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EX-23.1 - CONSENT OF COUNSEL - United States Commodity Funds Trust Id366769dex231.htm
EX-23.2 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - United States Commodity Funds Trust Id366769dex232.htm
Table of Contents

As filed with the Securities and Exchange Commission on January 11, 2013

Registration No. 333-177188

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 4

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

UNITED STATES COMMODITY FUNDS TRUST I

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   6770   45-3326410

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

United States Commodity Funds LLC

1999 Harrison Street, Suite 1530

Oakland, California 94612

(510) 522-9600

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Nicholas D. Gerber

1999 Harrison Street, Suite 1530

Oakland, California 94612

(510) 522-9600

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

Copy to:

W. Thomas Conner, Esq.

Reed Smith LLP

1301 K Street, N.W.

Suite 1100, East Tower

Washington, DC 20005-3317

202.414.9208

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to Be Registered

 

Amount

to Be

Registered

 

Proposed

Maximum

Offering Price

Per Unit

 

Proposed

Maximum
Aggregate

Offering Price(1)

  Amount of
Registration Fee

Units of United States Asian Commodities Basket Fund

  20,000,000(2)   $25.00   $500,000,000   $57,300(3)

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(d) under the Securities Act of 1933.
(2) 1,000 shares were previously registered in connection with the initial filing of this registration statement on October 6, 2011. 19,999,000 shares were previously registered in connection with Amendment No. 2 to this registration statement filed on June 18, 2012.
(3) $2.90 of this registration fee was previously paid in connection with the initial filing of the registration statement on October 6, 2011. $57,300 of this registration fee was previously paid in connection with Amendment No. 2 to this registration statement filed on June 18, 2012.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS

United States Asian Commodities Basket Fund

20,000,000 Units

 

 

The United States Asian Commodities Basket Fund (“UAC”) is a commodity pool that issues units representing fractional undivided beneficial interests (“units”) that trade on the NYSE Arca. UAC is a series of United States Commodity Funds Trust I (the “Trust”), a Delaware statutory trust that is currently organized into four separate series (each series, a “Fund” and collectively, the “Funds”).

The investment objective of UAC (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price of a basket of futures contracts, each of which tracks one of the Asian Benchmark Commodities (the “Futures Basket”). The Asian Benchmark Commodities are commodities selected by the Sponsor that are of importance to Asian economies, including the three major Asian economies of China, Japan, and India. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.”

The units may be purchased from UAC only in one or more blocks of 50,000 units as described in “Creation and Redemption of Units.” A block of 50,000 units is called a basket. UAC issues and redeems units in baskets on a continuous basis to certain authorized purchasers as described in “Plan of Distribution.” Each creation basket is offered and sold to an authorized purchaser at a price equal to the net asset value of 50,000 units on the day that the order to create the creation basket is accepted by the marketing agent.

Merrill Lynch Professional Clearing Corp. is expected to be the initial Authorized Purchaser for UAC. However, the Sponsor instead may purchase the initial creation basket from the Fund at the price of $25.00 per unit. If the Sponsor purchases the initial creation basket, in accordance with applicable requirements of Regulation M under the Securities Exchange Act of 1934, no creation baskets will be offered to authorized purchasers nor will units be listed for trading on the NYSE Arca until five business days has elapsed from the date of the Sponsor’s purchase of the initial Creation Basket. It is expected that the proceeds from the initial creation basket purchase will be invested on the last day of such five business day period and that the initial per unit net asset value of the Fund will be established as of 4:00 p.m. New York City time that day. Units offered in creation baskets on any subsequent day will be offered at the per unit NAV calculated shortly after the close of the core trading session on the NYSE Arca. The initial creation basket if purchased by the Sponsor will be redeemable by the Sponsor on the same terms and conditions as those applicable to authorized purchasers. See “The Offering—Creation and Redemption of Units.”

The units are offered and sold to the public by the authorized purchaser(s) at prices that are expected to reflect, among other factors, the trading price of units on the NYSE Arca, the net asset value of UAC and the supply and demand for units at the time of sale. The difference between the price paid by the authorized purchaser as underwriter and the price paid to such authorized purchaser by investors may be deemed underwriting compensation. Authorized purchasers will not receive from UAC or any of its affiliates any fee or other compensation in connection with the sale of units. UAC will continuously offer creation baskets consisting of 50,000 units to authorized purchasers through ALPS Distributors, Inc., which is the marketing agent. A list of UAC’s current authorized purchasers is available from the marketing agent. Authorized purchasers will pay a transaction fee of $350 for each order to create one or more baskets. The units are listed on the NYSE Arca under the symbol “UAC.”

 

 

UAC is not a mutual fund registered under the Investment Company Act of 1940 and is not subject to regulation under such Act.

Some of the risks of investing in UAC include:

 

   

Investing in Asian commodity interests subjects UAC to the risks of the Asian commodities markets and industries unique to Asia, which could result in fluctuations in the price of UAC’s Units.

 

   

If certain correlations do not exist, then investors may not be able to use UAC as a cost-effective way to invest indirectly in the Asian commodities markets or as a hedge against the risk of loss in Asian commodities-related transactions.

 

   

UAC does not expect to make cash distributions.

 

   

UAC and its sponsor may have conflicts of interests, which permit them to favor their own interests to your detriment.

 

   

UAC files annual partnership tax returns and each U.S. Unitholder will receive a Form K-1 and will be required to report his or her allocable share of UAC’s income, gain, loss, deduction and credit reported on UAC’s partnership return. Each prospective investor is advised to consult a tax advisor regarding U.S. federal income tax consequences of an investment in UAC.

This is a best efforts offering; the marketing agent is not required to sell any specific number or dollar amount of units, but will use its best efforts to sell units. An authorized purchaser is under no obligation to purchase units. This is intended to be a continuous offering and is not expected to terminate until all of the registered units have been sold or three years from the date of the prospectus, whichever is earlier, although the offering may be temporarily suspended if and when no suitable investments for UAC are available or practicable.

 

 

Investing in UAC involves significant risks. See “What are the Risk Factors Involved with an Investment in UAC?” beginning on page 15.

UAC is an “emerging growth company” under the federal securities laws and, accordingly, is able to take advantage of certain reduced disclosure and reporting requirements. UAC has made the determination, however, not to take advantage of any exemptions available to emerging growth companies. UAC will therefore be subject to the same disclosure and reporting obligations as other public companies that are not emerging growth companies. See “Implications of Being an Emerging Growth Company” for additional information.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION (“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 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.

This prospectus is in two parts: a disclosure document and a statement of additional information. These parts are bound together, and both contain important information.

 

 

 

     Per Unit      Per Basket  

Price of the Units in the first basket sold

   $ 25.00       $ 1,250,000   

The date of this prospectus is January 31, 2013.


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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 76 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.

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 15.

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.

ALSO, BEFORE YOU DECIDE TO PARTICIPATE IN THIS POOL, YOU SHOULD NOTE THAT YOUR POTENTIAL LIABILITY AS A PARTICIPANT IN THIS POOL FOR TRADING LOSSES AND OTHER EXPENSES OF THE POOL IS NOT LIMITED TO THE AMOUNT OF YOUR CONTRIBUTION FOR THE PURCHASE OF AN INTEREST IN THE POOL AND ANY PROFITS EARNED THEREON. A COMPLETE DESCRIPTION OF THE LIABILITY OF A PARTICIPANT IN THIS POOL IS EXPLAINED MORE FULLY IN THIS DISCLOSURE DOCUMENT.

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.

 

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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.

 

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UNITED STATES ASIAN COMMODITIES BASKET FUND

TABLE OF CONTENTS

 

Prospectus Summary

    1   

Overview of the Trust and UAC

    1   

UAC’s Investments in Asian Commodity Interests

    5   

Principal Investment Risks of an Investment in UAC

    5   

Principal Offices of UAC and the Sponsor

    4   

Financial Condition of UAC

    6   

Defined Terms

    6   

Breakeven Analysis

    7   

The Offering

    9   

What are the Risk Factors Involved with an Investment in UAC

    15   

Risks Associated with Investing Directly or Indirectly in Asian Commodities Interests

    15   

UAC’s Operating Risks

    19   

Risk of Leverage and Volatility

    27   

Over-the-Counter Contract Risk

    27   

Risk of Trading in International Markets

    28   

Tax Risk

    29   

The Offering

    31   

What is UAC?

    31   

Who is the Sponsor?

    32   

Contribution to UAC

    36   

Executive Compensation and Fees to the Sponsor

    36   

Director Compensation

    36   

Prior Performance of the Sponsor and Affiliates

    37   

Other Related Commodity Trading and Investment Management Experience

    52   

Who is the Trustee?

    52   

How Does UAC Operate?

    52   

What is UAC’s Investment Strategy?

    56   

What are the Major Asian Economies?

    57   

What are the Asian Benchmark Commodities?

    58   

What are the Benchmark Futures Contracts?

    59   

Changes to the Asian Benchmark Commodities

    61   

Changes to the Benchmark Futures Contracts

    61   

Historical Spot Returns for a Commodity Versus the Returns from a Commodity Future

    64   

Why does UAC Purchase and Sell Futures Contracts?

    67   

What are Futures Contracts?

    68   

What are Over-the-Counter Derivatives?

    72   

UAC’s Investments in Treasuries, Cash and Cash Equivalents

    73   

What are the Trading Policies of UAC

    73   

Who are the Service Providers?

    74   

Fees to be Paid by UAC

    76   

Form of Units

    77   

Transfer of Units

    78   

Inter-Series Limitation on Liability

    78   

Recognition of the Trust in Certain States

    79   

What is the Plan of Distribution?

    79   

What is the Flow of Units?

    81   

Calculating NAV

    81   

Creation and Redemption of Units

    83   

 

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Secondary Market Transactions

    87   

Use of Proceeds

    87   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    88   

The Sponsor Has Conflicts of Interest

    92   

Security Ownership of Certain Beneficial Owners and Management

    93   

Interests of Named Experts and Counsel

    93   

Provisions of Federal and State Securities Law

    94   

Books and Records

    94   

Statements, Filings and Reports to Unitholders

    94   

Fiscal Year

    95   

Governing Law; Consent to Delaware Jurisdiction

    95   

Legal Matters

    95   

Experts

    95   

Privacy Policy

    95   

U.S. Federal Income Tax Considerations

    96   

Investment by ERISA Accounts

    106   

Information You Should Know

    108   

Where You Can Find More Information

    109   

Index to Financial Statements

    F-1   

Appendix A

 

Glossary of Defined Terms

    A-1   

Appendix B

 

Trust Agreement

    B-1   

Statement of Additional Information

    SAI-1   

The Commodity Interest Markets

    SAI-3   

The Trust Agreement

    SAI-7   

Until February 25, 2013, 2012 (25 days after the date of this prospectus), all dealers effecting transactions in the offered units, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.

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

 

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PROSPECTUS SUMMARY

This is only a summary of the prospectus and, while it contains material information about UAC and its units, it does not contain or summarize all of the information about UAC and the units contained in this prospectus that is material and/or which may be important to you. You should read this entire prospectus, including “What are the Risk Factors Involved with an Investment in UAC?” beginning on page 15, before making an investment decision about the units.

Overview of the Trust and UAC

The United States Asian Commodities Basket Fund (“UAC”) is a commodity pool that issues units representing fractional undivided beneficial interests (“units”) that trade on the NYSE Arca, Inc. (the “NYSE Arca”). UAC is a series of United States Commodity Funds Trust I (the “Trust”), a Delaware statutory trust formed on September 8, 2011 that is currently organized into four separate series (each series, a “Fund” and collectively, the “Funds”). The three other series of the Trust – the United States Sugar Fund (“USSF”), the United States Gasoil Fund (“USGO”) and the United States Natural Gas Double Inverse Fund (“UNGD”) – may be publicly offered in the future. Additional series of the Trust that will be separate commodity pools may be created in the future. The Trust and the Funds operate pursuant to the Declaration of Trust and Trust Agreement (the “Trust Agreement”), dated September 8, 2011. Wilmington Trust National Association, a national banking association, is the Delaware trustee of the Trust. The Funds and the Trust are managed and controlled by United States Commodity Funds LLC (the “Sponsor” or “USCF”). The Sponsor 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 investment objective of UAC (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price of a basket of Futures Contracts (defined below), each of which tracks one of the Asian Benchmark Commodities (the “Futures Basket”). The Asian Benchmark Commodities are commodities selected by the Sponsor that are of importance to Asian economies, including the three major Asian economies of China, Japan, and India. The Futures Contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The net assets of UAC will consist of futures contracts for Asian Commodities that are traded on the Chicago Mercantile Exchange (“CME”), Chicago Board of Trade (“CBOT”), the New York Mercantile Exchange (“NYMEX”), Commodity Exchange, Inc. (“COMEX”), ICE Futures US (“ICE US”), ICE Futures Canada (“ICE Canada”), ICE Futures Europe (“ICE Europe”), London Mercantile Exchange (“LME”), Tokyo Commodity Exchange (“TOCOM”), Dubai Mercantile Exchange (“DME”) and Bursa Malaysia (“Malaysia”) (collectively, “Futures Contracts”, and CME, CBOT, NYMEX, COMEX, ICE US, ICE Canada, ICE Europe, LME, TOCOM, DME and Malaysia are collectively referred to herein as “Futures Exchanges”). It is not the intent of UAC to be operated in a fashion such that its NAV will equal, in dollar terms, the spot price of any particular commodity or any particular Benchmark Futures Contract. It is not the intent of UAC to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe that is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of Futures Contracts.

The Asian Benchmark Commodities are selected by the Sponsor based on either their systemic importance to Asian economies, including the three major Asian economies of China, Japan and India, or the fact that there are Futures Contracts relating to the commodity or commodities that trade on an Asian domiciled futures exchange. The Sponsor will select the Asian Benchmark Commodities based on the following four criteria:

 

   

First, the physical commodity must be one in which the economies of China, Japan, and India annually consume 10% or more of global consumption based on publically available industry and government statistics.

 

 

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Second, the physical commodity must be one in which, based on publically available industry and government statistics, China, Japan and India annually produce less of the commodity than they typically consume, indicating that they are likely to be net importers of the commodity and not net exporters.

 

   

Third, the Futures Contracts on the physical commodity must be traded on a regulated Futures Exchange in the United States, Canada, the United Kingdom, Japan, Dubai, Malaysia or other domicile which allows a US domiciled passive investment fund to buy and sell such contracts.

 

   

Fourth and finally, the Futures Contracts traded on such commodities must have average open interest measured in US dollars in excess of $150 million at the time of the commodity’s selection. In the event the same or substantially similar physical contract is traded on more than one Futures Exchange, the minimum liquidity test will be applied to the exchange with the largest open interest in US dollar terms in that particular commodity.

The Asian Benchmark Commodities will be selected by the Sponsor in accordance with the above specific quantitative data. The end result is a basket that the Sponsor believes will be generally reflective of Asian demand for physical commodities and which the Sponsor believes can be efficiently accessed by investing in regulated Futures Contracts. As much of the selection process is based by a view of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity.

The net assets of UAC will consist primarily of investments in Futures Contracts and, if applicable, “Other Asian Commodities-Related Investments.” Other Asian Commodities Related Investments consist of Asian commodities-related investments such as exchange-listed cash-settled options on Futures Contracts, forward contracts for Asian commodities, cleared swap contracts, over-the-counter transactions that are based on the price of Asian commodities, and indices based on the Futures Contracts. For convenience and unless otherwise specified, Futures Contracts and Other Asian Commodities-Related Investments collectively are referred to as “Asian Commodities Interests” in this prospectus. The Sponsor is authorized by UAC in its sole judgment to employ, establish the terms of employment for, and terminate commodity trading advisors or future commission merchants.

UAC will invest in Asian Commodities Interests, to the fullest extent possible, without being leveraged or unable to satisfy its current or potential margin and/or collateral obligations with respect to its investments in Futures Contracts and Other Asian Commodities-Related Investments. The primary focus of the Sponsor will be the investment in Futures Contracts and the management of UAC’s investments in short-term obligations of the United States of two years or less (“Treasuries”), cash and cash equivalents for margining purposes and as collateral. UAC will invest in Benchmark Futures Contracts to the fullest extent possible, turning next to investments in other Futures Contracts and finally to Other Asian Commodities-Related Investments only if required to by applicable regulatory requirements or under adverse market conditions. The types of regulatory requirements and market conditions that would cause UAC to invest in this manner are described in “How Does UAC Operate” on page 51 of this prospectus.

In order for a hypothetical investment in units to break even over the next 12 months, assuming a selling price of $25.00 per unit, the investment would have to generate a 1.12% return or $0.28 per unit. For more information, see “—Breakeven Analysis.”

 

 

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The Sponsor endeavors to place UAC’s trades in Asian Commodities Interests and otherwise manage UAC’s investments so that “A” will be within plus/minus 10 percent of “B”, where:

 

   

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

 

   

B is the average daily percentage change in the price of the Futures Basket over the same period.

The Sponsor believes that market arbitrage opportunities will cause daily changes in UAC’s unit price on the NYSE Arca to closely track daily changes in UAC’s NAV per unit. The Sponsor believes that the net effect of this expected relationship and the expected relationship described above between UAC’s NAV and the Futures Basket will be that the daily changes in the price of UAC’s units on the NYSE Arca will closely track in percentage terms, changes in the Futures Basket, less UAC’s expenses.

The Sponsor will employ a “neutral” investment strategy intended to track the changes in the Futures Basket regardless of whether the price goes up or goes down. UAC’s “neutral” investment strategy is designed to permit investors generally to purchase and sell UAC’s units for the purpose of trading indirectly in the commodities market in a cost-effective manner, and/or to permit participants in the commodities or other industries to hedge the risk of losses in their Asian Commodities Interests. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the Asian commodities market and/or the risks involved in hedging may exist. In addition, an investment in UAC involves the risk that the changes in the price of UAC’s units will not accurately track changes in the Futures Basket, and that changes in the Benchmark Futures Contracts will not closely correlate with changes in the prices of the corresponding Asian Benchmark Commodities. Furthermore, UAC will also hold Treasuries, cash and/or cash equivalents to meet its current or potential margin or collateral requirements with respect to its investments in Asian Commodities Interests and invests cash not required to be used as margin or collateral. UAC does not expect there to be any meaningful correlation between the performance of UAC’s investments in Treasuries, cash, and/or cash equivalents and the changes in the prices of commodities or Asian Commodities Interests. While the level of interest earned on or the market price of these investments may in some respect correlate to changes in the prices of commodities, this correlation is not anticipated as part of UAC’s efforts to meet its objective.

Each month, the Benchmark Futures Contracts will change starting at the end of the day four business days prior to the end of the month. Only near month Benchmark Futures Contracts that will be reaching expiration in the upcoming month will be sold. The next Benchmark Futures Contract for the relevant Asian Benchmark that expires later than the upcoming month, the next near month contract, will be used to replace the Benchmark Futures Contract being sold. Near month Benchmark Futures Contracts which are not reaching expiration in the upcoming month will not be “rolled” forward. During the first three days of the period, the applicable value of the Benchmark Futures Contracts will be based on a combination of the near month contract and the next month contract as follows: (1) day 1 will consist of 75% of the then near month contract’s total return for the day, plus 25% of the total return for the day of the next month contract, (2) day 2 will consist of 50% of the then near month contract’s total return for the day, plus 50% of the total return for the day of the next month contract, and (3) day 3 will consist of 25% of the then near month contract’s total return for the day, plus 75% of the total return for the day of the next month contract. On day 4, such Benchmark Futures Contract will be the next month contract to expire at that time. That contract will remain the Benchmark Futures Contract until the following month’s change in the Benchmark Futures Contract, the period for which begins four business days prior to the end of the month.

On each day during the four-day period, the Sponsor anticipates it will “roll” UAC’s positions in Asian Commodities Interests by closing, or buying, a percentage of UAC’s positions in Asian Commodities Interests and reinvesting the proceeds from closing those positions in new Asian commodities interests that reflect the change in the Benchmark Futures Contracts.

 

 

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UAC creates units only in blocks of 50,000 units called Creation Baskets and redeems units only in blocks of 50,000 units called Redemption Baskets. Only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets, respectively. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public units of any baskets it does create. Baskets are generally created when there is a demand for units, including, but not limited to, when the market price per unit is at a premium to the NAV per unit. Authorized Purchasers will then sell such units, which will be listed on the NYSE Arca, to the public at per unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the NAV of UAC at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the Futures Contracts market and the market for Other Asian Commodities-Related Investments. The prices of units offered by Authorized Purchasers are expected to fall between UAC’s NAV and the trading price of the units on the NYSE Arca at the time of sale. Similarly, baskets are generally redeemed when the market price per unit is at a discount to the NAV per unit. Retail investors seeking to purchase or sell units on any day will effect such transactions in the secondary market, on the NYSE Arca, at the market price per unit, rather than in connection with the creation or redemption of baskets.

There is no specified limit on the maximum amount of Creation Baskets that can be sold. At some point, position limits on Futures Contracts or Other Asian Commodities-Related Investments may practically limit the number of Creation Baskets that will be sold if the Sponsor determines that the other investment alternatives available to UAC at that time will not enable it to meet its stated investment objective.

Other than to address monthly changes in the Benchmark Futures Contracts, in managing UAC’s assets, the Sponsor does not use a technical trading system that automatically issues buy and sell orders. Instead, each time one or more baskets are purchased or redeemed, the Sponsor will sell or purchase Asian Commodities Interests with an aggregate market value that approximates the amount of Treasuries and/or cash received or paid upon the purchase or redemption of the basket(s).

Note to Secondary Market Investors: The units can be directly purchased from or redeemed by UAC only in Creation Baskets or Redemption Baskets, respectively, and only by Authorized Purchasers. Each Creation Basket and Redemption Basket consists of 50,000 units and is expected to be worth millions of dollars. Individual investors, therefore, will not be able to directly purchase units from or redeem units with UAC. Some of the information contained in this prospectus, including information about buying and redeeming units directly from and to UAC is only relevant to Authorized Purchasers. Units are listed and traded on the NYSE Arca under the ticker symbol “UAC” and may be purchased and sold as individual units. Individuals interested in purchasing units in the secondary market should contact their broker. Units purchased or sold through a broker may be subject to commissions.

Except when aggregated in Redemption Baskets, units are not redeemable securities. There is no guarantee that units will trade at or near the per-unit NAV.

Principal Offices of UAC and the Sponsor

The principal office of the Trust and UAC is located at 1999 Harrison Street, Oakland, Suite 1530, California 94612. The Sponsor’s principal office is also located at 1999 Harrison Street, Oakland, California 94612. The telephone number for each of the Trust, UAC and the Sponsor is (510) 522-9600.

 

 

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UAC’s Investments in Asian Commodities Interests

A description of the principal types of Asian Commodities Interests in which UAC may invest – futures contracts, forward contracts, over-the-counter contracts, cleared swap contracts and options on futures contracts or a commodity on the spot market, may be found under the heading “The Commodity Interest Markets.”

Principal Investment Risks of an Investment in UAC

An investment in UAC 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 14.

 

   

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 to their investors, UAC generally will not distribute dividends to Unitholders. You should not invest in UAC if you need cash distributions from UAC to pay taxes on your share of income and gains of UAC, if any, or for any other reason.

 

   

The Sponsor endeavors to manage UAC’s positions in Benchmark Futures Contracts so that UAC’s assets are, unlike those of other commodity pools, not leveraged (i.e., so the aggregate value of UAC’s unrealized losses from its investments in such Asian Commodities Interests at any time will not exceed the value of UAC’s assets). There is no assurance that the Sponsor will successfully implement this investment strategy. If the Sponsor permits UAC to become leveraged, you could lose all or substantially all of your investment if UAC’s trading positions suddenly turn unprofitable.

 

   

UAC may invest in Asian Commodity Interests that are traded or sold outside the United States. As such, a portion of UAC’s trades will take place in markets and on exchanges outside of 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. In some of these non-U.S. markets, the performance on a contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes UAC to credit risk. Trading in non-U.S. markets may also leave UAC susceptible to fluctuations in the value of the local currency against the U.S. dollar.

 

   

Investors may choose to use UAC as a means of investing indirectly in Asian commodities, and there are risks involved in such investments. The risks and hazards that are inherent in Asian commodities production or consumption may cause the price of Asian commodities to fluctuate widely.

 

   

Investors may choose to use UAC as a means of investing indirectly in Asian commodities, and there is the risk that the daily changes in the price of UAC’s units on the NYSE Arca will not closely track the daily changes in the Futures Basket and that changes in the Benchmark Futures Contracts will not closely correlate with changes in the prices of the corresponding Asian Benchmark Commodities. This could happen if the price of units traded on the NYSE Arca does not correlate closely with UAC’s NAV. This is a risk because if these correlations are not sufficiently close, then investors may not be able to use UAC as a cost-effective way to invest indirectly in Asian commodities or as a hedge against the risk of loss in Asian Commodities-Related transactions.

 

   

UAC may invest in Other Asian Commodities-Related Investments. To the extent that these Other Asian Commodities-Related Investments are contracts individually negotiated between their parties, they may not be as liquid as Futures Contracts and will expose UAC to credit risk that its counterparty may not be able to satisfy its obligations to UAC.

 

   

UAC has not commenced operations so there is no performance history to serve as a basis for you to evaluate an investment in UAC.

 

   

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

 

 

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

 

   

The structure and operation of UAC may involve conflicts of interest.

 

   

UAC files annual partnership tax returns and each U.S. Unitholder will receive a Form K-1 and will be required to report his or her allocable share of UAC’s income, gain, loss, deduction and credit reported on UAC’s partnership return. Each prospective investor is advised to consult a tax advisor regarding U.S. federal income tax consequences of an investment in UAC.

For additional risks, see “What are the Risk Factors Involved with an Investment in UAC?

Financial Condition of UAC

UAC will not calculate its NAV prior to the effective date. The initial NAV will be calculated shortly after close of the core trading session on the NYSE Arca.

Defined Terms

For a glossary of defined terms, see Appendix A.

 

 

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Breakeven Analysis

The breakeven analysis below indicates the approximate dollar returns and percentage required for the redemption value of a hypothetical initial investment in a single unit to equal the amount invested twelve months after the investment was made. For purposes of this breakeven analysis, we have assumed an initial selling price of $25.00 per unit, which equals the NAV of the units sold in the initial Creation Basket. This breakeven analysis refers to the redemption of baskets by Authorized Purchasers and is not related to any gains an individual investor would have to achieve in order to break even. The Sponsor bears all expenses relating to UAC’s organization and offering expenses until UAC commences trading. The breakeven analysis is an approximation only.

 

Assumed initial selling price per unit

   $ 25.00   

Management Fee (0.90%)(1)

   $ 0.23   

Creation Basket Fee(2)

   $ (0.01

Estimated Brokerage Fee (0.04%)(3)

   $ 0.01   

Interest Income (0.11%)(4)

   $ (0.03

Independent Directors and Officers’ Fees(5)

   $ 0.01   

Fees and expenses associated with tax accounting and reporting(6)

   $ 0.07   

Amount of trading income (loss) required for the redemption value at the end of one year to equal the initial selling price of the unit

   $ 0.28   

Percentage of initial selling price per unit

     1.12

 

(1) UAC is contractually obligated to pay the Sponsor a management fee based on the daily net assets and paid monthly of 0.90% per annum on average net assets.
(2) Authorized Purchasers are required to pay a Creation Basket or Redemption Basket fee of $350 for each order they place to create or redeem one or more baskets. An order must be at least one basket, which is 50,000 units. This breakeven analysis assumes a hypothetical investment in a single unit so the Creation Basket fee is $0.01 ($350/50,000).
(3) Assuming that the price of a unit is $25.00, UAC would receive $1,250,000 upon the sale of a Creation Basket (50,000 units multiplied by $25.00). Assuming that this entire amount is invested in the Benchmark Futures Contracts and that there is no change in the settlement price of such contracts, UAC would be required to purchase approximately 23 Benchmark Futures Contracts to support the Creation Basket ($1,250,000 times the weight of each commodity, divided by the value of each Benchmark Futures Contract as of October 31, 2012). As each commodity’s futures contracts would need to be rolled forward as it approaches expiration, there would be a total of 67 purchases and 67 sales of futures contracts during the year for a grand total of 134 transactions. Assuming further that futures commissions merchants charge $4.00 per Benchmark Futures Contract for each purchase or sale, the annual futures commission merchant charge for UAC would be approximately $536 (134 total Benchmark Futures Contract transactions multiplied by $4.00). As a percentage of the total investment of $1,250,000, this annual commission expense would be approximately 0.04%.
(4) UAC earns interest on funds it deposits with the futures commission merchant and the Custodian and it estimates that the interest rate will be 0.11% based on the current interest rate on three-month Treasury Bills as of October 31, 2012. The actual rate may vary.
(5) The foregoing assumes that the assets of UAC will be aggregated with those of the Related Public Funds, that the aggregate fees paid to independent directors for 2011 is $501,466, that the allocable portion of the fees borne by UAC equals $5,400 and that UAC has $30 million in assets.
(6) UAC assumed the aggregate costs attributable to tax accounting and reporting for 2011 which were estimated to be approximately $75,000. The number in the break-even table assumes UAC has $30 million in assets. If the offering of UAC’s units is substantially less than $30 million in assets, then this fee, as well as other fees and expenses may be higher.

 

 

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Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold units of UAC. You should note that you may pay brokerage commission on purchases and sales of UAC’s units which are not reflected in the table. Authorized Purchasers will pay applicable creation and redemption fees. See “Creation and Redemption of Units-Creation and Redemption Transaction Fee.”

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

 

Management Fees

     0.90

Distribution Fees

     None   

Other Expenses

     0.22

Total Annual Fund Operating Expenses

     1.12

This fee table is based on UAC having an assumed net asset value of $30 million.

 

 

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THE OFFERING

 

Offering:

UAC is offering Creation Baskets consisting of 50,000 units through ALPS Distributors, Inc. (“Marketing Agent”) as marketing agent to Authorized Purchasers. Authorized Purchasers may purchase Creation Baskets consisting of 50,000 units at UAC’s NAV. This is a continuous offering under Rule 415 of the Securities Act of 1933 Act (the “1933 Act”) and is not expected to terminate until all the registered units have been sold or three years from the date of the prospectus, whichever is earlier, although the offering may be temporarily suspended during such period when suitable investments in UAC are not available or practicable. It is anticipated that when all registered units have been sold pursuant to this registration statement, additional units will be registered in subsequent registration statements. As discussed above, the minimum purchase requirement for Authorized Purchasers is a Creation Basket, which consists of 50,000 units. There is no minimum purchase amount for investors who purchase units from Authorized Purchasers. There are no arrangements to place funds in an escrow, trust, or similar account.

 

Use of Proceeds:

The Sponsor applies substantially all of UAC’s assets toward trading in Asian Commodities Interests, and investing in Treasuries, cash and/or cash equivalents for margining purposes and as collateral. The Sponsor deposits a portion of UAC’s net assets with the futures commission merchant, UBS USA, LLC (“UBS”), or other custodians to be used to meet its current or potential margin or collateral requirements in connection with its investment in Asian Commodities Interests. Only Treasuries, cash and/or cash equivalents will be used to satisfy these requirements. The Sponsor believes that all entities that will hold or trade UAC’s assets will be in the United States and will be subject to United States regulations. The Sponsor believes that approximately 5% to 30% of UAC’s assets will normally be committed as margin for Futures Contracts and collateral for Other Asian Commodities-Related Investments. However, from time to time, the percentage of assets committed as margin/collateral may be substantially more, or less, than such range. The remaining portion of UAC’s assets will be held in Treasuries, cash and/or cash equivalents by its custodian, Brown Brothers Harriman & Co. (“BBH&Co.” or the “Custodian”). All interest income earned on these investments is retained for UAC’s benefit.

 

NYSE Arca Symbol:

“UAC”

 

Creation and Redemption:

The Fund will offer Creation Baskets consisting of 50,000 units through the Marketing Agent to Authorized Purchasers. Merrill Lynch Professional Clearing Corp. is expected to be the initial Authorized Purchaser for UAC. However, the Sponsor instead may purchase or more of the initial Creation Baskets from the Fund at the price of $25.00 per unit. If the Sponsor purchases one or more of the initial Creation Baskets, in accordance with applicable requirements

 

 

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of Regulation M under the Securities Exchange Act of 1934, no Creation Baskets will be offered to Authorized Purchasers nor will units be listed for trading on the NYSE Arca until five business days has elapsed from the date of the Sponsor’s purchase of the initial Creation Basket. It is expected that the proceeds from the initial Creation Basket purchase will be invested on the last day of such five business day period and that the initial per unit NAV of the Fund will be established as of 4:00 p.m. New York City time that day. Units offered in Creation Baskets on any subsequent day will be offered at the per unit NAV calculated shortly after the close of the core trading session on the NYSE Arca. The initial Creation Basket if purchased by the Sponsor will be redeemable by the Sponsor on the same terms and conditions as those applicable to Authorized Purchasers.

 

  Currently, Authorized Purchasers pay a $350 fee for each order to create or redeem one or more Creation Baskets or Redemption Baskets. Authorized Purchasers are not required to sell any specific number or dollar amount of units. The per unit price of units offered in Creation Baskets on any day after the effective date of the registration statement relating to this prospectus is the total NAV of UAC calculated shortly after the close of the core trading session of the NYSE Arca on that day divided by the number of issued and outstanding units. The Sponsor shall notify Depository Trust Company (“DTC”) of any change in the transaction fee and will not implement any increase in the fee for the creation or redemption of baskets until 30 days after the date of notice.

 

Inter-Series Limitation on Liability:

While the Trust has four series (including UAC) at this time, additional series may be created in the future. The Trust has been formed and will be operated with the goal that each series of the Trust (including UAC) will be liable only for obligations of such series, and a series will not be responsible for or affected by any liabilities or losses of or claims against any other series. If any creditor or unitholder in any particular series (such as UAC) were to successfully assert against a series a claim with respect to its indebtedness or units, the creditor or unitholder could recover only from that particular series and its assets. Accordingly, the debts and other obligations incurred, contracted for or otherwise existing solely with respect to a particular series will be enforceable only against the assets of that series, and not against any other series or the Trust generally or any of their respective assets. The assets of each series (including UAC) will include only those funds and other assets that are paid to, held by or distributed to the series on account of and for the benefit of that series, including, without limitation, amounts delivered to the Trust for the purchase of units in a series.

 

Registration, Clearance and Settlement:

Individual certificates will not be issued for the units. Instead, units will be represented by one or more global certificates, which will be deposited by the Custodian with DTC and registered in the name of Cede & Co., as nominee for DTC.

 

 

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  The administrator, Brown Brothers Harriman & Co. (“BBH&Co.” or the “Administrator”), has been appointed registrar and transfer agent for the purpose of registering and transferring units. The Sponsor will recognize transfer of units only if such transfer is done in accordance with the Trust Agreement, including the delivery of a transfer application.

 

Net Asset Value:

The NAV will be calculated by taking the current market value of UAC’s total assets and subtracting any liabilities and dividing that number by the total number of outstanding units. Under UAC’s current operational procedures, the Administrator calculates the NAV once each NYSE Arca trading day. The NAV for a particular trading day is released after 4:00 p.m. New York time. Trading during the core trading session of the NYSE Arca typically closes at 4:00 p.m. New York time. NYSE Arca will calculate an approximate NAV every 15 seconds throughout each day that UAC’s units are traded on the NYSE Arca for as long as the main pricing mechanisms are open for the Futures Exchanges upon which the Benchmark Futures Contracts are traded.

 

Fund Expenses:

UAC pays the Sponsor a management fee at an annual rate of 0.90% on its average net assets, paid on a monthly basis. UAC is also responsible for other ongoing fees, costs and expenses of its operations, including:

 

   

brokerage and other fees and commissions incurred in connection with the trading activities of UAC;

 

   

expenses incurred in connection with registering additional units of UAC or offering units of UAC after the time any units of UAC have begun trading on the NYSE Arca;

 

   

the routine expenses associated with distribution, including printing and mailing, of any monthly, annual and other reports to Unitholders required by applicable U.S. federal and state regulatory authorities;

 

   

fees and expenses associated with compensation to the directors of the Sponsor;

 

   

payment for routine services of the Trustee, legal counsel and independent accountants;

 

   

payment for fees associated with tax accounting and reporting, routine accounting, bookkeeping, whether performed by an outside service provider or by affiliates of the Sponsor;

 

   

postage and insurance, including directors and officers’ liability insurance for the Sponsor;

 

   

costs and expenses associated with investor relations and services;

 

   

the payment of any distributions related to redemption of units;

 

 

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payment of all federal, state, local or foreign taxes payable on the income, assets or operations of UAC and the preparation of all tax returns related thereto; and

 

   

extraordinary expenses (including, but not limited to, indemnification of any person against liabilities and obligations to the extent permitted by law and required under the Trust Agreement and the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation).

 

  The Sponsor will bear the costs and expenses incurred in connection with the formation, qualification and registration of the Trust, UAC and the units under applicable U.S. federal and state law, and any other expenses actually incurred and, directly or indirectly, related to the organization of the Trust or UAC or the offering of UAC’s units prior to the time such units begin trading on the NYSE Arca, including, but not limited to, expenses such as: (i) initial registration fees, prepaid licensing fees, filing fees, escrow fees and taxes, (ii) costs of preparing, printing (including typesetting), amending, supplementing, mailing and distributing this prospectus and the exhibits hereto, (iii) the costs of qualifying, printing (including typesetting), amending, supplementing, mailing and distributing sales materials used in connection with the offering and issuance of the units of a Fund, (iv) travel, telephone and other expenses in connection with the offering and issuance of the units of a Fund, (v) accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith, (vi) the routine expenses associated with the preparation of monthly, quarterly, annual and other reports required by applicable U.S. federal and state regulatory authorities, and (vii) payment for fees associated with custody and transfer agency services, whether performed by an outside service provider or by affiliates of the Sponsor.

 

Termination Events:

UAC shall continue in existence from the date of its formation in perpetuity, unless sooner terminated upon the occurrence of any one or more of the following events:

 

   

the filing of a certificate of cancellation of the Sponsor, the revocation of the Sponsor’s charter (and the expiration of 90 days after the date of notice to the Sponsor of revocation without reinstatement of its charter) or the withdrawal of the Sponsor, unless (i) there is at least one remaining Sponsor that carries on the business of the Trust or (ii) Unitholders owning at least sixty-six and two-thirds percent (66 2/3%) of the outstanding units held in all Funds, including UAC, voting together as a single class elect within ninety (90) days after such event to continue the business of the Trust and appoint a successor Sponsor;

 

 

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the occurrence of any event which would make the existence of the Trust or any Fund unlawful;

 

   

the suspension, revocation, or termination of the Sponsor’s registration as a CPO under the Commodity Exchange Act or membership as a CPO with the NFA (if, in either case, such registration is required under the Commodity Exchange Act or the rules promulgated thereunder) unless at the time there is at least one remaining Sponsor whose registration or membership has not been suspended, revoked or terminated;

 

   

the Trust or UAC, as the case may be, becomes insolvent or bankrupt;

 

   

Unitholders owning at least seventy-five percent (75%) of the outstanding units held in UAC, voting together as a single class, vote to dissolve the Trust, upon notice to the Sponsor of not less than ninety (90) business days prior to the effective date of termination;

 

   

upon written notice to the Trustee and the Unitholders by the Sponsor of its determination, in the Sponsor’s sole discretion, that the Trust’s or UAC’s aggregate net assets in relation to the operating expenses of the Trust or UAC make it unreasonable or imprudent to continue the business of the Trust or UAC;

 

   

the Trust is required to be registered as an investment company under the Investment Company Act of 1940, as amended; and

 

   

DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable.

 

  Upon the dissolution of the Trust or UAC, the Sponsor (or in the event there is no Sponsor, such person (the “Liquidating Trustee”) as the majority in interest of the Unitholders may propose and approve) shall take full charge of the trust estate. Thereafter, in accordance with applicable law, the business and affairs of the Trust or UAC shall be wound up and all assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom shall be applied and distributed in the following order of priority: (a) to the expenses of liquidation and termination and to creditors, including Unitholders who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Trust or UAC (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for distributions to Unitholders, and (b) to the Unitholders in accordance with their positive book capital account balances, after giving effect to all contributions, distributions and allocations for all periods. Following the dissolution and distribution of the assets of UAC, the Trust shall terminate and the Sponsor or the Liquidating Trustee, as the case may be, shall instruct the Trustee to execute and cause such certificate of cancellation of the certificate of trust to be filed in accordance with applicable law.

 

 

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Authorized Purchasers:

Merrill Lynch Professional Clearing Corp. is expected to be the initial Authorized Purchaser for UAC. However, the Sponsor instead may purchase one or more of the initial creation baskets from the Fund. We expect that there will be additional Authorized Purchasers for UAC in the future. A list of Authorized Purchasers will be available from the Marketing Agent. Authorized Purchasers must be (1) registered broker-dealers or other securities market participants, such as banks and other financial institutions, that are not required to register as broker-dealers to engage in securities transactions, and (2) DTC Participants. To become an Authorized Purchaser, a person must enter into an Authorized Purchaser Agreement with the Sponsor.

 

 

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WHAT ARE THE RISK FACTORS INVOLVED WITH AN INVESTMENT IN UAC?

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 include UAC’s financial statements and the related notes.

Risks Associated With Investing Directly or Indirectly in Asian Commodities Interests

Investing in Asian Commodities Interests subjects UAC to the risks of the Asian commodities industry and this could result in large fluctuations in the price of UAC’s units.

UAC is subject to the risks and hazards of the Asian commodities industry because it invests in Asian Commodities Interests. The risks and hazards that are inherent in the Asian commodities industry may cause the price of Asian commodities to widely fluctuate.

Daily changes in UAC’s NAV may not correlate to daily changes in the price of the Futures Basket. If this were to occur, investors may not be able to effectively use UAC as a way to hedge against Asian commodities-related losses or as a way to indirectly invest in Asian commodities.

USCF endeavors to invest UAC’s assets as fully as possible in short-term Futures Contracts and Other Asian Commodities-Related Investments so that the daily changes in percentage terms of the NAV closely correlate with daily changes in percentage terms in the price of the Futures Basket. However, changes in UAC’s NAV may not correlate with the changes in the price of the Futures Basket for several reasons as set forth below:

 

   

UAC (i) may not be able to buy/sell the exact amount of Futures Contracts and Other Asian Commodities-Related Investments to have a perfect correlation with NAV; (ii) may not always be able to buy and sell Futures Contracts or Other Asian Commodities-Related Investments at the market price; and (iii) is required to pay fees, including brokerage fees and the management fee, which will have an effect on the correlation.

 

   

Short-term supply and demand for Asian commodities may cause the changes in the market price of the Benchmark Futures Contracts to vary from the changes in UAC’s NAV if UAC has fully invested in Benchmark Futures Contracts that do not reflect such supply and demand and it is unable to replace such contracts with Futures Contracts that do reflect such supply and demand.

 

   

UAC sells and buys only as many Futures Contracts and Other Asian Commodities-Related Investments that it can to cause the daily changes in percentage terms of its NAV to track as closely as possible to the changes in percentage terms in the price of the Futures Basket. The remainder of UAC’s assets is invested in Treasuries, cash and/or cash equivalents that are used to satisfy initial margin and additional margin requirements, if any, and to otherwise support its investments in Asian Commodity Interests. Investments in Treasuries, cash and/or cash equivalents, both directly and as margin, provide rates of return that vary from changes in the value of the spot price of Asian commodities and the price of the Benchmark Futures Contracts.

 

   

Because UAC incurs certain expenses in connection with its investment activities, and holds most of its assets in more liquid short-term securities for margin and other liquidity purposes or for redemptions that may be necessary on an ongoing basis, USCF is generally not able to fully invest UAC’s assets in Futures Contracts or Other Asian Commodity-Related Investments and there cannot be a perfect correlation between changes in UAC’s NAV and changes in the price of the Futures Basket.

 

   

As UAC grows, there may be more or less correlation. For example, if UAC only has enough money to buy three Benchmark Futures Contracts and it needs to buy four contracts to track the price of designated Asian commodities, then the correlation will be lower, but if it buys 20,000 Benchmark Futures Contracts and it needs to buy 20,001 contracts, then the correlation will be higher. At certain

 

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asset levels, UAC may be limited in its ability to buy the Benchmark Futures Contracts if limits were imposed by the relevant exchanges. To the extent that UAC invests in these other Futures Contracts or Other Asian Commodity-Related Investments, the correlation with the Benchmark Futures Contracts may be lower.

 

   

UAC may not be able to buy the exact number of Futures Contracts and Other Asian Commodity-Related Investments to have a perfect correlation with the Benchmark Futures Contracts, if the purchase price of the Futures Contracts required to be fully invested in such contracts is higher than the proceeds received for the sale of a Creation Basket on the day the basket was sold. In such case, UAC could not invest the entire proceeds from the purchase of the Creation Basket in such Futures Contracts (for example, assume UAC received $4,000,000 for the sale of a Creation Basket and assume that the price of a Futures Contract for a mix of various Asian commodities is $59,950, then UAC could only invest in 66 Futures Contracts with an aggregate value of $3,956,700). UAC would be required to invest a percentage of the proceeds in cash, Treasuries or other liquid securities to be deposited as margin with the futures commission merchant through which the contracts were purchased. The remainder of the purchase price for the Creation Basket would remain invested in Treasuries, cash and/or cash equivalents or other liquid securities as determined by the Sponsor from time to time based on factors such as potential calls for margin or anticipated redemptions. If the trading market for Futures Contracts is suspended or closed, UAC may not be able to purchase these investments at the last reported price.

If changes in UAC’s NAV do not correlate with changes in the price of the Futures Basket, then investing in UAC may not be an effective way to hedge against Asian commodities-related losses or indirectly invest in Asian commodities.

The Benchmark Futures Contracts may not correlate with the spot price of Asian commodities and this could cause changes in the price of the units to substantially vary from the changes in the spot price of Asian commodities. If this were to occur, then investors may not be able to effectively use UAC as a way to hedge against Asian commodities-related losses or as a way to indirectly invest in Asian commodities.

When using the Benchmark Futures Contracts as a strategy to track the price of Asian commodities, at best the correlation between changes in prices of such Asian Commodities Interests and the spot price of Asian commodities can be only approximate. The degree of imperfection of correlation depends upon circumstances such as variations in the speculative Asian commodities market, supply of and demand for such Asian Commodities Interests and technical influences in futures trading. If there is a weak correlation between the Asian Commodities Interests and the price of Asian commodities, then the price of units may not accurately track the spot price of Asian commodities and investors may not be able to effectively use UAC as a way to hedge the risk of losses in their Asian commodities-related transactions or as a way to indirectly invest in Asian commodities.

Backwardation and contango may negatively impact total return.

The design of UAC’s Futures Basket is such that every month it begins by using the near month contract to expire unless the near month contract will reach expiration that month. In those cases UAC will,, over a four-day period ending on the last day of the prior month, transition to the next month contract to expire as its benchmark contract and will keep that contract as its benchmark until it in turn becomes the near month contract and close to its expiration month. In the event of a Asian commodities 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 Asian commodities prices the value of the benchmark contract would tend to rise as it approaches expiration. As a result, the total return of the Futures Basket would tend to track higher and UAC’s NAV would tend to track higher. Conversely, in the event of a Asian commodities 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 Asian commodities prices

 

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the value of the benchmark contract would tend to decline as it approaches expiration. As a result the total return of the Futures Basket would tend to track lower and UAC’s NAV would tend to track lower. When compared to total return of other price indices, such as the spot price of Asian commodities, the impact of backwardation and contango may lead the total return of UAC’s NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling Asian commodities prices, this could have a significant negative impact on UAC’s NAV and total return. See “Term Structure of Commodity Futures Prices and the Impact on Total Returns.”

UAC may experience a loss if it is required to sell Treasuries at a price lower than the price at which they were acquired.

The value of Treasuries generally moves inversely with movements in interest rates. If UAC is required to sell Treasuries at a price lower than the price at which they were acquired, UAC will experience a loss. This loss may adversely impact the price of the units and may decrease the correlation between the price of the units, the NAV of the units, the prices of the Futures Contracts and Other Asian Commodities-Related Investments, and the spot price of each Asian commodity in the basket.

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

UAC may not always be able to liquidate its positions in its investments 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 in its currency, its Asian commodities production or exports, or in another major export, can also make it difficult to liquidate a position. Alternatively, limits imposed by futures exchanges or other regulatory organizations, such as accountability levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity with respect to some commodity interests.

Unexpected market illiquidity may cause major losses to investors at any time or from time to time. In addition, UAC has not and does not intend at this time to establish a credit facility, which would provide an additional source of liquidity and instead relies only on the Treasuries, cash and/or cash equivalents that it holds. The anticipated large value of the positions in Futures Contracts that the Sponsor will acquire or enter into for UAC increases the risk of illiquidity. The Other Asian Commodities-Related Investments that UAC invests in, such as negotiated over-the-counter contracts, may have a greater likelihood of being illiquid since they are contracts between two parties that take into account not only market risk, but also the relative credit, tax, and settlement risks under such contracts. Such contracts also have limited transferability that results from such risks and the contract’s express limitations.

Because both Futures Contracts and Other Asian Commodities-Related Investments may be illiquid, UAC’s Asian commodities 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.

If the nature of hedgers and speculators in futures markets has shifted such that Asian commodities purchasers are the predominant hedgers in the market, UAC might have to reinvest at higher futures prices or choose Other Asian Commodities-Related Investments.

The changing nature of the hedgers and speculators in the Asian commodities market influences whether futures prices are above or below the expected future spot price. In order to induce speculators to take the corresponding long side of the same futures contract, Asian commodities producers must generally be willing to sell futures contracts at prices that are below expected future spot prices. Conversely, if the predominant hedgers in the futures market are the purchasers of the Asian commodities who purchase futures contracts to hedge against a rise in prices, then speculators will only take the short side of the futures contract if the futures price is

 

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greater than the expected future spot price of Asian commodities. This can have significant implications for UAC when it is time to reinvest the proceeds from a maturing Futures Contract into a new Futures Contract.

While UAC does not intend to take physical delivery of any Asian commodity under its Futures Contracts, physical delivery under such contracts impacts the value of the contracts.

While it is not the current intention of UAC to take physical delivery of any Asian commodity under its Futures Contracts, futures contracts are not required to be cash-settled and it is possible to take delivery under some of these contracts. Storage costs associated with purchasing Asian commodities could result in costs and other liabilities that could impact the value of Futures Contracts or Other Asian Commodities-Related Investments. Storage costs include the time value of money invested in Asian commodities as a physical commodity plus the actual costs of storing the Asian commodities less any benefits from ownership of Asian commodities that are not obtained by the holder of a futures contract. In general, Futures Contracts have a one-month delay for contract delivery and the back month (the back month is any future delivery month other than the spot month) includes storage costs. To the extent that these storage costs change for Asian commodities while UAC holds Futures Contracts or Other Asian Commodities-Related Investments, the value of the Futures Contracts or Other Asian Commodities-Related Investments, and therefore UAC’s NAV, may change as well.

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

The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading.

The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the United States. In addition, various national governments outside 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 UAC is impossible to predict, but it could be substantial and adverse. For a more detailed discussion of the regulations to be imposed by the CFTC and the SEC and the potential impacts thereof on UAC, please see “Regulation of UAC” in this prospectus.

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

Historically, Futures Contracts and Other Asian Commodities-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, UAC’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 units. In such a case, UAC may have no gains to offset losses from other investments, and investors may suffer losses on their investment in UAC 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 Asian commodities prices and Asian commodities-linked instruments, including Futures Contracts and

 

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Other Asian Commodities-Related Investments, than on traditional securities. These additional variables may create additional investment risks that subject UAC’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 historic evidence that the price of Asian commodities and prices of other financial assets, such as stocks and bonds, are negatively correlated. In the absence of negative correlation, UAC cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa.

UAC’s different commodity holdings may provide little or no diversification benefits. Thus, in a declining market, UAC may have no gains to offset losses from the different commodities it holds, and an investor may suffer losses on an investment in UAC.

Historically, Futures Contracts and Other Asian Commodities-Related Investments have generally had low levels of correlation to each other. Low-correlation means that there is a low statistically valid relationship between the performance of the different futures and other commodity interest transactions. However, there can be no assurance that such non-correlation will continue during future periods. If, contrary to historic patterns, UAC’s individual commodity components performance were to move in the same general direction as each other, investors will obtain less diversification benefits from an investment in the units. In such a case, UAC may have no gains on some commodities to offset losses from other commodities, and investors may suffer losses on their investment in UAC.

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 historic evidence that the prices of different Asian commodities are negatively correlated. In the absence of negative correlation, certain UAC commodities cannot be expected to be automatically profitable during unfavorable periods for other commodities, or vice versa.

UAC’s Operating Risks

UAC is not a registered investment company so Unitholders do not have the protections of the 1940 Act.

UAC is not an investment company subject to the 1940 Act. Accordingly, Unitholders 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.

UAC has not yet commenced operations, so there is no performance history to serve as a basis for you to evaluate an investment in UAC.

UAC has not yet commenced operations. Therefore, you do not have the benefit of reviewing the past performance of UAC as a basis to evaluate an investment in UAC.

The Sponsor is leanly staffed and relies heavily on key personnel to manage trading activities.

In managing and directing the day-to-day activities and affairs of UAC, the Sponsor relies heavily on Messrs. Howard Mah and John Hyland. If Messrs. Mah or Hyland were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management of UAC. Furthermore, Messrs. Mah and Hyland are currently involved in the management of United States Oil Fund, LP (“USOF”), United States Natural Gas Fund, LP (“USNG”), United States Gasoline Fund, LP (“UGA”), United States 12 Month Oil Fund, LP (“US12OF”), United States Diesel-Heating Oil Fund, LP (“USDHO”), United States Short Oil Fund, LP (“USSO”), United States Brent Oil Fund, LP (“USBO”), United States 12 Month Natural Gas Fund, LP

 

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(“US12NG”), United States Commodity Index Fund (“USCI”), United States Agriculture Index Fund (“USAG”), United States Copper Index Fund (“CPER”) and United States Metals Index Fund (“USMI”). USOF, USNG, UGA, US12OF, USDHO, USSO, USBO, US12NG, USCI, USAG, CPER and USMI are referred to throughout this prospectus as the “Related Public Funds.” The Sponsor has also filed registration statements to register units of United States Sugar Fund (“USSF”), United States Gasoil Fund (“USGO”) and United States Natural Gas Double Inverse Fund (“UNGD”), each as series of the Trust as well as US Golden Currency Fund (“HARD”), a series of the United States Currency Funds Trust. Mr. Mah is also employed by Ameristock Corporation, a registered investment adviser that manages a public mutual fund. It is estimated that Mr. Mah will spend approximately 95% of his time on Related Public Funds matters. Mr. Hyland will spend approximately 100% of his time on UAC and other Related Public Funds matters. To the extent that USCF establishes additional funds, even greater demands will be placed on Messrs. Mah and Hyland, as well as the other officers of the Sponsor and its Board.

Accountability levels, position limits, and daily price fluctuation limits set by the Futures Exchanges have the potential to cause a tracking error, which could cause the price of units to substantially vary from the price of the Futures Basket and prevent investors from being able to effectively use UAC as a way to hedge against Asian commodities-related losses or as a way to indirectly invest in Asian commodities.

Designated contract markets such as the CME, NYMEX, or ICE Futures US 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 UAC is not) may hold, own or control.

In addition to accountability levels and position limits, the Futures Exchanges may also set daily price fluctuation 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.

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

 

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All of these limits may potentially cause a tracking error between the price of the units and the price of the Futures Basket. This may in turn prevent investors from being able to effectively use UAC as a way to hedge against Asian commodities-related losses or as a way to indirectly invest in Asian commodities.

UAC does not intend to limit the size of its offering and is committed to utilizing substantially all of its proceeds to purchase Futures Contracts and Other Asian Commodities-Related Investments. If UAC encounters accountability levels, position limits, or price fluctuation limits for Futures Contracts on a particular Futures Exchange it may then, if permitted under applicable regulatory requirements, purchase Other Asian Commodities-Related Investments on Futures Exchanges. See “Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits.”

To the extent that the Sponsor uses spreads and straddles as part of its trading strategy, there is the risk that the NAV may not closely track the changes in the Futures Basket.

If the Sponsor were to utilize a spread or straddle position and the spread performed differently than expected, the results could impact UAC’s tracking error. This could affect UAC’s investment objective of having its NAV closely track the daily changes in the Futures Basket. Additionally, a loss on a spread position would negatively impact UAC’s absolute return.

No independent advisers were involved in the formation of UAC or the preparation of this registration statement. As a result, you will not have the benefit of an independent due diligence review of us.

The Sponsor has consulted with legal counsel, accountants and other advisers regarding the formation and operation of the Trust and UAC. No counsel has been appointed to represent you in connection with the offering of units. Accordingly, you should consult your own legal, tax and financial advisers regarding the desirability of an investment in the units.

UAC and the Sponsor may have conflicts of interest, which may permit them to favor their own interests to the detriment of Unitholders.

UAC and the Sponsor may have inherent conflicts to the extent the Sponsor attempts to maintain UAC’s asset size in order to preserve its fee income and this may not always be consistent with UAC’s objective of having the daily change in the value of its units’ NAV track the changes in the Futures Basket. The Sponsor’s officers, directors and employees do not devote their time exclusively to UAC. These persons are directors, officers or employees of other entities that may compete with UAC for their services. They could have a conflict between their responsibilities to UAC and to those other entities.

In addition, the Sponsor’s principals, officers, directors or employees may trade futures and related contracts for their own account. A conflict of interest may exist if their trades are in the same markets and at the same time as UAC trades using the clearing broker to be used by UAC. A potential conflict also may occur if the Sponsor’s principals, officers, directors or employees trade their accounts more aggressively or take positions in their accounts, which are opposite, or ahead of, the positions taken by UAC.

The Sponsor has broad authority to manage the investments and operations of UAC, and this may allow it to act in a way that furthers its own interests which may create a conflict with the best interests of investors.

The Sponsor serves as the general partner or Sponsor to the Related Public Funds. The Sponsor may have a conflict to the extent that its trading decisions for UAC may be influenced by the effect they would have on the other funds it manages. These trading decisions may be influenced since the Sponsor also serves as the general partner or sponsor for all of the funds and is required to meet all of the funds’ investment objectives as well as UAC’s. If the Sponsor believes that a trading decision it made on behalf of UAC might (i) impede its other funds from reaching their investment objectives, or (ii) improve the likelihood of meeting its other funds’ objectives,

 

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then the Sponsor may choose to change its trading decision for UAC, which could either impede or improve the opportunity for UAC to meet its investment objective. In addition, the Sponsor is required to indemnify the officers and directors of its other funds if the need for indemnification arises. This potential indemnification will cause the Sponsor’s assets to decrease. If the Sponsor’s other sources of income are not sufficient to compensate for the indemnification, then the Sponsor may terminate and investors could lose their investment.

Unitholders have only very limited voting rights and have the power to replace the Sponsor only under specific circumstances. Unitholders do not participate in the management of UAC and do not control the Sponsor so they do not have influence over basic matters that affect UAC.

Unitholders will have very limited voting rights with respect to UAC’s affairs. Unitholders may elect a replacement Sponsor only if the Sponsor resigns voluntarily or loses its corporate charter. Unitholders are not permitted to participate in the management or control of UAC or the control of its business. Unitholders must therefore rely upon the duties and judgment of the Sponsor to manage UAC’s affairs.

The Sponsor may manage a large amount of assets and this could affect UAC’s ability to trade profitably.

Increases in assets under management may affect trading decisions. In general, the Sponsor does not intend to limit the amount of assets of UAC that it may manage. The more assets the Sponsor manages, the more difficult it may be for it to trade profitably because of the difficulty of trading larger positions without adversely affecting prices and performance and of managing risk associated with larger positions.

The liability of the Sponsor and Trustee are limited, and the value of the units will be adversely affected if UAC is required to indemnify the Trustee or the Sponsor.

Under the Trust Agreement, the Trustee and the Sponsor 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 the Sponsor or breach by the Trustee or the Sponsor, as the case may be. As a result, the Sponsor may require the assets of UAC 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 UAC and the value of its units.

Although the units of UAC are limited liability investments, certain circumstances such as bankruptcy or indemnification of UAC by a Unitholder will increase the Unitholder’s liability.

The units of UAC are limited liability investments. Unitholders may not lose more than the amount that they invest plus any profits recognized on their investment. However, Unitholders could be required, as a matter of bankruptcy law, to return to the estate of UAC any distribution they received at a time when UAC 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. 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 Unitholders, 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 UAC is made party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection with any Unitholder’s (or assignee’s) obligations or liabilities unrelated to the business of the Trust or UAC, as applicable, such Unitholder (or assignees cumulatively) is required under the Trust Agreement to indemnify the Trust or UAC, as applicable, for all such liability and expense incurred, including attorneys’ and accountants’ fees.

UAC 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.

UAC may terminate at any time, regardless of whether UAC has incurred losses, subject to the terms of the Trust Agreement. For example, the dissolution or resignation of the Sponsor would cause UAC to terminate

 

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unless, within 90 days of the event, Unitholders holding units representing at least 66 2/3% of the outstanding units of all the Funds, including UAC, elect to continue the Trust and appoint a successor Sponsor. In addition, the Sponsor may terminate UAC if it determines that UAC’s aggregate net assets in relation to its operating expenses make the continued operation of UAC unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate UAC. UAC’s termination would result in the liquidation of its assets and the distribution of the proceeds thereof, first to the creditors and then to the Unitholders in accordance with their positive book capital account balances, after giving effect to all contributions, distributions and allocations for all periods, and UAC could incur losses in liquidating its assets in connection with a termination. Termination could also negatively affect the overall maturity and timing of your investment portfolio.

As a Unitholder, you will not have the rights enjoyed by investors in certain other types of entities.

As interests in a separate series of a Delaware statutory trust, the units do not involve the rights normally associated with the ownership of common stock of a corporation. The units have limited voting and distribution rights (for example, Unitholders do not have the right to elect directors and generally will not receive regular distributions of the net income and capital gains earned by UAC). Unitholders, unlike holders of common stock of a corporation, will not have meetings on a regular basis. UAC is also not subject to certain investor protection provisions of the Sarbanes-Oxley Act of 2002 and certain NYSE Arca governance rules. In addition, the Trust Agreement limits the rights of Unitholders to bring derivative actions.

All of the Funds are series of the Trust and as a result, a court could potentially conclude that the assets and liabilities of UAC are not segregated from those of another Fund or series of the Trust, thereby potentially exposing assets of UAC to the liabilities of another Fund or another series.

Each Fund, including UAC, 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. The Sponsor is not aware of any court case that has interpreted this Inter-Series Limitation on Liability or provided guidance as to what is required for compliance. The Sponsor intends to maintain separate and distinct records for each Fund and account for UAC separately from the other Funds and any other Trust series, 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 the other Funds and any other series of the Trust.

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

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

UAC does not expect to make cash distributions.

UAC has not previously made any cash distributions and intends to re-invest any realized gains in Asian Commodities Interests rather than distributing cash to Unitholders. 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, UAC generally does not expect to distribute cash to Unitholders. An investor should not invest in UAC if it will need cash distributions from UAC to pay taxes on its share of income and gains of UAC, if any, or for any other reason. Although UAC

 

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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 Asian commodities 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.

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

UAC pays management fees at an annual rate of 0.90% of its average net assets, estimated brokerage charges of approximately 0.04% (based on futures commission merchant fees of $4.00 per buy or sell), over-the-counter spreads and various other expenses of its ongoing operations (e.g., fees of the Trustee). These fees and expenses must be paid in all events, regardless of whether UAC activities are profitable. Accordingly, UAC must realize trading gains sufficient to cover these fees and expenses before it can earn any profit.

If offerings of the units do not raise sufficient funds to pay UAC’s future expenses and no other source of funding of expenses is found, UAC may be forced to terminate and investors may lose all or part of their investment.

Prior to the commencement of the offering of units, all of UAC’s expenses were funded by the Sponsor and its affiliates. These payments by the Sponsor and its affiliates were designed to allow UAC the ability to commence the public offering of its units. UAC now directly pays certain of these fees and expenses. The Sponsor will continue to pay other fees and expenses, as set forth in the Trust Agreement. If the Sponsor and UAC are unable to raise sufficient funds to cover their expenses or locate any other source of funding, UAC may be forced to terminate and investors may lose all or part of their investment.

UAC may incur higher fees and expenses upon renewing existing or entering into new contractual relationships.

The clearing arrangements between the clearing brokers and UAC generally are terminable by the clearing brokers once the clearing broker has given UAC notice. Upon termination, the Sponsor may be required to renegotiate or make other arrangements for obtaining similar services if UAC intends to continue trading in Futures Contracts or Other Asian Commodities-Related Investments at its present level of capacity. The services of any clearing broker may not be available, or even if available, these services may not be available on the terms as favorable as those of the expired or terminated clearing arrangements.

UAC may miss certain trading opportunities because it will not receive the benefit of the expertise of independent trading advisors.

The Sponsor does not employ trading advisors for UAC; however, it reserves the right to employ them in the future. The only advisor to UAC is the Sponsor. A lack of independent trading advisors may be disadvantageous to UAC because it will not receive the benefit of a trading advisor’s expertise.

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

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

 

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The financial markets are currently in a period of disruption and UAC does not expect these conditions to improve in the near future.

Since 2008, the financial markets have experienced very difficult financial conditions and volatility as well as significant adverse trends. The conditions in these markets have resulted in sporadic availability of corporate credit and liquidity and have led indirectly to the insolvency, closure or acquisition of a number of major financial institutions and have contributed to further consolidation within the financial services industry. In addition, the Administration and Congress have periodically been reaching impasses in passing a fiscal budget which could create long-term concerns regarding the credit of the United States and interest earned, as well as the United States Government’s ability to pay its obligations to holders of Treasuries. If low interest rates on Treasuries continues or if UAC is not able to redeem its investments in Treasuries prior to maturity and the U.S. Government cannot pay its obligations, UAC would be negatively impacted. In addition, UAC might also be negatively impacted by its use of money market funds to the extent those funds might themselves be using Treasuries. Although the financial markets saw some signs of a recovery beginning in late 2010, economic growth in 2011 has been slow and the financial markets are still fragile and could fall into another recession. Another recession could adversely affect the financial condition and results of operations of UAC’s service providers and Authorized Purchasers, which would impact the ability of the Sponsor to achieve UAC’s investment objective.

The liquidity of the units may be affected by the withdrawal from participation of Authorized Purchasers, which could adversely affect the market price of the units.

In the event that one or more Authorized Purchasers that have substantial interests in the units withdraw from participation, the liquidity of the units will likely decrease, which could adversely affect the market price of the units and result in your incurring a loss on your investment.

Unitholders may be adversely affected by redemption orders that are subject to postponement, suspension or rejection under certain circumstances.

The Trust may, in its discretion, suspend the right to redeem units of UAC or postpone the redemption settlement date: (1) for any period during which an applicable exchange is closed other than customary weekend or holiday closing, or trading is suspended or restricted; (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of UAC’s assets is not reasonably practicable; or (3) for such other period as the Sponsor determines to be necessary for the protection of Unitholders. In addition, the Trust will reject a redemption order if the order is not in proper form as described in the agreement with the Authorized Purchaser or if the fulfillment of the order, in the opinion of counsel, might be unlawful. Any such postponement, suspension or rejection could adversely affect a redeeming Unitholder. For example, the resulting delay may adversely affect the value of the Unitholder’s redemption proceeds if the NAV of UAC declines during the period of delay. The Trust Agreement provides that the Sponsor and its designees will not be liable for any loss or damage that may result from any such suspension or postponement.

The failure or bankruptcy of a clearing broker or UAC’s Custodian could result in a substantial loss of UAC’s assets; the clearing broker could be subject to proceedings that impair its ability to execute UAC’s 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 if 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 UAC, 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 complete loss of UAC’s assets posted with the clearing broker; though the vast majority of UAC’s assets are held in Treasuries, cash and/

 

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or cash equivalents with UAC’s custodian and would not be impacted by the bankruptcy of a clearing broker. UAC also may 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 UAC’s clearing broker is required to post UAC’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 UAC’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 UAC and any other non-defaulting customers of the clearing broker to satisfy the obligations of the clearing broker.

From time to time, the 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 UAC’s trades.

In addition, the vast majority of UAC’s assets are held in Treasuries, cash and/or cash equivalents with UAC’s custodian. The insolvency of the custodian could result in a complete loss of UAC’s assets held by that custodian, which, at any given time, would likely comprise a substantial portion of UAC’s total assets.

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

Third parties may utilize UAC’s intellectual property or technology, including the use of its business methods, trademarks and trading program software, without permission. the Sponsor has a patent pending for UAC’s business method and it is registering its trademarks. UAC does not currently have any proprietary software. However, if it obtains proprietary software in the future, then any unauthorized use of UAC’s proprietary software and other technology could also adversely affect its competitive advantage. UAC may have difficulty 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 the Sponsor or claim that the Sponsor has violated their intellectual property rights, including their copyrights, trademark rights, trade names, trade secrets and patent rights. As a result, the Sponsor 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 the Sponsor is successful and regardless of the merits, may result in significant costs, divert its resources from UAC, or require it to change its proprietary software and other technology or enter into royalty or licensing agreements.

The success of UAC depends on the ability of the Sponsor to accurately implement trading systems, and any failure to do so could subject UAC to losses on such transactions.

The Sponsor uses mathematical formulas built into a generally available spreadsheet program to decide whether it should buy or sell Asian Commodities Interests each day. Specifically, the Sponsor uses the spreadsheet to make mathematical calculations and to monitor positions in Asian Commodities Interests and Treasuries and correlations to the Benchmark Futures Contracst. The Sponsor must accurately process the spreadsheets’ outputs and execute the transactions called for by the formulas. In addition, UAC relies on the Sponsor to properly operate and maintain its computer and communications systems. Extraordinary transaction volume, hardware or software failure, power or telecommunications failure, a natural disaster or other catastrophe could cause the computer systems to operate at an unacceptably slow speed or even fail. Any significant degradation or failure of the systems that USCF uses to gather and analyze information, enter orders, process data, monitor risk levels and otherwise engage in trading activities may result in substantial losses on

 

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transactions, liability to other parties, lost profit opportunities, damages to USCF’s and UAC’s reputations, increased operational expenses and diversion of technical resources. Any failure, inaccuracy or delay in implementing any of the formulas or systems and executing UAC’s transactions could impair its ability to achieve UAC’s investment objective. It could also result in decisions to undertake transactions based on inaccurate or incomplete information. This could cause substantial losses on transactions.

The occurrence of a terrorist attack, or the outbreak, continuation or expansion of war or other hostilities could disrupt UAC’s trading activity and materially affect UAC’s profitability.

The operations of UAC, the exchanges, brokers and counterparties with which UAC does business, and the markets in which UAC does business could be severely disrupted in the event of a major terrorist attack or the outbreak, continuation or expansion of war or other hostilities. Global anti-terrorism initiatives, political unrest in the Middle East and Southeast Asia, as well as political hostility towards the United States, continue to fuel this concern.

Risk of Leverage and Volatility

If the Sponsor permits UAC to become leveraged investors could lose all or substantially all of their investment if UAC’s trading positions suddenly turn unprofitable.

Commodity pools’ trading positions in futures contracts or other commodity interests 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 interests’) entire market value. This feature permits commodity pools to “leverage” their assets by purchasing or selling futures contracts (or other commodity interests) with an aggregate value in excess of the commodity pool’s assets. While this leverage can increase the pool’s profits, relatively small adverse movements in the price of the pool’s futures contracts can cause significant losses to the pool.

Over-the-Counter Contract Risk

Currently, over-the-counter transactions are subject to changing regulation.

A portion of UAC’s assets may be used to trade OTC Asian Commodities Interests, such as forward contracts or swap or spot contracts. Currently, OTC contracts are typically 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 and that prior to the passage of the Dodd-Frank Act had been essentially unregulated by the CFTC. The markets for OTC contracts have relied upon the integrity of market participants in lieu of the additional regulation imposed by the CFTC on participants in the futures markets. To date, the forward markets have been largely unregulated, forward contracts have been executed bi-laterally and, in general, forward contracts have not been cleared or guaranteed by a third party. On November 16, 2012, the Secretary of the Treasury issued a final determination that exempts both foreign exchange swaps and foreign exchange forwards from the definition of “swap” and, by extension, additional regulatory requirements (such as clearing and margin). The final determination does not extend to other FX derivatives, such as FX options, certain currency swaps, and non-deliverable forwards. While the Dodd-Frank Act and certain regulations adopted thereunder are intended to provide additional protections to participants in the OTC market, the current regulation of the OTC contracts could expose UAC in certain circumstances to significant losses in the event of trading abuses or financial failure by participants.

On November 28, 2012, the CFTC issued its final clearing determination requiring that certain credit default swaps and interest rate swaps be cleared by registered derivatives clearing organizations (DCOs). This is the CFTC’s first clearing determination under the Dodd-Frank Act and will become effective February 11, 2013. Determination on other types of swaps are expected in the future, and, when finalized, could required UAC to centrally clear certain over-the-counter instruments presently entered into and settled on a bi-lateral basis.

 

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UAC will be subject to credit risk with respect to counterparties to over-the-counter contracts entered into by UAC.

UAC faces the risk of non-performance by the counterparties to the OTC contracts. Unlike in futures contracts or cleared swaps, 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 UAC, in which case UAC could suffer significant losses on these contracts.

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

UAC may be subject to liquidity risk with respect to its over-the-counter transactions.

OTC contracts may have terms that make them less marketable than futures contracts or cleared swaps. OTC contracts are less marketable 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 diminish the 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 over-the-counter 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.

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.

The Dodd-Frank Act requires the CFTC and SEC to establish “both initial and variation margin requirements on all swaps that are not cleared by a registered clearing organization” (i.e., uncleared swaps). In addition, the Dodd-Frank Act provides parties who post initial margin to a swap dealer or major swap participant with a statutory right to insist that such margin be held in a segregated account with an independent custodian. At this time, the CFTC has proposed a rule addressing this statutory right of certain market participants but has not yet implemented any final rules. On November 16, 2012, the Secretary of the Treasury issued a final determination that exempts both foreign exchange swaps and foreign exchange forwards from the definition of “swap” and, by extension, additional regulatory requirements (such as clearing and margin).

Risk of Trading in International Markets

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

UAC invests primarily in Futures Contracts, a significant portion of which are traded on United States exchanges. However, a portion of UAC’s trades may take place on markets and exchanges outside the United States, including those located in the United Kingdom, Canada, Dubai, or certain Asian countries. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. The CFTC, NFA, and the domestic exchanges have little, if any, regulatory authority over the activities of any foreign boards of trade or exchanges, including the execution, delivery and clearing of transactions, and have little, if any, power to compel enforcement of the rules of a foreign board of trade or

 

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exchange or of any applicable non-U.S. laws. Similarly, the rights of market participants, such as UAC, in the event of the insolvency or bankruptcy of a non-U.S. market or broker are also likely to be more limited than in the case of U.S. markets or brokers. As a result, in these markets, UAC has less legal and regulatory protection than it does when it trades domestically.

In some of these non-U.S. markets, the performance on a futures contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes UAC to credit risk. 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.

International trading activities subject UAC to foreign exchange risk.

The price of any non-U.S. Commodity Interest and, therefore, the potential profit and loss on such investment, may be affected by any variance in the foreign exchange rate between the time the order is placed and the time it is liquidated, offset or exercised. As a result, changes in the value of the local currency relative to the U.S. dollar may cause losses to UAC even if the contract traded is profitable.

UAC’s international trading could expose it to losses resulting from non-U.S. exchanges that are less developed or less reliable than United States exchanges.

Some non-U.S. exchanges also may be in a more developmental stage so that prior price histories may not be indicative of current price dynamics. In addition, UAC may not have the same access to certain positions on foreign trading exchanges as do local traders, and the historical market data on which the Sponsor bases its strategies may not be as reliable or accessible as it is for U.S. exchanges.

Tax Risk

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

Cash or property will be distributed at the sole discretion of the Sponsor. The Sponsor currently does not intend to make cash or other distributions with respect to units. 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 UAC’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 units may exceed the amount of cash or value of property (if any) distributed.

An investor’s allocable share of income or loss for tax purposes may differ from its economic income or loss on its units.

Due to the application of the assumptions and conventions applied by UAC in making allocations for tax purposes and other factors, an investor’s allocable share of UAC’s income, gain, deduction or loss for tax purposes may be different than its economic profit or loss from its units 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 units could be reallocated if the Internal Revenue Service does not accept the assumptions and conventions applied by UAC in allocating those items, with potential adverse consequences for an investor.

The U.S. tax rules pertaining to partnerships, which apply to UAC, generally were not written for, and in some respects are difficult to apply to, entities whose interests are publicly traded. The Trust applies certain

 

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assumptions and conventions in an attempt to comply with the applicable rules and to report taxable income, gains, deductions, losses and credits in a manner that generally corresponds to Unitholders’ respective interests in UAC. These assumptions and conventions may not fully comply with all aspects of the Internal Revenue Code (the “Code”) and applicable Treasury Regulations, however, and they could be successfully challenged by the IRS. If so, the Trust could be required to reallocate items of income, gain, deduction, loss or credit for tax purposes in a manner that adversely affects investors, in which case investors may be required to file an amended tax return and to pay additional taxes plus deficiency interest.

The Trust could be treated as a corporation for federal income tax purposes, which may substantially reduce the value of the units.

In order to avoid being taxable as corporation, at least 90 percent of UAC’s annual gross income must consist of “qualifying income” as defined in the Code. There can be no assurance that the Sponsor will be able to satisfy the “qualifying income” requirement for this or future taxable years. The Trust has not requested and will not request any ruling from the IRS with respect to its classification as a partnership not taxable as a corporation for federal income tax purposes. If the IRS were to successfully assert that the Trust is taxable as a corporation for federal income tax purposes in any taxable year, rather than passing through its income, gains, losses and deductions proportionately to Unitholders, the Trust would be subject to tax on its net income for the year at corporate tax rates. In addition, although the Sponsor does not currently intend to make distributions with respect to units, any distributions would be taxable to Unitholders as dividend income. Taxation of the Trust as a corporation could materially reduce the after-tax return on an investment in units and could substantially reduce the value of the units.

Even though UAC is organized as a series of a Delaware Trust, it is operated as a limited partnership for purposes of federal income tax, and therefore, UAC has a more complex tax treatment than traditional mutual funds.

Even though UAC is organized as a series of a Delaware statutory trust, it is operated as a limited partnership for purposes of federal income taxation. As such, no U.S. federal income tax is paid by UAC on its income. Instead, UAC will furnish unitholders each year with tax information on IRS Schedule K-1 (Form 1065) and each U.S. unitholder is required to report on its U.S. federal income tax return its allocable share of the income, gain, loss and deduction of UAC. This must be reported without regard to the amount (if any) of cash or property the unitholder receives as a distribution from UAC during the taxable year. A unitholder, therefore, may be allocated income or gain by UAC 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.

 

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THE OFFERING

What is UAC?

UAC is a series of the Trust, a statutory trust organized under the laws of the State of Delaware on September 8, 2011. UAC is one of four series of the Trust, although additional series may be offered in the future at the Sponsor’s discretion. UAC maintains its main business office at 1999 Harrison Street, Suite 1530, Oakland, California 94612. UAC is a commodity pool. It operates pursuant to the terms of the Trust Agreement, which grants full management control to the Sponsor. In addition, in connection with the commencement of the offering of UAC, the Sponsor will receive 40 Sponsor’s units in exchange for its initial capital contribution of $1,000.

UAC is a commodity pool which seeks (before fees and expenses) to have the daily changes in percentage terms of its units’ NAV reflect the daily changes in percentage terms of the price of the Futures Basket. The Futures Basket is a basket of futures contracts, each of which tracks one of the Asian Benchmark Commodities. The Asian Benchmark Commodities have been selected by the Sponsor based on either their systemic importance to Asian economies, including the three major Asian economies of China, Japan, and India, or the fact that the commodity or commodities trade on an Asian domiciled futures exchange. The Futures Contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The net assets of UAC will consist of futures contracts for Asian Commodities that are traded on the Chicago Mercantile Exchange (“CME”), Chicago Board of Trade (“CBOT”), the New York Mercantile Exchange (“NYMEX”), Commodity Exchange, Inc. (“COMEX”), ICE Futures US (“ICE US”), ICE Futures Canada (“ICE Canada”), ICE Futures Europe (“ICE Europe”), London Mercantile Exchange (“LME”), Tokyo Commodity Exchange (“TOCOM”), Dubai Mercantile Exchange (“DME”) and Bursa Malaysia (“Malaysia”) (collectively, “Futures Contracts”, and CME, CBOT, NYMEX, COMEX, ICE US, ICE Canada, ICE Europe, LME, TOCOM, DME and Malaysia are collectively referred to herein as “Futures Exchanges”). It is not the intent of UAC to be operated in a fashion such that its NAV will equal, in dollar terms, the spot price of any particular commodity or any particular Benchmark Futures Contract based on any of the Asian Benchmark Commodities. It is not the intent of UAC to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket or any particular futures contract as measured over a time period greater than one day. The Sponsor does not believe that is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of futures contracts. UAC may invest in interests other than the Futures Contracts to comply with accountability levels and position limits. For a detailed discussion of accountability levels and position limits, see “What are Futures Contracts?”

The Asian Benchmark Commodities are selected by the Sponsor. The Sponsor will select the Asian Benchmark Commodities based on the following four criteria:

 

   

First, the physical commodity must be one in which the economies of China, Japan, and India annually consume 10% or more of global consumption based on publically available industry and government statistics.

 

   

Second, the physical commodity must be one in which, based on publically available industry and government statistics, China, Japan and India annually produce less of the commodity than they typically consume, indicating that they are likely to be net importers of the commodity and not net exporters.

 

   

Third, the Futures Contracts on the physical commodity must be traded on a regulated Futures Exchange in the United States, Canada, the United Kingdom, Japan, Dubai, Malaysia or other domicile which allows a US domiciled passive investment fund to buy and sell such contracts.

 

   

Fourth and finally, the Futures Contracts traded on such commodities must have average open interest measured in US dollars in excess of $150 million at the time of the commodity’s selection. In the event the same or substantially similar physical contract is traded on more than one Futures Exchange, the minimum liquidity test will be applied to the exchange with the largest open interest in US dollar terms in that particular commodity.

 

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The Asian Benchmark Commodities will be selected by the Sponsor in accordance with the above specific quantitative data. The end result is a basket that the Sponsor believes will be generally reflective of Asian demand for physical commodities and which the Sponsor believes can be efficiently accessed by investing in regulated Futures Contracts. As much of the selection process is based by a view of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity.

As much of the selection process is based by a review of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity.

Who is the Sponsor?

The Sponsor is United States Commodity Funds LLC, a single member limited liability company that was formed in the state of Delaware on May 10, 2005. Prior to June 13, 2008, the Sponsor was known as Victoria Bay Asset Management, LLC. It maintains its main business office at 1999 Harrison Street, Suite 1530, Oakland, California 94612. The Sponsor is a wholly owned subsidiary of Wainwright Holdings, Inc., a Delaware corporation (“Wainwright”). Mr. Nicholas Gerber (discussed below) controls Wainwright by virtue of his ownership of Wainwright’s shares. Wainwright is a holding company that previously owned an insurance company organized under Bermuda law, which has been liquidated, and a registered investment advisor firm named Ameristock Corporation, which has been distributed to the Wainwright shareholders. The Sponsor is a member of the NFA and is registered with the CFTC as of December 1, 2005. The Sponsor’s registration as a CPO with the NFA was approved on December 1, 2005.

See “Prior Performance of the Sponsor and Affiliates” on page 35.

The Sponsor is required to evaluate the credit risk of UAC to the futures commission merchant, oversee the purchase and sale of UAC’s units by certain Authorized Purchasers, review daily positions and margin requirements of UAC, and manage UAC’s investments. The Sponsor also pays the fees of the Marketing Agent, the Administrator, the Custodian, and, in connection with the initial public offering of the units, registration fees paid to the SEC, FINRA, or any other regulatory agency, including the legal, printing, accounting and other expenses associated therewith.

The business and affairs of the Sponsor are managed by a board of directors (the “Board”), which is comprised of three management directors some of whom are also its executive officers (the “Management Directors”) and three independent directors who meet the independent director requirements established by the NYSE Arca Equities Rules and the Sarbanes-Oxley Act of 2002. The Management Directors have the authority to manage the Sponsor pursuant to its Limited Liability Company Agreement.

Mr. Nicholas Gerber and Mr. Howard Mah serve as executive officers of the Sponsor. Neither the Trust nor UAC has executive officers. The Trust’s and UAC’s affairs are generally managed by the Sponsor. The following individuals serve as Management Directors of the Sponsor.

Nicholas Gerber has been the President and CEO of the Sponsor since June 9, 2005 and a Management Director of the Sponsor since May 10, 2005. He maintains his main business office at 1999 Harrison Street, Suite 1530, Oakland, California 94612. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005, as Branch Manager of the Sponsor since May 15, 2009, and registered with the CFTC as an Associated Person of the Sponsor on December 1, 2005. Mr. Gerber also served as Vice President/Chief Investment Officer of Lyon’s Gate Reinsurance Company, Ltd., a company formed to reinsure workmen’s compensation insurance, from June 2003 to December 2009. Mr. Gerber has an extensive background in

 

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securities portfolio management and in developing investment funds that make use of indexing and futures contracts. He is also the founder of Ameristock Corporation, a California-based investment adviser registered under the Investment Advisers Act of 1940, that has been sponsoring and providing portfolio management services to mutual funds since March 1995. From August 1995 to January 2013, Mr. Gerber has been the portfolio manager of the Ameristock Mutual Fund, Inc. a mutual fund registered under the Investment Company Act of 1940, focused on large cap U.S. equities that, as of December 31, 2012, had $126,879,540 in assets. On January 11, 2013, the Ameristock Mutual Fund, merged with and into the Drexel Hamilton Centre American Equity Fund, a series of the Drexel Hamilton Mutual Funds. Drexel Hamilton Mutual Funds is not affiliated with Ameristock Corporation, the Ameristock Mutual Fund, Inc. or the Sponsor. He has also been a Trustee for the Ameristock ETF Trust from June 2006 to June 2008 and served as a portfolio manager for the Ameristock/Ryan 1 Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds were liquidated. In these roles, Mr. Gerber has gained extensive experience in evaluating and retaining third-party service providers, including custodians, accountants, transfer agents, and distributors. Mr. Gerber has passed the Series 3 examination for associated persons. He holds an MBA in finance from the University of San Francisco and a BA from Skidmore College. Mr. Gerber is 50 years old.

In concluding that Mr. Gerber should serve as a Management Director of the Sponsor, the Sponsor has considered his broad business experiences in the industry including: forming and managing investment companies and commodity pools, raising capital for such entities and founding and managing non-finance related companies.

Howard Mah has been a Management Director of the Sponsor since May 10, 2005, Secretary of the Sponsor since June 9, 2005, and Chief Financial Officer of the Sponsor since May 23, 2006 and Treasurer of the Sponsor since February 23, 2012. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005. In these roles, Mr. Mah is currently involved in the management of the Related Public Funds and will be involved with the management of USSF, UNGD, USGO, UAC and HARD, if such funds commence operations. Mr. Mah also serves as the Sponsor’s Chief Compliance Officer. He received a Bachelor of Education from the University of Alberta, in 1986 and an MBA from the University of San Francisco in 1988. He served as Secretary and Chief Compliance Officer of the Ameristock ETF Trust from February 2007 until June 2008 when the trust was liquidated, Chief Compliance Officer of Ameristock Corporation since January 2001, a tax and finance consultant in private practice since January 1995, Secretary of Ameristock Mutual Fund from June 1995 to January 2013 and Ameristock Focused Value Fund from December 2000 to January 2005, Chief Compliance Officer of Ameristock Mutual Fund from August 2004 to January 2013 and the Co-Portfolio Manager of the Ameristock Focused Value Fund from December 2000 to January 2005. Mr. Mah is 48 years old.

In concluding that Mr. Mah should serve as Management Director of the Sponsor, the Sponsor considered his background in accounting and finance, as well as his experience as Chief Compliance Officer for the Sponsor and Ameristock Corporation.

Andrew F. Ngim has been a Management Director of the Sponsor since May 10, 2005 and Treasurer of the Sponsor from June 9, 2005 to February 23, 2012. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005. Mr. Ngim is currently involved in the management of the Related Public Funds and will be involved with the management of USSF, UNGD, USGO, UAC and HARD if such funds commence operations. He received a Bachelor of Arts from the University of California at Berkeley in 1983. Mr. Ngim has been Ameristock Corporation’s Managing Director since January 1999 and co-portfolio manager of Ameristock Corporation from January 2000 to January 2013, Trustee of the Ameristock ETF Trust from February 2007 to June 2008 and served as a portfolio manager for the Ameristock/Ryan 1 Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds were liquidated. Mr. Ngim is 52 years old.

In concluding that Mr. Ngim should serve as Management Director of the Sponsor, the Sponsor considered his broad career in the financial services industry.

 

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The following individuals provide significant services to UAC and are employed by the Sponsor.

John P. Love has acted as a Portfolio Operations Manager for the Related Public Funds since January 2006 and, effective March 1, 2010, is the Senior Portfolio Manager for the Related Public Funds. He is expected to be Senior Portfolio Manager for USSF, UNGD, USGO, UAC and HARD, if such funds commence operations. Mr. Love is also employed by the Sponsor. He has been listed with the CFTC as a Principal of the Sponsor since January 17, 2006. Mr. Love also served as the operations manager of Ameristock Corporation from October 2002 to January 2007, where he was responsible for back office and marketing activities for the Ameristock Mutual Fund and Ameristock Focused Value Fund and for the firm in general. Mr. Love holds a Series 3 license and was registered with the CFTC as an Associated Person of the Sponsor from December 1, 2005 through April 16, 2009. Mr. Love has passed the Level I and Level II Chartered Financial Analyst examinations. He holds a BFA in cinema-television from the University of Southern California. Mr. Love is 41 years old.

John T. Hyland, CFA acts as the Chief Investment Officer for the Sponsor. Mr. Hyland is employed by the Sponsor. He registered with the CFTC as an Associated Person of the Sponsor on December 1, 2005, and has been listed with the CFTC as a Principal of the Sponsor since January 17, 2006. Mr. Hyland became the Portfolio Manager for USOF, USNG, US12OF, UGA, USDHO, in April 2006, April 2007, December 2007, February 2008, April 2008, respectively, and has been the Chief Investment Officer of the Sponsor since January 2008, acts in such capacity on behalf of the Related Public Funds. He will also be the Chief Investment Officer for USSF, UNGD, USGO, UAC and HARD upon the commencement of such funds’ operations. As part of his responsibilities for the Related Public Funds, Mr. Hyland monitors day-to-day trading, helps set investment policies, and oversees the Related Public Funds’ activities with their futures commission brokers, custodian-administrator, and marketing agent. Mr. Hyland has an extensive background in portfolio management and research with both equity and fixed income securities, as well as in the development of new types of complex investment funds. In July 2001, Mr. Hyland founded Towerhouse Capital Management, LLC, a firm that provided portfolio management and new fund development expertise to non-U.S. institutional investors through December 2009. Since January 2010, Towerhouse Capital Management has been inactive. Mr. Hyland was a Principal for Towerhouse in charge of portfolio research and product development regarding U.S. and non-U.S. real estate related securities. Mr. Hyland received his Chartered Financial Analyst (“CFA”) designation in 1994. Mr. Hyland is a member of the CFA Institute (formerly AIMR) and is a member and former president of the CFA Society of San Francisco. He is also a member of the National Association of Petroleum Investment Analysts, a not-for-profit organization of investment professionals focused on the oil industry. He is a graduate of the University of California, Berkeley. Mr. Hyland is 53 years old.

Ray W. Allen acts as a Portfolio Operations Manager for USOF, US12OF, USSO and USBO. He has been employed by the Sponsor since January 14, 2008. He holds a Series 3 license and is registered with the CFTC as an Associated Person of the Sponsor from March 25, 2008 to November 1, 2012. He has been listed with the CFTC as a Principal of the Sponsor since March 18, 2009. Mr. Allen’s responsibilities include daily trading and operations for USOF, US12OF, USSO and USBO. Mr. Allen also acted as a Portfolio Operations Manager for UGA, USDHO and US12NG until March 1, 2010. In addition, from February 2002 to October 2007, Mr. Allen was responsible for analyzing and evaluating the creditworthiness of client companies at Marble Bridge Funding Group Inc., in Walnut Creek, CA. Marble Bridge Funding Group Inc. is a commercial finance company providing capital to entrepreneurial companies. For the period from October 2007 to January 14, 2008, Mr. Allen was not employed by the Sponsor and did not engage in any business-related activity. Mr. Allen received a BA in Economics from the University of California at Berkeley in 1980. Mr. Allen is 55 years old.

The following individuals serve as independent directors of the Sponsor.

Peter M. Robinson has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since December 2005. Mr. Robinson has been employed as a Research

 

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Fellow with the Hoover Institution since 1993. The Hoover Institution is a public policy think tank located on the campus of Stanford University. Mr. Robinson graduated from Dartmouth College in 1979 and Oxford University in 1982. Mr. Robinson received an MBA from the Stanford University Graduate School of Business. Mr. Robinson has also written three books and has been published in the New York Times, Red Herring, and Forbes ASAP and he is the editor of Can Congress Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson is 55 years old.

In concluding that Mr. Robinson should serve as independent director of the Sponsor, the Sponsor considered his broad experience in the United States government, including his employment at the Securities and Exchange Commission and his knowledge of and insight into public policy.

Gordon L. Ellis has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since November 2005. Mr. Ellis was a founder and Chairman of International Absorbents, Inc., a NYSE listed company and the parent company of Absorption Corp., since July 1988, President and Chief Executive Officer since November 1996 and a Class I Director of the company since July 1985. Mr. Ellis was also a director of Absorption Corp., International Absorbents, Inc.’s wholly-owned subsidiary which is engaged in developing, manufacturing and marketing a wide range of animal care and industrial absorbent products. International Absorbents and Absorption Corp were sold to a private investment banking firm in May 2010. Mr. Ellis continues as a director of the privatized firm. Mr. Ellis was chairman and a founder of Polymer Solutions, Inc., from April 1986 to February 2004 a former publicly-held company that sold all of its assets to a senior coatings manufacturer effective February 3, 2004. Polymer Solutions previously developed and manufactured paints, coatings, stains and primers for wood furniture manufacturers. Mr. Ellis is founder and chairman of Lupaka Gold Corp., a Toronto Stock Exchange listed company developing a precious metal deposit in South America since November 2000 (from November 2000 to May 2010, Lupaka Gold Corp. was called Kcrok Enterprises Ltd.). Mr. Ellis has his Chartered Directors designation from The Director’s College (a joint venture of McMaster University and The Conference Board of Canada). Mr. Ellis is a professional engineer with an MBA in international finance. Mr. Ellis is 66 years old.

In concluding that Mr. Ellis should serve as independent director of the Sponsor, the Sponsor considered his experience serving as the Chairman and Chief Executive Officer of a former publicly-traded corporation as well as his experience as an entrepreneur.

Malcolm R. Fobes III has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since November 2005. Mr. Fobes is the founder, Chairman and Chief Executive Officer of Berkshire Capital Holdings, Inc., a California-based investment adviser registered under the Investment Advisers Act of 1940, that has been sponsoring and providing portfolio management services to mutual funds since June 1997. Since June 1997, Mr. Fobes has been the Chairman and President of The Berkshire Funds, a mutual fund investment company registered under the Investment Company Act of 1940. Mr. Fobes also serves as portfolio manager of the Berkshire Focus Fund, a mutual fund registered under the Investment Company Act of 1940, which concentrates its investments in the electronic technology industry. From April 2000 to July 2006, Mr. Fobes also served as co-portfolio manager of The Wireless Fund, a mutual fund registered under the Investment Company Act of 1940, which concentrates its investments in companies engaged in the development, production, or distribution of wireless-related products or services. In these roles, Mr. Fobes has gained extensive experience in evaluating and retaining third-party service providers, including custodians, accountants, transfer agents, and distributors. Mr. Fobes was also contributing editor of Start a Successful Mutual Fund: The Step-by-Step Reference Guide to Make It Happen (JV Books, 1995). Mr. Fobes holds a B.S. degree in Finance and Economics from San Jose State University in California. Mr. Fobes is 48 years old.

In concluding that Mr. Fobes should serve as independent director of the Sponsor, the Sponsor considered his background as founder, Chairman and Chief Executive Officer of a registered investment adviser as well as Chairman, President, Chief Financial Officer and Portfolio Manager of a mutual fund investment company.

 

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The following are individual Principals, as that term is defined in CFTC Rule 3.1, for the Sponsor: Nicholas Gerber, Melinda Gerber, the Nicholas and Melinda Gerber Living Trust, Howard Mah, Andrew Ngim, Peter Robinson, Gordon Ellis, Malcolm Fobes, John Love, John Hyland, Ray Allen, Wainwright Holdings Inc. and Margaret Johnson. These individuals are Principals due to their positions, however, Nicholas Gerber and Melinda Gerber are also Principals due to their controlling stake in Wainwright. None of the Principals owns or has any other beneficial interest in UAC other than as described in the section of this prospectus entitled “Securities Ownership of Certain Beneficial Owners and Management.” John Hyland and John Love make trading and investment decisions for UAC. John Love and Ray Allen execute trades on behalf of UAC. In addition, Nicholas Gerber and John Hyland, are registered with the CFTC as Associated Persons of the Sponsor and are NFA Associate Members.

Contributions to UAC

The Sponsor contributed $1,000 to UAC on September 27, 2011, representing an initial contribution of capital to the pool. The Sponsor received 40 units of UAC that were in exchange for the previously received capital contribution, representing a beneficial interest in the pool. The Sponsor may also purchase the initial Creation Basket of UAC. See “What is the Plan of Distribution? — Marketing Agent and Authorized Purchasers” for a description of the Sponsor’s ability to purchase one of the Creation Baskets of each Fund directly or from the initial Authorized Purchaser at the initial offering price of the units of such Fund and hold it for an indefinite period of time.

Executive Compensation and Fees to the Sponsor

UAC does not directly compensate any of the executive officers noted above. The executive officers noted above are compensated by the Sponsor for the work they perform on behalf of UAC and other entities controlled by the Sponsor. UAC does not reimburse the Sponsor for, nor does it set the amount or form of any portion of, the compensation paid to the executive officers by the Sponsor. UAC pays fees to the Sponsor pursuant to the Trust Agreement under which it is obligated to pay the Sponsor an annualized fee of 0.90% of its average net assets.

Director Compensation

The following table sets forth compensation earned during the year ended December 31, 2011, by the directors of USCF. UAC did not pay any portion of the aggregate fees to the directors for the year ended December 31, 2011 since UAC has not commenced operations.

 

Name

  Fees
Earned
or
Paid in
Cash
    Stock
Awards
    Option
Awards
    Non-Equity
Incentive Plan
Compensation
    Change in
Pension
Value  and
Nonqualified
Deferred
Compensation
Plan
    All Other
Compensation
    Total  

Management Directors

             

Nicholas Gerber

  $ 0        NA        NA        NA      $ 0      $ 0      $ 0   

Andrew F. Ngim

  $ 0        NA        NA        NA      $ 0      $ 0      $ 0   

Howard Mah

  $ 0        NA        NA        NA      $ 0      $ 0      $ 0   

Independent Directors

             

Peter M. Robinson

  $ 100,000        NA        NA        NA      $ 0      $ 0      $ 100,000   

Gordon L. Ellis

  $ 100,000        NA        NA        NA      $ 0      $ 0      $ 100,000   

Malcolm R. Fobes III(1)

  $ 120,000        NA        NA        NA      $ 0      $ 0      $ 120,000   

 

(1) Mr. Fobes serves as chairman of the audit committee of the Sponsor and receives additional compensation in recognition of the additional responsibilities he has undertaken in this role.

 

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Prior Performance of the Sponsor and Affiliates

UAC has not yet commenced operations. Therefore, it does not yet have a record of prior performance. The Sponsor is also currently the general partner of the Related Public Funds. Each of the Sponsor and the Related Public Funds is located in California. The Sponsor manages UAC and the Related Public Funds. Each of the Related Public Funds is a commodity pool that issues units traded on the NYSE Arca. The chart below shows, as of October 31, 2012, the number of Authorized Purchasers, the total number of baskets created and redeemed since inception and the number of outstanding units for each of the Related Public Funds.

 

     Number of
Authorized
Purchasers
     Baskets
Purchased
(Number of
Units)
     Baskets
Redeemed
(Number of
Units)
     Outstanding
Units
 

USOF

     19         7,891         7,488         40,300,000   

USNG

     17         12,142         8,019         57,966,476   

US12OF

     10         150         132         2,750,000   

USDHO

     12         10         9         200,000   

USSO

     13         23         21         200,000   

US12NG

     9         50         14         2,600,000   

USBO

     9         46         44         550,000   

USCI

     8         127         29         8,300,000   

UGA

     13         90         96         1,100,000   

CPER

     6         1         0         100,000   

USAG

     6         3         2         100,000   

USMI

     6         3         1         100,000   

The ability of each of the Related Public Funds to track its benchmark futures contract or index from inception to October 31, 2012, is presented below.

Since the commencement of the offering of USOF units to the public on April 10, 2006 to October 31, 2012, the simple average daily change in its benchmark oil futures contract was (0.019)%, while the simple average daily change in the NAV of USOF over the same time period was (0.017)%. 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 contract, the average error in daily tracking by the NAV was 0.520%, meaning that over this time period USOF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USNG units to the public on April 18, 2007 to October 31, 2012, the simple average daily change in its benchmark futures contract was (0.162)% while the simple average daily change in the NAV of USNG over the same time period was (0.166)%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was 1.632%, meaning that over this time period USNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USDHO units to the public on April 9, 2008 to October 31, 2012, the simple average daily change in its benchmark futures contract was (0.007)%, while the simple average daily change in the NAV of USDHO over the same time period was (0.009)%. 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 futures contract, the average error in daily tracking by the NAV was (0.838)%, meaning that over this time period USDHO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

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Since the commencement of the offering of US12OF units to the public on December 6, 2007 to October 31, 2012, the simple average daily change in the average price of its benchmark futures contracts was 0.004%, while the simple average daily change in the NAV of US12OF over the same time period was 0.002%. The average daily difference was (0.001)% (or (0.1) basis point, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was (0.544)%, meaning that over this time period US12OF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of UGA units to the public on February 26, 2008 to October 31, 2012, the simple average daily change in its benchmark futures contract was 0.042%, while the simple average daily change in the NAV of UGA over the same time period was 0.039%. 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 futures contract, the average error in daily tracking by the NAV was (0.818)%, meaning that over this time period UGA’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USSO units to the public on September 24, 2009 to October 31, 2012, the inverse of the simple average daily change in its benchmark futures contract was (0.006)%, while the simple average daily change in the NAV of USSO over the same time period was (0.010)%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the inverse of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (1.197)%, meaning that over this time period USSO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of US12NG units to the public on November 18, 2009 to October 31, 2012, the simple average daily change in the average price of its benchmark futures contracts was (0.109)%, while the simple average daily change in the NAV of US12NG over the same time period was (0.112)%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was (0.588)%, meaning that over this time period US12NG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USBO units to the public on June 2, 2010 to October 31, 2012, the simple average daily change in its benchmark futures contract was 0.092%, while the simple average daily change in the NAV of USBO over the same time period was 0.088%. The average daily difference was (0.004)% (or (0.4) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (0.840)%, meaning that over this time period USBO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USCI units to the public on August 10, 2010 to October 31, 2012, the simple average daily change in its Index was 0.040%, while the simple average daily change in the NAV of USCI over the same time period was 0.035%. The average daily difference was (0.005)% (or (0.5) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark component futures contracts, the average error in daily tracking by the NAV was (2.430)%, meaning that over this time period USCI’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of CPER units to the public on November 15, 2011 to October 31, 2012, the simple average daily change in its Index was 0.004%, while the simple average daily change in the NAV of CPER over the same time period was 0.009%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark component futures contracts, the average error in daily tracking by the NAV was (2.477)%.

 

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Since the commencement of the offering of USAG units to the public on April 13, 2012 to October 31, 2012, the simple average daily change in its Index was 0.061%, while the simple average daily change in the NAV of USAG over the same time period was 0.055%. The average daily difference was (0.006)% or (0.6) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark component futures contracts, the average error in daily tracking by the NAV was 6.810%.

Since the commencement of the offering of USMI units to the public on June 19, 2012 to October 31, 2012, the simple average daily change in its index was 0.034%, while the simple average daily change in the NAV of USMI over the same time period was 0.028%. The average daily difference was (0.006)% or (0.6) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark component futures contracts, the average error in daily tracking by the NAV was (3.033)%.

The table below shows the relationship between the trading prices of the units of each of the Related Public Funds and the daily NAV of such fund, since inception through October 31, 2012. The first row shows the average amount of the variation between the Related Public Fund’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. Management of the Sponsor believes that maximum and minimum end of day premiums and discounts typically occur because trading in the units continues on the NYSE Arca until 4:00 p.m. New York time while regular trading in the 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. One known exception to this conclusion were the premiums on trading in USNG units that occurred between July 8, 2009 and September 28, 2009, when USNG suspended the issuance of Creation Baskets as a result of regulatory concern relating to the size of USNG’s positions in the natural gas futures and cleared swap markets, and there was continued demand for such units and other similar natural gas futures linked investments in the market.

 

    USOF     USNG     US12OF     UGA     USDHO     USSO     US12NG     USBO     USCI     CPER     USAG     USMI  

Average Difference

  $ (0.00   $ 0.40      $ (0.04   $ 0.00      $ 0.01      $ 0.00      $ 0.01      $ (0.05   $ 0.05      $ (0.06   $ 0.05      $ 0.11   

Max Premium %

    3.88     2.37     4.11     6.29     5.75     3.08     6.68     2.06     2.03     4.31     4.33     4.23

Max Discount %

    (4.51 )%      (2.42 )%      (9.72 )%      (4.50 )%      (3.85 )%      (3.41 )%      (6.52 )%      (3.13 )%      (1.34 )%      (5.45 )%      (1.68 )%      (9.28 )% 

For more information on the performance of the Related Public Funds, see the Performance Tables below.

 

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PERFORMANCE OF THE RELATED PUBLIC FUNDS

USOF:

COMPOSITE PERFORMANCE DATA FOR USOF

Name of Commodity Pool: United States Oil Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 10, 2006

Aggregate Subscriptions (from inception through October 31, 2012): $34,823,610,125

Total Net Assets as of October 31, 2012: $1,282,081,528

NAV per Unit as of October 31, 2012: $31.81

Worst Monthly Percentage Draw-down: October 2008 (31.57)%

Worst Peak-to-Valley Draw-down: June 2008 — February 2009 (75.84)%

Number of Unitholders (as of December 31, 2011): 158,586

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007      2008      2009      2010      2011      2012  

January

     (6.55 )%       (3.98 )%       (14.60 )%       (8.78 )%       (0.62 )%       (0.60 )% 

February

     5.63      11.03      (6.55 )%       8.62      1.21      8.25

March

     4.61      0.63      7.23      4.61      8.78      (4.27 )% 

April

     (4.26 )%       12.38      (2.38 )%       2.04      6.12      1.25

May

     (4.91 )%       12.80      26.69      (17.96 )%       (10.43 )%       (17.83 )% 

June

     9.06      9.90      4.16      0.47      (7.65 )%       (2.24 )% 

July

     10.55      (11.72 )%       (2.30 )%       3.57      (0.24 )%       3.14

August

     (4.93 )%       (6.75 )%       (1.98 )%       (9.47 )%       (7.66 )%       9.18

September

     12.11      (12.97 )%       0.25      8.97      (11.08 )%       (4.82 )% 

October

     16.98      (31.57 )%       8.43      0.89      17.32      (6.93 )% 

November

     (4.82 )%       (20.65 )%       (0.51 )%       2.53      7.76   

December

     8.66      (22.16 )%       (0.03 )%       8.01      (1.78 )%    

Annual Rate of Return

     46.15      (54.75 )%       14.14      (0.49 )%       (2.31 )%       (16.44 )%** 

 

* 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 October 31, 2012.

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 since inception of trading.

 

 

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Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per unit 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 percentage decline from any month-end NAV per unit that occurs without such month-end NAV per unit being equaled or exceeded as a subsequent month-end. For example, if the NAV per unit declined by $1 in each of January and February, increased by $1 in March and declined again by $2 in April, a “peak-to-valley draw-down” analysis conducted as of the end of April would consider that “draw-down” to be still continuing and to be $3 in amount whereas if the NAV per unit had increased by $2 in March, the January-February draw-down would have ended as of the end of February at the $2 level.

USNG:

COMPOSITE PERFORMANCE DATA FOR USNG

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 October 31, 2012): $16,027,916,431

Total Net Assets as of October 31, 2012: $1,260,039,922

NAV per Unit as of October 31, 2012: $21.74

Worst Monthly Percentage Draw-down: July 2008 (32.13)%

Worst Peak-to-Valley Draw-down: June 2008 — March 2012 (96.81)%

Number of Unitholders (as of December 31, 2011): 237,227

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008      2009      2010      2011      2012  

January

            8.87      (21.49 )%       (7.65 )%       (0.17 )%       (17.62 )% 

February

            15.87      (5.47 )%       (6.02 )%       (10.02 )%       (2.49 )% 

March

            6.90      (11.81 )%       (21.05 )%       6.68      (22.99 )% 

April

     4.30 %**      6.42      (13.92 )%       (0.87 )%       5.39      2.19

May

     (0.84 )%      6.53      10.37      8.19      (2.23 )%       3.00

June

     (15.90 )%      13.29      (4.63 )%       5.14      (7.00 )%       14.36

July

     (9.68 )%      (32.13 )%       (8.70 )%       6.43       (4.90 )%       13.96

August

     (13.37 )%      (13.92 )%       (27.14 )%       (22.95 )%       (2.58 )%       (14.16 )% 

September

     12.28     (9.67 )%       26.03      (3.13 )%       (11.85 )%       13.32

October

     12.09     (12.34 )%       (13.31 )%       (5.83 )%       0.33      1.78

November

     (16.16 )%      (6.31 )%       (11.86 )%       (1.37 )%       (13.40 )%    

December

     0.75     (14.32 )%       13.91      4.53      (17.26 )%    

Annual Rate of Return

     (27.64 )%      (35.68 )%       (56.73 )%       (40.42 )%       (46.08 )%       (16.00 )%*** 

 

 

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* 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.
** Partial from April 17, 2007.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

US12OF:

COMPOSITE PERFORMANCE DATA FOR US12OF

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: December 6, 2007

Aggregate Subscriptions (from inception through October 31, 2012): $456,604,020

Total Net Assets as of October 31, 2012: $104,753,421

NAV per Unit as of October 31, 2012: $38.09

Worst Monthly Percentage Draw-down: October 2008 (29.59)%

Worst Peak-to-Valley Draw-down: June 2008 — February 2009 (66.97)%

Number of Unitholders (as of December 31, 2011): 14,016

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008      2009      2010      2011      2012  

January

            (2.01 )%       (7.11 )%       (8.40 )%       3.38      0.92

February

            10.48      (4.34 )%       6.73      1.89      7.71

March

            (0.66 )%       9.22      4.16      7.30      (3.03 )% 

April

            11.87      (1.06 )%       6.37      5.94      0.65

May

            15.47      20.40      (15.00 )%       (8.91 )%       (16.94 )% 

June

            11.59      4.51      (1.00 )%       (6.43 )%       (1.04 )% 

July

            (11.39 )%       1.22      4.16      (0.43 )%       2.59

August

            (6.35 )%       (2.85 )%       (5.92 )%       (8.42 )%       8.54

September

            (13.12 )%       (0.92 )%       7.02      (11.50 )%       (4.27 )% 

October

            (29.59 )%       8.48      (0.05 )%       15.03      (5.72 )% 

November

            (16.17 )%       2.31      1.86      7.72   

December

     8.44 %**      (12.66 )%       (1.10 )%       9.10      (0.75 )%    

Annual Rate of Return

     8.44     (42.39 )%       29.23      6.29      1.28      (12.36 )%*** 

 

* 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.

 

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** Partial from December 6, 2007.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

UGA:

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 October 31, 2012): $341,146,803

Total Net Assets as of October 31, 2012: $60,508,381

NAV per Unit as of October 31, 2012: $55.01

Worst Monthly Percentage Draw-down: October 2008 (38.48)%

Worst Peak-to-Valley Draw-down: June 2008 — December 2008 (69.02)%

Number of Unitholders (as of December 31, 2011): 26,024

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009      2010      2011      2012  

January

            16.23      (7.47 )%       2.19      8.37

February

     (0.56 )%**      0.26      7.33      9.52      6.83

March

     (2.39 )%      2.59      5.42      7.16      1.59

April

     10.94     2.07      3.15      10.45      (3.45 )% 

May

     15.60     30.41      (15.54 )%       (9.21 )%       (11.05 )% 

June

     4.79     1.65      1.93      (0.99 )%       (0.61 )% 

July

     (12.79 )%      6.24      2.95      4.67      9.60

August

     (3.88 )%      (3.71 )%       (10.42 )%       (1.53 )%       13.02

September

     (9.36 )%      (3.38 )%       9.45      (11.02 )%       0.96

October

     (38.48 )%      10.96      2.19      3.90      (9.42 )% 

November

     (21.35 )%      1.00      8.19      (2.05 )%    

December

     (15.72 )%      0.55      11.33      3.49   

Annual Rate of Return

     (59.58 )%      80.16      15.52      15.00      13.73 %*** 

 

* 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.
** Partial from February 26, 2008.
*** Through October 31, 2012.

 

 

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For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

Performance of USDHO

COMPOSITE PERFORMANCE DATA FOR USDHO

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 9, 2008

Aggregate Subscriptions (from inception through October 31, 2012): $33,857,235

Total Net Assets as of October 31, 2012: $6,843,795

NAV per Unit as of October 31, 2012: $34.22

Worst Monthly Percentage Draw-down: October 2008 (28.63%)

Worst Peak-to-Valley Draw-down: June 2008 — February 2009 (69.17%)

Number of Unitholders (as of December 31, 2011): 2,256

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009      2010      2011      2012  

January

     —          0.05      (10.17 )%       7.58      4.73

February

     —          (11.34 )%       5.78      6.98      5.62

March

     —          6.73      6.42      5.45      (1.46 )% 

April

     2.84 %**      (3.85 )%       5.13      4.75      0.17

May

     15.93     23.13      (14.14 )%       (7.17 )%       (15.28 )% 

June

     5.91     4.55      (0.40 )%       (4.01 )%       0.03

July

     (12.18 )%      0.39      2.48      4.68      4.98

August

     (8.41 )%      (2.71 )%       (5.88 )%       (0.85 )%       11.24

September

     (9.77 )%      (0.48 )%       12.75      (10.18 )%       (0.68 )% 

October

     (28.63 )%      7.60      (2.20 )%       10.10      (2.76 )% 

November

     (18.38 )%      0.19      2.97      (1.36 )%    

December

     (17.80 )%      2.23      8.75      (4.12 )%    

Annual Rate of Return

     (56.12 )%      25.52      8.28      9.96      4.36 %*** 

 

* 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.
** Partial from April 9, 2008
*** Through October 31, 2012

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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USSO:

COMPOSITE PERFORMANCE DATA FOR USSO

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 October 31, 2012): $72,091,061

Total Net Assets as of October 31, 2012: $8,059,438

NAV per Unit as of October 31, 2012: $40.30

Worst Monthly Percentage Draw-down: October 2011 (16.00)%

Worst Peak-to-Valley Draw-down: August 2010 — February 2012 (33.97)%

Number of Unitholders (as of December 31, 2011): 3,288

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010      2011      2012  

January

            9.05      (0.64 )%       0.11

February

            (8.94 )%       (1.94 )%       (8.09 )% 

March

            (4.92 )%       (8.89 )%       3.88

April

            (2.50 )%       (6.27 )%       (1.62 )% 

May

            20.18      9.28      20.85

June

            (1.42 )%       7.21      0.61

July

            (4.17 )%       (0.30 )%       (3.97 )% 

August

            9.61      6.24      (8.92 )% 

September

     (2.90 )%**      (8.75 )%       10.71      4.59

October

     (8.65 )%      (1.59 )%       (16.00 )%       6.56

November

     (0.25 )%      (3.18 )%       (7.78 )%    

December

     (0.57 )%      (7.74 )%       (1.03 )%    

Annual Rate of Return

     (12.02 )%      (8.12 )%       (10.54 )%       11.45 %*** 

 

* 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.
** Partial from September 24, 2009.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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US12NG:

COMPOSITE PERFORMANCE DATA FOR US12NG

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 October 31, 2012): $114,646,859

Total Net Assets as of October 31, 2012: $49,316,594

NAV per Unit as of October 31, 2012: $18.97

Worst Monthly Percentage Draw-down: March 10 (15.47)%

Worst Peak-to-Valley Draw-down: December 2009 — March 2012 (69.56)%

Number of Unitholders (as of December 31, 2011): 3,978

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010      2011      2012  

January

            (5.93 )%       (0.68 )%       (12.16 )% 

February

            (5.18 )%       (6.49 )%       (0.32 )% 

March

            (15.47 )%       5.32      (11.85 )% 

April

            0.07      3.53      0.00

May

            3.11      (2.23 )%       0.06

June

            1.27      (6.11 )%       6.11

July

            (0.05 )%       (5.28 )%       6.62

August

            (13.53 )%       (1.43 )%       (9.39 )% 

September

            (6.23 )%       (8.12 )%       11.26

October

            (1.78 )%       (1.72 )%       1.55

November

     (0.02 )%**      (0.92 )%       (10.27 )%    

December

     7.56     4.88      (13.92 )%    

Annual Rate of Return

     7.54     (34.83 )%       (39.47 )%       (10.56 )%*** 

 

* 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.
** Partial from November 18, 2009.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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USBO:

COMPOSITE PERFORMANCE DATA FOR USBO

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 October 31, 2012): $300,295,559

Total Net Assets as of October 31, 2012: $43,468,217

NAV per Unit as of October 31, 2012: $79.03

Worst Monthly Percentage Draw-down: May 2012 (14.59)%

Worst Peak-to-Valley Draw-down: March 2012 — June 2012 (19.62)%

Number of Unitholders (as of December 31, 2011): 7,959

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2010     2011      2012  

January

            6.61      3.64

February

            10.42      10.78

March

            4.92      0.84

April

            7.44      (2.36 )% 

May

            (7.17 )%       (14.59 )% 

June

     1.94 %**      (3.40 )%       (3.61 )% 

July

     3.83     3.94      7.50

August

     (4.84 )%      (1.55 )%       10.61

September

     9.79     (9.85 )%       (1.55 )% 

October

     0.61     8.51      (2.67 )% 

November

     3.00     1.90   

December

     10.09     (2.65 )%    

Annual Rate of Return

     26.16     18.17      6.02 %*** 

 

* 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.
** Partial from June 2, 2010.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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USCI:

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 October 31, 2012): $403,303,876

Total Net Assets as of October 31, 2012: $491,713,839

NAV per Unit as of October 31, 2012: $59.24

Worst Monthly Percentage Draw-down: September 2011 (11.69)%

Worst Peak-to-Valley Draw-down: April 2011 — May 2012 (21.60)%

Number of Unitholders (as of December 31, 2011): 33,783

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2010     2011      2012  

January

            4.01      4.45

February

            5.27      4.01

March

            (0.14 )%       (3.49 )% 

April

            1.89      (0.62 )% 

May

            (5.77 )%       (7.76 )% 

June

            (5.03 )%       2.35

July

            3.52      6.52

August

     (0.04 )%**      (0.33 )%       1.34

September

     8.38     (11.69 )%       (1.18 )% 

October

     6.31     5.08      (3.44 )% 

November

     0.76     (1.16 )%    

December

     10.93     (3.72 )%    

Annual Rate of Return

     28.72     (9.17 )%       1.32 %*** 

 

* 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.
** Partial from August 10, 2010.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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CPER:

COMPOSITE PERFORMANCE DATA FOR CPER

Name of Commodity Pool: United States Copper Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: November 15, 2011

Aggregate Subscriptions (from inception through October 31, 2012): $2,500,000

Total Net Assets as of October 31, 2012: $2,460,519

NAV per Unit as of October 31, 2012: $24.61

Worst Monthly Percentage Draw-down: May 2012 (11.91)%

Worst Peak-to-Valley Draw-down: February 2012 — May 2012 (13.60)%

Number of Unitholders (as of December 31, 2011): 66

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2011     2012  

January

            10.13

February

            2.00

March

            (1.49 )% 

April

            (0.44 )% 

May

            (11.91 )% 

June

            3.49

July

            (2.12 )% 

August

            0.79

September

            8.45

October

            (6.43 )% 

November

     1.80 %**   

December

     (3.85 )%   

Annual Rate of Return

     (2.12 )%      0.57 %*** 

 

* 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.
** Partial from November 15, 2011.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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USAG:

COMPOSITE PERFORMANCE DATA FOR USAG

Name of Commodity Pool: United States Agriculture Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 13, 2012

Aggregate Subscriptions (from inception through October 31, 2012): $2,500,000

Total Net Assets as of October 31, 2012: $2,684,195

NAV per Unit as of October 31, 2012: $26.84

Worst Monthly Percentage Draw-down: May 2012 (4.88)%

Worst Peak-to-Valley Draw-down: April 2012 — May 2012 (6.48)%

Number of Unitholders (as of December 31, 2011): Not applicable

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2012  

January

  

February

  

March

  

April

     (1.68 )%** 

May

     (4.88 )% 

June

     9.20

July

     10.07

August

     0.25

September

     (2.80 )% 

October

     (1.97 )% 

November

  

December

  

Annual Rate of Return

     7.36 %*** 

 

* 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.
** Partial from April 13, 2012.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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USMI:

COMPOSITE PERFORMANCE DATA FOR USMI

Name of Commodity Pool: United States Metals Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: June 19, 2012

Aggregate Subscriptions (from inception through October 31, 2012): $4,909,773

Total Net Assets as of October 31, 2012: $2,551,485

NAV per Unit as of October 31, 2012: $25.51

Worst Monthly Percentage Draw-down: October 2012 (7.74)%

Worst Peak-to-Valley Draw-down: September 2012 — October 2012 (7.74)%

Number of Unitholders (as of December 31, 2011): Not applicable

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

  

2012

 

January

  

February

  

March

  

April

  

May

  

June

     (1.20 )%** 

July

     (1.46 )% 

August

     4.23

September

     8.99

October

     (7.74 )% 

November

  

December

  

Annual Rate of Return

     2.04 %*** 

 

* 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.
** Partial from June 19, 2012.
*** Through October 31, 2012.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

 

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Other Related Commodity Trading and Investment Management Experience

Until December 31, 2009, Ameristock Corporation was an affiliate of the Sponsor. Ameristock Corporation is a California-based registered investment adviser registered under the Investment Advisers Act of 1940, as amended, that has been sponsoring and providing portfolio management services to mutual funds since 1995. Ameristock Corporation is the investment adviser to the Ameristock Mutual Fund, Inc., a mutual fund registered under the Investment Company Act of 1940 that focuses on large cap U.S. equities that had $188,596,194 in assets as of October 31, 2012. Ameristock Corporation was also the investment adviser to the Ameristock ETF Trust, an open-end management investment company registered under the 1940 Act that consisted of five separate investment portfolios, each of which sought investment results, before fees and expenses, that corresponded generally to the price and yield performance of a particular U.S. Treasury securities index owned and compiled by Ryan Holdings LLC and Ryan ALM, Inc. The Ameristock ETF Trust has liquidated each of its investment portfolios and has wound up its affairs.

Who is the Trustee?

The sole Trustee of the Trust is Wilmington Trust National Association, a national banking association. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Sponsor. The Trustee’s duties and liabilities with respect to the offering of units and the management of the Trust and UAC are limited to its express obligations under the Trust Agreement.

The Trustee will accept service of legal process on the Trust in the State of Delaware and will make certain filings under the Delaware Statutory Trust Act. The Trustee does not owe any other duties to the Trust, the Sponsor or the Unitholders. The Trustee is permitted to resign upon at least sixty (60) days’ notice to the Sponsor. If no successor trustee has been appointed by the Sponsor within such sixty-day period, the Trustee may, at the expense of the Trust, petition a court to appoint a successor. The Trustee is entitled to reasonable compensation for its services from the Sponsor or an affiliate of the Sponsor (including the Trust), and is indemnified by the Sponsor against any expenses it incurs relating to or arising out of the formation, operation or termination of the Trust, or any action or inaction of the Trustee under the Trust Agreement, except to the extent that such expenses result from the gross negligence or willful misconduct of the Trustee. The Sponsor has the discretion to replace the Trustee.

The Trustee has not signed the registration statement of which this prospectus is a part, and is not subject to issuer liability under the federal securities laws for the information contained in this prospectus and under federal securities laws with respect to the issuance and sale of the units. Under such laws, neither the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director, officer or controlling person of the Trustee is, or has any liability as, the issuer or a director, officer or controlling person of the issuer of the units.

Under the Trust Agreement, the Trustee has delegated to the Sponsor the exclusive management and control of all aspects of the business of the Trust and UAC. The Trustee has no duty or liability to supervise or monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions of the Sponsor.

Because the Trustee has no authority over the operation of the Trust, the Trustee itself is not registered in any capacity with the CFTC.

How Does UAC Operate?

The net assets of UAC will consist primarily of Asian Commodities Interests. UAC will invest in Asian Commodities Interests to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or collateral obligations with respect to its investments in Asian Commodities Interests. The primary focus of the Sponsor is the investment in Asian Commodities Interests and the management of UAC’s investments in Treasuries, cash and cash equivalents for margining purposes and as collateral.

 

 

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UAC is a commodity pool. The investment objective of UAC (before fees and expenses) is to have the daily changes in percentage terms of its units’ NAV reflect the daily changes in percentage terms of the price of the Futures Basket. The Futures Basket is a basket of futures contracts, each of which tracks one of the Asian Benchmark Commodities. The Asian Benchmark Commodities have been selected by the Sponsor based on either their systemic importance to Asian economies, including the three major Asian economies of China, Japan, and India. The Futures Contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The Futures Contracts will be traded on the CME, CBOT, NYMEX, COMEX, ICE US, ICE Canada, ICE Europe, LME, TOCOM, DME and Malaysia (collectively, “Futures Exchanges”). It is not the intent of UAC to be operated in a fashion such that its NAV will equal, in dollar terms, the spot price of any particular commodity or any particular Benchmark Futures Contract. It is not the intent of UAC to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe that is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of Futures Contracts.

The Asian Benchmark Commodities are selected by the Sponsor based on either their systemic importance to Asian economies, including the three major Asian economies of China, Japan and India, or the fact that there are Futures Contracts relating to the commodity or commodities that trade on an Asian domiciled futures exchange. The Sponsor will select the Asian Benchmark Commodities based on the following four criteria:

 

   

First, the physical commodity must be one in which the economies of China, Japan, and India annually consume 10% or more of global consumption based on publically available industry and government statistics.

 

   

Second, the physical commodity must be one in which, based on publically available industry and government statistics, China, Japan and India annually produce less of the commodity than they typically consume, indicating that they are likely to be net importers of the commodity and not net exporters.

 

   

Third, the Futures Contracts on the physical commodity must be traded on a regulated Futures Exchange in the United States, Canada, the United Kingdom, Japan, Dubai, Malaysia or other domicile which allows a US domiciled passive investment fund to buy and sell such contracts.

 

   

Fourth and finally, the Futures Contracts traded on such commodities must have average open interest measured in US dollars in excess of $150 million at the time of the commodity’s selection. In the event the same or substantially similar physical contract is traded on more than one Futures Exchange, the minimum liquidity test will be applied to the exchange with the largest open interest in US dollar terms in that particular commodity.

The Asian Benchmark Commodities will be selected by the Sponsor in accordance with the above specific quantitative data. The end result is a basket that the Sponsor believes will be generally reflective of Asian demand for physical commodities and which the Sponsor believes can be efficiently accessed by investing in regulated Futures Contracts. As much of the selection process is based by a view of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity.

UAC seeks to achieve its investment objective by investing in a mix of Asian Commodities Interests such that the daily changes in UAC’s NAV will closely track changes in the daily price of the Futures Basket. The Sponsor believes changes in the price of the Benchmark Futures Contracts have historically exhibited a close correlation with the changes in the price of the corresponding Asian Benchmark Commodities. On any valuation day (a valuation day is any NYSE Arca trading day as of which UAC calculates its NAV, as described herein), each Benchmark Futures Contract will be the near month contract for the corresponding Asian Benchmark Commodity traded on the Futures Exchange where such Benchmark Futures Contract is listed unless the near

 

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month contract will expire within 4 business days prior to the end of the month. Only the Benchmark Futures Contracts that will be reaching expiration in the upcoming month will be sold and next Futures Contracts for that commodity that expires later than the upcoming month the next month contract, will be used to replace the contract being sold. Benchmark Futures Contracts which are not reaching expiration in the upcoming month will not be “rolled” forward during the current month, in which case the Benchmark Futures Contract will be the next near month contract for the corresponding Asian Benchmark Commodity on the same Futures Exchange.

UAC will invest in Benchmark Futures Contracts to the fullest extent possible, turning next to investments in other Futures Contracts and finally to Other Asian Commodities-Related Investments, only if required to by applicable regulatory requirements or in light of prevailing market conditions. More specifically, if applicable regulatory requirements or prevailing market conditions make investing in Benchmark Futures Contracts impracticable, UAC would then invest to the fullest extent possible in other Futures Contracts that while relating to the same commodity and trading on the same Futures Exchange as a Benchmark Futures Contract, have a different expiration date. If and when investing in such other Futures Contracts becomes impracticable because of regulatory requirements or in light of market conditions, UAC would then invest to the fullest extent possible in Futures Contracts that while relating to the same commodity as the corresponding Benchmark Futures Contract, is traded on a different Futures Exchange. Only when UAC has invested in Benchmark Futures Contracts and other Futures Contracts to the fullest extent possible in the manner described above, will it then invest in Other Asian Commodities-Related Investments.

The types of regulatory requirements and market conditions that would cause UAC to invest in this manner are of a limited nature. An example of a regulatory requirement that would cause UAC to invest in Futures Contracts or Other Asian Commodities-Related Investments other than Benchmark Futures Contracts would be where UAC received payment from an Authorized Purchaser for the issuance of a Creation Basket, but could not invest the payment in Benchmark Futures Contracts because doing so would cause UAC to exceed the position limits applicable to such Benchmark Futures Contracts. (For a discussion of position limits see “What are Futures Contracts? – Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits” on page 68 of this prospectus.) Imposition of other regulatory requirements, such as accountability levels, daily price fluctuation limits, or the imposition of capital controls on foreign investments, may cause UAC to invest in Futures Contracts or Other Asian Commodities-Related Investments other than Benchmark Futures Contracts. Adverse market conditions that the Sponsor currently anticipates could cause UAC to invest in Futures Contracts and Other Asian Commodities-Related Investments would be those allowing UAC to obtain greater liquidity or to execute transactions with more favorable pricing.

The Sponsor endeavors to place UAC’s trades in Asian Commodities Interests and otherwise manage UAC’s investments so that “A” will be within plus/minus 10 percent of “B”, where:

 

   

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

 

   

B is the average daily percentage change in the price of the Futures Basket over the same period.

The Sponsor believes that market arbitrage opportunities cause daily changes in UAC’s unit price on the NYSE Arca to closely track daily changes in UAC’s NAV. The Sponsor further believes that the daily changes in prices of the Benchmark Futures Contracts have historically closely tracked the daily changes in the price of Asian commodities. The Sponsor believes that the net effect of these two relationships and the expected relationship described above between UAC’s NAV and the Futures Basket will be that the daily changes in the price of UAC’s units on the NYSE Arca will continue to closely track the daily changes in the price of Asian commodities, less UAC’s expenses.

 

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These relationships illustrated in the following diagram:

 

LOGO

An investment in the units provides a means for diversifying an investor’s portfolio or hedging exposure to changes in commodities prices. An investment in the units allows both retail and institutional investors to easily gain this exposure to the commodities market in a transparent, cost-effective manner.

The Sponsor will employ a “neutral” investment strategy intended to track the changes in the Futures Basket regardless of whether the price goes up or goes down. UAC’s “neutral” investment strategy is designed to permit investors generally to purchase and sell UAC’s units for the purpose of trading indirectly in the commodities market in a cost-effective manner, and/or to permit participants in the commodities or other industries to hedge the risk of losses in their Asian Commodities Interests. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the Asian commodities market and/or the risks involved in hedging may exist. In addition, an investment in UAC involves the risk that the changes in the price of UAC’s units will not accurately track changes in the Futures Basket, and that changes in the Benchmark

 

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Futures Contracts will not closely correlate with changes in the prices of the Asian Benchmark Commodities. Furthermore, UAC will also hold Treasuries, cash and/or cash equivalents to meet its current or potential margin or collateral requirements with respect to its investments in Asian Commodities Interests and invests cash not required to be used as margin or collateral. UAC does not expect there to be any meaningful correlation between the performance of UAC’s investments in Treasuries, cash, and/or cash equivalents and the changes in the prices of commodities or Asian Commodities Interests. While the level of interest earned on or the market price of these investments may in some respect correlate to changes in the prices of commodities, this correlation is not anticipated as part of UAC’s efforts to meet its objective.

UAC’s total portfolio composition is disclosed each business day that the NYSE Arca is open for trading, on UAC’s website at www.unitedstatesasiancommoditiesbasketfund.com. The website disclosure of portfolio holdings is made daily and includes, as applicable, (i) the composite value of the total portfolio, (ii) the name, percentage weighting and value of each Benchmark Futures Contract, (iii) the specific types, percentage weightings and values of Other Asian Commodities-Related Investments and characteristics of such Other Asian Commodities-Related Investments, (iv) the name and value of each Treasury security, and (v) the amount of cash held in the portfolio. In addition, on each business day that the NYSE Arca is open for trading, the website disclosure will include the contents and percentage weighting of the Futures Basket and the list and percentage weighting of the Asian Benchmark Commodities. The sources the Sponsor uses to determine global production, consumption and economic tendencies will also be available on the website. UAC’s website is publicly accessible at no charge.

The units issued by UAC may only be purchased by Authorized Purchasers and only in blocks of 50,000 units called Creation Baskets. The amount of the purchase payment for a Creation Basket is equal to the aggregate NAV of units in the Creation Basket. Similarly, only Authorized Purchasers may redeem units and only in blocks of 50,000 units called Redemption Baskets. The amount of the redemption proceeds for a Redemption Basket is equal to the aggregate NAV of units in the Redemption Basket. The purchase price for Creation Baskets and the redemption price for Redemption Baskets are the actual NAV calculated at the end of the business day when a request for a purchase or redemption is received by UAC. The NYSE Arca will publish an approximate NAV intra-day based on the prior day’s NAV and the current price of the Benchmark Futures Contracts, but the price of Creation Baskets and Redemption Baskets is determined based on the actual NAV calculated at the end of each trading day.

While UAC issues units only in Creation Baskets, units may also be purchased and sold in much smaller increments on the NYSE Arca. These transactions, however, are effected at the bid and ask prices established by specialist firm(s). Like any listed security, units can be purchased and sold at any time a secondary market is open.

UAC’s Investment Strategy

Other than to address monthly changes in the Benchmark Futures Contacts, in managing UAC’s assets, the Sponsor does not use a technical trading system that automatically issues buy and sell orders. Instead, each time one or more baskets are purchased or redeemed, the Sponsor will purchase or sell Asian Commodities Interests with an aggregate market value that approximates the amount of cash received or paid upon the purchase or redemption of the basket(s).

As an example, assume that a Creation Basket is sold by UAC, and that UAC’s closing NAV per unit is $25.00. In that case, UAC would receive $1,250,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per unit multiplied by 50,000 units, and ignoring the Creation Basket fee). If one were to assume further that the Sponsor wants to invest the entire proceeds from the Creation Basket in Benchmark Futures Contracts (i.e., $1,250,000) and that the average market value of each such Benchmark Futures Contract is $27,000, UAC would be unable to buy an exact number of Benchmark Futures Contracts with an aggregate market value equal to $1,250,000. Instead, UAC would be able to buy 46 Benchmark Futures Contracts with an aggregate market value of $1,242,000. Assuming a margin requirement equal to 10% of the value of the Benchmark Futures

 

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Contracts, UAC would be required to deposit $124,200 in Treasuries and cash with the futures commission merchant through whom the Benchmark Futures Contracts were purchased. The remainder of the proceeds from the sale of the Creation Basket, would remain invested in cash, cash equivalents, and Treasuries as determined by the Sponsor from time to time based on factors such as potential calls for margin or anticipated redemptions.

The specific Futures Contracts purchased depends on various factors, including a judgment by the Sponsor as to the appropriate diversification of UAC’s investments in Futures Contracts with respect to the month of expiration, and the prevailing price volatility of particular Futures Contracts. When the Sponsor has made significant investments in Futures Exchanges’ Futures Contracts, as UAC reaches certain accountability levels or position limits on such exchanges, or for other reasons, it has also and may continue to invest in Futures Contracts traded on other exchanges or invest in Other Asian Commodities-Related Investments such as contracts in the “over-the-counter” market.

UAC anticipates that, to the extent it invests in Futures Contracts other than the Benchmark Futures Contracts and Other Asian Commodities-Related Investments that are not economically equivalent to the Benchmark Futures Contracts, it will enter into various non-exchange-traded derivative contracts to hedge the short-term price movements of such other Futures Contract and Other Asian Commodities-Related Investments against the current Benchmark Futures Contracts.

The Sponsor does not anticipate letting its Futures Contracts expire and taking or making delivery of any commodities. Instead, the Sponsor will close out existing positions, e.g., in response to ongoing changes in the Benchmark Futures Contracts or if it otherwise determines it would be appropriate to do so and reinvest the proceeds in new Asian Commodities Interests. Positions may also be closed out to meet orders for Redemption Baskets, in which case the proceeds from closing the positions will not be reinvested.

The Trust Agreement contains no restrictions on the ability of the Sponsor to change the investment objective of UAC. Notwithstanding this, the Sponsor has no intention of changing the investment objective of UAC or the manner in which it intends to achieve the investment objective. Should the Sponsor seek to change the investment objective of UAC, such change would be reflected in an amended prospectus and UAC would provide advance notice to investors.

What Are the Major Asian Economies?

The Sponsor believes that, at present, the aggregate GDP of Asian countries is equal to approximately 25% of World aggregate GDP based on International Monetary Fund data (note: not included in those totals are the economic figures for Australia, New Zealand, and certain smaller Asian or Pacific region countries). In addition, the Sponsor believes that Asia represents approximately 50% of the world’s current population.

Within that total the Sponsor further believes that approximately 85% of the Asian GDP total is represented by the three largest Asian economies, China, Japan, and India. The Sponsor further believes that these three countries also represent 75% of the population of Asia. All three are countries with large industrial and population bases which are major consumers of a wide variety of commodities. In addition, both China and India are major producers of a wide range of commodities, as are a number of other smaller Asian countries such as Indonesia and Malaysia, while Japan tends to not be a major producer of commodities.

 

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Table I: Selected Major Asian Economies with Annual GDP and current population

 

Region/ Country

   2010
GDP Est
(billions)
     Percent of
Global GDP
    Population
(millions)
     Percent of
Global
Population
 

World

   $ 63,075           6,815      

Asia

   $ 16,721         26.51     3,545         52.02

China

   $ 5,930         9.40     1,341         19.68

Japan

   $ 5,488         8.70     128         1.87

India

   $ 1,598         2.53     1,191         17.47

Korea

   $ 1,015         1.61     49         0.72

Indonesia

   $ 708         1.12     238         3.49

Taiwan

   $ 430         0.68     23         0.34

Thailand

   $ 319         0.51     64         0.94

Malaysia

   $ 238         0.38     28         0.41

Singapore

   $ 227         0.36     5         0.08

Hong Kong SAR

   $ 224         0.36     7         0.10

Philippines

   $ 200         0.32     94         1.38

Bangladesh

   $ 106         0.17     164         2.41

Vietnam

   $ 104         0.16     88         1.30

Sri Lanka

   $ 50         0.08     20         0.30

Myanmar

   $ 45         0.07     61         0.90

Nepal

   $ 16         0.02     28         0.41

Brunei

   $ 12         0.02     0.4         0.01

Cambodia

   $ 11         0.02     15         0.22

Source: International Monetary Fund

World Economic Outlook Database, April 2012;

CIA World Factbook

What are the Asian Benchmark Commodities?

The Asian Benchmark Commodities are selected by the Sponsor. The Sponsor will select the Asian Benchmark Commodities based on the following four criteria:

 

   

First, the physical commodity must be one in which the economies of China, Japan, and India annually consume 10% or more of global consumption based on publically available industry and government statistics.

 

   

Second, the physical commodity must be one in which, based on publically available industry and government statistics, China, Japan and India annually produce less of the commodity than they typically consume, indicating that they are likely to be net importers of the commodity and not net exporters.

 

   

Third, the Futures Contracts on the physical commodity must be traded on a regulated Futures Exchange in the United States, Canada, the United Kingdom, Japan, Dubai, Malaysia or other domicile which allows a US domiciled passive investment fund to buy and sell such contracts.

 

   

Fourth and finally, the Futures Contracts traded on such commodities must have average open interest measured in US dollars in excess of $150 million at the time of the commodity’s selection. In the event the same or substantially similar physical contract is traded on more than one Futures Exchange, the minimum liquidity test will be applied to the exchange with the largest open interest in US dollar terms in that particular commodity.

 

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The Asian Benchmark Commodities will be selected by the Sponsor in accordance with the above specific quantitative data. The end result is a basket that the Sponsor believes will be generally reflective of Asian demand for physical commodities and which the Sponsor believes can be efficiently accessed by investing in regulated Futures Contracts. As much of the selection process is based by a view of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity. Each commodity is assigned a base weight based on the criteria above. The end result is a Futures Basket that the Sponsor believes will be generally reflected of Asian demand for physical commodities and which the Sponsor believes can be efficiently accessed by investing in regulated Futures Contracts.

As much of the selection process is based by a review of recent and historical trends of commodity production, consumption, and trading in the futures markets, there can be no assurance that the commodities selected for inclusion as Asian Benchmark Commodities will be reflective of future Asian demand or future trading liquidity.

A list of the current Asian Benchmark Commodities is shown below in Table II. Included with the list is the Sponsor’s estimate of the percentage of global production and consumption for each commodity that is attributable to China, Japan, and India combined. Finally, the current assigned base weight within the Futures Basket of each commodity is listed.

Table II: Asian Benchmark Commodities (as of December 31, 2011)

 

Commodity

   China, Japan, and
India’s Share of
Global Production
    China, Japan, and
India’s Share of
Global
Consumption
    Current Base
Weight
 

Crude Oil

     5.9 %     19.0 %     22 %

Gasoil

     5.9 %     19.0 %     2 %

Corn

     23.3 %     24.6 %     10 %

Soybeans

     9.1 %     32.1 %     10 %

Wheat

     32.3 %     32.6 %     10 %

Copper

     4.8 %     60.9 %     10 %

Zinc

     34.5 %     48.9 %     5 %

Nickel

     4.3 %     41.6 %     5 %

Sugar

     24.4 %     26.2 %     5 %

Platinum

     0 %     41.9 %     5 %

Gold

     13.1 %     63.8 %     5 %

Silver

     15.1 %     66.8 %     5 %

Canola Oil

     15 %     44.7 %     2 %

Palm Oil

     0 %     40.1 %     2 %

Rubber

     14.6 %     47.3 %     2 %
      

 

 

 

Total

         100 %
      

 

 

 

Any changes to the Asian Benchmark Commodities will be made in accordance with the section entitled “Changes to the Asian Benchmark Commodities” on page 61 of this prospectus.

What are the Benchmark Futures Contracts?

For each of the Asian Benchmark Commodities, the Sponsor has selected from a particular Futures Contract traded on a Futures Exchange as the Benchmark Futures Contract. In selecting the particular Benchmark Futures Contract, the Sponsor will consider that criteria outlined in the previous section entitled “What Are the Asian Benchmark Commodities?” The selection of the Benchmark Futures Contracts would be made by the Sponsor at the same time as the selection of the Asian Benchmark Commodities.

 

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In some cases, a physical commodity that is of major importance to Asian economies may not have a listed Futures Contract that is directly tied to the exact type or grade of commodity most commonly used in Asia. In some cases, another type or grade of commodity may be used as a global benchmark and the Sponsor may select that as being representative of Asian demand. For example, crude oil prices in Asia are most commonly priced by reference to the Brent crude oil contract trading on ICE Futures Europe, even though the Sponsor believes little or no Brent crude oil from the North Sea is actually imported into Asian markets.

In other cases a physical commodity that is of importance to Asian economies may lack a suitable Futures Contract, even if highly liquid contracts are traded outside of Asia. For example natural gas is a major commodity for many Asian economies, although Asia lacks a major natural gas Futures Contract. However, although natural gas does not physically vary much between global markets, transportation pricing issues mean that a highly liquid contract for natural gas in one region, such as the NYMEX contract for natural gas priced at the Henry Hub in Louisiana, may be a very poor proxy for Asian prices or demand. The same could be said for other highly liquid commodity futures such as NYMEX gasoline or heating oil contracts priced at New York harbor.

In other cases, investors should be aware that certain physical commodities that are of major importance to Asian economies, such as rice, iron ore, or coal, currently lack highly liquid regulated futures markets located in any marketplace. As such despite their importance to the economies of Asia, they may not be selected for inclusion by the Sponsor at this time.

Finally, certain regulated commodity futures exchanges may not currently permit investors such as UAC to purchase or sell contracts on their exchange.

A list of the current Benchmark Futures Contracts and their weighting in the Futures Basket is shown below in Table III.

Table III: Benchmark Futures Contracts in the Futures Basket

 

Commodity

  

Primary

Futures

Exchange

   Trading Hours
(Eastern time)
 

Contract
Ticker or
Code

   Contract
Size
    

Pricing
Convention

   Portfolio
Weighting
 

Crude Oil-Light/Sweet-Brent

   ICE Europe    8 pm - 6 pm*   CO      1,000       USD/bbl      20.0 %

Crude Oil-Medium-Dubai/Oman

   DME/CME**    6 pm - 5:15 pm*   OQD      1,000       USD/bbl      2.0 %

Gasoil

   ICE Europe    8 pm - 6 pm*   QS      100       USD/Tonne      2.0 %

Corn

   CBOT    8:30 am - 12:15 pm   ZC      5,000       c/bu      10.0 %

Soybeans

   CBOT    8:30 am - 12:15 pm   ZS      5,000       c/bu      10.0 %

Wheat

   CBOT    8:30 am - 12:15 pm   ZW      5,000       c/bu      10.0 %

Copper

   COMEX    8:10 am - 1 pm   HG      25,000       USD/lb      10.0 %

Zinc

   LME    8 pm - 2 pm   LX      25       USD/Tonne      5.0 %

Nickel

   LME    8 pm - 2 pm   LN      6       USD/Tonne      5.0 %

Sugar

   ICE US    3:30 am - 2 pm   SB      112,000       c/lb      5.0 %

Platinum

   TOCOM***    7 pm - 1:30 am*   JA      500       JPY/g      5.0 %

Gold

   COMEX    8:20 am - 1:30 pm   GC      100       USD/T.Oz      5.0 %

Silver

   COMEX    8:25 am - 1:25 pm   SI      5000       USD/T.Oz      5.0 %

Canola Oil

   ICE Canada    8 pm - 2:15 pm   RS      20       CAD/Tonne      2.0 %

Palm Oil

   Bursa Malaysia/CME**    7 pm - 3:50 am*   KO      25       MYR/Tonne      2.0 %

Rubber

   TOCOM    7 pm - 1:30 am*   JN      5,000       JPY/kg      2.0
                

 

 

 

Total

                   100

 

             

* Trading ends on next calendar day.

             

** Non-U.S. Contracts that are also cross-listed on the CME and trade during U.S. market hours

             

*** A substantially similar, but not identical, physical contract trades in the U.S. on the CME

             

 

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Any changes to the Benchmark Futures Contracts will be made in accordance with the section entitled “Changes to the Benchmark Futures Contracts” below.

Changes to the Asian Benchmark Commodities

In the first quarter of each calendar year, the Sponsor will reevaluate the selection of commodities based on the prior year’s data. As a result of changes in Asian commodity production, commodity consumption, net imports or exports of commodities, and changes in commodity futures contract liquidity, the Sponsor may elect to add or delete a commodity from the list of Asian Benchmark Commodities and thus the Futures Basket. In making any such change, the Sponsor will file a disclosure informing investors of the proposed changes no less than 30 days prior to the first month in which the commodity or commodities added will become part of the Asian Benchmark Commodities, or 30 days prior to the first month in which the commodity or commodities deleted will no longer be part of the Asian Benchmark Commodities. See “Changes to the Benchmark Futures Contracts.”

Changes to the Benchmark Futures Contracts

Under normal circumstances, the Sponsor anticipates that any changes in either the list of Asian Benchmark Commodities or their weightings, or the list of Benchmark Futures Contracts in the Futures Basket or their weightings, would be made as part of the annual review process and disclosed to investors with no less than 30 days advanced notice of the change. Normal circumstances would be those circumstances in which changes are made by the Sponsor as part of the planned annual review and not changes in response to unexpected or sudden changes in market regulations, capital flow restrictions, or abnormal commodity market conditions. However, it is possible that a Futures Contract that is currently a Benchmark Futures Contract could, in the opinion of the Sponsor, no longer be suitable due to changes in the liquidity of the futures contract or due to changes in the rules regarding that particular Futures Contract on its regulated Futures Exchange. In such cases the Sponsor would first attempt to select another Futures Contract based on the same commodity that trades on either the current Futures Exchange, or trades on another regulated Futures Exchange, and disclose on the Fund’s website and in a prospectus supplement that the new Futures Contract will become a Benchmark Futures Contract for the relevant Asian Benchmark Commodity and the prior Benchmark Futures Contract for such Asian Benchmark commodity would be deleted. In the event that the Sponsor determines that no other existing Futures Contract is a suitable replacement, than the Sponsor will make a disclosure indicating that a current Benchmark Futures Contract will no longer be included as part of the Futures Basket. In cases where a suitable Benchmark Futures Contract no longer exists, the Sponsor will also remove the underlying commodity from the list of Asian Benchmark Commodities. Although the Sponsor would normally seek to provide at least 30 days notice of any such change, specific circumstances could mean that the Sponsor would be unable to provide that amount of advanced notice. For example, position limits that limit the Sponsor’s ability to invest in the Benchmark Futures Contracts could be imposed by regulators with less than 30 days advanced notice to participants in the market.

Term Structure of Commodity Futures Prices and the Impact on Total Returns.

Several factors determine the total return from investing in a futures contract position. One factor that impacts the total return that will result from investing in near month futures contracts and “rolling” those contracts forward each month is the price relationship between the current near month contract and the next month contract. For example, if the price of the near month contract is higher than the next month contract (a situation referred to as “backwardation” in the futures market), then absent any other change there is a tendency for the price of a next month contract to rise in value as it becomes the near month contract and approaches expiration. Conversely, if the price of a near month contract is lower than the next month contract (a situation referred to as “contango” in the futures market), then absent any other change there is a tendency for the price of a next month contract to decline in value as it becomes the near month contract and approaches expiration.

As an example, assume that the price of Brent crude oil, the primary benchmark for crude oil traded in Asian markets, for immediate delivery (the “spot” price), was $100 per barrel. Further assume that the value of a position

 

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in the near month futures contract was also $100. 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 expected price of crude oil in the future would be less, the investor would be buying a next month contract for a lower price than the current near month contract. Using the $100 per barrel price above to represent the front month price, the price of the next month contract could be $98 per barrel, that is it is 2% cheaper than the front month contract. Hypothetically, and assuming no other changes 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 $98 next month contract would rise as it approaches expiration and becomes the new near month contract with a price of $100 In this example, the value of an investment in the second month contract would tend to rise faster than the spot price of crude oil, or fall slower. As a result, it would be possible in this hypothetical example for the spot price of crude oil to have risen to 10% after some period of time, while the value of the investment in the second month futures contract would have risen to 12%, assuming backwardation is large enough or enough time has elapsed. Similarly, the spot price of crude oil could have fallen 10% while the value of an investment in the futures contract could have fallen only 8%. Over time, if backwardation remained constant, the difference would continue to increase.

If the futures market is in contango, the investor would be buying a next month contract for a higher price than the current near month contract. Using again the $100 per barrel price above to represent the front month price, the price of the next month contract could be $102 per barrel, that is 2% more expensive than the front month contract. Hypothetically, and assuming no other changes 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 next month contract would fall as it approaches expiration and becomes the new near month contract with a price of $100. In this example, it would mean that the value of an investment in the second month would tend to rise slower than the spot price of crude oil, or fall faster. As a result, it would be possible in this hypothetical example for the spot price of crude oil to have risen to 10% after some period of time, while the value of the investment in the second month futures contract will have risen to only 8%, assuming contango is large enough or enough time has elapsed. Similarly, the spot price of crude oil could have fallen to 10% while the value of an investment in the second month futures contract could have fallen 12%. Over time, if contango remained constant, the difference would continue to increase.

 

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The chart below compares the price of the near month contract for Brent crude oil to the average price of the next month contracts over the last 10 years (2001-2011). When the price of the near month contract is higher than the average price of the next month contracts, the market would be described as being in backwardation. When the price of the near month contract is lower than the average price of the next month contracts, the market would be described as being in contango. Although the prices of the near month contract and the average price of the next month contracts do tend to move up or down together, it can be seen that at times the near month prices are clearly higher than the average price of the next month contracts (backwardation), and other times they are below the average price of the next month contracts (contango).

 

LOGO

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

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An alternative way to view the same data is to subtract from the dollar price of the near month contract the average dollar price of the next month contracts for Brent crude oil. If the resulting number is a positive number, then the near month price is higher than the average price of the next month contracts and the market could be described as being in backwardation. If the resulting number is a negative number, then the near month price is lower than the average price of the next month contracts and the market could be described as being in contango. The chart below shows the results from subtracting from the near month contracts price the price of the next month contract for the 10-year period between 2002 and 2012.

 

LOGO

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Historically, the crude oil futures markets have experienced periods of contango and backwardation, with backwardation being in place more often than contango. Since UAC would benefit from higher daily returns on the Benchmark Futures Contracts, it would tend to benefit from commodities being in a backwardation market. Conversely, it would tend to not benefit from commodities being in a contango market. However, it is possible for any or all of the Benchmark Futures Contracts to rise in value even in a contango market, which could lead to gains for UAC, or for any or all of the Benchmark Futures Contracts to fall in value during a backwardation market, which could lead to losses for UAC.

Historical Spot Returns for a Commodity Versus the Returns from a Commodity Future

Although investors often look at the percentage change in the physical spot price of a commodity over a given period of time when evaluating investment results, the Sponsor believes that this may be misleading. The actual change in the spot price usually does not represent a total return that an investor could realistically have obtained. Due to the cost of storage, insurance, finance, and transportation, the return as measured by the change

 

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in the spot price may overstate the actual results that could be obtained. As a result, the Sponsor believes that many investors will make use of commodity futures to obtain their exposure to a particular commodity or to a basket of commodities. However, as described in the proceeding section, investing in a futures contract will subject an investor to the impact of backwardation and or contango. As a result of backwardation and or contango, an investor’s returns from owning futures contracts on a single commodity or a basket of commodities may vary a great deal from the percentage change in the physical spot price.

The table below, Chart IV, shows for a number of Asian Commodities both the change in the spot price over the 10 year period ending December 31, 2011 as well as the hypothetical total return from owing a near to expiration futures contract on the same commodity and rolling it as the contract approaches expiration. Neither set of figures includes the potential impact of commissions, storage costs, taxes, insurance, or financing. The results for the futures contract also do not show the interest that may have been earned on any cash collateral.

What can be clearly seen is that over this time period some commodities had results that indicated that their percentage change in spot price outperformed the hypothetical total return from owning the futures contracts, while with other commodities the results were reversed and the hypothetical total return of the futures contract exceeding the percentage change in the spot price. The average difference between the change in the spot price and the total return of the futures contracts was 3% per year, meaning that on average the average spot price change exceeded the average hypothetical return of the futures contract by that amount. However, in some cases, the degree of under-performance, or out-performance, of the futures contracts versus the spot price changes was much larger.

The difference between the change over time in the spot price and the change over time in the futures returns of approximately 3% per year was calculated using the simple average returns for each commodity listed over a ten year period. In essence, this approach assumes that each commodity was equally weighted for the purposes of the calculation. In reality, the Portfolio for UAC is not expected to be equally weighted. As shown in Table II and Table III in the prior pages certain commodities are expected to be much weighted more heavily while others are expected to be waited much less heavily.

In cases where those commodities which are more heavily weighted tend to be in futures markets that are in contango, the overall total return for the entire portfolio may tend to strongly underperform the simple average change in the average spot price. As such there could be a much greater difference between the average change in the spot prices of the commodities and the total return of the portfolio than the example below suggests. This could expose investors to potential losses in UAC even if the commodities on average see increases in their spot prices. Conversely, if on a weighted basis the commodities in the portfolio tend to be in backwardation, the total return of the portfolio could be much closer to the average change in the spot price than the example below would suggest.

Due to the impact of backwardation and or contango, as demonstrated by this table, it could be possible for an investor to correctly anticipate the direction of the spot price movement of a commodity or basket of commodities, either up or down, and yet obtain dramatically different results from investing in such commodities via futures contracts. Investors are cautioned that this comparison is hypothetical. In addition, it covers a particular period of time and results in the future could be substantially different.

Table IV Comparison of Spot Price Changes and Futures Total Returns for Selected Commodities December 31, 2001, through December 31, 2011.

 

2001-2011    Spot Commodity Price     Rolling Futures Contract     Spot versus Futures Contract  

Commodity

   Total Change     Change
Annualized
    Total Return     Return
Annualized
    Annual Outperformance or
Underperformance
 

Crude Oil-Brent

     349.85     16.23     239.03     12.99     3.24

Gasoil

     277.14     14.20     327.15     15.63     -1.43

Corn

     178.96     10.80     -47.96     -6.32     17.13

Soybeans

     139.94     9.15     268.70     13.94     -4.79

Wheat

     133.54     8.85     -60.64     -8.90     17.76

 

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2001-2011    Spot Commodity Price     Rolling Futures Contract     Spot versus Futures Contract  

Commodity

   Total Change     Change
Annualized
    Total Return     Return
Annualized
    Annual Outperformance or
Underperformance
 

Copper

     307.59     15.09     393.63     17.31     -2.23

Zinc

     77.83     5.93     1.47     0.15     5.78

Nickel

     165.12     10.24     247.53     13.27     -3.02

Sugar

     128.43     8.61     66.69     5.24     3.37

Platinum

     129.61     8.67     178.59     10.79     -2.12

Gold

     472.66     19.07     372.67     16.80     2.26

Silver

     507.96     19.78     388.46     17.22     2.56

Canola Oil

     99.70     7.16     -3.19     -0.32     7.48

Palm Oil

     343.44     16.06     464.05     18.89     -2.83

Rubber

     260.26     13.67     203.45     11.74     1.93
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average

     238.14     12.23     202.74     9.23     3.00

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Periods of contango or backwardation do not materially impact UAC’s investment objective of having the daily percentage changes in its per unit NAV track the daily percentage changes in the price of the Futures Basket since the impact of backwardation and contango tend to equally impact the percentage changes in price of both UAC’s units and the Benchmark Futures Contracts. 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 for any given commodity. It is also likely that at any given time some number of the Benchmark Futures Contracts will be in backwardation while other Benchmark Futures Contracts will be in contango.

Historical Correlation of Total Returns of Asian Benchmark Commodities

Historically, movement in prices and total returns of different commodities with other commodities have tended to be low. The Sponsor believes this is because factors impacting the global production or consumption of one commodity, such as wheat, may have little relationship with the global production or consumption of another commodity, like nickel. As a result the price and total return movements of the different commodities may show little or no positive correlation. However, there are some commodities that are more closely related to each other in terms of global production or consumption factors, such as crude oil and gasoil, and thus tend to display higher levels of correlation over time than with other commodities. In addition, there can be periods of time when most or all commodities demonstrate greater correlation in their price or total return movements than they display over longer periods of time.

 

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The table below compares for the most recent 10 year period the correlation of the monthly total returns of the futures contracts for each of 15 Asian Benchmark Commodities

Table V Correlation of Monthly Returns, 2001-2011

 

Commodity

  Crude Oil-
Brent
    Gasoil     Corn     Soybeans     Wheat     Copper     Zinc     Nickel     Sugar     Platinum     Gold     Silver     Canola
Oil
    Palm
Oil
    Rubber  

Crude Oil-Brent

    1.00        0.89        0.20        0.18        0.17        0.44        0.29        0.30        0.14        0.47        0.26        0.33        0.04        0.11        0.29   

Gasoil

      1.00        0.14        0.16        0.13        0.36        0.21        0.30        0.09        0.38        0.22        0.25        0.00        0.10        0.26   

Corn

        1.00        0.66        0.59        0.25        0.29        0.18        0.13        0.36        0.31        0.36        0.54        0.41        0.28   

Soybeans

          1.00        0.50        0.24        0.19        0.23        0.20        0.34        0.18        0.23        0.74        0.55        0.25   

Wheat

            1.00        0.26        0.31        0.18        0.17        0.35        0.29        0.26        0.46        0.33        0.19   

Copper

              1.00        0.73        0.54        0.26        0.53        0.29        0.37        0.18        0.27        0.32   

Zinc

                1.00        0.47        0.28        0.43        0.29        0.37        0.15        0.25        0.23   

Nickel

                  1.00        0.11        0.42        0.15        0.27        0.08        0.15        0.32   

Sugar

                    1.00        0.31        0.16        0.18        0.21        0.12        0.07   

Platinum

                      1.00        0.53        0.58        0.31        0.28        0.30   

Gold

                        1.00        0.73        0.08        0.17        0.12   

Silver

                          1.00        0.20        0.20        0.12   

Canola Oil

                            1.00        0.58        0.14   

Palm Oil

                              1.00        0.20   

Rubber

                                1.00   

The average correlation between these fifteen commodities is approximately 0.29, where a correlation 1.0 means that the commodities move up and down together all of the time, and -1.0 means they move in opposite directions all of the time. The Sponsor would describe a result of 0.29 as being weakly correlated.

Correlation levels are important because if the correlation of the different Asian Benchmark Commodities was to be much higher in the future, investors could experience greater amounts of price volatility in the returns of a portfolio of such commodities without necessarily seeing an offsetting increase in expected total returns. Alternatively, if correlation remained low, or became lower, investors could experience a lower amount of price volatility in the returns of a portfolio without necessarily seeing a decrease in expected total returns.

Why Does UAC Purchase and Sell Futures Contracts?

UAC’s investment objective is to have the daily changes in percentage terms of its units’ NAV reflect the daily changes in percentage terms of the price of the Futures Basket, less UAC’s expenses. UAC invests primarily in Futures Contracts. UAC seeks to have its aggregate NAV approximate at all times the aggregate market value of the Futures Contracts and Other Asian Commodities-Related Investments it holds.

Other than investing in Futures Contracts and Other Asian Commodities-Related Investments, at any given time, most of UAC’s investments are in Treasuries, cash and/or cash equivalents that serve as margin and collateral supporting UAC’s positions in Futures Contracts and Other Asian Commodities-Related Investments. For example, the purchase of a Futures Contract with a stated value of $10 million would not require UAC to pay or receive $10 million upon entering into the contract; rather, only a margin deposit, generally of 5% to 30% of the stated value of the Futures Contract, would be required. To secure its Futures Contract obligations, UAC would deposit the required margin with the futures commission merchant and would separately hold, through its Custodian, Treasuries, cash and/or cash equivalents in an amount equal to the balance of the current market value of the contract, which at the contract’s inception would be $10 million minus the amount of the margin deposit, or $9.5 million (assuming a 5% margin).

 

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As a result of the foregoing, typically between 5% and 30% of UAC’s assets are held as margin in segregated accounts with a futures commission merchant. In addition to the Treasuries and cash it posts with the futures commission merchant for the Futures Contracts it owns, UAC holds, through the Custodian, Treasuries, cash and/or cash equivalents that can be posted as additional margin or as collateral to support its over-the-counter contracts. UAC earns interest income from the Treasuries and/or cash equivalents that it purchases, and on the cash it holds through the Custodian. UAC anticipates that the earned interest income will increase the NAV. UAC reinvests the earned interest income, holds it in cash, or uses it to pay its expenses. If UAC reinvests the earned interest income, it makes investments that are consistent with its investment objectives.

What are Futures Contracts?

Futures contracts are agreements between two parties. One party agrees to buy a commodity such as Asian commodities from the other party at a later date at a price and quantity agreed-upon when the contract is made. Generally, futures contracts traded on US, Canadian, the UK, and Asian domestic exchanges are priced by floor brokers and other exchange members through an “open outcry” of offers to purchase or sell the contracts and/or through an electronic, screen-based system that determines the price by matching electronically offers to purchase and sell. Futures contracts may also be based on commodity indices, in that they call for a cash payment based on the change in the value of the specified index during a specified period.

Certain typical and significant characteristics of futures contracts are discussed below. Additional risks of investing in futures contracts are included in “What are the Risk Factors Involved with an Investment in UAC?

Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits. Futures contracts include typical and significant characteristics. Most significantly, the CFTC and U.S. designated contract markets such as the NYMEX, CBOT, COMEX, CME, and ICE US 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 is not applicable to the UAC’s investments) may hold, own or control. The net position is the difference between an individual or firm’s open long contracts and open short contracts in any one commodity. In addition, most U.S.-based futures exchanges limit the daily price fluctuation for futures contracts. Currently, ICE Canada, ICE Europe, LME TOCOM, DME and Malaysia impose position limits and accountability levels that are similar to those imposed by U.S. based futures exchanges, but may not limit the maximum daily price fluctuation. Some other non-U.S. futures exchanges have not adopted such position limits or accountability levels.

The accountability levels for the Benchmark Futures Contracts comprising the Futures Basket, and other Futures Contracts traded on U.S. regulated futures exchanges are not a fixed ceiling, but rather a threshold above which the exchange may exercise greater scrutiny and control over an investor’s positions. For example, the current accountability level for any one-month in the copper contract on COMEX is 5,000 contracts. If UAC and the Related Public Funds exceed these accountability levels for investments in the COMEX futures contract for Copper, the COMEX will monitor UAC’s and the Related Public Fund’s exposure and 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 UAC and the Related Public Funds. If deemed necessary by the COMEX, it could also order UAC to reduce its position back to the accountability level.

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 futures exchanges may impose position limits on contracts held in the last few days of trading in the near month contract to expire. It is unlikely that UAC will run up against such position limits because UAC’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 at the end of the month prior to expiration of the contract. Finally, many exchanges may impose a position limit on contracts for time periods other than immediately prior to expiration. As in the

 

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example above for copper and accountability limits, such position limits could impact UAC’s ability to invest in certain Benchmark Futures Contracts when daily net assets of UAC rise above certain levels.

Provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) include the requirement that position limits be established on a wide range of commodity interests including energy-based and other commodity futures contracts, certain cleared commodity swaps and certain over-the-counter commodity contracts; new registration, recordkeeping, capital and margin requirements for “swap dealers” and “major swap participants” as determined by the new law and applicable regulations; and the forced use of clearinghouse mechanisms for many swap transactions that are currently entered into in the over-the-counter market. The new law and the rules thereunder may negatively impact UAC’s ability to meet its investment objective either through limits or requirements imposed on it or upon its counterparties. Further, increased regulation of, and the imposition of additional costs on, swap transactions under the new legislation and implementing regulations could cause a reduction in the swap market and the overall derivatives markets, which could restrict liquidity and adversely affect UAC. In particular, new position limits imposed on UAC or its counterparties may impact UAC’s ability to invest in a manner that most efficiently meets its investment objective, and new requirements, including capital and mandatory clearing, may increase the cost of UAC’s investments and doing business, which could adversely impact the ability of UAC to achieve its investment objective.

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

If any of the regulated futures exchanges orders UAC to reduce its position in a particular Futures Contract back to the applicable position limit or accountability level, or to an accountability level that the exchange deems appropriate for UAC, such a level may impact the mix of investments in Asian Commodities Interests made by UAC. To illustrate, assume that the price of the Benchmark Futures Contract for Copper is $4, and that the COMEX has determined that UAC may not own more than 5,000 contracts in copper Futures Contracts. In such a case, UAC could invest up to $500 million of its daily net assets in the Benchmark Futures Contract (i.e., $4 per contract multiplied by 25,000 (a copper Futures Contract is a contract for 25,000 pounds of copper) multiplied by 5,000 contracts) before reaching the accountability level imposed by the COMEX. Assuming that copper represented 10% of the holdings of UAC, once the daily net assets of the portfolio exceed $5 billion in the

 

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Benchmark Futures Contract, the portfolio may not be able to make any further investments in the copper Benchmark Futures Contract, depending on whether the COMEX imposes limits. If the COMEX does impose limits at the $500 million level (or another level), UAC anticipates that it will invest the majority of its assets devoted to copper holdings above that level in a mix of other copper related Futures Contracts or Other Asian Commodities-Related Investments.

Many U.S. futures exchanges also limit the amount of price fluctuation for futures contracts. For example, the CBOT imposes a $0.40 per bushel ($2,000 per contract) price fluctuation limit for corn Futures Contracts. If a Benchmark Futures Contract has its trading halted during the day due to reaching a limit on price fluctuation, it is possible that UAC would be unable to buy or sell contracts on that day, or buy or sell contracts at that day’s ending settlement price.

UAC anticipates that to the extent it invests in Futures Contracts other than a Benchmark Futures Contract and Other Asian Commodities-Related Investments, it may enter into various non-exchange-traded derivative contracts to hedge the short-term price movements of such Asian Commodities Futures Contracts and Other Asian Commodities-Related Investments against the current Benchmark Futures Contract.

Examples of the position and price limits imposed are as follows:

 

Futures Contract

  

Position Accountability

Levels and Limits

   Maximum Daily
Price Fluctuation

ICE-UK Crude Oil (Brent)

   There are no position accountability levels or limits for this contract. However, the exchange’s daily position management regime requires that any position greater than 500 lots in the nearest two expiry months must be reported to the exchange on a daily basis.    There is no maximum daily price fluctuation limit.

Dubai Mercantile Exchange/NYMEX (Oman Crude Oil)

   Accountability Levels: 20,000 contracts in any or all months Position Limits: spot month: 4,000 contracts    There is no maximum daily price fluctuation limit.

ICE-UK Gas Oil

   There are no position accountability levels or limits for this contract. However, any position greater than 100 lots in the nearest expiry month must be reported to the exchange on a daily basis.    There is no maximum daily price fluctuation limit.

 

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Futures Contract

  

Position Accountability

Levels and Limits

   Maximum Daily
Price Fluctuation

CBOT Corn

  

Accountability Levels: none.

 

Position Limits: spot month: 600 net futures / any one month: 13,500 net futures / all months: 22,000 net futures.

   $0.30 per bushel expandable to $0.45 and then to
$0.70 when the market closes at limit bid or limit
offer. There shall be no price limits on the current
month contract on or after the second business day
proceeding the first day of the delivery month.

CBOT Soybeans

  

Accountability Levels: none.

 

Position Limits: spot month: 600 net futures / any one month: 6,500 net futures / all months: 10,000 net futures.

   $0.70 per bushel expandable to $1.05 and then to
$1.60 when the market closes at limit bid or limit
offer. There shall be no price limits on the current
month contract on or after the second business day
preceding the first day of the delivery month.

CBOT Wheat (Soft Red Winter)

  

Accountability Levels: none.

 

Position Limits: spot month: 600 net futures / any one month: 5,000 net futures / all months: 6,500 net futures.

   $0.60 per bushel expandable to $0.90 and then to
$1.35 when the market closes at limit bid or limit
offer. There shall be no price limits on the current
month contract on or after the second business day
preceding the first day of the delivery month.

COMEX Copper

  

Accountability Levels: any one month: 5,000 net futures / all months: 5,000 net futures.

 

Position Limits: 1,200 net futures in the expiration month.

   There is no maximum daily price fluctuation limit.

LME Primary Nickel

  

Accountability Levels: none.

 

Position Limits: none.

   There is no maximum daily price fluctuation limit.

LME Special High Grade Zinc

  

Accountability Levels: none.

 

Position Limits: none.

   There is no maximum daily price fluctuation limit.

COMEX Gold

  

Accountability Levels: any one month: 6,000 net futures / all months: 6,000 net futures.

 

Position Limits: 3,000 net futures in the expiration month.

   There is no maximum daily price fluctuation limit.

TOCOM Platinum

   Position Limits: 600 net futures in the expiration month. 10,000 contracts in all months.    There is no maximum daily price fluctuation limit.

 

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Futures Contract

  

Position Accountability

Levels and Limits

   Maximum Daily
Price Fluctuation

COMEX Silver

  

Accountability Levels: any one month: 6,000 net futures / all months: 6,000 net futures.

 

Position Limits: 1,500 net futures in the expiration month.

   There is no maximum daily price fluctuation limit.

ICE-Canada Canola Oil

  

Accountability Levels: None.

 

Position Limits: 1000 net futures in the spot month.

   CDN$45.00 above or below previous settlement.
If the settlement price of any two (2) contract
months is at the regular daily limits, the limits
shall be expanded on the following day to
CDN$60.00. When settlement prices do not meet
the this two-month criteria, daily limits will revert
to their regular levels on the following trading
session.

Bursa Maylaysia

Palm Oil

   Position Limits: 500 net futures in the expiration month. 8,000 contracts in all months.    There is no maximum daily price fluctuation limit.

TOCOM Rubber

   Position Limits: 300 net futures in the expiration month.    There is no maximum daily price fluctuation limit.

ICE-US World Sugar No. 11

  

Accountability Levels: any one month: 10,000 net futures / all months: 15,000 net futures.

 

Position Limits: 5,000 net futures in the spot month.

   There is no maximum daily price fluctuation limit.

Price Volatility

The price volatility of Futures Contracts generally has been historically greater than that for traditional securities such as stocks and bonds. Price volatility often is greater day-to-day as opposed to intra-day. Because UAC invests a significant portion of its assets in Futures Contracts, the assets of UAC, and therefore the price of UAC’s units, may be subject to greater volatility than traditional securities.

Marking-to-Market Futures Positions

Futures contracts are marked to market at the end of each trading day and the margin required with respect to such contracts is adjusted accordingly. This process of marking-to-market is designed to prevent losses from accumulating in any futures account. Therefore, if UAC’s futures positions have declined in value, UAC may be required to post “variation margin” to cover this decline. Alternatively, if UAC’s futures positions have increased in value, this increase will be credited to UAC’s account.

What are Over-the-Counter Derivatives?

In addition to futures contracts and options on futures contracts, derivative contracts that are tied to various commodities are entered into outside of public exchanges. These “over-the-counter” contracts are entered into

 

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between two parties in private contracts. Unlike most of the exchange-traded futures contracts or exchange-traded options on futures contracts, each party to such a contract bears the credit risk of the other party, i.e., the risk that the other party will not be able to perform its obligations under its contract.

Some derivatives contracts contain fairly standard terms and conditions and are available from a wide range of participants. Others have highly customized terms and conditions and are not as widely available. Many of these over-the-counter contracts are cash-settled forwards for the future delivery of commodities that have terms similar to futures contracts. Others take the form of “swaps” in which a party pays a fixed price per unit and the other pays a variable price based on the average price of Futures Contracts for a specified period or the price on a specified date, with payments typically made between the parties on a net basis.

To reduce the credit risk that arises in connection with such contracts, UAC will generally enter into an agreement with each counterparty based on the Master Agreement published by the International Swaps and Derivatives Association, Inc. that provides for the netting of its overall exposure to its counterparty.

The creditworthiness of each potential counterparty will be assessed by the Sponsor. The Sponsor will assess or review, as appropriate, the creditworthiness of each potential or existing counterparty to an over-the-counter contract pursuant to guidelines approved by the Sponsor. Furthermore, the Sponsor on behalf of UAC will only enter into over-the-counter contracts with counterparties who are, or are affiliates of, (a) banks regulated by a United States federal bank regulator, (b) broker-dealers regulated by the SEC, (c) insurance companies domiciled in the United States, and (d) producers, users or traders of commodities, whether or not regulated by the CFTC. Existing counterparties will be reviewed periodically by the Sponsor. UAC also may require that the counterparty be highly rated and/or provide collateral or other credit support.

UAC’s Investments in Treasuries, Cash and Cash Equivalents

UAC seeks to have the aggregate “notional” amount of the Asian Commodities Interests it holds approximate at all times UAC’s aggregate NAV. At any given time, however, most of UAC’s investments will be in short-term Treasuries, cash and/or cash equivalents that support UAC’s positions in Asian Commodities Interests. For example, the purchase of a Futures Contract with a stated or notional amount of $10 million would not require UAC to pay $10 million upon entering into the contract; rather, only a margin deposit, generally of 5% – 30% of the notional amount, would be required. To secure its obligations under Futures Contracts, UAC would deposit the required margin with the futures commission merchant and would separately hold its remaining assets through its Custodian in Treasuries, cash and/or cash equivalents. Such remaining assets may be used to meet future margin payments that UAC is required to make on its Futures Contracts. Other Asian Commodities-Related Investments typically also involve collateral requirements that represent a small fraction of their notional amounts, so most of UAC’s assets dedicated to Other Asian Commodities-Related Investments will also be held in Treasuries, cash and cash equivalents.

UAC earns income from the Treasuries and/or cash equivalents that it purchases and on the cash it holds through the Custodian. The Sponsor anticipates that the earned income will increase UAC’s NAV. UAC applies the earned income to the acquisition of additional investments or uses it to pay its expenses. If UAC reinvests the earned income, it makes investments that are consistent with its investment objective.

What are the Trading Policies of UAC?

Options on Futures Contracts

In addition to Futures Contracts, there are also a number of options on Futures Contracts listed on the Futures Exchanges. These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the commodities market. UAC may purchase and sell (write) options on Futures Contracts in pursuing its investment objective, except that it will not sell call options when it does not own the underlying

 

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Futures Contract. UAC would make use of options on Futures Contracts when the ability to invest in Futures Contracts is not available, and if, in the opinion of the Sponsor, such an approach would cause UAC to more closely track the Benchmark Futures Contract or if it would lead to an overall lower cost of trading to achieve a given level of economic exposure to movements in commodity prices.

Liquidity

UAC invests only in Futures Contracts that, in the opinion of the Sponsor, are traded in sufficient volume to permit the ready taking and liquidation of positions in these financial interests and in over-the-counter Asian Commodities Interests that, in the opinion of the Sponsor, may be readily liquidated with the original counterparty or through a third party assuming UAC’s position.

Spot Commodities

While many of the Asian commodities futures contracts traded on different futures exchanges can be physically settled, UAC does not intend to take or make physical delivery. UAC may from time to time trade in Other Asian Commodities-Related Investments, including contracts based on the spot price of Asian commodities.

Leverage

The Sponsor endeavors to have the value of UAC’s Treasuries, cash and cash equivalents, whether held by UAC or posted as margin or collateral, at all times approximate the aggregate market value of its obligations under UAC’s Asian Commodities Interests. Commodity pools’ trading positions in futures contracts or Other Asian Commodities-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. While the Sponsor does not intend to leverage UAC’s assets, it is not prohibited from doing so under the Trust Agreement.

Borrowings

Borrowings are not used by UAC unless it is required to borrow money in the event of physical delivery, if it trades in cash commodities, or for short-term needs created by unexpected redemptions. UAC does not plan to establish credit lines.

Pyramiding

UAC has not 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.

Who are the Service Providers?

BBH & Co. is the registrar and transfer agent for the units. BBH & Co. is also the Custodian for UAC. In this capacity, BBH & Co. holds UAC’s Treasuries, cash and/or cash equivalents pursuant to a custodial agreement. In addition, the Custodian also serves as Administrator for UAC, performing certain administrative and accounting services and preparing certain SEC, CFTC and NFA reports on behalf of UAC. For these services, UAC pays fees to the Custodian as set forth in the table below.

BBH & Co.’s principal business address is 50 Milk Street, Boston, MA 02109-3661. BBH & Co. is a private bank founded in 1818, and is not a publicly held company nor is it insured by the Federal Deposit Insurance Corporation. The Custodian is authorized to conduct a commercial banking business in accordance with the

 

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provisions of Article IV of the New York State Banking Law, New York Banking Law §§160-181, and is subject to regulation, supervision, and examination by the New York State Banking Department. The Custodian is also licensed to conduct a commercial banking business by the Commonwealths of Massachusetts and Pennsylvania and is subject to supervision and examination by the banking supervisors of those states.

UAC also employs ALPS Distributors, Inc. as Marketing Agent. The Sponsor pays the Marketing Agent an annual fee as set forth in the table below. In no event may the aggregate compensation paid to the Marketing Agent for distribution-related services in connection with the offering of units exceed ten percent (10%) of the gross proceeds of the offering.

The Marketing Agent’s principal business address is 1290 Broadway, Suite 1100, Denver, CO 80203. The Marketing Agent is a broker-dealer registered with FINRA and a member of the Securities Investor Protection Corporation.

UAC and the futures commission merchant, UBS USA, LLC (“UBS”) have into an Institutional Futures Client Account Agreement. This Agreement allows UBS to provide services to UAC in connection with the purchase and sale of Asian Commodities Interests that may be purchased or sold by or through UBS for UAC’s account. UAC will pay the futures commission merchant fees.

UBS Securities LLC (“UBS Securities”) principal business address is 677 Washington Blvd, Stamford, CT 06901. UBS Securities is a futures clearing broker for UAC. UBS Securities is registered in the US with the Financial Industry Regulatory Authority (“FINRA”) as a Broker- Dealer and with the CFTC as a Futures Commission Merchant. UBS Securities is a member of various US futures and securities exchanges.

UBS is and has been a defendant in numerous legal proceedings, including actions brought by regulatory organizations and government agencies, relating to its securities and commodities business that allege various violations of federal and state securities laws. UBS AG, the ultimate parent company to UBS Securities LLC, files annual reports and quarterly reports to the SEC in which it discloses material information about UBS matters, including information about any material litigation or regulatory investigations (http://www.ubs.com/1/e/investors/quarterly_reporting/2011.htm). Actions with respect to UBS Securities’ futures commission merchant business are publicly available on the website of the National Futures Association (http://www.nfa.futures.org/).

On June 27, 2007, the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Massachusetts Securities Division”) filed an administrative complaint (the “Complaint”) and notice of adjudicatory proceeding against UBS Securities, captioned In The Matter of UBS Securities, LLC, Docket No. E-2007-0049, which alleged that UBS Securities violated the Massachusetts Uniform Securities Act (“the “Act”) and related regulations by providing the advisers for certain hedge funds with gifts and gratuities in the form of below market office rents, personal loans with below market interest rates, event tickets, and other perks, in order to induce those hedge fund advisers to increase or retain their level of prime brokerage fees paid to UBS Securities. On November 22, 2010, UBS Securities entered into a Consent Order and Settlement with the Massachusetts Securities Division, pursuant to which UBS Securities agreed to implementing a disclosure policy and retaining an independent consultant to monitor the policy. UBS Securities also paid a $100,000 fine.

In the summer of 2008, the Massachusetts Securities Division, Texas State Securities Board, and the New York Attorney General all brought actions against UBS Securities and UBS Financial Services, Inc. (“UBS Financial”), alleging violations of various state law anti-fraud provisions in connection with the marketing and sale of auction rate securities.

On August 8, 2008, UBS Securities and UBS Financial Services reached agreements with the SEC, the NYAG, the Massachusetts Securities Division and other state regulatory agencies represented by the North American Securities Administrators Association (“NASAA”) to restore liquidity to all remaining client’s

 

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holdings of auction rate securities by June 30, 2012. On October 2, 2008, UBS Securities and UBS Financial entered into a final consent agreement with the Massachusetts Securities Division settling all allegations in the Massachusetts Securities Division’s administrative proceeding against UBS Securities and UBS Financial with regards to the auction rate securities matter. On December 11, 2008, UBS Securities and UBS Financial executed an Assurance of Discontinuance in the auction rate securities settlement with the NYAG. On the same day, UBS Securities and UBS Financial finalized settlements with the SEC. UBS Securities and UBS Financial paid penalties of $75M to NYAG and an additional $75M to be apportioned among the participating NASAA states. In March 2010, UBS Securities and UBS Financial agreed on final settlement terms with NASAA, pursuant to which, UBS Securities and UBS Financial agreed to provide client liquidity up to an additional $200 million.

On August 14, 2008 the New Hampshire Bureau of Securities Regulation filed an administrative action against UBS Securities relating to a student loan issuer, the New Hampshire Higher Education Loan Corp. (NHHELCO). The complaint alleges fraudulent and unethical conduct in violation of New Hampshire state statues. On April 14, 2010, UBS Securities entered into a Consent Order resolving all of the Bureau’s claims. UBS Securities paid $750,000 to the Bureau for all costs associated with the Bureau’s investigation. UBS Securities entered a separate civil settlement with NHHELCO and provided a total financial benefit of $20M to NHHELCO.

On April 29, 2010, the CFTC issued an order with respect to UBS Securities and levied a fine of $200,000. The Order stated that on February 6, 2009, UBS Securities’ employee broker aided and abetted UBS Securities’ customer’s concealment of material facts from the New York Mercantile Exchange (“NYMEX”) in violation of Section 9(a)(4) of the CEA, 7 U.S.C. § 13(a)(4) (2006). Pursuant to NYMEX Rules, a block trade must be reported to NYMEX “within five minutes of the time of execution” consistent with the requirements of NYMEX Rule 6.21C(A)(6). Although the block trade in question was executed earlier in the day, UBS Securities’ employee broker aided and abetted its customer’s concealment of facts when, in response to the customer’s request to delay reporting the trade until after the close of trading, UBS Securities’ employee did not report the trade until after the close. Because the employee broker undertook his actions within the scope of his employment, pursuant to Section 2(a)(1)(B) of the CEA, 7 U.S.C. § 2(a)(1)(B) (2006), and Commission Regulation 1.2, 17 C.F.R. § 1.2 (2009), UBS Securities is liable for the employee broker’s aiding and abetting of its customer’s violation of Section 9(a)(4) of the CEA. The fine has been paid and the matter is now closed.

UBS Securities will act only as clearing broker for UAC and as such will be paid commissions for executing and clearing trades on behalf of UAC. UBS Securities has not passed upon the adequacy or accuracy of this prospectus. UBS Securities neither will act in any supervisory capacity with respect to the Sponsor nor participate in the management of the Sponsor or UAC.

UBS is not affiliated with UAC or the Sponsor. Therefore, UAC does not believe that UAC has any conflicts of interest with them or their trading principals arising from their acting as UAC’s futures commission merchant.

Neither, UBS nor any affiliate, officer, director or employee thereof have passed on the merits of this prospectus or offering, or give any guarantee as to the performance or any other aspect of UAC.

Fees to be Paid by UAC

Asset-based fees are calculated on a daily basis (accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a monthly basis. NAV is calculated by taking the current market value of UAC’s total assets and subtracting any liabilities.

 

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Fees and Compensation Arrangements with the Sponsor, Non-Affiliated Service Providers and the Trustee

 

Service Provider

  

Compensation Paid by UAC and the Sponsor

United States Commodity Funds LLC, Sponsor    0.90% of average NAV annually.*
BBH & Co., Inc., Custodian and Administrator   

Minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to UAC and the Related Public Funds, as well as a $20,000 annual fee for its transfer agency services. In addition, an asset-based charge of (a) 0.06% for the first $500 million of UAC and the Related Public Funds’ combined assets, (b) 0.0465% for UAC and the Related Public Funds’ combined assets greater than $500 million but less than $1 billion, and (c) 0.035%

once UAC and the Related Public Funds’ combined assets exceed $1 billion.**

ALPS Distributors, Inc., Marketing Agent    0.06% on average net assets up to $3 billion and 0.04% on average net assets in excess of $3 billion.**
UBS, Futures Commission Merchant and Clearing Broker    Approximately $4.00 per buy or sell; charges may vary.*
Wilmington Trust National Association, Trustee    $3,000.*

 

* UAC pays this compensation.
** The Sponsor pays this compensation.

Asset-based fees are calculated on a daily basis (accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a monthly basis. NAV is calculated by taking the current market value of UAC’s total assets and subtracting any liabilities.

Form of Units

Registered Form

Units are issued in registered form in accordance with the Trust Agreement. The Administrator has been appointed registrar and transfer agent for the purpose of transferring units in certificated form. The Administrator keeps a record of all Unitholders and holders of the units in certificated form in the registry (“Register”). The beneficial interests in such units are held in book-entry form through participants and/or accountholders in DTC.

Book Entry

Individual certificates are not issued for the units. Instead, units are represented by one or more global certificates, which are deposited by the Administrator with DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the units outstanding at any time. Unitholders are limited to (1) participants in DTC such as banks, brokers, dealers and trust companies (“DTC Participants”), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (“Indirect Participants”), and (3) those who hold interests in the units through DTC Participants or Indirect Participants, in each case who satisfy the requirements for transfers of units. DTC Participants acting on behalf of investors holding units through such participants’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement System. Units are credited to DTC Participants’ securities accounts following confirmation of receipt of payment.

 

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DTC

DTC has advised us as follows: It is a limited purpose trust company organized under the laws of the State of New York and is a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities for DTC Participants and facilitates the clearance and settlement of transactions between DTC Participants through electronic book-entry changes in accounts of DTC Participants.

Transfer of Units

The units are only transferable through the book-entry system of DTC. Unitholders who are not DTC Participants may transfer their units through DTC by instructing the DTC Participant holding their units (or by instructing the Indirect Participant or other entity through which their units are held) to transfer the units. Transfers are made in accordance with standard securities industry practice.

Transfers of interests in units with DTC are made in accordance with the usual rules and operating procedures of DTC and the nature of the transfer. DTC has established procedures to facilitate transfers among the participants and/or accountholders of DTC. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect Participants, the ability of a person or entity having an interest in a global certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a certificate or other definitive document representing such interest.

DTC has advised us that it will take any action permitted to be taken by a Unitholder (including, without limitation, the presentation of a global certificate for exchange) only at the direction of one or more DTC Participants in whose account with DTC interests in global certificates are credited and only in respect of such portion of the aggregate principal amount of the global certificate as to which such DTC Participant or Participants has or have given such direction.

Inter-Series Limitation on Liability

Because the Trust was established as a Delaware statutory trust, UAC and each other series established under the Trust will be operated so that it will be liable only for obligations attributable to such series and will not be liable for obligations of any other series or affected by losses of any other series. If any creditor or Unitholder of any particular series (such as UAC) asserts against the series a valid claim with respect to its indebtedness or units, the creditor or Unitholder will only be able to obtain recovery from the assets of that series and not from the assets of any other series or the Trust generally. The assets of UAC and any other series will include only those funds and other assets that are paid to, held by or distributed to the series on account of and for the benefit of that series, including, without limitation, amounts delivered to the Trust for the purchase of units in a series. This limitation on liability is referred to as the Inter-Series Limitation on Liability. The Inter-Series Limitation on Liability is expressly provided for under the Delaware Statutory Trust Act, which provides that if certain conditions (as set forth in Section 3804(a)) are met, then the debts of any particular series will be enforceable only against the assets of such series and not against the assets of any other series or the Trust generally. In furtherance of the Inter-Series Limitation on Liability, every party providing services to the Trust, UAC or the Sponsor on behalf of the Trust or UAC, will acknowledge and consent in writing to the Inter-Series Limitation on Liability with respect to such party’s claims.

The existence of a Trustee should not be taken as an indication of any additional level of management or supervision over any Fund. To the greatest extent permissible under Delaware law, the Trustee acts in an entirely passive role, delegating all authority for the management and operation of UAC and the Trust to the Sponsor. The Trustee does not provide custodial services with respect to the assets of UAC.

 

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Recognition of the Trust in Certain States

A number of states do not have “statutory trust” statutes such as that under which the Trust has been formed in the State of Delaware. It is possible, although unlikely, that a court in such state could hold that, due to the absence of any statutory provision to the contrary in such jurisdiction, the Unitholders, 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. To protect Unitholders against any loss of limited liability, the Trust Agreement provides that each written obligation undertaken by the Sponsor on behalf of the Trust or UAC shall give notice that the obligation is not binding upon the Unitholders individually but is binding only upon the assets and property of UAC, and no resort shall be had to the Unitholders’ personal property for satisfaction of such obligation. Furthermore, the Trust and UAC indemnify all Unitholders against any liability that such Unitholders might incur solely based on their status as Unitholders of one or more units (other than for taxes for which such Unitholder is liable under the Trust Agreement).

What is the Plan of Distribution?

Buying and Selling Units

Most investors buy and sell units of UAC in secondary market transactions through brokers. Units trade on the NYSE Arca under the ticker symbol “UAC.” Units are bought and sold throughout the trading day like other publicly traded securities. When buying or selling units through a broker, most investors incur customary brokerage commissions and charges. Investors are encouraged to review the terms of their brokerage account for details on applicable charges and, as discussed below under “U.S. Federal Income Tax Considerations,” any provisions authorizing the broker to borrow units held on your behalf.

Marketing Agent and Authorized Purchasers

The offering of UAC’s units is a best efforts offering. UAC will continuously offer Creation Baskets consisting of 50,000 units through the Marketing Agent, to Authorized Purchasers. Merrill Lynch Professional Clearing Corp. is expected to be the initial Authorized Purchaser. It is expected that on or about the effective date, the initial Authorized Purchaser will purchase one or more initial Creation Baskets of UAC at a per unit price which is expected to initially be $25.00. However, the Sponsor instead may purchase the initial Creation Basket from the Fund at the price of $25.00 per unit. In accordance with applicable requirements of Regulation M under the Securities Exchange Act of 1934, no Creation Baskets will be offered to Authorized Purchasers nor will units be listed for trading on the NYSE Arca until five business days has elapsed from the date of the Sponsor’s purchase of the initial Creation Basket. It is expected that the proceeds from the initial Creation Basket purchase will be invested on the last day of such five business day period and that the initial per unit net asset value of the Fund will be established as of 4:00 p.m. New York City time that day. Units offered in Creation Baskets on any subsequent day will be offered at the per unit NAV calculated shortly after the close of the core trading session on the NYSE Arca. The initial Creation Basket purchased by the Sponsor will be redeemable by the Sponsor on the same terms and conditions as those applicable to Authorized Purchasers.

Alternatively, in order to satisfy NYSE Arca listing standards that at least 100,000 units of UAC be outstanding, the Sponsor may purchase one or more of such Creation Baskets of UAC at the initial offering price of such units and hold it for an indefinite period of time. The Sponsor has agreed not to resell the units comprising each such basket except that it may require the initial Authorized Purchaser to repurchase all of these units at a per unit price equal to UAC’s per unit NAV, as the case may be, within 5 days following written notice from the Sponsor, subject to the conditions that (i) on the date of repurchase, the initial Authorized Purchaser must immediately redeem these units in accordance with the terms of the Authorized Purchaser Agreement and (ii) immediately following such redemption at least 100,000 units of UAC remain outstanding.

The initial offering price of $25.00 was set as an appropriate and convenient price that would facilitate secondary market trading of units, and the units of UAC acquired by the Sponsor in connection with its initial

 

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capital contribution were purchased at a price of $25.00 per unit. All Authorized Purchasers pay a $350 fee for each order to create one or more Creation Baskets, regardless of the number of Creation Baskets in the order. The Marketing Agent will receive, for its services as distributor to UAC, a fee at an annual rate of: 0.06% on UAC’s average net assets up to $3 billion; and 0.04% on UAC’s average net assets in excess of $3 billion; provided, however, that in no event may the aggregate compensation paid to the Marketing Agent for distribution-related services in connection with this offering of units exceed 10 percent (10%) of the gross proceeds of this offering.

The offering of baskets is being made in compliance with Conduct Rule 2310 of FINRA. Accordingly, Authorized Purchasers will not make any sales to any account over which they have discretionary authority without the prior written approval of a purchaser of units.

The per unit price of units offered in Creation Baskets on any subsequent day will be the total NAV of UAC calculated shortly after the close of the NYSE Arca on that day divided by the number of issued and outstanding units. An Authorized Purchaser is not required to sell any specific number or dollar amount of units.

By executing an Authorized Purchaser Agreement, an Authorized Purchaser becomes part of the group of parties eligible to purchase baskets from, and put baskets for redemption to, UAC. An Authorized Purchaser is under no obligation to create or redeem baskets or to offer to the public units of any baskets it does create.

As of the date of this prospectus, Merrill Lynch Professional Clearing Corp. is the only Authorized Purchaser. We also expect there to be additional Authorized Purchasers for UAC. A list of Authorized Purchasers will be available from the Marketing Agent. Because new units can be created and issued on an ongoing basis, at any point during the life of UAC, a “distribution,” as such term is used in the 1933 Act, will be occurring. Authorized Purchasers, other broker-dealers and other persons are cautioned that some of their activities may result in their being deemed participants in a distribution in a manner that would render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the 1933 Act. For example, the initial Authorized Purchaser will be a statutory underwriter with respect to the initial purchase of Creation Baskets. In addition, any purchaser who purchases units with a view towards distribution of such units may be deemed to be a statutory underwriter.

In addition, an Authorized Purchaser, other broker-dealer