In pursuing this objective, the primary focus of USCF is the investment in futures contracts and the management of the Fund’s investments in Treasuries, cash and/or cash equivalents for margining purposes and as collateral.

The Fund seeks to invest in a combination of Oil Interests such that the daily changes in its NAV, measured in percentage terms, will track three times (3x) the daily changes in the price of the Benchmark Oil Futures Contract, also measured in percentage terms. As a specific benchmark, USCF endeavors to place the Fund’s trades in Oil Interests and otherwise manage the Fund’s investments so that the difference between “A” and “B” will be plus/minus 0.30 percent (0.30%) of “B”, where:

 

    A is the average daily percentage change in the Fund’s per share NAV for any period of thirty (30) successive valuation days, i.e. , any NYSE trading day as of which the Fund calculates its per share NAV; and

 

    B is three times the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period.   
       

USCF believes that market arbitrage opportunities will cause the daily change in the Fund’s share price on the NYSE exchange on a percentage basis to closely track the daily changes in the Fund’s per share NAV on a percentage basis. USCF further believes that the daily changes in the Fund’s NAV in percentage terms will track three times (3x) the daily changes in percentage terms in the Benchmark Oil Futures Contract, less the Fund’s expenses.

The Fund will not seek to achieve its stated investment objective over a period of time greater than one day . The pursuit of daily leveraged investment goals means that the return of the Fund for a period longer than a full trading day may have no resemblance to 300% of the return of the Benchmark Oil Futures Contract for such longer period because the aggregate return of the Fund is the product of the series of each trading day’s daily returns. During periods of market volatility, the volatility of the Benchmark Oil Futures Contract may affect the Fund’s return as much as or more than the return of the Benchmark Oil Futures Contract. Further, the return for investors that invest for periods less than a full trading day or for a period different than a trading day will not be the product of the return of the Fund’s stated investment objective and the performance of the Benchmark Oil Futures Contract for the full trading day. Additionally, investors should be aware that the Fund’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil. Natural market forces called contango and backwardation can impact the total return on an investment in the Fund’s shares relative to a hypothetical direct investment in crude oil and, in the future, it is likely that the relationship between the market price of the Fund’s shares and changes in the spot prices of light, sweet crude oil will continue to be so impacted by contango and backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning and storing crude oil, which could be substantial.)

 

The Fund is designed to be utilized only by knowledgeable investors who understand the potential consequences of seeking daily leveraged investment results and are willing to monitor their portfolios frequently. The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios.

  

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 crude oil in a cost-effective manner, and/or to permit participants in the oil or other industries to hedge the risk of losses in their crude oil-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in crude oil and/or the risks involved in hedging may exist. In addition, an investment in the Fund involves the risk that the daily changes in the price of the Fund’s shares, in percentage terms, will not accurately track the daily changes in the Benchmark Oil Futures Contract on a leveraged basis, in percentage terms, and that daily changes in the Benchmark Oil Futures Contract in percentage terms, will not closely correlate with daily changes in the spot prices of light, sweet crude oil, in percentage terms.

Impact of Contango and Backwardation on Total Returns

Several factors determine the total return from investing in futures contracts. One factor arises from “rolling” futures contracts that will expire at the end of the current month (the “near” or “front” month contract) forward each month prior to expiration. For a strategy that entails holding the near month contract, the price relationship between that futures contract and the next month futures contract will impact returns. For example, if the price of the near month futures contract is higher than the next futures month contract (a situation referred to as “backwardation”), then absent any other change, the price of a next month futures contract tends to rise in value as it becomes the near month futures contract and approaches expiration. Conversely, if the price of a near month futures contract is lower than the next month futures contract (a situation referred to as “contango”), then absent any other change, the price of a next month futures contract tends to decline in value as it becomes the near month futures contract and approaches expiration.

 

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Contango and backwardation are natural market forces that can impact the total return on an investment in the Fund’s shares relative to a hypothetical direct investment in crude oil. In the future, it is likely that the relationship between the market price of the Fund’s shares and changes in the spot prices of light, sweet crude oil will continue to be impacted by contango and backwardation. It is important to note that this comparison ignores the potential costs associated with physically owning and storing crude oil, which could be substantial.

As an example, assume that the price of crude oil for immediate delivery (the “spot” price), was $50 per barrel, and the value of a position in the near month futures contract was also $50. Over time, the price of the barrel of crude oil will fluctuate based on a number of market factors, including demand for oil relative to its supply. The value of the near month contract will likewise fluctuate in reaction to a number of market factors. If investors seek to maintain their position in a near month contract and not take delivery of the oil, every month they must sell their current near month contract as it approaches expiration and invest in the next month contract.

If the futures market is in backwardation, e.g., when the price of the near month futures contract is higher than the price of the next month futures contract, the investor would buy a next month futures contract for a lower price than the current near month futures contract. Assuming the price of the next month futures contract was $49 per barrel, or 2% cheaper than the $50 near month futures contract, then, hypothetically, and assuming no other changes (e.g., to either prevailing crude oil prices or the price relationship between the spot price, the near month contract and the next month contract, and, ignoring the impact of commission costs and the income earned on cash and/or cash equivalents), the value of the $49 next month futures contract would rise to $50 as it approaches expiration. In this example, the value of an investment in the next month futures contract would tend to outperform the spot price of crude oil. As a result, it would be possible for the new near month futures contract to rise 12% while the spot price of crude oil may have risen a lower amount, e.g., only 10%. Similarly, the spot price of crude oil could have fallen 10% while the value of an investment in the futures contract might have fallen another amount, e.g., only 8%. Over time, if backwardation remained constant, this difference between the spot price and the futures contract price would continue to increase.

If the futures market is in contango, an investor would be buying a next month futures contract for a higher price than the current near month futures contract. Again, assuming the near month futures contract is $50 per barrel, the price of the next month futures contract might be $51 per barrel, or 2% more expensive than the front month futures contract. Hypothetically, and assuming no other changes, the value of the $51 next month futures contract would fall to $50 as it approaches expiration. In this example, the value of an investment in the second month would tend to underperform the spot price of crude oil. As a result, it would be possible for the new near month futures contract to rise only 10% while the spot price of crude oil may have risen a higher amount, e.g., 12%. Similarly, the spot price of crude oil could have fallen 10% while the value of an investment in the second month futures contract might have fallen another amount, e.g., 12%. Over time, if contango remained constant, this difference between the spot price and the futures contract price would continue to increase.

Historically, the crude oil futures markets have experienced periods of contango and backwardation, with backwardation being in place roughly as often as contango since oil futures trading, started in 1982. Following the global financial crisis in the fourth quarter of 2008, the crude oil market moved into contango and remained in contango for a period of several years. During parts of 2009, the level of contango was unusually steep as a combination of slack U.S. and global demand for crude oil and issues involving the physical transportation and storage of crude oil at Cushing, Oklahoma, the primary pricing point for oil traded in the U.S., led to unusually high inventories of crude oil. A combination of improved transportation and storage capacity, along with growing demand for crude oil globally, moderated the inventory build-up and lead to reduced levels of contango by 2011. However, at the end of November, 2014, global crude oil inventories grew rapidly after OPEC decided to defend its market share against U.S. shale-oil producers, resulting in another period during which the crude oil market remained primarily in contango, sometimes steep contango. This period of contango continued through December 31, 2016. In addition, the crude oil markets are expected to remain in contango until U.S. and global oil inventories decline significantly. If OPEC’s recent cuts in oil production have their intended effect on the crude oil market then such a decline may occur in 2017.

Periods of contango or backwardation do not materially impact the Fund’s investment objective of having the daily percentage changes in its per share NAV track, on a leveraged basis, the daily percentage changes in the price of the Benchmark Oil Futures Contract since the impact of backwardation and contango tend to proportionally impact the daily percentage changes in price of both the Fund’s shares and the Benchmark Oil Futures Contract. It is impossible to predict with any degree of certainty whether backwardation or contango will occur in the future. It is likely that both conditions will occur during different periods.

 

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Trading Methodology

In managing the Fund’s assets, USCF does not use a technical trading system that issues buy and sell orders. USCF instead employs a quantitative methodology whereby each time a Creation Basket is sold, USCF purchases Oil Interests, such as the Benchmark Oil Futures Contract, that have an aggregate market value that approximates three times (3x) the amount of Treasuries and/or cash received upon the issuance of the Creation Basket. As of the NAV calculation time each trading day, the Fund will also seek to position its portfolio so that its exposure to the Benchmark Oil Futures Contract is consistent with its investment objective to provide investment results that correspond (before fees and expenses) to three times (3x) the performance of the Benchmark Oil Futures Contract.

The specific Oil Futures Contracts purchased depend on various factors, including a judgment by USCF as to the appropriate diversification of the Fund’s investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of particular contracts. While USCF has made significant investments in NYMEX Oil Futures Contracts, for various reasons, including the ability to enter into the precise amount of exposure to the crude oil market, position limits or other regulatory requirements limiting the Fund’s holdings, and market conditions, it may invest in Oil Futures Contracts traded on other exchanges or invest in Other Oil-Related Investments. To the extent that the Fund invests in Other Oil-Related Investments, it would prioritize investments in contracts and instruments that are economically equivalent to the Benchmark Oil Futures Contract, including cleared swaps that satisfy such criteria, and then, to a lesser extent, it would invest in other types of cleared swaps and other contracts, instruments and non-cleared swaps, such as swaps in the over-the-counter market (or commonly referred to as the “OTC market”). If the Fund is required by law or regulation, or by one of its regulators, including a futures exchange, to reduce its position in the Benchmark Oil Futures Contracts to the applicable position limit or to a specified accountability level or if market conditions dictate it would be more appropriate to invest in Other Oil-Related Investments, a substantial portion of the Fund’s assets could be invested in accordance with such priority in Other Oil-Related Investments that are intended to replicate the return on the Benchmark Oil Futures Contract. As the Fund’s assets reach higher levels, it is more likely to exceed position limits, accountability levels or other regulatory limits and, as a result, it is more likely that it will invest in accordance with such priority in Other Oil-Related Investments at such higher levels. In addition, market conditions that USCF currently anticipates could cause the Fund to invest in Other Oil-Related Investments include those allowing the Fund to obtain greater liquidity or to execute transactions with more favorable pricing. See “Risk Factors Involved With an Investment in the Fund” for a discussion of the potential impact of regulation on the Fund’s ability to invest in OTC transactions and cleared swaps.

USCF may not be able to fully invest the Fund’s assets in Benchmark Oil Futures Contracts having an aggregate notional amount exactly equal to three times (3x) the Fund’s NAV. For example, as standardized contracts, the Benchmark Oil Futures Contracts are for a specified amount of a particular commodity, and the Fund’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the amounts of those contracts. As a result, in such circumstances, the Fund may be better able to achieve the exact amount of exposure to changes in price of the Benchmark Oil Futures Contract through the use of Other Oil-Related Investments, such as OTC contracts that have better correlation with changes in price of the Benchmark Oil Futures Contract.

The Fund anticipates that to the extent it invests in Oil Futures Contracts other than contracts on light, sweet crude oil (such as futures contracts for diesel-heating oil, natural gas, and other petroleum-based fuels) and Other Oil-Related Investments, it will enter into various non-exchange-traded derivative contracts to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the current Benchmark Oil Futures Contract.

USCF does not anticipate letting the Fund’s Oil Futures Contracts expire and taking, or making, delivery of the underlying commodity. Instead, USCF will close existing positions, e.g. , when it changes the Benchmark Oil Futures Contracts or Other Oil-Related Investments or it otherwise determines it would be appropriate to do so and reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related Investments. Positions may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.

 

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The Benchmark Oil Futures Contract is changed from the near month contract to the next month contract over a four-day period. Each month, the Benchmark Oil Futures Contract changes starting at the end of the day on the date two weeks prior to expiration of the near month contract for that month. During the first three days of the period, the applicable value of the Benchmark Oil Futures Contract is based on a combination of the near month contract and the next month contract as follows: (1) day 1 consists of 75% of the then near month contract’s price plus 25% of the price of the next month contract, divided by 75% of the near month contract’s prior day’s price plus 25% of the price of the next month contract, (2) day 2 consists of 50% of the then near month contract’s price plus 50% of the price of the next month contract, divided by 50% of the near month contract’s prior day’s price plus 50% of the price of the next month contract and (3) day 3 consists of 25% of the then near month contract’s price plus 75% of the price of the next month contract, divided by 25% of the near month contract’s prior day’s price plus 75% of the price of the next month contract. On day 4, the Benchmark Oil Futures Contract is the next month contract to expire at that time and that contract remains the Benchmark Oil Futures Contract until the beginning of the following month’s change in the Benchmark Oil Futures Contract over a four-day period. On each day during the four-day period, USCF anticipates it will “roll” the Fund’s positions in Oil Interests by closing, or selling, a percentage of the Fund’s positions in Oil Interests and reinvesting the proceeds from closing those positions in new Oil Interests that reflect the change in the Benchmark Oil Futures Contract.

The anticipated dates that the monthly four-day roll period will commence are posted on the Fund’s website at www.uscfinvestments.com, and are subject to change without notice.

By remaining invested as fully as possible in Oil Futures Contracts or Other Oil-Related Investments, USCF believes that the daily changes in percentage terms of the Fund’s NAV will continue to closely track, on a leveraged basis, the daily changes in percentage terms in the price of the Benchmark Oil Futures Contract. USCF believes that certain arbitrage opportunities result in the price of the shares traded on the NYSE closely tracking the NAV of the Fund. Additionally, Oil Futures Contracts traded on the NYMEX have closely tracked the spot price of light, sweet crude oil. Based on these expected interrelationships, USCF believes that the changes in the price of the Fund’s shares as traded on the NYSE will closely track on a daily basis, the changes in the spot price of light, sweet crude oil on a percentage basis.

What are the Trading Policies of the Fund?

 

Investment Objectives

The Fund seeks, on a daily basis, to provide investment results that correspond (before fees and expenses) to three times (3x) the performance of the Benchmark Oil Futures Contract. The Fund does not seek to achieve its stated objective over a period greater than a single day. Because the Fund seeks investment results for a single day only (as measured from the time the Fund calculates its NAV to the time of the Fund’s next NAV calculation) and on a leveraged basis, the Fund is different from most exchange-traded funds.

 

As of the NAV calculation time each trading day, the Fund will seek to position its portfolio so that its exposure to the Benchmark Oil Futures Contract is consistent with its investment objective. The impact of a Benchmark Oil Futures Contract’s movements during the day will affect whether the Fund’s portfolio needs to be rebalanced. For example, the Fund’s long exposure will need to be increased on days when the Benchmark Oil Futures Contract rises and decreased on days the Benchmark Oil Futures Contract falls. Daily rebalancing and the compounding of each day’s return over time means that the return of the Fund for a period longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ from three times (3x) the return of the Benchmark Oil Futures Contract for the period. The Fund may lose money if the Benchmark Oil Futures Contract’s performance is flat over time, and it is possible for a Fund to lose money over time regardless of the performance of the Benchmark Oil Futures Contract, as a result of daily rebalancing, the Benchmark Oil Futures Contract’s volatility and compounding.

There can be no assurance that the Fund will achieve its investment objective or avoid substantial losses. The Fund does not seek to achieve its stated investment objective over a period of time greater than a single day because mathematical compounding prevents the Fund from achieving such results. Results for the Fund over periods of time greater than a single day should not be expected to be a simple multiple (3x) of the period return of the Benchmark Oil Futures Contract and will likely differ significantly from such. The Fund may lose money if the Benchmark Oil Futures Contract’s performance is flat over time, and it is possible for the Fund to lose money over time regardless of the performance of the Benchmark Oil Futures Contract, as a result of daily rebalancing, the Benchmark Oil Futures Contract’s volatility and compounding. Daily compounding of the Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to the Fund’s return for a period as the return of the Benchmark Oil Futures Contract.

Liquidity

 

The Fund invests only in Oil Futures Contracts and Other Oil-Related Investments that, in the opinion of USCF, are traded in sufficient volume to permit the ready taking and liquidation of positions in these financial interests and in Other Oil-Related Investments that, in the opinion of USCF, may be readily liquidated with the original counterparty or through a third party assuming the position of the Fund.

 

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Spot Commodities

 

While the crude Oil Futures Contracts traded can be physically settled, the Fund does not intend to take or make physical delivery. The Fund may from time to time trade in Other Oil-Related Investments, including contracts based on the spot price of crude oil.

Leverage

 

USCF endeavors to have the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments equal to three times (3x) the Fund’s total net assets. Commodity pools’ trading positions in futures contracts or other related investments are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other commodity interest’s) entire market value.

Borrowings

 

Borrowings are not expected to be used by the Fund unless the Fund is required to borrow money in the event of physical delivery, if the Fund trades in cash commodities, or for short-term needs created by unexpected redemptions.

OTC Derivatives (Including Spreads and Straddles)

 

In addition to Oil Futures Contracts, there are also a number of listed options on the Oil Futures Contracts on the principal futures exchanges. These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the crude oil market. Consequently, the Fund may purchase options on crude Oil Futures Contracts on these exchanges in pursuing its investment objective.

In addition to the Oil Futures Contracts and options on the Oil Futures Contracts, there also exists an active non-exchange-traded market in derivatives tied to crude oil. These derivatives transactions (also known as OTC contracts) are usually entered into between two parties in private contracts. Unlike most of the exchange-traded Oil Futures Contracts or exchange-traded options on the Oil Futures Contracts, each party to such contract bears the credit risk of the other party, i.e. , the risk that the other party may not be able to perform its obligations under its contract. To reduce the credit risk that arises in connection with such contracts, the Fund will generally enter into an agreement with each counterparty based on the Master Agreement published by the International Swaps and Derivatives Association, Inc. (“ISDA”) that provides for the netting of its overall exposure to its counterparty.

USCF assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an OTC contract pursuant to guidelines approved by USCF’s board.

The Fund may enter into certain transactions where an OTC component is exchanged for a corresponding futures contract (an “Exchange for Related Position” or “EFRP transaction”). In the most common type of EFRP transaction entered into by the Fund, the OTC component is the purchase or sale of one or more baskets of the Fund shares. These EFRP transactions may expose the Fund to counterparty risk during the interim period between the execution of the OTC component and the exchange for a corresponding futures contract. Generally, the counterparty risk from the EFRP transaction will exist only on the day of execution.

The Fund may employ spreads or straddles in its trading to mitigate the differences in its investment portfolio and its goal of tracking, on a leveraged basis, the price of the Benchmark Oil Futures Contract. The Fund would use a spread when it chooses to take simultaneous long and short positions in futures written on the same underlying asset, but with different delivery months.

The Fund does not anticipate engaging in trading in futures contracts listed on a foreign exchange, forward contracts or options on such contracts, but it may do so as outlined in the Fund’s listing exemptive order or as permitted under current regulations.

 

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Pyramiding

 

USCF has not employed, and will not employ, the technique, commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as variation margin for the purchase or sale of additional positions in the same or another commodity interest.

 

Prior Performance of the Fund and the Related Public Funds

 

None of the Related Pubic Funds listed below use leverage.  

 

Performance of the Fund


THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.

 

Performance of the Related Public Funds

USO:

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Oil Fund, LP (“USO”) is for the daily changes in percentage terms of its shares’ per share 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 daily changes in the price of a specified short-term futures contract on light, sweet crude oil called the “Benchmark Oil Futures Contract,” less USO’s expenses. USO does not use leverage to meet its objective. 

 

USCF manages USO which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for USO.

 

# of Authorized
Participants
    Baskets
Purchased
    Baskets
Redeemed
    Outstanding
Shares
 
  17       22,597       19,842       275,500,000  
                             

Since the commencement of the offering of USO shares to the public on April 10, 2006 to April 28, 2017, the simple average daily changes in relevant benchmark futures contract was (0.041)%, while the simple average daily change in the NAV of USO over the same time period was (0.041)%. The average daily difference was (0.000)% (or (0.01) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the NAV was 0.051%, meaning that over this time period USO’s tracking error was within the plus or minus ten percent 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the shares and the daily NAV of USO, since inception through April 28, 2017. The first row shows the average amount of the variation between USO’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

 

    USO  
Average Difference   $ (.01 )
Max Premium %     9.38 %
Max Discount %     (4.51 )%
         

For more information on the performance of USO, see the Performance Tables below.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR USO

Name of Pool: United States Oil Fund, LP

Type of Pool: Public, Exchange-Listed Commodity Pool

Inception of Trading: April 10, 2006

Aggregate Subscriptions (from inception through April 28, 2017): $60,647,704,331

Net Asset Value as of April 28, 2017: $2,830,793,130

Net Asset Value per Share as of April 28, 2017: $10.28

Worst Monthly Drawdown: July 2015 (21.48)%

Worst Peak-to-Valley Drawdown: June 2008 — February 2016 (92.07)%

Number of Shareholders (as of December 31, 2016): 274,294,809

 

32
 
    Rates of Return*  
Month   2012     2013     2014     2015     2016     2017  
January     (0.60 )%     5.63 %     (1.22 )%     (10.47 )%     (12.34 )%     (3.33 )%
February     8.25 %     (6.15 )%     5.75 %     1.39 %     (6.93 )%     1.24 %
March     (4.27 )%     5.01 %     (0.52 )%     (7.76 )%     8.34 %     (7.33 )%
April     1.25 %     (4.25 )%     (0.96 )%     21.52 %     15.91 %     (3.20 )%
May     (17.83 )%     (1.92 )%     3.72 %     (0.63 )%     5.31 %        
June     (2.24 )%     4.68 %     3.32 %     (2.16 )%     (2.77 )%        
July     3.14 %     9.15 %     (6.38 )%     (21.48 )%     (15.31 )%        
August     9.18 %     3.03 %     (1.57 )%     3.00 %     (5.61 )%        
September     (4.82 )%     (4.16 )%     (4.19 )%     (9.62 )%     6.38 %        
October     (6.93 )%     (5.75 )%     (10.93 )%     2.13 %     (3.81 )%        
November     2.45 %     (4.20 )%     (17.87 )%     (13.10 )%     3.96 %        
December     2.55 %     5.86 %     (19.72 )%     (14.77 )%     6.45 %        
Annual Rate of Return     (12.21 %)     5.42 %     (42.80 )%     (45.31 )%     6.26 %     (12.21 )%**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.

 

** Through April 28, 2017.
   

Draw-down: Losses experienced by the fund over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

 

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

 

UNG:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Natural Gas Fund, LP, (“UNG”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the daily changes in the price of a specified short-term futures contract called the “Benchmark Futures Contract”, less UNG’s expenses. UNG does not use leverage to meet its objective. 

USCF manages UNG which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for UNG.

# of Authorized
Participants
    Baskets
Purchased
    Baskets
Redeemed
    Outstanding
Shares
 
  16       17,927       17,259       66,766,476  
                             

Since the commencement of the offering of UNG’s shares to the public on April 18, 2007 to April 28, 2017, the simple average daily change in the relevant benchmark futures contract was 0.267%, while the simple average daily change in the per share NAV of UNG over the same time period was 0.265%. The average daily difference was (0.003)% (or (0.1) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the per share NAV was (0.453)% meaning that over this time period UNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

33
 

The table below shows the relationship between the trading prices of the shares and the daily NAV of UNG, since inception through April 28, 2017. The first row shows the average amount of the variation between UNG’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    UNG  
Average Difference   $ 0.23  
Max Premium %     19.03 %
Max Discount %     (2.42 )%
         

For more information on the performance of UNG, see the Performance Tables below.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR UNG

Name of Commodity Pool: United States Natural Gas Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 18, 2007

Aggregate Subscriptions (from inception through April 28, 2017): $24,595,373,768

Total Net Assets as of April 28, 2017: $446,355,970

NAV per Share as of April 28, 2017: $7.57

Worst Monthly Percentage Draw-down: December 2014 (29.76)%

Worst Peak-to-Valley Draw-down: June 2008 - February 2016 (98.79)%

Number of Shareholders (as of February 28, 2017): 118,044

    Rates of Return*  
Month   2012     2013     2014     2015     2016     2017  
January     (17.62 )%     (0.42 )%     18.46 %     (6.15 )%     (2.99 )%     (16.04 )%
February     (2.49 )%     2.18 %     4.63 %     0.95 %     (28.00 )%     (13.85 )%
March     (22.99 )%     14.22 %     (4.58 )%     (4.33 )%     9.39 %     12.65 %
April     2.19 %     7.02 %     9.57 %     2.49 %     6.02 %     0 %
May     3.00 %     (9.46 )%     (5.88 )%     (5.74 )%     (1.85 )%        
June     14.36 %     (11.11 )%     (2.11 )%     6.09 %     25.18 %        
July     13.96 %     (3.44 )%     (14.00 )%     (4.19 )%     (0.69 )%        
August     (14.46 )%     3.13 %     4.87 %     (2.38 )%     (1.16 )%        
September     13.32 %     (2.71 )%     (0.32 )%     (8.73 )%     (1.88 )%        
October     1.78 %     (3.01 )%     (8.37 )%     (15.69 )%     (2.52 )%        
November     (6.58 )%     8.85 %     2.86 %     (10.63 )%     4.06 %        
December     (7.09 )%     6.57 %     (29.76 )%     (0.57 )%     9.94 %        
Annual Rate of Return     (27.09 )%     9.11 %     (28.95 )%     (40.60 )%     6.90 %     (18.51 )**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

 

34
 

Draw-down: Losses experienced by the fund over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

 

USL:

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States 12 Month Oil Fund, LP (“USL”) is for the daily changes in percentage terms of its per share 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 daily changes in the average of the prices of specified short-term futures contracts on light, sweet crude oil called the “Benchmark Oil Futures Contracts,” less USL’s expenses. USL does not use leverage to meet its objective.

USCF manages USL which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for USL.

# of Authorized Participants     Baskets Purchased     Baskets Redeemed     Outstanding Shares  
  9       328       251       5,700,000  
                             

Since the commencement of the offering of USL shares to the public on December 6, 2007 to April 28, 2017, the simple average daily change in the Benchmark Oil Futures Contracts was 0.008%, while the simple average daily change in the per share NAV of USL over the same time period was 0.006%. The average daily difference was (0.002)% (or (0.2) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark Oil Futures Contracts, the average error in daily tracking by the per share NAV was (0.728)%, meaning that over this time period USL’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the shares and the daily NAV of USL, since inception through April 28, 2017. The first row shows the average amount of the variation between USL’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contracts on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contracts, for purposes of determining its end of day NAV, can be determined at that time.

    USL  
Average Difference   $ (0.03 )
Max Premium %     11.13 %
Max Discount %     (9.72 )%

 

For more information on the performance of USL, see the Performance Tables below.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR USL

Name of Pool: United States 12 Month Oil Fund, LP

Type of Pool: Public, Exchange-Listed Commodity Pool

Inception of Trading: December 6, 2007

Aggregate Subscriptions (from inception through April 28, 2017: $654,822,847

Total Net Assets as of April 28, 2017: $102,393,699

NAV per Share as of April 28, 2017: $17.96

Worst Monthly Percentage Draw-down: July 2015 (17.96)%

Worst Peak-to-Valley Draw-down: April 2011 - February 2016 (70.22)%

Number of Shareholders (as of December 31, 2016): 14,014

 

35
 
Month   2012     2013     2014     2015     2016     2017  
January     0.92 %     5.05 %     (2.76 )%     (6.66 )%     (6.53 )%     (3.43 )%
February     7.71 %     (5.62 )%     5.86 %     5.40 %     (3.71 )%     0.20 %
March     (3.03 )%     3.95 %     0.02 %     (8.41 )%     6.86 %     (6.13 )%
April     0.65 %     (4.12 )%     (0.50 )%     16.15 %     12.54 %     (3.02 )%
May     (16.94 )%     (1.12 )%     3.24 %     (2.08 )%     5.27 %        
June     (1.04 )%     3.01 %     4.13 %     (1.50 )%     (0.15 )%        
July     2.59 %     7.04 %     (5.26 )%     (17.96 )%     (12.51 )%        
August     8.54 %     2.87 %     (1.32 )%     3.32 %     4.61 %        
September     (4.27 )%     (2.11 )%     (5.22 )%     (10.11 )%     5.93 %        
October     (5.72 )%     (2.36 )%     (9.26 )%     3.18 %     (3.09 )%        
November     2.49 %     (2.37 )%     (16.48 )%     (8.96 )%     4.84 %        
December     1.97 %     4.03 %     (16.07 )%     (11.50 )%     7.03 %        
Annual Rate of Return     (8.40 )%     7.59 %     (37.92 )%     (36.07 )%     19.94 %     (11.92 )**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

Draw-down: Losses experienced by the fund over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

 

UGA:

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Gasoline Fund, LP (“UGA”)is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of gasoline (also known as reformulated gasoline blendstock for oxygen blending, or “RBOB”), for delivery to the New York harbor, as measured by the daily changes in the price of a specified short-term futures contract on gasoline called the “Benchmark Futures Contract,” less UGA’s expenses. UGA does not use leverage to meet its objective. 

USCF manages UGA which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for UGA.

# of Authorized
Participants
    Baskets Purchased     Baskets Redeemed     Outstanding Shares  
  11       259       213       2,300,000  
                             

Since the commencement of the offering of UGA’s shares to the public on February 26, 2008 to April 28, 2017, the simple average daily change in the relevant benchmark futures contract was (0.137)% while the simple average daily change in the per share NAV of UGA over the same time period was (0.137)%. The average daily difference was (0.001)% (or (0.1) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the per share NAV was (0.812)%, meaning that over this time period UGA’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

36
 

The table below shows the relationship between the trading prices of the shares and the daily NAV of UGA, since inception through April 28, 2017. The first row shows the average amount of the variation between UGA’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    UGA  
Average Difference   $ 0.00  
Max Premium %     6.80 %
Max Discount %     (4.50 )%
         

For more information on the performance of UGA, see the Performance Tables below.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR UGA

Name of Commodity Pool: United States Gasoline Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: February 26, 2008

Aggregate Subscriptions (from inception through April 28, 2017): $491,724,831

Total Net Assets as of April 28, 2017: $56,783,615

NAV per Share as of April 28, 2017: $24.69

Worst Monthly Percentage Draw-down: December 2014 (20.18)%

Worst Peak-to-Valley Draw-down: June 2008 — July 2016 (65.23)%

Number of Shareholders (as of December 31, 2016): 15,067

Month   2012     2013     2014     2015     2016     2017  
January     8.37 %     9.13 %     (5.99 )%     (1.89 )%     (13.04 )%     (8.80 )%
February     6.83 %     (3.63 )%     6.73 %     16.93 %     (5.85 )%     (2.27 )%
March     1.59 %     0.26 %     (1.81 )%     (10.34 )%     6.92 %     (2.50 )%
April     (3.45 )%     (9.75 )%     2.53 %     15.20 %     9.55 %     (9.43 )%
May     (11.05 )%     (1.22 )%     0.78 %     1.34 %     .21 %        
June     (0.61 )%     (1.04 )%     3.38 %     1.45 %     (7.81 )%        
July     9.60 %     12.87 %     (7.30 )%     (11.23 )%     (12.63 )%        
August     13.02 %     0.49 %     (1.78 )%     (6.22 )%     5.51 %        
September     0.96 %     (8.80 )%     (5.18 )%     (8.03 )%     15.88 %        
October     (9.42 )%     (1.14 )%     (9.17 )%     (0.22 )%     (2.34 )%        
November     4.82 %     3.58 %     (14.06 )%     (4.41 )%     4.10 %        
December     1.27 %     4.08 %     (20.18 )%     (2.85 )%     11.28 %        
Annual Rate of Return     20.72 %     2.57 %     (43.40 )%     (13.57 )%     7.06 %     (21.29 )%**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

 

37
 

Draw-down: Losses experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

UHN:

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 The investment objective of the United States Diesel-Heating Oil Fund, LP (“UHN”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of heating oil (also known as No. 2 fuel) for delivery at the New York harbor, as measured by the daily changes in the price of a specified short-term futures contract on heating oil called the “Benchmark Futures Contract”, less UHN’s expenses. UHN does not use leverage to meet its objective.

USCF manages UHN which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for UHN.

# of Authorized     Baskets     Baskets     Outstanding  
Participants     Purchased     Redeemed     Shares  
  11       27       22       250,000  
                             

Since the commencement of the offering of UHN’s shares to the public on April 9, 2008 to April 28, 2017, the simple average daily change in the relevant benchmark futures contract was (0.022)%, while the simple average daily change in the per share NAV of UHN over the same time period was (0.023)%. The average daily difference was (0.001)% (or (0.1) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the per share NAV was (0.921)%, meaning that over this time period UHN’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the shares and the daily NAV of UHN, since inception through April 28, 2017. The first row shows the average amount of the variation between UHN’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    UHN  
Average Difference   $ 0.01  
Max Premium %     7.05 %
Max Discount %     (3.85 )%
         

For more information on the performance of UHN, see the Performance Tables below.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR UHN

Name of Pool: United States Diesel-Heating Oil Fund, LP

Type of Pool: Public, Exchange-Listed Commodity Pool

Inception of Trading: April 9, 2008

Aggregate Subscriptions (from inception through April 28, 2017): $40,186,949

Total Net Assets as of April 28, 2017: $3,579,797

 

38
 

NAV per Share as of April 28, 2017: $14.32

Worst Monthly Percentage Draw-down: December 2015 (19.64)%

Worst Peak-to-Valley Draw-down: June 2008 — January 2016 (84.32)%

Number of Shareholders (as of February 28, 2017): 943

Month   2012     2013     2014     2015     2016     2017  
January     4.73 %     2.99 %     0.00 %     (5.67 )%     (5.53 )%     (6.47 )%
February     5.62 %     (4.74 )%     2.56 %     19.01 %     0.08 %     (0.13 )%
March     (1.46 )%     0.00 %     (2.50 )%     (12.49 )%     7.54 %     (4.32 )%
April     0.17 %     (6.76 )%     0.15 %     15.79 %     15.84 %     (4.91 )%
May     (15.28 )%     (1.88 )%     (1.27 )%     (1.71 )%     7.55 %        
June     0.03 %     2.64 %     2.62 %     (3.45 )%     (1.14 )%        
July     4.98 %     6.81 %     (3.36 )%     (16.70 )%     (13.76 )%        
August     11.24 %     2.38 %     (1.26 )%     6.25 %     7.49 %        
September     (0.68 )%     (5.38 )%     (7.73 )%     (10.99 )%     7.04 %        
October     (2.76 )%     (0.62 )%     (5.10 )%     (3.44 )%     (3.55 )%        
November     (0.38 )%     2.47 %     (12.78 )%     (12.16 )%     3.81 %        
December     (0.94 )%     1.10 %     (12.16 )%     (19.64 )%     8.50 %        
Annual Rate of Return     2.99 %     (1.87 )%     (35.03 )%     (42.03 )%     35.02 %     (15.01 )%**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

Draw-down: Losses experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

 

USCI:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Commodity Index Fund (“USCI”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the SummerHaven Dynamic Commodity Index Total Return SM (the “SDCI”), less USCI’s expenses. USCI does not use leverage to meet its objective. 

USCF manages USCI which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for USCI. Please note that, prior to May 2012, a Creation Basket was composed of 100,000 shares, so the total number of outstanding shares does not reflect the difference between the number of baskets purchased and the number of baskets redeemed.

# of Authorized Participants     Baskets Purchased     Baskets Redeemed     Outstanding Shares  
  11       510       298       14,100,000  
                             

Since the commencement of the offering of USCI’s shares to the public on August 10, 2010 to April 28, 2017, the simple average daily change in the SDCI was (0.008)%, while the simple average daily change in the per share NAV of USCI over the same time period was (0.004)%. The average daily difference was (0.012)% (or (0.12) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the SDCI, the average error in daily tracking by the per share NAV was (8.95)%, meaning that over this time period USCI’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

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The table below shows the relationship between the trading prices of the shares and the daily NAV of USCI, since inception through April 28, 2017. The first row shows the average amount of the variation between USCI’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    USCI  
Average Difference   $ 0.02  
Max Premium %     1.10 %
Max Discount %     (1.34 )%
         

For more information on the performance of USCI, see the Performance Tables below.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR USCI

Name of Commodity Pool: United States Commodity Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: August 10, 2010

Aggregate Subscriptions (from inception through February 28, 2017): $1,701,069,397

Total Net Assets as of February 28, 2017: $548,302,448

NAV per Share as of February 28, 2017: $38.89

Worst Monthly Percentage Draw-down: December 2014 (8.58)%

Worst Peak-to-Valley Draw-down: Feb 2012 — January 2016 (37.80)%

Number of shareholders (as of December 31, 2016): 65,983

Month   2012     2013     2014     2015     2016     2017  
January     4.45 %     2.69 %     (0.11 )%     (4.77 )%     (2.52 )%     0.60 %
February     4.01 %     (3.73 )%     3.59 %     2.02 %     0.03 %     (0.35 )%
March     (3.49 )%     (1.53 )%     1.02 %     (4.12 )%     2.28 %     (2.27 )%
April     (0.62 )%     (2.53 )%     2.58 %     5.12 %     4.70 %     (0.77 )%
May     (7.76 )%     (0.16 )%     0.05 %     (2.48 )%     (1.84 )%        
June     2.35 %     (3.55 )%     0.52 %     2.28 %     3.71 %        
July     6.52 %     2.11 %     (4.02 )%     (7.00 )%     (2.28 )%        
August     1.34 %     4.01 %     (0.93 )%     (2.85 )%     (1.43 )%        
September     (1.18 )%     (1.16 )%     (4.12 )%     (1.60 )%     0.02 %        
October     (3.44 )%     (0.87 )%     (1.58 )%     0.21 %     1.18 %        
November     0.89 %     0.11 %     (2.71 )%     (3.64 )%     (0.64 )%        
December     (2.21 )%     0.59 %     (8.58 )%     0.17 %     (4.07 )%        
Annual Rate of Return     (0.03 )%     (4.09 )%     (13.5 )%     (16.00 )%     (1.23 )%     (2.77 )**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

Draw-down: Losses experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained since inception of trading.

 

40
 

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the Fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV that is not equaled or exceeded by a subsequent month-end per share NAV.

 

BNO:

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Brent Oil Fund, LP (“BNO”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of Brent crude oil, as measured by the daily changes in the price of a specified short-term futures contract on Brent crude oil called the “Benchmark Futures Contract”, less BNO’s expenses. BNO does not use leverage to meet its objective.

USCF manages BNO which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for BNO.

# of Authorized                    
Participants     Baskets Purchased     Baskets Redeemed     Outstanding Shares  
  9       353       225       6,850,000  
                             

Since the commencement of the offering of BNO’s shares to the public on June 2, 2010 to April 28, 2017, the simple average daily change in the relevant benchmark futures contract was (0.018)%, while the simple average daily change in the per share NAV of BNO over the same time period was (0.020)%. The average daily difference was (0.001)% (or (0.1) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the per share NAV was (0.932)% meaning that over this time period BNO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the shares and the daily NAV of BNO, since inception through April 28, 2017. The first row shows the average amount of the variation between BNO’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    BNO  
Average Difference   $ (0.01 )
Max Premium %     4.825 %
Max Discount %     (3.126 )%

 

For more information on the performance of BNO, see the Performance Tables below.

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR BNO

Name of Commodity Pool: United States Brent Oil Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: June 2, 2010

Aggregate Subscriptions (from inception through April 28, 2017): $663,832,570

Total Net Assets as of April 28, 2017: $95,648,529

NAV per Share as of April 28, 2017: $13.96

Worst Monthly Percentage Draw-down: December 2014 (18.85)%

 

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Worst Peak-to-Valley Draw-down: Jun 2014 – Feb. 2016 (74.97)%

Number of Shareholders (as of February 28, 2017): 15,067

    Rates of Return*  
Month   2012     2013     2014     2015     2016     2017  
January     3.64 %     5.02 %     (3.77 )%     (9.38 )%     (6.87 )%     (3.12 )%
February     10.78 %     (2.86 )%     3.04 %     15.87 %     (0.26 )%     1.05 %
March     0.84 %     (0.41 )%     (0.87 )%     (12.89 )%     8.46 %     (5.66 )%
April     (2.36 )%     (6.87 )%     0.28 %     18.75 %     17.79 %     (3.72 )%
May     (14.59 )%     (1.60 )%     1.71 %     (2.96 )%     4.14 %        
June     (3.61 )%     1.93 %     3.26 %     (4.11 )%     (1.59 )%        
July     7.50 %     5.94 %     (5.67 )%     (18.60 )%     (13.39 )%        
August     10.61 %     6.69 %     (3.30 )%     2.39 %     6.99 %        
September     (1.55 )%     (3.55 )%     (8.82 )%     (12.20 )%     5.95 %        
October     (2.67 )%     1.18 %     (9.89 )%     1.09 %     (4.66 )%        
November     3.02 %     0.79 %     (18.83 )%     (11.47 )%     4.24 %        
December     0.65 %     1.34 %     (18.85 )%     (17.54 )%     8.28 %        
Annual Rate of Return     9.94 %     6.92 %     (48.89 )%     (45.42 )%     28.48 %     (11.08 )%**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28 2017.

Draw-down: Losses experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

UNL:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States 12 Month Natural Gas Fund, LP (“UNL”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the daily changes in the price of a specified short-term futures contracts on natural gas called the “Benchmark Futures Contracts”, less UNL’s expenses. UNL does not use leverage to meet its investment objective.  

USCF manages UNL which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for UNL.

# of Authorized
Participants
    Baskets Purchased     Baskets Redeemed     Outstanding Shares  
  9       85       81       1,000,000  
                             

Since the commencement of the offering of UNL shares to the public on November 18, 2009 to April 28, 2017, the simple average daily change in the average price of its relevant benchmark futures contracts was 0.250)%, while the simple average daily change in the per share NAV of UNL over the same time period was 0.252%. The average daily difference was (0.002)% (or (0.2) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the relevant benchmark futures contracts, the average error in daily tracking by the per share NAV was (0.302)%, meaning that over this time period UNL’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

42
 

The table below shows the relationship between the trading prices of the shares and the daily NAV of UNL, since inception through April 28, 2017. The first row shows the average amount of the variation between UNL’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contracts on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contracts, for purposes of determining its end of day NAV, can be determined at that time.

    UNL  
       
Average Difference   $ 0.00  
Max Premium %     7.94 %
Max Discount %     (6.52 )%
         

For more information on the performance of UNL, see the Performance Tables below.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR UNL

Name of Commodity Pool: United States 12 Month Natural Gas Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: November 18, 2009

Aggregate Subscriptions (from inception through April 28, 2017): $138,604,736

Total Net Assets as of April 28, 2017: $10,835,339

NAV per Share as of April 28, 2016: $10.84

Worst Monthly Percentage Draw-down: December 2014 (19.94)%

Worst Peak-to-Valley Draw-down: December 2009 - February 2016 (85.18)%

Number of Shareholders (as of December 31, 2016): 2,492

    Rates of Return*  
Month   2012     2013     2014     2015     2016     2017  
January     (12.16 )%     0.23 %     7.81 %     (5.99 )%     (1.95 )%     (8.94 )%
February     (0.32 )%     1.22 %     2.58 %     1.09 %     (16.37 )%     (8.22 )%
March     (11.85 )%     10.30 %     (3.11 )%     (3.15 )%     9.66 %     8.45 %
April     0.00 %     6.74 %     7.69 %     1.19 %     9.61 %     1.78 %
May     0.06 %     (8.02 )%     (6.34 )%     (3.69 )%     (0.63 )%        
June     6.11 %     (9.09 )%     (1.21 )%     4.40 %     11.76 %        
July     6.62 %     (1.63 )%     (10.38 )%     (3.12 )%     (0.75 )%        
August     (9.39 )%     2.07 %     3.76 %     (3.95 )%     (2.65 )%        
September     11.26 %     (2.14 )%     (0.82 )%     (5.45 )%     (1.36 )%        
October     1.55 %     (3.13 )%     (5.88 )%     (9.04 )%     1.78 %        
November     (5.22 )%     6.67 %     0.71 %     (5.26 )%     3.88 %        
December     (4.17 )%     5.05 %     (19.94 )%     0.00 %     9.61 %        
Annual Rate of Return     (18.76 )%     6.33 %     (25.27 )%     (29.00 )%     20.88 %     (7.74 )%**
                                                 
* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 28, 2017.

Draw-down: Losses experienced by the fund over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.

 

43
 

Worst Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.

Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end per share NAV.

DNO:

* PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The investment objective of the United States Short Oil Fund, LP (“DNO”) is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to inversely reflect the daily changes in percentage terms of the spot price of West Texas Intermediate (“WTI”) light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of a specified short-term futures contract for WTI light, sweet crude oil called the “Benchmark Futures Contract,” less DNO’s expenses. DNO does not use leverage to meet its objective. 

USCF manages DNO which is a commodity pool that issues shares traded on the NYSE. The chart below shows, as of April 28, 2017, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for DNO.

# of Authorized     Baskets     Baskets     Outstanding  
Participants     Purchased     Redeemed     Shares  
  15       70       69       150,000  
                             

Since the commencement of the offering of DNO shares to the public on September 24, 2009 to April 28, 2017, the inverse of the simple daily change in the relevant benchmark futures contract was 0.012%, while the simple average daily change in the per share NAV of DNO over the same time period was 0.011%. The average daily difference was (0.0003)% (or (0.03) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the inverse of the daily movement of the relevant benchmark futures contract, the average error in daily tracking by the per share NAV was (0.934)%, meaning that over this time period DNO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the shares and the daily NAV of DNO, since inception through April 28, 2017. The first row shows the average amount of the variation between DNO’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE until 4:00 p.m. New York time while regular trading in the relevant benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time.

    DNO  
Average Difference   $ 0.05  
Max Premium %     9.867 %
Max Discount %     (4.129 )%
         

For more information on the performance of DNO, see the Performance Tables below.

* PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

COMPOSITE PERFORMANCE DATA FOR DNO

Name of Commodity Pool: United States Short Oil Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: September 24, 2009

Aggregate Subscriptions (from inception through April 28, 2017): $176,097,284

Total Net Assets as of April 28, 2017: $10,389,686

NAV per Share as of April 28, 2017: $69.26

 

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Worst Monthly Percentage Draw-down: April 2015 (19.29)%

Worst Peak-to-Valley Draw-down: August 2010 — June 2014 (39.55)%

Number of Shareholders (as of December 31, 2016): 4,159

    Rates of Return*  
Month   2012     2013     2014     2015     2016     2017  
January     0.11 %