United States Commodity Index Funds Trust S-3, filed Nov 8, 2022
United States Commodity Index Funds Trust (USCI)
As filed with the Securities and Exchange Commission on November 8, 2022
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED STATES COMMODITY INDEX FUNDS TRUST
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 6770 | 27-1537655 |
(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 1850 Mt. Diablo Boulevard, Suite 640 Walnut Creek, California 94596 510.522.9600 |
Daphne G. Frydman 1850 Mt. Diablo Boulevard, Suite 640 Walnut Creek, California 94596 510.522.9600 |
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices) |
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) |
Copies to:
James M. Cain, Esq.
Owen J. Pinkerton, Esq.
Raymond A. Ramirez, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street, N.W., Suite 700
Washington, DC 20001-3980
202.383.0100
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, check the following box. o
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, other than securities offered only in connection with dividend or interest reinvestment plans, 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the 1934 Act:
| Large accelerated filer | o | Accelerated filer | x | |
| Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | o |
| Emerging growth company | o | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
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 Commission, acting pursuant to said Section 8(a), may determine.
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, dated November 8, 2022
PRELIMINARY PROSPECTUS
United States Copper Index Fund*
Shares
*Principal U.S. Listing Exchange: NYSE Arca, Inc.
The United States Copper Index Fund (“CPER”), a series of the United States Commodity Index Funds Trust, is an exchange traded fund that issues shares that trade on the NYSE Arca stock exchange (“NYSE Arca”). CPER’s investment objective is for the daily changes in percentage terms of its shares’ net asset value (“NAV”) to reflect the daily changes in percentage terms of the SummerHaven Copper Index Total ReturnSM (the “SCI”), less CPER’s expenses. The SCI is designed to reflect the performance of the investment returns from a portfolio of copper futures contracts. The SCI is owned and maintained by SummerHaven Index Management, LLC (“SHIM”), and calculated and published by the NYSE Arca. CPER pays its sponsor, United States Commodity Funds LLC (“USCF”), a limited liability company, a management fee and incurs operating costs. CPER and USCF are located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596. The telephone number for both CPER and USCF is 510.522.9600. Currently, USCF employs SummerHaven Investment Management, LLC (“SummerHaven”), a limited liability company, as a commodity trading advisor to CPER. SummerHaven is located at 1266 E. Main Street, Soundview Plaza, Fourth Floor, Stamford, CT 06902. SummerHaven’s telephone number is 203.352.2700. In order for a hypothetical investment in shares to break even over the next 12 months, assuming a selling price of $20.55 (the net asset value as of September 30, 2022), the investment would have to generate a 0.832% or $0.171 return, rounded to $0.17.
CPER is an exchange traded fund. This means that most investors who decide to buy or sell shares of CPER place their trade orders through their brokers and may incur customary brokerage commissions and charges. Shares trade on the NYSE Arca under the ticker symbol “CPER” and are bought and sold throughout the trading day at bid and ask prices like other publicly traded securities.
Shares trade on the NYSE Arca after they are initially purchased by “Authorized Participants,” institutional firms that purchase and redeem shares in blocks of 50,000 shares called “baskets” through CPER’s marketing agent, ALPS Distributors, Inc. (the “Marketing Agent”). The price of a basket is equal to the NAV of 50,000 shares on the day that the order to purchase the basket is accepted by the Marketing Agent. The NAV per share is calculated by taking the current market value of CPER’s total assets (after close of NYSE Arca) subtracting any liabilities and dividing that total by the total number of outstanding shares. The offering of CPER’s shares is a “best efforts” offering, which means that neither the Marketing Agent nor any Authorized Participant is required to purchase a specific number or dollar amount of shares. USCF pays the Marketing Agent a marketing fee consisting of a fixed annual amount plus an incentive fee based on the amount of shares sold. Authorized Participants will not receive from CPER, USCF or any of their affiliates, any fee or other compensation in connection with the sale of shares. Aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with this offering of shares will not exceed ten percent (10%) of the gross proceeds of the offering.
Investors who buy or sell shares during the day from their broker may do so at a premium or discount relative to the market value of the underlying copper futures contracts in which CPER invests due to supply and demand forces at work in the secondary trading market for shares that are closely related to, but not identical to, the same forces influencing the SCI that serves as CPER’s investment benchmark. INVESTING IN CPER INVOLVES RISKS SIMILAR TO THOSE INVOLVED WITH AN INVESTMENT DIRECTLY IN THE COPPER MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE COPPER MARKET. Investing in CPER also involves the correlation risk described below and other significant risks. You should consider carefully the risks described below before making an investment decision. See “Risk Factors Involved with an Investment in CPER” beginning on page 8.
The offering of CPER’s shares is registered with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Act of 1933 (the “1933 Act”). The offering is intended to be a continuous offering and is not expected to terminate until all of the registered shares have been sold or three years from the date of the original offering, whichever is earlier, unless extended as permitted under the rules under the 1933 Act, although the offering may be temporarily suspended if and when no suitable investments for CPER are available or practicable. CPER is not a mutual fund registered under the Investment Company Act of 1940 (“1940 Act”) and is not subject to regulation under the 1940 Act.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED IN THIS PROSPECTUS, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CPER is a commodity pool and USCF is a commodity pool operator (“CPO”) subject to regulation by the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) under the Commodity Exchange Act (“CEA”).
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
The date of this prospectus is [●], 2022.
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 7 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 45.
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 8.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
TABLE OF CONTENTS
This is only a summary of the prospectus and, while it contains material information about CPER and its shares, it does not contain or summarize all of the information about CPER and the shares contained in this prospectus that is material and/or which may be important to you. You should read this entire prospectus, including “Risk Factors Involved with an Investment in CPER” beginning on page 8, before making an investment decision about the shares. For a glossary of defined terms, see Appendix A.
The United States Commodity Index Funds Trust (the “Trust”) is a Delaware statutory trust formed on December 21, 2009. The Trust is a series trust formed pursuant to the Delaware Statutory Trust Act and is organized into three separate series (each series, a “Fund” and collectively, the “Funds”). The United States Copper Index Fund (“CPER”), formed on November 26, 2010, is a series of the Trust and is a commodity pool that continuously issues common shares of beneficial interest that may be purchased and sold on the NYSE Arca stock exchange (“NYSE Arca”). The Trust and CPER operate pursuant to the Trust’s Fourth Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”), dated as of December 15, 2017. Wilmington Trust Company, a Delaware trust company, is the Delaware trustee of the Trust. The Trust and CPER are managed and controlled by United States Commodity Funds LLC (“USCF”), a limited liability company. USCF is registered as a CPO with the CFTC and is a member of the NFA.
Other series of the Trust include the United States Commodity Index Fund (“USCI”).
CPER’s Investment Objective and Strategy
The investment objective of CPER is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the SummerHaven Copper Index Total ReturnSM (the “SCI”), less CPER’s expenses.
| What is the “SummerHaven Copper Index Total Return”? |
| The SCI is designed to reflect the performance of the investment returns from a portfolio of copper futures contracts on the Commodity Exchange, Inc. exchange (“COMEX”). The SCI is owned and maintained by SummerHaven Index Management, LLC (“SHIM”) and is calculated and published by the NYSE Arca. The SCI is comprised of either one or three Eligible Copper Futures Contracts that are selected on a monthly basis based on quantitative formulas relating to the prices of the Eligible Copper Futures Contracts developed by SHIM. The Eligible Copper Futures Contracts that at any given time make up the SCI are referred to herein as “Benchmark Component Copper Futures Contracts.” |
| As discussed further below, beginning with the first commodity selection process that occurred after December 31, 2020, the number of Futures Contracts that are Eligible Copper Futures Contracts was reduced and the SCI is comprised of one or three Eligible Copper Futures Contracts. |
CPER seeks to achieve its investment objective by investing primarily in Benchmark Component Copper Futures Contracts. Then, if constrained by regulatory requirements, risk mitigation measures, liquidity requirements, or in view of market conditions, CPER will invest next in other Eligible Copper Futures Contracts based on the same copper as the futures contracts subject to such regulatory constraints or market conditions, and finally, to a lesser extent, in other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Copper Futures Contracts if one or more other Eligible Copper Futures Contracts is not available. When CPER has invested to the fullest extent possible in exchange-traded futures contracts, CPER may then invest in other contracts and instruments based on the Benchmark Component Copper Futures Contracts, other Eligible Copper Futures Contracts or other items based on copper, such as cash-settled options, forward contracts, cleared swap contracts and swap contracts other than cleared swap contracts. Other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Copper Futures Contracts and other contracts and instruments based on the Benchmark Component Copper Futures Contracts are collectively referred to as “Other Copper-Related Investments,” and together with Benchmark Component Copper Futures Contracts and other Eligible Copper Futures Contracts, “Copper Interests.”
In addition, USCF believes that market arbitrage opportunities will cause daily changes in CPER’s share price on the NYSE Arca on a percentage basis to closely track daily changes in CPER’s per share NAV on a percentage basis. USCF believes that the net effect of this expected relationship and the expected relationship described above between CPER’s per share NAV and the SCI will be that the daily changes in the price of CPER’s shares on the NYSE Arca on a percentage basis will closely track the daily changes in the SCI on a percentage basis, less CPER’s expenses. While CPER is composed of Benchmark Component Copper Futures Contracts and is therefore a measure of the prices of the corresponding commodities comprising the SCI for future delivery, there is nonetheless expected to be a reasonable degree of correlation between the SCI and the cash or spot prices of the commodities underlying the Benchmark Component Copper Futures Contracts.
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Specifically, CPER seeks to achieve its investment objective by investing so that the average daily percentage change in CPER’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Component Copper Futures Contracts over the same period.
Investors should be aware that CPER’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot prices of the commodities underlying the Benchmark Component Copper Futures Contracts or the prices of any particular group of futures contracts. CPER will not seek to achieve its stated investment objective over a period of time greater than one day. This is because natural market forces called contango and backwardation have impacted the total return on an investment in CPER’s shares during the past year relative to a hypothetical direct investment in the various commodities and, in the future, it is likely that the relationship between the market price of CPER’s shares and the changes in the spot prices of the underlying commodities will continue to be so impacted by contango and backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning and storing the commodities, which could be substantial.)
Principal Investment Risks of an Investment in CPER
An investment in CPER includes 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 8.
Investment Risk
Investors may choose to use CPER as a means of investing indirectly in copper. INVESTING IN CPER INVOLVES RISKS SIMILAR TO THOSE INVOLVED WITH AN INVESTMENT DIRECTLY IN THE COPPER MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE COPPER MARKET. You should carefully consider the risks described below before making an investment decision. Investing in CPER also involves the correlation risk described below and other significant risks. An investment in CPER involves the following investment risks:
| · | The NAV of CPER’s shares relates directly to the value of investments in Eligible Copper Futures Contracts and other assets held by CPER and fluctuations in the prices of these assets could materially adversely affect an investment in CPER’s shares. Past performance is not necessarily indicative of future results; all or substantially all of an investment in CPER could be lost. |
| · | The demand for commodities, in general, correlates closely with general economic growth rates. |
| · | Other factors that may affect the demand for certain commodities and therefore their price include technological improvements in energy efficiency; seasonal weather patterns, increased competitiveness of alternative metals changes in technology or consumer preferences that alter fuel choices, such as toward alternative, lighter, or more conducive metals and changes in consumer preference. |
| · | Copper prices also vary depending on a number of factors affecting supply and demand, including geopolitical risk associated with wars (such as the current war between Russia and Ukraine), terrorist attacks and tensions between countries. |
| · | The supply of and demand for copper and other commodities may also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by the development of alternative energy sources. |
| · | Price volatility may possibly cause the total loss of your investment. |
| · | Russia’s invasion of Ukraine, and sanctions brought by the United States and other countries against Russia and others, have caused disruptions in many business sectors, resulting in significant market disruptions that have led to increased volatility in the price of certain commodities, and may lead to volatility in CPER’s NAV or share price. |
| · | COVID-19 and other infectious disease outbreaks could negatively affect the valuation and performance of CPER’s investments. |
| · | Historical performance of CPER and the Benchmark Component Copper Futures Contract is not indicative of future performance. |
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Correlation Risk
As further described below, an investment in CPER involves the following correlation risks:
| · | An investment in CPER may provide little or no diversification benefits. Thus, in a declining market, CPER may have no gains to offset losses from other investments, and an investor may suffer losses on an investment in CPER while incurring losses with respect to other asset classes. |
| · | The market price at which investors buy or sell shares may be significantly less or more than NAV. |
| · | Daily percentage changes in the price of the Benchmark Component Copper Futures Contract may not correlate with daily percentage changes in the spot price of the corresponding commodity. |
| · | An investment in CPER is not a proxy for investing in the copper markets, and the daily percentage changes in the price of the Benchmark Component Copper Futures Contract, or the NAV of CPER, may not correlate with daily percentage changes in the spot price of copper that underlie the SCI. |
| · | The price relationship between the SCI at any point in time and the Eligible Copper Futures Contracts that will become the Benchmark Component Copper Futures Contracts on the next rebalancing date will vary and may impact both CPER’s total return and the degree to which its total return tracks that of SCI. |
| · | Natural forces in the commodity futures market known as “backwardation” and “contango” may increase CPER’s tracking error and/or negatively impact total return. |
| · | Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error, by limiting CPER’s investments, including its ability to fully invest in the Benchmark Component Copper Futures Contract, which could cause the price of shares to substantially vary from the price of the Benchmark Component Copper Futures Contract. |
| · | Risk mitigation measures that could be imposed by CPER’s futures commission merchants (“FCMs”) have the potential to cause tracking error by limiting CPER’s investments, including its ability to fully invest in the Benchmark Component Copper Futures Contract and other Futures Contracts, which could cause the price of CPER’s shares to substantially vary from the price of the Benchmark Component Copper Futures Contract. |
To the extent that investors use CPER as a means of indirectly investing in copper, there is the risk that the daily changes in the price of CPER’s shares on the NYSE Arca on a percentage basis will not closely track the daily changes in the spot prices of the commodities comprising the SCI on a percentage basis. This could happen if the price of shares traded on the NYSE Arca does not correlate closely with the value of CPER’s NAV; the changes in CPER’s NAV do not correlate closely with the changes in the price of the Benchmark Component Copper Futures Contracts; or the changes in the price of the Benchmark Component Copper Futures Contracts do not closely correlate with the changes in the cash or spot price of copper. This is a risk because if these correlations do not exist, then investors may not be able to use CPER as a cost-effective way to indirectly invest in copper or as a hedge against the risk of loss in copper-related transactions.
The design of the SCI is such that every month it is made up of different Benchmark Component Copper Futures Contracts and CPER’s investment must be rebalanced on an ongoing basis to reflect the changing composition of the SCI. In cases in which the near month contracts to expire trade at a higher price than next month contracts to expire, a situation referred to as “backwardation,” then absent the impact of the overall movement in commodity prices, the value of the SCI would tend to rise as it approaches expiration. As a result, CPER may benefit because it would be selling more expensive contracts and buying less expensive ones on an ongoing basis. Conversely, in the event of a commodity futures market where near month contracts trade at a lower price than next month contracts, a situation referred to as “contango,” then absent the impact of the overall movement in commodity prices, the value of the SCI would tend to decline as it approaches expiration. As a result, CPER’s total return may be lower than might otherwise be the case because it would be selling less expensive contracts and buying more expensive ones. The impact of backwardation and contango may cause the total return of CPER to vary significantly from the total return of other price references, such as the spot price of the commodities comprising the SCI. In the event of a prolonged period of contango, and absent the impact of rising or falling commodity prices, this could have a significant negative impact on CPER’s NAV and total return.
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Tax Risk
The Trust is organized and operated as a Delaware statutory trust in accordance with the provisions of the Trust Agreement and applicable state law, but CPER is taxed as a partnership for U.S. federal income tax purposes, and therefore, has a more complex tax treatment than conventional mutual funds. An investment in CPER involves the following tax risks:
| · | An investor’s tax liability may exceed the amount of distributions, if any, on its shares. |
| · | An investor’s allocable share of taxable income or loss may differ from its economic income or loss on its shares. |
| · | Items of income, gain, deduction, loss and credit with respect to shares could be reallocated for U.S. federal income tax purposes, and CPER could be liable for U.S. federal income tax, if the U.S. Internal Revenue Service (“IRS”) does not accept the assumptions and conventions applied by CPER in allocating those items, with potential adverse consequences for an investor. |
| · | CPER could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of the shares. |
| · | The Trust is organized as a Delaware statutory trust in accordance with the provisions of the Trust Agreement and applicable state law, but CPER is taxed as a partnership for U.S. federal income tax purposes, and therefore, CPER has a more complex tax treatment than traditional mutual funds. |
| · | If CPER is required to withhold tax with respect to any non-U.S. shareholders, the cost of such withholding may be borne by all shareholders. |
| · | The impact of changes in U.S federal income tax law and other proposed or future tax legislation or administrative guidance on CPER is uncertain. |
Over-the-Counter (“OTC”) Contract Risk
CPER may also invest in Other Copper-Related Investments, many of which are negotiated or “OTC” contracts that are not as liquid as Eligible Copper Futures Contracts and expose CPER to credit risk that its counterparty may not be able to satisfy its obligations to CPER. An investment in CPER involves the following OTC contract risks:
| · | CPER will be subject to credit risk with respect to counterparties to OTC contracts entered into by the Trust on behalf of CPER or held by special purpose or structured vehicles. |
| · | Valuing OTC derivatives may be less certain than actively traded financial instruments. |
Other Risks
CPER pays fees and expenses that are incurred regardless of whether CPER is profitable.
Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income and gains to their investors, CPER generally does not distribute cash to shareholders. You should not invest in CPER if you will need cash distributions from CPER to pay taxes on your share of income and gains of CPER, if any, or for any other reason.
You will have no rights to participate in the management of CPER and will have to rely on the duties and judgment of USCF to manage CPER.
CPER is subject to actual and potential inherent conflicts involving USCF, various commodity futures brokers and “Authorized Participants,” the institutional firms that directly purchase and redeem shares in baskets of 50,000 shares. USCF’s officers, directors and employees do not devote their time exclusively to CPER. USCF’s personnel are directors, officers or employees of other entities that may compete with CPER for their services, including other commodity pools (funds) that USCF manages. USCF could have a conflict between its responsibilities to CPER and to those other entities. As a result of these and other relationships, parties involved with CPER have a financial incentive to act in a manner other than in the best interest of CPER and the shareholders.
In addition, an investment in CPER involves the following other risks:
| · | CPER is not leveraged, but it could become leveraged if it had insufficient assets to completely meet its margin or collateral requirements relating to its investments. |
| · | CPER may temporarily limit the offering of Creation Baskets. |
| · | CPER pays fees and expenses that are incurred regardless of whether CPER is profitable. |
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| · | You will have no rights to participate in the management of CPER and will have to rely on the duties and judgment of USCF to manage CPER. |
| · | Certain of CPER’s investments could be illiquid, which could cause large losses to investors at any time or from time to time. |
| · | CPER is not actively managed and its investment objective is for the daily changes in percentage terms of its shares’ per share NAV for any period of 30 successive valuation days to be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Component Copper Futures Contracts over the same period. |
| · | CPER may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s ability to sell shares. |
| · | The NYSE Arca may halt trading in CPER’s shares, which would adversely impact an investor’s ability to sell shares. |
| · | The liquidity of CPER’s shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the shares. |
| · | Shareholders that are not Authorized Participants may only purchase or sell their shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the shares. |
| · | The lack of an active trading market for CPER shares may result in losses on an investor’s investment in CPER at the time the investor sells the shares. |
| · | SummerHaven is leanly staffed and relies heavily on key personnel to manage advisory activities. |
| · | USCF’s LLC Agreement provides limited authority to the Non-Management Directors, and any Director of USCF may be removed by USCF’s parent company, which is wholly owned by The Marygold Companies, Inc., formerly Concierge Technologies, Inc., a controlled public company where the majority of shares are owned by Nicholas D. Gerber along with certain of his other family members and certain other shareholders. |
| · | There is a risk that CPER will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such CPER may not earn any profit. |
| · | CPER is subject to extensive regulatory reporting and compliance. |
| · | Regulatory changes or actions, including the implementation of new legislation, is impossible to predict but may significantly and adversely affect CPER. |
| · | The Trust is not a registered investment company, so shareholders do not have the protections of the 1940 Act. |
| · | Trading in international markets could expose CPER to credit and regulatory risk. |
| · | CPER and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders. |
| · | CPER, USCF and SummerHaven may have conflicts of interest, which may cause them to favor their own interests to the detriment of shareholders. |
| · | Shareholders have only very limited voting rights and have the power to replace USCF only under specific circumstances. Shareholders do not participate in the management of CPER and do not control USCF, so they do not have any influence over basic matters that affect CPER. |
| · | CPER 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. |
| · | CPER does not expect to make cash distributions. |
| · | An unanticipated number of Redemption Basket requests during a short period of time could have an adverse effect on CPER’s NAV. |
| · | The suspension in the ability of Authorized Participants to purchase Creation Baskets could cause CPER’s NAV to differ materially from its trading price. |
| · | CPER may determine that, to allow it to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a manner that meets its investment objective, it may limit its offers of Creation Baskets. |
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| · | In a rising rate environment, CPER may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss. |
| · | CPER may lose money by investing in government money market funds. |
| · | The failure or bankruptcy of a clearing broker or CPER’s Custodian could result in a substantial loss of CPER’s assets and could impair CPER in its ability to execute trades. |
| · | The failure or bankruptcy of CPER’s Custodian could result in a substantial loss of CPER’s assets. |
| · | The liability of SummerHaven is limited, and the value of the shares may be adversely affected if USCF and CPER are required to indemnify SummerHaven. |
| · | The liability of USCF and the Trustee are limited, and the value of the shares will be adversely affected if CPER is required to indemnify the Trustee or USCF. |
| · | Although the shares of CPER are limited liability investments, certain circumstances such as bankruptcy or indemnification of CPER by a shareholder will increase the shareholder’s liability. |
| · | Investors cannot be assured of the continuation of the agreement between SummerHaven and USCF for use of the SCI, and discontinuance of the SCI may be detrimental to CPER. |
| · | Investors cannot be assured of SummerHaven’s continued services, and discontinuance may be detrimental to CPER. |
| · | CPER is a series of the Trust and, as a result, a court could potentially conclude that the assets and liabilities of CPER are not segregated from those of another series of the Trust, thereby potentially exposing assets in CPER to the liabilities of another series of the Trust. |
| · | The Trust Agreement limits the forum in which claims may be brought against USCF, the Trust, the Trustee or their respective directors and officers. |
| · | USCF and the Trustee are not obligated to prosecute any action, suit or other proceeding in respect of any CPER property. |
| · | Third parties may infringe upon or otherwise violate intellectual property rights or assert that USCF has infringed or otherwise violated their intellectual property rights, which may result in significant costs and diverted attention. |
| · | Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks. |
| · | CPER’s investment returns could be negatively affected by climate change and greenhouse gas restrictions. |
| · | USCF is the subject of class action, derivative, and other litigation. In light of the inherent uncertainties involved in litigation matters, an adverse outcome in this litigation could materially adversely affect USCF’s financial condition. |
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This table describes the fees and expenses that you may pay if you buy and hold shares of CPER. You should note that you may pay brokerage commissions on purchases and sales of CPER’s shares, which are not reflected in the table. Authorized Participants will pay applicable creation and redemption fees. See “Creation and Redemption of Shares—Creation and Redemption Transaction Fee,” page 74.
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)(1)
| Management Fees(2) | 0.65 | % | ||
| Distribution Fees | NONE | |||
| Other Fund Expenses(1) | 0.23 | % | ||
| Total Annual Fund Operating Expenses | 0.88 | % |
| (1) | Based on amounts for the nine months ended September 30, 2022. The individual expense amounts in dollar terms are shown in the table below. As used in this table, (i) Professional Expenses include expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and Officer Expenses include amounts paid to independent directors and for officers’ liability insurance. |
| Management Fees | $ | 976,774 | ||
| Brokerage Commissions | $ | 41,446 | ||
| Professional Expenses | $ | 401,201 | ||
| License Fees | $ | 2,273 | ||
| Independent Director and Officer Expenses | $ | 58,708 | ||
| Registration Fees | $ | 24,092 | ||
These amounts are based on CPER’s average total net assets, which are the sum of daily total net assets of CPER divided by the number of calendar days in the year. For the nine months ended September 30, 2022, CPER’s average total net assets were $200,914,255.
| (2) | CPER is contractually obligated to pay USCF a management fee based on average daily net assets and paid monthly of 0.65% per annum on its average total net assets. |
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RISK FACTORS INVOLVED WITH AN INVESTMENT IN CPER
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 the Trust’s and CPER’s financial statements and the related notes, that are incorporated by reference. See “Incorporation By Reference of Certain Information,” page 81.
CPER’s investment objective is for the daily changes in percentage terms of its shares’ per share NAV to reflect the daily changes in percentage terms of the SCI, less CPER’s expenses. CPER seeks to achieve its investment objective by investing so that the average daily percentage change in CPER’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Component Copper Futures Contract over the same period. CPER’s investment strategy is designed to provide investors with a cost-effective way to invest indirectly in copper and to hedge against movements in the spot price of copper.
An investment in CPER involves investment risk similar to a direct investment in Eligible Copper Futures Contracts and Other Copper-Related Investments, but it is not a proxy for investing in copper market. Investing in CPER also involves correlation risk, or the risk that investors purchasing shares to hedge against movements in the price of copper will have an efficient hedge only if the price they pay for their shares closely correlates with the price of the copper. In addition to investment risk and correlation risk, an investment in CPER involves tax risks, OTC risks, and other risks.
The NAV of CPER’s shares relates directly to the value of its assets invested in accordance with the SCI and other assets held by CPER and fluctuations in the prices of these assets could materially adversely affect an investment in CPER’s shares. Past performance is not necessarily indicative of future results; all or substantially all of an investment in CPER could be lost.
The net assets of CPER consist primarily of investments in Eligible Copper Futures Contracts and, to a lesser extent, in Other Copper-Related Investments. The NAV of CPER’s shares relates directly to the value of these assets (less liabilities, including accrued but unpaid expenses), which in turn relates to the market price of the commodities which comprise the SCI.
Economic conditions impacting copper. The demand for commodities, in general, correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on commodity demand and therefore, may have an adverse impact on commodity prices. Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth rates, periods of civil unrest, military conflicts, war (such as the current war between Russia and Ukraine), pandemics (e.g. COVID-19), government austerity programs, or currency exchange rate fluctuations, can also impact the demand for commodities. Sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European Union, and other events or conditions (e.g. pandemics such as COVID-19) that impair the functioning of financial markets and institutions also may adversely impact the demand for commodities.
Other copper demand-related factors. Other factors that may affect the demand for certain commodities and therefore their price include technological improvements in energy efficiency, seasonal weather patterns, increased competitiveness of alternative metals changes in technology or consumer preferences that alter fuel choices, such as toward alternative, lighter, or more conducive metals and changes in personal income levels.
Other copper supply-related factors. Copper prices also vary depending on a number of factors affecting supply, including geopolitical risk associated with wars (such as the current war between Russia and Ukraine), terrorist attacks and tensions between countries, including sanctions imposed as a result of the foregoing that can adversely affect commodity trade flows by limiting or disrupting trade between countries or regions. For example, increased supply from the development of alloys and technologies for efficient productions tends to reduce prices in such commodity to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry manufacturing capacity may impact the supply of a particular metal. World supply levels can also be affected by factors that reduce available supplies, such as embargoes, the occurrence of geopolitical risk associated with wars, terrorist attacks and tensions between countries, including sanctions imposed as a result of the foregoing that can adversely affect commodity trade flows by limiting or disrupting trade between countries or regions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies. Technological change can also alter the relative costs for companies to produce, and process and distribute a commodity, which in turn, may affect the supply of and demand of such commodity.
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Other factors impacting the copper market. The supply of and demand for copper and other commodities may also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by the development of alternative energy sources.
Price volatility may possibly cause the total loss of your investment.
Futures contracts have a high degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you could lose all or substantially all of your investment in CPER.
Significant market volatility has recently occurred in the commodities markets. Such volatility is attributable in part to the COVID-19 pandemic, related supply chain disruptions, war, including the war between Russia and Ukraine, and continuing disputes among oil-producing countries. These and other events could cause continuing or increased volatility in the future, which may affect the value, pricing and liquidity of some investments or other assets, including those held by or invested in by CPER and the impact of which could limit CPER’s ability to have a substantial portion of its assets invested in the Benchmark Component Copper Futures Contracts. In such a circumstance, CPER could, if it determined it appropriate to do so in light of market conditions and regulatory requirements, invest in other Futures Contracts and/or Other Copper-Related Investments.
Russia’s invasion of Ukraine, and sanctions brought by the United States and other countries against Russia and others, have caused disruptions in many business sectors, resulting in significant market disruptions that have led to increased volatility in the price of certain commodities, and may lead to volatility in CPER’s NAV or share price.
On February 24, 2022, Russia launched a large-scale invasion of Ukraine. The extent and duration of the military action, and resulting sanctions, and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region.
The United States and other countries and certain international organizations have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to Russia’s invasion of Ukraine, and additional sanctions may be imposed in the future. Such sanctions (and any future sanctions) will adversely impact the economies of Russia and Ukraine, and certain sectors of each country’s economy may be particularly affected, including but not limited to, financials, energy, metals and mining, engineering and defense and defense-related materials sectors. Among other things, the extent and duration of the military action, the responses of countries and political bodies to Russia’s actions, including sanctions, future market or supply disruptions, and Ukraine’s military response and the potential for wider conflict may increase financial market volatility generally, have severe adverse effects on regional and global economic markets, and cause volatility in the markets for commodities including the price of commodity futures, and the NAV or share price of CPER.
A resolution to the war in Ukraine also could impact the markets for certain commodities, and may have collateral impacts, including increased volatility, and cause disruptions to availability of certain commodities, commodity and futures prices and the supply chain globally. The longer-term impact on commodities and futures prices, including the spot price of copper and the price of the Benchmark Component Copper Futures Contract, is difficult to predict and depends on a number of factors that may have a negative impact on CPER in the future.
COVID-19 and other infectious disease outbreaks could negatively affect the valuation and performance of CPER’s investments.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. COVID-19 has resulted in numerous deaths, travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines and the imposition of both local and more widespread “work from home” measures, cancellations, loss of employment, supply chain disruptions, and lower consumer and institutional demand for goods and services, as well as general concern and uncertainty. The ongoing spread of COVID-19 has had, and may continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment are impacted by the outbreak and government and other measures seeking to contain its spread. The impact of COVID-19, and other infectious disease outbreaks that may arise in the future, could adversely affect individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, actions taken by government and quasi-governmental authorities and regulators throughout the world in response to the COVID-19 outbreak, including significant fiscal and monetary policy changes, may affect the value, volatility, pricing and liquidity of some investments or other assets, including those held by or invested in by CPER. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its ultimate impact on CPER and, on the global economy, cannot be determined with certainty.
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Historical performance of CPER and the Benchmark Component Copper Futures Contract is not indicative of future performance.
Past performance of CPER or the Benchmark Component Copper Futures Contract is not necessarily indicative of future results. Therefore, past performance of CPER or the Benchmark Component Copper Futures Contract should not be relied upon in deciding whether to buy shares of CPER.
An investment in CPER may provide little or no diversification benefits. Thus, in a declining market, CPER may have no gains to offset losses from other investments, and an investor may suffer losses on an investment in CPER while incurring losses with respect to other asset classes.
Investors purchasing shares to hedge against movements in the price of copper will have an efficient hedge only if the return from their shares closely correlates with the return from the SCI, which in turn, correlates with the price of the copper that comprises the SCI. Investing in CPER’s shares for hedging purposes includes the following risks:
| · | The market price at which the investor buys or sells shares may be significantly less or more than NAV. |
| · | Daily percentage changes in NAV may not closely correlate with daily percentage changes in the price of the SCI. |
| · | Daily percentage changes in the price of the Benchmark Component Copper Futures Contract may not closely correlate with daily percentage changes in the price of copper that comprises the SCI. |
Historically, Eligible Copper Futures Contracts and Other Copper-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, CPER’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 CPER’s shares. In such a case, CPER may have no gains to offset losses from other investments, and investors may suffer losses on their investment in CPER at the same time they incur losses with respect to other investments.
Variables such as drought, floods, weather, military conflicts, pandemics (such as COVID-19), embargoes, tariffs and other political events may have a larger impact on commodity prices and commodity-linked instruments, including Eligible Copper Futures Contracts and Other Copper-Related Investments, than on traditional securities. These additional variables may create additional investment risks that subject CPER’s investments to greater volatility than investments in traditional securities.
Non-correlation should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. There is no historical evidence that the spot price of a commodity and prices of other financial assets, such as stocks and bonds, are negatively correlated. In the absence of negative correlation, CPER cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa.
The market price at which investors buy or sell shares may be significantly less or more than NAV.
CPER’s NAV per share will change throughout the day as fluctuations occur in the market value of CPER’s portfolio investments. The public trading price at which an investor buys or sells shares during the day from their broker may be different from the NAV of the shares, which is also the price shares can be redeemed with CPER by Authorized Participants in Redemption Baskets. Generally, price differences may relate to supply and demand forces at work in the secondary trading market for shares that are closely related to, but not identical to, the same forces influencing the prices of the Benchmark Component Copper Futures Contracts and the SCI at any point in time. USCF expects that exploitation of certain arbitrage opportunities by Authorized Participants and their clients will tend to cause the public trading price to track NAV per share closely over time, but there can be no assurance of that. For example, a shortage of CPER’s shares in the market and other factors could cause CPER’s shares to trade at a premium. Investors should be aware that such premiums can be transitory. To the extent an investor purchases shares that include a premium (e.g., because of a shortage of shares in the market due to the inability of Authorized Participants to purchase additional shares from CPER that could be resold into the market) and the cause of the premium no longer exists causing the premium to disappear (e.g., because more shares are available for purchase from CPER by Authorized Participants that could be resold into the market) such investor’s return on its investment would be adversely impacted due to the loss of the premium.
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The NAV of CPER’s shares may also be influenced by non-concurrent trading hours between the NYSE Arca and the COMEX where the Benchmark Component Copper Futures Contract is traded.
Daily percentage changes in the price of the Benchmark Component Copper Futures Contract may not correlate with daily percentage changes in the spot price of the corresponding commodity.
The correlation between changes in prices of a Benchmark Component Copper Futures Contract and the spot price of the corresponding commodity may at times be only approximate. The degree of imperfection of correlation depends upon circumstances such as variations in the speculative commodities market, supply of and demand for Eligible Copper Futures Contracts (including the Benchmark Component Copper Futures Contracts) and Other Copper-Related Investments, and technical influences in futures trading.
In addition, CPER is not able to replicate exactly the changes in the price of the Benchmark Component Copper Futures Contracts and the SCI because the total return generated by CPER is reduced by expenses and transaction costs, including those incurred in connection with CPER’s trading activities, and increased by interest income from CPER’s holdings of Treasuries. Tracking the SCI requires trading of CPER’s portfolio with a view to tracking the SCI over time and is dependent upon the skills of USCF and its trading principals, among other factors.
An investment in CPER is not a proxy for investing in the copper markets, and the daily percentage changes in the price of the Benchmark Component Copper Futures Contract, or the NAV of CPER, may not correlate with daily percentage changes in the spot price of copper that underlie the SCI.
An investment in CPER is not a proxy for investing in the commodities markets. To the extent that investors use CPER as a means of indirectly investing in copper, there is the risk that the daily changes in the price of CPER’s shares on the NYSE Arca, on a percentage basis, will not closely track the daily changes in the spot price of copper on a percentage basis. This could happen if the price of shares traded on the NYSE Arca does not correlate closely with the value of CPER’s NAV; the changes in CPER’s NAV do not correlate closely with the changes in the price of the Benchmark Component Copper Futures Contract; or the changes in the price of the Benchmark Component Copper Futures Contract do not closely correlate with the changes in the cash or spot price of copper. This is a risk because if these correlations do not exist, then investors may not be able to use CPER as a cost-effective way to indirectly invest in copper or as a hedge against movements in the spot price of copper. The degree of correlation among CPER’s share price, the price of the Benchmark Component Copper Futures Contract and the spot price of copper depends upon circumstances such as variations in the speculative copper market, supply of and demand for Futures Contracts (including the Benchmark Component Copper Futures Contracts) and Other Copper-Related Investments, and technical influences on trading futures contracts. Investors who are not experienced in investing in futures contracts or the factors that influence that market or speculative trading in futures markets and may not have the background or ready access to the types of information that investors familiar with these markets may have and, as a result, may be at greater risk of incurring losses from trading in CPER shares than such other investors with such experience and resources.
The price relationship between the SCI at any point in time and the Eligible Copper Futures Contracts that will become the Benchmark Component Copper Futures Contracts on the next rebalancing date will vary and may impact both CPER’s total return and the degree to which its total return tracks that of SCI.
The design of SCI is such that every month it is made up of different Benchmark Component Copper Futures Contracts, and CPER’s investment must be rebalanced on an ongoing basis to reflect the changing composition of the SCI. In the event of a copper futures market where near month contracts to expire trade at a higher price than next month contracts to expire, a situation described as “backwardation” in the futures market, then absent the impact of the overall movement in copper prices, the value of the SCI would tend to rise as it approaches expiration. As a result, CPER may benefit because it would be selling more expensive contracts and buying less expensive ones on an ongoing basis. Conversely, in the event of a copper 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 copper prices, the value of the SCI would tend to decline as it approaches expiration. As a result, CPER’s total return may be lower than might otherwise be the case because it would be selling less expensive contracts and buying more expensive ones. The impact of backwardation and contango may cause the total return of CPER’s per share NAV to vary significantly from the total return of other price references, such as the spot price of the copper comprising the SCI. Moreover, absent the impact of rising or falling copper prices, a prolonged period of contango could have a significant negative impact on CPER’s per share NAV and total return and investors could lose part or all of their investment. See “Additional Information About CPER, its Investment Objective and Investments” for a discussion of the potential effects of contango and backwardation.
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Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error, by limiting CPER’s investments, including its ability to fully invest in the Benchmark Component Copper Futures Contract, which could cause the price of shares to substantially vary from the price of the Benchmark Component Copper Futures Contract.
Designated contract markets, such as the COMEX, 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 CPER is not) may hold, own or control. These levels and position limits apply to the futures contracts that CPER invests in to meet its investment objective. In addition to accountability levels and position limits, the COMEX 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.
On October 15, 2020, the CFTC approved a final rule that amended the existing federal position limits regime set forth in Part 150 of the CFTC’s regulations as well as the framework for exchange-set position limits and exemptions (such final rule, the “Position Limits Rule”). The Position Limits Rule establishes federal position limits for 25 core referenced futures contracts (comprised of agricultural, energy and metals futures contracts), futures and options linked to the core referenced futures contracts, and swaps that are economically equivalent to the core referenced futures contracts.
The Benchmark Component Copper Futures Contract is subject to position limits under the Position Limits Rule, and CPER’s trading does not qualify for an exemption therefrom. Accordingly, the Position Limits Rule could negatively impact the ability of CPER to meet its investment objectives by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets of CPER in particular amounts and types of its permitted investments.
These limits may potentially cause a tracking error between the price of CPER’s shares and the Benchmark Component Copper Futures Contract. This may in turn prevent investors from being able to effectively use CPER as a way to hedge against copper-related losses or as a way to indirectly invest in copper.
Risk mitigation measures that could be imposed by CPER’s futures commission merchants (“FCMs”) have the potential to cause tracking error by limiting CPER’s investments, including its ability to fully invest in the Benchmark Component Copper Futures Contract and other Futures Contracts, which could cause the price of CPER’s shares to substantially vary from the price of the Benchmark Component Copper Futures Contract.
CPER’s FCMs have discretion to impose limits on the positions that CPER may hold in the Benchmark Component Copper Futures Contract as well as certain other months. To date, CPER’s FCMs have not imposed any such limits. However, were CPER’s FCMs to impose limits, CPER’s ability to have a substantial portion of its assets invested in the Benchmark Component Copper Futures Contract and other Futures Contracts could be severely limited, which could lead CPER to invest in other Futures Contracts or, potentially, Other Copper-Related Investments. CPER could also have to more frequently rebalance and adjust the types of holdings in its portfolio than is currently the case. This could inhibit CPER from pursuing its investment objective in the same manner that it has historically and currently.
In addition, when offering Creation Baskets for purchase, limitations imposed by exchanges and/or any of CPER’s FCMs could limit CPER’s ability to invest the proceeds of the purchases of Creation Baskets in Benchmark Component Copper Futures Contracts and other Futures Contracts. If this were the case, CPER may invest in other permitted investments, including Other Copper-Related Investments, and may hold larger amounts of Treasuries, cash and cash equivalents, which could impair CPER’s ability to meet its investment objective.
An investor’s tax liability may exceed the amount of distributions, if any, on its shares.
Cash or property will be distributed at the sole discretion of USCF. USCF has not and does not currently intend to make cash or other distributions with respect to shares. Investors will be required to pay U.S. federal income tax and, in some cases, state, local, or foreign income tax, on their allocable share of CPER’s taxable income, without regard to whether they receive distributions or the amount of any distributions. Therefore, the tax liability of an investor with respect to its shares may exceed the amount of cash or value of property (if any) distributed with respect to such shares.
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An investor’s allocable share of taxable income or loss may differ from its economic income or loss on its shares.
Due to the application of the assumptions and conventions applied by CPER in making allocations for tax purposes and other factors, an investor’s allocable share of CPER’s income, gain, deduction, loss, or credit may be different than its economic profit or loss from its shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in it being taxed on amounts in excess of its economic income.
Items of income, gain, deduction, loss and credit with respect to shares could be reallocated for U.S. federal income tax purposes, and CPER could be liable for U.S. federal income tax, if the IRS does not accept the assumptions and conventions applied by CPER in allocating those items, with potential adverse consequences for an investor.
The U.S. federal income tax rules pertaining to entities treated as partnerships for U.S. federal income tax purposes are complex and their application to large, publicly traded entities, such as CPER, is in many respects uncertain. CPER applies certain assumptions and conventions in an attempt to comply with the intent of the applicable rules and to report taxable income, gains, deductions, losses and credits in a manner that properly reflects shareholders’ economic gains and losses. It is possible that the IRS could successfully challenge the application by CPER of these assumptions and conventions as not fully complying with all aspects of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury Regulations, which would require CPER to reallocate items of income, gain, deduction, loss or credit in a manner that adversely affects investors. If this occurs, investors may be required to file an amended U.S. federal income tax return and to pay additional taxes, plus deficiency interest.
CPER may be liable for U.S. federal income tax on any “imputed understatement” resulting from an adjustment as a result of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gain to any investor and decreases in allocations of items of deduction, loss, or credit to any investor without any offset for corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of deduction, loss, or credit to any investor. If CPER is required to pay any U.S. federal income taxes on any imputed understatement, the resulting tax liability would reduce the net assets of CPER and would likely have an adverse impact on the value of the shares. Under certain circumstances, CPER may be eligible to elect to cause the investors to take into account the amount of any imputed understatement, including any associated interest and penalties. The ability of a publicly traded partnership such as CPER to elect this treatment is uncertain. If the election is made, CPER would be required to provide investors who owned beneficial interests in the shares in the year to which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjusted K-1s”). The investors would be required to take the adjustment into account in the taxable year in which the Adjusted K-1s are issued.
CPER could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of the shares.
The Trust, on behalf of CPER, has received an opinion of counsel that, under current U.S. federal income tax laws, CPER will be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that (i) at least 90 percent of CPER’s annual gross income will be derived from (a) income and gains from commodities (not held as inventory) or futures, forwards, options, swaps and other notional principal contracts with respect to commodities, and (b) interest income; (ii) the Trust and CPER are organized and operated in accordance with their governing agreements and applicable law; and (iii) neither the Trust nor CPER elects to be taxed as a corporation for U.S. federal income tax purposes. Although USCF anticipates that CPER has satisfied and will continue to satisfy the “qualifying income” requirement for all taxable years, that result cannot be assured. CPER has not requested and will not request any ruling from the IRS with respect to its classification as a partnership taxable as a corporation for U.S. federal income tax purposes. If the IRS were to successfully assert that CPER is taxable as a corporation for U.S. federal income tax purposes in any taxable year, rather than passing through its income, gains, losses, deductions, and credits proportionately to its shareholders, CPER would be subject to U.S. federal income tax imposed at applicable corporate rates on its net income for the year. In addition, although USCF does not currently intend to make distributions with respect to its shares, if CPER were treated as a corporation for U.S. federal income tax purposes, any distributions made with respect to CPER shares would be taxable to shareholders as dividend income to the extent of CPER’s current and accumulated earnings and profits. Taxation of the Trust and CPER as corporations could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of the shares.
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The Trust is organized as a Delaware statutory trust in accordance with the provisions of the Trust Agreement and applicable state law, but CPER is taxed as a partnership for U.S. federal income tax purposes, and therefore, CPER has a more complex tax treatment than traditional mutual funds.
The Trust is organized as a Delaware statutory trust in accordance with the provisions of the Trust Agreement and applicable state law, but CPER is taxed as a partnership for U.S. federal income tax purposes. No U.S. federal income tax is paid by CPER on its income. Instead, CPER will furnish shareholders each year with tax information on IRS Schedules K-1, K-2, and/or K-3 (Form 1065) and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable share of the income, gain, loss, deduction, and credit of CPER. This must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from CPER during the taxable year. A shareholder, therefore, may be allocated income or gain by CPER, but receive no cash distribution with which to pay the tax liability resulting from the allocation, or may receive a distribution that is insufficient to pay such liability.
In addition to U.S. federal income taxes, shareholders may be subject to other taxes, such as state and local income taxes, unincorporated business taxes, business franchise taxes and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which CPER does business or owns property or where the shareholders reside. Although an analysis of those various taxes is not presented here, each prospective shareholder should consider their potential impact on its investment in CPER. It is each shareholder’s responsibility to file the appropriate U.S. federal, state, local, and foreign tax returns.
If CPER is required to withhold tax with respect to any non-U.S. shareholders, the cost of such withholding may be borne by all shareholders.
Under certain circumstances, CPER may be required to pay withholding tax with respect to allocations to non-U.S. shareholders. Although the Trust Agreement provides that any such withholding will be treated as being distributed to the non-U.S. shareholder, CPER may not be able to cause the economic cost of such withholding to be borne by the non-U.S. shareholder on whose behalf such amounts were withheld since it does not generally expect to make any distributions. Under such circumstances, the economic cost of the withholding may be borne by all shareholders, not just the shareholders on whose behalf such amounts were withheld. This could have a material impact on the value of the shares.
The impact of changes in U.S. federal income tax laws on CPER is uncertain.
In general, legislative or other actions relating to U.S. federal income taxes could have a negative effect on CPER or our investors. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. On August 16, 2022, President Biden signed the Inflation Reduction Act (the “IRA”) into law. At this time, we cannot predict with certainty how the provisions of the IRA or any other proposed or future tax legislation might affect the Trust, CPER, our investors, or CPER’s investments. Investors are urged to consult with their tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
CPER will be subject to credit risk with respect to counterparties to OTC contracts entered into by the Trust on behalf of CPER or held by special purpose or structured vehicles.
CPER faces the risk of non-performance by the counterparties to the OTC contracts. Unlike in futures contracts, the counterparty to these contracts is generally a single bank or other financial institution, rather than a clearing organization backed by a group of financial institutions. As a result, there will be greater counterparty credit risk in these transactions. A counterparty may not be able to meet its obligations to CPER, in which case CPER could suffer significant losses on these contracts.
If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, CPER may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Trust on behalf of CPER may obtain only limited recovery or may obtain no recovery in such circumstances.
Valuing OTC derivatives may be less certain than actively traded financial instruments.
In general, valuing OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts and securities or cleared swaps because, for OTC derivatives, 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.
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CPER is not leveraged, but it could become leveraged if it had insufficient assets to completely meet its margin or collateral requirements relating to its investments.
CPER has not leveraged, and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments accordingly. Consistent with the foregoing, CPER’s announced investment intentions, and any changes thereto, will take into account the need for CPER to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, CPER becoming leveraged. If market conditions require it, CPER may implement risk reduction procedures, which may include changes to CPER’s investments, and such changes may occur on short notice if they occur other than during a roll or rebalance period.
Although CPER does not and will not borrow money or use debt to satisfy its margin or collateral obligations in respect of its investments, it could become leveraged if CPER were to hold insufficient assets that would allow it to meet not only the current, but also future, margin or collateral obligations required for such investments. Such a circumstance could occur if CPER were to hold assets that have a value of less than zero.
USCF endeavors to have the value of CPER’s Treasuries, cash and cash equivalents, whether held by CPER or posted as margin or other collateral, at all times approximate the aggregate market value of its obligations under its Futures Contracts and Other Copper-Related Investments. Although permitted to do so under the Trust Agreement, CPER has not and does not intend to leverage its assets by making investments beyond its potential ability to meet the potential margin and collateral obligations relating to such investments. Consistent with this, CPER’s investment decisions will take into account the need for CPER to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, CPER becoming leveraged, including by its holding of assets that have a high probability of having a value of less than zero.
CPER may temporarily limit the offering of Creation Baskets.
CPER may determine to limit the issuance of its shares through the offering of Creation Baskets to its Authorized Participants in order to allow it to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a manner that meets its investment objective. CPER will announce to the market through the filing of a Current Report on Form 8-K if it intends to limit the offering of Creation Baskets at any time. In such case, orders for Creation Baskets will be considered for acceptance in the order they are received by CPER and CPER would continue to accept requests for redemption of its shares from Authorized Participants through Redemption Baskets during the period of the limited offering of Creation Baskets.
CPER pays fees and expenses that are incurred regardless of whether CPER is profitable.
Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income and gains to their investors, CPER generally does not distribute cash to shareholders. You should not invest in CPER if you will need cash distributions from CPER to pay taxes on your share of income and gains of CPER, if any, or for any other reason.
You will have no rights to participate in the management of CPER and will have to rely on the duties and judgment of USCF to manage CPER.
CPER is subject to actual and potential inherent conflicts involving USCF, various commodity futures brokers and Authorized Participants. USCF’s officers, directors and employees do not devote their time exclusively to CPER. USCF’s personnel are directors, officers or employees of other entities that may compete with CPER for their services, including other commodity pools (funds) that USCF manages. USCF could have a conflict between its responsibilities to CPER and to those other entities. As a result of these and other relationships, parties involved with CPER have a financial incentive to act in a manner other than in the best interest of CPER and the shareholders.
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Certain of CPER’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.
Futures positions cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption, such as a war or a foreign government taking political actions that disrupt the market for its currency, its crude oil production or exports, or another major export, can also make it difficult to liquidate a position. Because both Eligible Copper Futures Contracts and Other Copper-Related Investments may be illiquid, CPER’s Copper Interests may be more difficult to liquidate at favorable prices in periods of illiquid markets and losses may be incurred during the period in which positions are being liquidated. The large size of the positions that CPER may acquire increases the risk of illiquidity both by making its positions more difficult to liquidate and by potentially increasing losses while trying to do so.
OTC contracts that are not subject to clearing may be even less marketable than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, they are not transferable without the consent of the counterparty. These conditions make such contracts less liquid than standardized futures contracts traded on a commodities exchange and could adversely impact CPER’s ability to realize the full value of such contracts. In addition, even if collateral is used to reduce counterparty credit risk, sudden changes in the value of OTC transactions may leave a party open to financial risk due to a counterparty default since the collateral held may not cover a party’s exposure on the transaction in such situations.
CPER is not actively managed and its investment objective is for the daily changes in percentage terms of its shares’ per share NAV for any period of 30 successive valuation days to be within plus/minus 10 percent (10%) of the average daily percentage change in the price of the Benchmark Component Copper Futures Contracts over the same period.
CPER is not actively managed by conventional methods. Accordingly, if CPER’s investments in Copper Interests are declining in value, in the ordinary course, CPER will not close out such positions except in connection with paying the proceeds to an Authorized Participant upon the redemption of a basket or closing out futures positions in connection with the monthly change in the Benchmark Component Copper Futures Contracts. USCF will seek to cause the NAV of CPER’s shares to track the SCI during periods in which the price is flat or declining as well as when the price is rising.
CPER’s ability to invest in the Benchmark Component Copper Futures Contract could be limited as a result of any or all of the following: evolving market conditions, a change in regulatory accountability levels and position limits imposed on CPER with respect to its investment in Futures Contracts, additional or different risk mitigation measures taken by market participants, generally, including CPER, with respect to CPER acquiring additional Futures Contracts, or CPER selling additional shares.
CPER may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s ability to sell shares.
NYSE Arca may suspend CPER’s shares from trading on the exchange with or without prior notice to CPER, upon failure of CPER to comply with the NYSE’s listing requirements, or when in its sole discretion, the NYSE Arca determines that such suspension of dealings is in the public interest or otherwise warranted. There can be no assurance that the requirements necessary to maintain the listing of CPER’s shares will continue to be met or will remain unchanged. If CPER were unable to meet the NYSE’s listing standards and were to become delisted, an investor’s ability to sell its shares would be adversely impacted.
The NYSE Arca may halt trading in CPER’s shares, which would adversely impact an investor’s ability to sell shares.
Trading in shares may be halted due to market conditions or, in light of NYSE Arca rules and procedures, for reasons that, in the view of the NYSE Arca, make trading in shares inadvisable. In addition, trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified market decline. Additionally, there can be no assurance that the requirements necessary to maintain the listing of CPER’s shares will continue to be met or will remain unchanged.
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The liquidity of CPER’s shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the shares.
In the event that one or more Authorized Participants which have substantial interests in the shares withdraw from participation, the liquidity of the shares will likely decrease, which could adversely affect the market price of the shares and result in investors incurring a loss on their investment.
Shareholders that are not Authorized Participants may only purchase or sell their shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the shares.
Only Authorized Participants may directly purchase shares from, or redeem shares with, CPER through Creation Baskets or Redemption Baskets respectively. All other investors that desire to purchase or sell shares must do so through the NYSE Arca or in other markets, if any, in which the shares may be traded. Shares may trade at a premium or discount relative to NAV per share.
The lack of an active trading market for CPER shares may result in losses on an investor’s investment in CPER at the time the investor sells the shares.
Although CPER’s shares are listed and traded on the NYSE Arca, there can be no guarantee that an active trading market for the shares will be maintained. If an investor needs to sell shares at a time when no active trading market for them exists, the price the investor receives upon sale of the shares, assuming they were able to be sold, likely would be lower than if an active market existed.
SummerHaven is leanly staffed and relies heavily on key personnel to manage advisory activities.
SummerHaven is leanly staffed and relies heavily on key personnel to manage advisory activities. In providing trading advisory services to CPER with respect to the SCI, SummerHaven relies heavily on Kurt Nelson and Dr. K. Geert Rouwenhorst. Mr. Nelson and Dr. Rouwenhorst intend to allocate their time to managing the assets of CPER in a manner that they deem appropriate. If such key personnel of SummerHaven were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management of SummerHaven.
USCF’s LLC Agreement provides limited authority to the Non-Management Directors, and any Director of USCF may be removed by USCF’s parent company, which is wholly owned by The Marygold Companies, Inc., formerly Concierge Technologies, Inc., a controlled public company where the majority of shares are owned by Nicholas D. Gerber along with certain of his other family members and certain other shareholders.
USCF’s Board of Directors currently consists of four Management Directors, who are also executive officers or employees of USCF, and three Non-Management Directors, who are considered independent for purposes of applicable NYSE Arca and SEC rules. Under USCF’s LLC Agreement, the Non-Management Directors have only such authority as the Management Directors expressly confer upon them, which means that the Non-Management Directors may have less authority to control the actions of the Management Directors than is typically the case with the independent members of a company’s Board of Directors. In addition, any Director may be removed by written consent of USCF Investments, Inc. (“USCF Investments”), formerly Wainwright Holdings, Inc., which is the sole member of USCF. The sole shareholder of USCF Investments is The Marygold Companies, Inc., formerly Concierge Technologies, Inc. (“Marygold”), a company publicly traded under the ticker symbol “MGLD”. Mr. Nicholas D. Gerber, along with certain of his family members and certain other shareholders, owns the majority of the shares in Marygold, which is the sole shareholder of USCF Investments, the sole member of USCF. Accordingly, although USCF is governed by the USCF Board of Directors, which consists of both Management Directors and Non-Management Directors, pursuant to the LLC Agreement, it is possible for Mr. Gerber to exercise his indirect control of USCF Investments to effect the removal of any Director (including the Non-Management Directors which comprise the Audit Committee) and to replace that Director with another Director. Having control in one person could have a negative impact on USCF and CPER, including their regulatory obligations.
There is a risk that CPER will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such CPER may not earn any profit.
CPER pays brokerage charges of approximately 0.10% of average total net assets based on brokerage fees of $3.00 per buy or sell, management fees of 0.65% of NAV on its average net assets, and OTC spreads and extraordinary expenses (e.g., subsequent offering expenses, other expenses not in the ordinary course of business, including the indemnification of any person against liabilities and obligations to the extent permitted by law and required under the Trust Agreement and under agreements entered into by USCF on CPER’s behalf 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 expenses and the settlement of claims and litigation) that cannot be quantified.
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These fees and expenses must be paid in all cases regardless of whether CPER’s activities are profitable. Accordingly, CPER must earn trading gains sufficient to compensate for these fees and expenses before it can earn any profit.
CPER is subject to extensive regulatory reporting and compliance.
CPER is subject to a comprehensive scheme of regulation under the federal commodities and securities laws. CPER could be subject to sanctions for a failure to comply with those requirements, which could adversely affect its financial performance (in the case of financial penalties) or ability to pursue its investment objective (in the case of a limitation on its ability to trade).
Because CPER’s shares are publicly traded, CPER is subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities include the Public Company Accounting Oversight Board (the “PCAOB”), the SEC, the CFTC, the NFA, and NYSE Arca and these authorities have continued to develop additional regulations or interpretations of existing regulations. CPER’s ongoing efforts to comply with these regulations and interpretations have resulted in, and are likely to continue resulting in, a diversion of management’s time and attention from revenue-generating activities to compliance related activities.
CPER is responsible for establishing and maintaining adequate internal control over financial reporting. CPER’s internal control system is designed to provide reasonable assurance to its management regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may provide only reasonable assurance with respect to financial statement preparation and presentation.
Regulatory changes or actions, including the implementation of new legislation, is impossible to predict but may significantly and adversely affect CPER.
The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and futures exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. Regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the United States. In addition, the SEC, 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. Further, various national governments outside of the United States have expressed concern regarding the disruptive effects of speculative trading in the commodities markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on CPER is impossible to predict, but it could be substantial and adverse.
The Trust is not a registered investment company, so shareholders do not have the protections of the 1940 Act.
The Trust is not an investment company subject to the 1940 Act. Accordingly, investors do not have the protections afforded by that statute, which, for example, requires investment companies to have a majority of disinterested directors and regulates the relationship between the investment company and its investment manager.
Trading in international markets could expose CPER to credit and regulatory risk.
CPER invests primarily in Eligible Copper Futures Contracts, a significant portion of which are traded on United States exchanges, including the COMEX. However, a portion of CPER’s trades may take place on markets and exchanges outside the United States. Trading on such non-U.S. markets or exchanges presents risks because they are not subject to the same degree of regulation as their U.S. counterparts, including potentially different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, CPER is subject to the risk of adverse exchange-rate movements between the dollar and the functional currencies of such contracts. Additionally, trading on non-U.S. exchanges is subject to the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local economic declines and political instability. An adverse development with respect to any of these variables could reduce the profit or increase the loss earned on trades in the affected international markets.
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CPER and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders.
CPER is subject to actual and potential inherent conflicts involving USCF, various commodity futures brokers and any Authorized Participants. USCF’s officers, directors and employees do not devote their time exclusively to CPER and also are directors, officers or employees of other entities that may compete with CPER for their services. They could have a conflict between their responsibilities to CPER and to those other entities. As a result of these and other relationships, parties involved with CPER have a financial incentive to act in a manner other than in the best interests of CPER and the shareholders. USCF has not established any formal procedure to resolve conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to such conflicts of interest to resolve them equitably. Although USCF attempts to monitor these conflicts, it is extremely difficult, if not impossible, for USCF to ensure that these conflicts do not, in fact, result in adverse consequences to the shareholders.
CPER may also be subject to certain conflicts with respect to its FCMs, including, but not limited to, conflicts that result from the FCM receiving greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third-party accounts traded through the FCMs. In addition, USCF’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 CPER trades using the clearing broker to be used by CPER. A potential conflict also may occur if USCF’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 CPER.
CPER, USCF and SummerHaven may have conflicts of interest, which may cause them to favor their own interests to the detriment of shareholders.
CPER, USCF and SummerHaven may have inherent conflicts to the extent USCF and SummerHaven attempt to maintain CPER’s asset size in order to preserve its fee income and this may not always be consistent with CPER’s objective of having the value of its shares’ NAV track changes in the value of the SCI.
USCF’s and SummerHaven’s officers, directors and employees do not devote their time exclusively to CPER. For example, USCF’s directors, officers and employees act in such capacity for other entities, including the Related Public Funds that may compete with CPER for their services. They could have a conflict between their responsibilities to CPER and to the Related Public Funds.
USCF has sole current authority to manage the investments and operations of CPER. It has delegated management of CPER’s investments in its Copper Interests to its commodity trading advisor, SummerHaven. This authority to manage the investments and operations of CPER may allow either USCF or SummerHaven to act in a way that furthers its own interests in conflict with the best interests of investors. Shareholders have very limited voting rights, which will limit the ability to influence matters such as amending the Trust Agreement, changing CPER’s basic investment objective, dissolving CPER, or selling or distributing CPER’s assets.
Shareholders have only very limited voting rights and have the power to replace USCF only under specific circumstances. Shareholders do not participate in the management of CPER and do not control USCF, so they do not have any influence over basic matters that affect CPER.
Shareholders have very limited voting rights with respect to CPER’s affairs and have none of the statutory rights normally associated with the ownership of shares of a corporation (including, for example, the right to bring “oppression” or “derivative” actions). Shareholders may elect a replacement sponsor only if USCF resigns voluntarily or loses its corporate charter. Shareholders are not permitted to participate in the management or control of CPER or the conduct of its business. Shareholders must therefore rely upon the duties and judgment of USCF to manage CPER’s affairs.
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CPER 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.
CPER could terminate at any time, regardless of whether CPER has incurred losses, subject to the terms of the Trust Agreement. In particular, unforeseen circumstances, including but not limited to the death, adjudication of incompetence, bankruptcy, dissolution, withdrawal, or removal of USCF as the sponsor of the Trust could cause CPER to terminate unless a successor is appointed in accordance with the Trust Agreement. Circumstances that could cause the sponsor to resign include, but are not limited to, if USCF determines market conditions, regulatory requirements, risk mitigation measures taken by CPER, third parties or otherwise that would lead CPER to determine that it could no longer foreseeably meet its investment objective or that CPER’s aggregate net assets in relation to its operating expenses or its margin or collateral requirements make the continued operation of CPER unreasonable or imprudent. In addition, USCF may terminate CPER if it determines that CPER’s aggregate net assets in relation to its operating expenses make the continued operation of CPER unreasonable or imprudent. However, no level of losses will require USCF to terminate CPER. CPER’s termination would result in the liquidation of its assets and the distribution of the proceeds thereof, first to creditors and then to shareholders in accordance with their positive book capital account balances, after giving effect to all contributions, distributions and allocations for all periods, and CPER could incur losses in liquidating its assets in connection with a termination. Termination could also negatively affect the overall maturity and timing of an investor’s investment portfolio.
CPER does not expect to make cash distributions.
CPER has not previously made any cash distributions and intends to reinvest any realized gains in additional Copper Interests rather than distributing cash to shareholders. Therefore, unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, CPER generally does not expect to distribute cash. An investor should not invest in CPER if the investor will need cash distributions from CPER to pay taxes on its share of income and gains of CPER, if any, or for any other reason. Nonetheless, although CPER 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 Copper Interests and investors adversely react to being taxed on such income without receiving distributions that could be used to pay such tax. If this income becomes significant then cash distributions may be made.
An unanticipated number of Redemption Basket requests during a short period of time could have an adverse effect on CPER’s NAV.
If a substantial number of requests for redemption of Redemption Baskets are received by CPER during a relatively short period of time, CPER may not be able to satisfy the requests from CPER assets not committed to trading. As a consequence, it could be necessary to liquidate positions in CPER’s trading positions before the time that the trading strategies would otherwise dictate liquidation.
The suspension in the ability of Authorized Participants to purchase Creation Baskets could cause CPER’s NAV to differ materially from its trading price.
In the event that there was a suspension in the ability of Authorized Participants to purchase additional Creation Baskets, Authorized Participants and other groups that make a market in shares of CPER would likely still continue to actively trade the shares. However, in such a situation, Authorized Participants and other market makers may seek to adjust the market they make in the shares. Specifically, such market participants may increase the spread between the prices that they quote for offers to buy and sell shares to allow them to adjust to the potential uncertainty as to when they might be able to purchase additional Creation Baskets of shares. In addition, Authorized Participants may be less willing to offer to quote offers to buy or sell shares in large numbers. The potential impact of either wider spreads between bid and offer prices, or reduced number of shares on which quotes may be available, could increase the trading costs to investors in CPER compared to the quotes and the number of shares on which bids and offers are made if the Authorized Participants still were able to freely create new baskets of shares. In addition, there could be a significant variation between the market price at which shares are traded and the shares’ NAV, which is also the price shares can be redeemed with CPER by Authorized Participants in Redemption Baskets. The foregoing could also create significant deviations from CPER’s investment objective. Any potential impact to the market for shares of CPER that could occur from the Authorized Participant’s inability to create new baskets would likely not extend beyond the time when additional shares would be registered and available for distribution.
CPER may determine that, to allow it to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a manner that meets its investment objective, it may limit its offers of Creation Baskets.
CPER may determine to limit the issuance of its shares through the offering of Creation Baskets to its Authorized Participants. As a result of certain circumstances described herein, including (1) the need to comply with regulatory requirements (including, but not limited to, exchange accountability levels and position limits); (2) market conditions (including but not limited to those allowing CPER to obtain greater liquidity or to execute transactions with more favorable pricing); and (3) risk mitigation measures taken by CPER’s current and other FCMs that limit CPER and other market participants from investing in particular copper futures contracts, CPER’s management can determine that it will limit the issuance of shares and the offerings of Creation Baskets because it is unable to invest the proceeds from such offerings in investments that would permit it to reasonably meet its investment objective.
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If such a determination is made, the same consequences associated with a suspension of the offering of Creation Baskets, as described in the foregoing risk factor, “The suspension in the ability of Authorized Participants to purchase Creation Baskets could cause CPER’s NAV to differ materially from its trading price.”
In a rising rate environment, CPER may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss.
When interest rates rise, the value of fixed income securities typically falls. In a rising interest rate environment, CPER may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss. Interest rate risk is generally lower for shorter term investments and higher for longer term investments. The risk to CPER of rising interest rates may be greater in the future due to the end of a long period of historically low rates, the effect of potential monetary policy initiatives, including actions taken by the U.S. Federal Reserve and other foreign equivalents to curb inflation, and resulting market reaction to those initiatives. When interest rates fall, CPER may be required to reinvest the proceeds from the sale, redemption or early prepayment of a Treasury Bill or money market security at a lower interest rate.
CPER may potentially lose money by investing in government money market funds.
CPER invests in government money market funds. Although such government money market funds seek to preserve the value of an investment at $1.00 per share, there is no guarantee that they will be able to do so and CPER may lose money by investing in a government money market fund. An investment in a government money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, referred to herein as the FDIC, or any other government agency. The share price of a government money market fund can fall below the $1.00 share price. CPER cannot rely on or expect a government money market fund’s adviser or its affiliates to enter into support agreements or take other actions to maintain the government money market fund’s $1.00 share price. The credit quality of a government money market fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the government money market fund’s share price. Due to fluctuations in interest rates, the market value of securities held by a government money market fund may vary. A government money market fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets.
The failure or bankruptcy of a clearing broker or CPER’s Custodian could result in a substantial loss of CPER’s assets and could impair CPER in its ability to execute trades.
The CEA and CFTC regulations impose several requirements on FCMs and clearing houses that are designed to protect customers, including mandating the implementation of risk management programs, internal monitoring and controls, capital and liquidity standards, customer disclosures, and auditing and examination programs. In particular, the CEA and CFTC regulations require FCMs and clearing houses to segregate all funds received from customers from proprietary assets. There can be no assurance that the requirements imposed by the CEA and CFTC regulations will prevent losses to, or not materially adversely affect, CPER or its investors.
In particular, in the event of an FCM’s or clearing house’s bankruptcy, CPER could be limited to recovering either a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts or CPER may not recover any assets at all. CPER may also incur a loss of any unrealized profits on its open and closed positions. This is because if such a bankruptcy were to occur, CPER would be afforded the protections granted to customers of an FCM, and participants to transactions cleared through a clearing house, under the United States Bankruptcy Code and applicable CFTC regulations. Such provisions generally provide for a pro rata distribution to customers of customer property held by the bankrupt FCM or an Exchange’s clearing house if the customer property held by the FCM or the Exchange’s clearing house is insufficient to satisfy all customer claims.
Bankruptcy of a clearing FCM can be caused by, among other things, the default of one of the FCM’s customers. In this event, the Exchange’s clearing house is permitted to use the entire amount of margin posted by CPER (as well as margin posted by other customers of the FCM) to cover the amounts owed by the bankrupt FCM. Consequently, CPER could be unable to recover amounts due to it on its futures positions, including assets posted as margin, and could sustain substantial losses.
Notwithstanding that CPER could sustain losses upon the failure or bankruptcy of its FCM, the majority of CPER’s assets are held in Treasuries, cash and/or cash equivalents with CPER’s Custodian and would not be impacted by the bankruptcy of an FCM.
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The failure or bankruptcy of CPER’s Custodian could result in a substantial loss of CPER’s assets.
The majority of CPER’s assets are held in Treasuries, cash and/or cash equivalents with the Custodian. The insolvency of the Custodian could result in a complete loss of CPER’s assets held by that Custodian, which, at any given time, would likely comprise a substantial portion of CPER’s total assets.
The liability of SHIM and SummerHaven is limited, and the value of the shares may be adversely affected if USCF and CPER are required to indemnify SHIM and/or SummerHaven.
Under the licensing agreement among SHIM, SummerHaven, and USCF, and the advisory agreement between SummerHaven and USCF, none of SHIM, SummerHaven and its affiliates, nor any of their respective officers, directors, shareholders, members, partners, employees and any person who controls SHIM or SummerHaven is liable to USCF or CPER absent willful misconduct, gross negligence, bad faith, or material breaches of applicable law or the applicable agreement on the part of SHIM or SummerHaven. In addition, SHIM, SummerHaven and its officers, directors, shareholders, members, partners, employees and any person who controls SHIM or SummerHaven or their representatives, agents, attorneys, service providers, successors and assigns have the right to be indemnified, defended and held harmless from and against any and all claims, liabilities, obligations, judgments, causes of action, costs and expenses (including reasonable attorneys’ fees) (collectively, “Losses”) in connection with or arising out of the licensing agreement or advisory agreement, unless such Losses result from any willful misconduct, gross negligence or bad faith on the part of SHIM, SummerHaven, or a material breach by USCF of applicable law or the applicable agreement. Furthermore, SHIM, SummerHaven will not be liable to USCF or CPER for any indirect, incidental, special or consequential damages, even if SHIM, SummerHaven or an authorized representative of SHIM, SummerHaven has been advised of the possibility of such damages.
The liability of USCF and the Trustee are limited, and the value of the shares will be adversely affected if CPER is required to indemnify the Trustee or USCF.
Under the Trust Agreement, the Trustee and USCF are not liable, and have the right to be indemnified, for any liability or expense incurred absent gross negligence or willful misconduct on the part of the Trustee or USCF or breach by USCF of the Trust Agreement, as the case may be. As a result, USCF may require the assets of CPER 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 CPER and the value of its shares.
Although the shares of CPER are limited liability investments, certain circumstances such as bankruptcy or indemnification of CPER by a shareholder will increase the shareholder’s liability.
The shares of CPER are limited liability investments; shareholders may not lose more than the amount that they invest plus any profits recognized on their investment. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of CPER any distribution they received at a time when CPER was in fact insolvent or in violation of its Trust Agreement. In addition, a number of states do not have “statutory trust” statutes such as the Delaware statutes under which the Trust has been formed in the State of Delaware. It is possible that a court in such state could hold that, due to the absence of any statutory provision to the contrary in such jurisdiction, the shareholders, although entitled under Delaware law to the same limitation on personal liability as stockholders in a private corporation for profit organized under the laws of the State of Delaware, are not so entitled in such state. Finally, in the event the Trust or CPER is made a party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection with any shareholder’s (or assignee’s) obligations or liabilities unrelated to the business of the Trust or CPER, as applicable, such shareholder (or assignees cumulatively) is required under the Trust Agreement to indemnify the Trust or CPER, as applicable, for all such liability and expense incurred, including attorneys’ and accountants’ fees.
Investors cannot be assured of the continuation of the agreement between SHIM and USCF for use of the SCI, and discontinuance of the SCI may be detrimental to CPER.
Investors cannot be assured that the license agreement between SHIM and USCF for use of the SCI will continue for any length of time. Should the agreement between SHIM and USCF for use of the SCI be terminated, USCF will be required to find a replacement index, which may have an adverse effect on CPER.
Investors cannot be assured of SummerHaven’s continued services, and discontinuance may be detrimental to CPER.
Investors cannot be assured that SummerHaven will be willing or able to continue to service CPER for any length of time. SummerHaven was formed for the purpose of providing investment advisory services, and provides these services to CPER on a contractual basis pursuant to a licensing agreement and an advisory agreement. If SummerHaven discontinues its activities on behalf of CPER, CPER may be adversely affected. If SummerHaven’s registration with the CFTC or membership in the NFA were revoked or suspended, SummerHaven would no longer be able to provide services to CPER.
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CPER is a series of the Trust and, as a result, a court could potentially conclude that the assets and liabilities of CPER are not segregated from those of another series of the Trust, thereby potentially exposing assets in CPER to the liabilities of another series of the Trust.
CPER is a series of a Delaware statutory trust and not itself a separate legal entity. The Delaware Statutory Trust Act provides that if certain provisions are included in the formation and governing documents of a statutory trust organized in series and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records and are accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred by a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof. Conversely, none of the debts, liabilities, obligations and expenses incurred with respect to any other series thereof shall be enforceable against the assets of such series. USCF is not aware of any court case that has interpreted this Inter-Series Limitation on Liability or provided any guidance as to what is required for compliance. USCF intends to maintain separate and distinct records for CPER and account for CPER separately from any other series of the Trust, but it is possible a court could conclude that the methods used do not satisfy the Delaware Statutory Trust Act, which would potentially expose assets in one series to the liabilities of another series of the Trust.
The Trust Agreement limits the forum in which claims may be brought against USCF, the Trust, the Trustee or their respective directors and officers.
The rights of USCF, the Trust, CPER, DTC (as registered owner of CPER’s global certificate for shares) and the shareholders are governed by the laws of the State of Delaware. USCF, the Trust, CPER and DTC and, by accepting shares, each DTC Participant and each shareholder, consent to the exclusive jurisdiction of the courts of the State of Delaware and any federal courts located in Delaware other than for a person to assert a claim of Delaware jurisdiction over USCF, the Trust or CPER. As a result, any claims, suits, actions or proceedings arising out of or relating in any way to the 1933 Act, the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Trust, the Delaware Statutory Trust Act (the “Trust Act”), the Trust Agreement or asserting a claim governed by the internal affairs (or similar) doctrine (including, without limitation, any claims, suits, actions or proceedings to interpret, apply or enforce (i) the provisions of the Trust Agreement, or (ii) the duties (including fiduciary duties), obligations or liabilities of the Trust to USCF, the shareholders or the Trustee, or of USCF or the Trustee to the Trust, to the shareholders or each other, or (iii) the rights or powers of, or restrictions on, the Trust, the Trustee or the shareholders, or (iv) any provision of the Trust Act or other laws of the State of Delaware pertaining to trusts made applicable to the Trust pursuant to the Trust Act, or (v) any other instrument, document, agreement or certificate contemplated by any provision of the Trust Act or the Trust Agreement relating in any way to the Trust, shall be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction.
We believe this provision benefits us and the shareholders: (1) by having disputes resolved by a forum with the experience and established precedent for resolving these types of disputes under Delaware law, (2) by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, and, (3) as a result of the foregoing, limiting the time cost and uncertainty of litigation. However, this provision may limit the right of CPER’s shareholders to bring a claim in a judicial forum they believe is more favorable for its disputes against USCF, the Trust, or the Trustee. In addition, it may have the effect of discouraging lawsuits against USCF, the Trust, the Trustee, or their respective directors and officers. Although the Trust Agreement contains the exclusive choice of forum provision described above and such provisions are expressly permitted under the Trust Act, there are no court cases that we are aware of that have interpreted the Trust Act in this regard and thus, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. With the validity and enforceability of exclusive forum selection provisions still somewhat in question outside of the State of Delaware, there may be increased litigation over such provisions. Challenging shareholders might bring actions in courts outside of Delaware to attack a forum selection clause that specifies Delaware as the exclusive jurisdiction. A non-Delaware court could view negatively a forum selection clause in favor of Delaware, in particular, because such a provision may appear to divest the non-Delaware court of its legal jurisdiction.
Section 27 of the 1934Act vests exclusive federal jurisdiction for all claims brought to enforce any duty or liability created under the 1934Act. Therefore, any exclusive forum selection clauses will not apply to any such claim. In addition, Section 22 of the 1933 Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the 1933 Act or the rules and regulations thereunder. As a result, there is uncertainty as to whether a court would enforce an exclusive forum selection clause in connection with claims arising under the 1933 Act and/or the 1934Act, and the rules and regulations thereunder, and in any event, stockholders will not be deemed to have waived the Trust’s compliance with the federal securities laws and the rules and regulations thereunder.
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USCF and the Trustee are not obligated to prosecute any action, suit or other proceeding in respect of any CPER property.
Neither USCF nor the Trustee is obligated to, although each may in its respective discretion, prosecute any action, suit or other proceeding in respect of CPER property. The Trust Agreement does not confer upon shareholders the right to prosecute any such action, suit or other proceeding.
Third parties may infringe upon or otherwise violate intellectual property rights or assert that USCF has infringed or otherwise violated their intellectual property rights, which may result in significant costs and diverted attention.
It is possible that third parties might utilize CPER’s intellectual property or technology, including the use of its business methods, trademarks and trading program software, without permission. USCF has a patent for CPER’s business method and has registered its trademarks. CPER does not currently have any proprietary software. However, if it obtains proprietary software in the future, any unauthorized use of CPER’s proprietary software and other technology could also adversely affect its competitive advantage. CPER may not have adequate resources to implement procedures for monitoring unauthorized uses of its patents, trademarks, proprietary software and other technology. Also, third parties may independently develop business methods, trademarks or proprietary software and other technology similar to that of USCF or claim that USCF has violated their intellectual property rights, including their copyrights, trademark rights, trade names, trade secrets and patent rights. As a result, USCF may have to litigate in the future to protect its trade secrets, determine the validity and scope of other parties’ proprietary rights, defend itself against claims that it has infringed or otherwise violated other parties’ rights, or defend itself against claims that its rights are invalid. Any litigation of this type, even if USCF is successful and regardless of the merits, may result in significant costs, divert its resources from CPER, or require it to change its proprietary software and other technology or enter into royalty or licensing agreements.
Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.
With the increased use of technologies such as the internet and the dependence on computer systems to perform necessary business functions, CPER is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events such as a cyber-attack against CPER, a natural catastrophe, an industrial accident, failure of CPER’s disaster recovery systems, or consequential employee error. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches of CPER’s clearing broker or third party service provider (including, but not limited to, index providers, the administrator and transfer agent, the custodian), have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of CPER shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. Adverse effects can become particularly acute if those events affect CPER’s electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data. In addition, a service provider that has experienced a cyber-security incident may divert resources normally devoted to servicing CPER to addressing the incident, which would be likely to have an adverse effect on CPER’s operations. Cyber-attacks may also cause disruptions to the futures exchanges and clearinghouses through which CPER invests in futures contracts, which could result in disruptions to CPER’s ability to pursue its investment objective, resulting in financial losses to CPER and its shareholders.
In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. CPER and its shareholders could be negatively impacted as a result. While USCF and the Related Public Funds, including CPER, have established business continuity plans, there are inherent limitations in such plans, including the possibility that certain risks have not been identified or that new risks will emerge before countervailing measures can be implemented. Furthermore, USCI cannot control cybersecurity plans and systems of its service providers, market makers or Authorized Participants.
CPER’s investment returns could be negatively affected by climate change and greenhouse gas restrictions.
Driven by concern over the risks of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions or production and use of oil and gas. These include adoption of cap and trade regimes, carbon taxes, trade tariffs, minimum renewable usage requirements, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. Political and other actors and their agents increasingly seek to advance climate change objectives indirectly, such as by seeking to reduce the availability of or increase the cost for, financial and investment in the oil and gas sector and taking actions intended to promote changes in business strategy for oil and gas companies. Many governments are also providing tax advantages and other subsidies to support transitioning to alternative energy sources or mandating the use of specific fuels other than oil or natural gas. Depending on how policies are formulated and applied, they could have the potential to negatively affect CPER’s investment returns and make oil and natural gas products more expensive or less competitive.
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USCF is the subject of class action, derivative, and other litigation. In light of the inherent uncertainties involved in litigation matters, an adverse outcome in this litigation could materially adversely affect USCF’s financial condition.
USCF and USCF’s directors and certain of its officers are currently subject to litigation. Estimating an amount or range of possible losses resulting from litigation proceedings to USCF is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages and are subject to appeal. In addition, because most legal proceedings are resolved over extended periods of time, potential losses are subject to change due to, among other things, new developments, changes in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties’ settlement posture and their evaluation of the strength or weakness of their case against USCF. For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting therefrom. In light of the inherent uncertainties involved in such matters, an adverse outcome in this litigation could materially adversely affect USCF’s financial condition, results of operations or cash flows in any particular reporting period. In addition, litigation could result in substantial costs and divert USCF’s management’s attention and resources from conducting USCF’s operations, including the management of CPER and the other Related Public Funds.
ADDITIONAL INFORMATION ABOUT CPER, ITS INVESTMENT OBJECTIVE AND INVESTMENTS
CPER is a series of the Trust. The Trust operates pursuant to the terms of the Fourth Amended and Restated Declaration of Trust and Trust Agreement dated as of December 15, 2017 (“Trust Agreement”), which grants full management control of CPER to USCF. CPER maintains its main business office at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596.
The net assets of CPER consist primarily of investments in Eligible Copper Futures Contracts and, to a lesser extent, in order to comply with regulatory requirements, risk mitigation measures, liquidity requirements, or in view of market conditions, Other Copper-Related Investments. Market conditions that USCF currently anticipates could cause CPER to invest in Other Copper-Related Investments include those allowing CPER to obtain greater liquidity or to execute transactions with more favorable pricing.
CPER invests substantially the entire amount of its assets in Eligible Copper Futures Contracts while supporting such investments by holding the amounts of its margin, collateral and other requirements relating to these obligations in short-term obligations of the United States of two years or less (“Treasuries”), cash and cash equivalents. The daily holdings of CPER are available on CPER’s website at www.uscfinvestments.com.
CPER invests in Copper 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 Copper Interests. In pursuing this objective, the primary focus of USCF, is the investment in Eligible Copper Futures Contracts and the management of CPER’s investments in Treasuries, cash and/or cash equivalents for margining purposes and as collateral.
CPER seeks to invest in a combination of Copper Interests such that the daily changes in its NAV, measured in percentage terms, will closely track the daily changes in the price of the SCI, also measured in percentage terms. As a specific benchmark, USCF endeavors to place CPER’s trades in Copper Interests and otherwise manage CPER’s investments so that “A” will be within plus/minus ten percent (10%) of “B”, where:
| · | A is the average daily percentage change in CPER’s per share NAV for any period of 30 successive valuation days, i.e., any NYSE Arca trading day as of which CPER calculates its per share NAV, and |
| · | B is the average daily percentage change in the price of the SCI over the same period. |
USCF believes that market arbitrage opportunities will cause the daily changes in CPER’s share price on the NYSE Arca to closely track the daily changes in CPER’s per share. USCF further believes that the daily changes in CPER’s NAV in percentage terms will closely track the daily changes in percentage terms in the SCI, less CPER’s expenses.
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The following two charts demonstrate the correlation between the changes in CPER’s NAV and the changes in the Benchmark Component Copper Futures Contracts. The first chart below shows the daily movement of CPER’s per share NAV versus the daily movement of the SCI for the 30-valuation day period ended September 30, 2022, the last trading day in September. The second chart below shows the monthly total returns of CPER as compared to the monthly value of the SCI for the previous five years and the period ended September 30, 2022.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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USCF employs a “neutral” investment strategy intended to track the changes in the SCI regardless of whether the SCI goes up or goes down. CPER’s “neutral” investment strategy is designed to permit investors generally to purchase and sell CPER’s shares for the purpose of investing indirectly in the copper market in a cost-effective manner, and/or to permit participants in the copper or other industries to hedge the risk of losses in their copper-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the copper market and/or the risks involved in hedging may exist. In addition, an investment in CPER involves the risk that the daily changes in the price of CPER’s shares, in percentage terms, will not accurately track the daily changes in the SCI, in percentage terms, and that daily changes in the SCI, in percentage terms, will not closely correlate with daily changes in the spot prices of the commodities underlying the SCI, in percentage terms.
An alternative tracking measurement of the return performance of CPER versus the return of the SCI can be calculated by comparing the actual return of CPER, measured by changes in its per share NAV, versus the expected changes in its per share NAV under the assumption that CPER’s returns had been exactly the same as the daily changes in the price of the SCI.
For the nine months ended September 30, 2022, the actual total return of CPER as measured by changes in its per share NAV was (24.56)%. This is based on an initial per share NAV of $27.24 as of December 31, 2021 and an ending per share NAV as of September 30, 2022 of $20.55. During this time period, CPER made no distributions to its shareholders. However, if CPER’s daily changes in its per share NAV had instead exactly tracked the changes in the daily total return of the SCI, CPER would have had an estimated per share NAV of $20.80 as of September 30, 2022, for a total return over the relevant time period of (24.93)%. The difference between the actual per share NAV total return of CPER of (24.56)% and the expected total return based on the SCI of (24.93)% was a difference over the time period of 0.37%, which is to say that CPER’s actual total return outperformed its benchmark by that percentage. CPER incurs expenses primarily composed of the management fee, brokerage commissions for the buying and selling of futures contracts, and other expenses. The impact of these expenses, offset by interest and dividend income, and net of positive or negative execution, tends to cause daily changes in the per share NAV of CPER to track slightly lower or higher than daily changes in the price of the SCI. These expenses are offset in part by the income that CPER collects on its cash and cash equivalent holdings.
The SCI is a single-commodity index designed to be an investment benchmark for copper as an asset class. The SCI is composed of copper futures contracts on the COMEX exchange. The SCI attempts to maximize backwardation and minimize contango while utilizing contracts in liquid portions of the futures curve.
The SCI is rules-based and is rebalanced monthly based on observable price signals described below in the section “Contract Selection and Weighting.” In this context, the term “rules-based” is meant to indicate that the composition of the SCI in any given month will be determined by quantitative formulas relating to the prices of the futures contracts that are included in the SCI. Such formulas are not subject to adjustment based on other factors.
THE SCI IS THE EXCLUSIVE PROPERTY OF SHIM, WHICH HAS LICENSED CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND THE INDEX FOR USE BY USCF. SHIM IS SOLELY RESPONSIBLE FOR DETERMINING THE SECURITIES INCLUDED IN, AND THE CALCULATION OF, THE SCI. NEITHER SHIM NOR ITS AFFILIATES MAKE ANY REPRESENTATIONS REGARDING THE APPROPRIATENESS OF CPER’s INVESTMENTS FOR THE PURPOSE OF TRACKING THE PERFORMANCE OF THE SCI OR OTHERWISE.
For additional information regarding the SCI, see “Additional Information About the SCI and CPER’s Trading Program” on page 76.
Rebalancing Period
The SCI is rebalanced during the 11th through 14th business days of each calendar month, when existing positions are placed by new positions and weightings based on the signals used for contract selection on 10th business day of the calendar month as outlined above.
Changes to the SCI effective on December 31, 2020
Previously, the SCI could have been comprised of two or three Eligible Copper Futures Contracts. Beginning with the commodity selection process that was scheduled to occur on December 31, 2020, the rebalancing period for the SCI changed from the first four business days of each month to the 11th-14th business days of each month, based on signals used for contract selection on the 10th business day of each month, rather than the last business day of each month. In addition, commencing with the first commodity selection date occurring after the change: the SCI was revised as follows: the number of Eligible Copper Futures Contracts was reduced, and the SCI itself is now comprised of one or three Eligible Copper Futures Contracts. Previously, the SCI could have comprised of two or three Eligible Copper Futures Contracts. These revisions to the composition of the SCI are intended to ensure that the SCI components at any given time represent copper futures contracts for which there is an active and liquid trading market.
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In light of the aforementioned changes to the composition of the SCI, the tables and charts below reflect actual and hypothetical past performance of the SCI as well as hypothetical past performance for the SCI had the aforementioned changes to the SCI been effective during the relevant periods.
The table and chart below show the hypothetical performance of the SCI from January 1, 2012 through September 30, 2022.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT CPER WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING.
FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
The table below reflects how the SCI performed from January 1, 2012 through September 30, 2022 during the entirety of such time period. The performance data does not reflect any reinvestment or distribution of profits, commission charges, management fees or other expenses that would have been incurred in connection with operating and managing a commodity pool designed to track the SCI. Such fees and expenses would reduce the performance returns shown in the table below.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Hypothetical Performance Results* for the SCI for the period from January 1, 2012 through September 30, 2022
| Year | Ending Level* | Annual Return | ||||||
| 2012 | 1,223.15 | 5.04 | % | |||||
| 2013 | 1,114.30 | (8.90 | )% | |||||
| 2014 | 937.33 | (15.88 | )% | |||||
| 2015 | 704.39 | (24.85 | )% | |||||
| 2016 | 815.94 | 15.84 | % | |||||
| 2017 | 1,069.01 | 31.02 | % | |||||
| 2018 | 842.94 | (21.15 | )% | |||||
| 2019 | 905.32 | 7.40 | % | |||||
| 2020 | 1,124.23 | 24.18 | % | |||||
| 2021 | 1,422.52 | 26.53 | % | |||||
| 2022 (YTD) | 1,086.03 | (23.65 | )% | |||||
| * | The “base level” for the SCI was set at 100 on January 2, 1991. The “Ending Level” represents the value of the components of the SCI on the last trading day of each year and is used to illustrate the cumulative performance of the SCI. |
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*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
SummerHaven
Copper Index (“SCI”) Year-Over-Year
Hypothetical Total Returns (1/1/2012 – 9/30/2022 YTD)
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The following table compares the hypothetical total return of the SCI in comparison with the actual total return a major index and spot copper prices (less storage cost) from December 31, 1997 through September 30, 2022.
| Hypothetical and Historical Results for the period from December 31, 1997 through September 30, 2022 | ||||||||||||
| BCOM HG TR | Spot Copper (less storage) | SCI TR Actual | ||||||||||
| Total return | 360.16 | % | 119.07 | % | 593.51 | % | ||||||
| Average annualized return (total) | 11.67 | % | 8.19 | % | 13.83 | % | ||||||
| Annualized volatility | 25.63 | % | 24.82 | % | 25.14 | % | ||||||
| Annualized Sharpe ratio | 0.38 | 0.26 | 0.47 | |||||||||
Source: SHIM, Bloomberg
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The table above shows the performance of the SCI from December 31, 1997 through September 30, 2022 in comparison with a traditional commodity index and spot copper prices: the Bloomberg Copper Subindex Total ReturnSM and spot copper prices less warehouse storage rents. The Bloomberg Copper Subindex Total ReturnSM includes the contract in the Bloomberg Commodity Index Total Return that relates to a single commodity, copper (currently the Copper High Grade futures contract traded on the COMEX). The data for the SCI Total Return Index is derived by using the SCI’s calculation methodology with historical prices for the futures contracts comprising the SCI. The information about the index above comes from publicly-available material about such index but is not designed to provide a thorough overview of the methodology of such index. The index noted above does not have investment objectives identical to the SCI. As a result, there are inherent limitations in comparing such performance against the SCI. For more information about the index and its methodologies, please refer to the material published by the sponsor of the Bloomberg Copper Subindex Total Return which may be found on its website. USCF is not responsible for any information found on such website, and such information is not part of this prospectus.
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In the table above, “Total Return” refers to the return of the relevant index from December 31, 1997 to September 30, 2022; “Annualized Volatility” is a measure of the amount of variation or fluctuation in the returns of the relevant index. Annualized Volatility is calculated by taking the monthly standard deviation of the relevant index’s return and multiplying it by the square root of 12; and “Annualized Sharpe Ratio” is a measure of the total return of each relevant index adjusted by the risk-free interest rate (the 90-Day U.S. Treasury Bill yield) and the volatility of each index. Many investors consider volatility to be a measure of risk, and lower volatility of investment returns is considered a positive investment attribute as opposed to higher volatility. Annualized Sharpe Ratio is a standard measure for investors to compare two different investments or indexes that have different levels of volatility. If two indexes have the same total return, but one has lower Annualized Volatility, then its Annualized Sharpe Ratio will be higher. The higher the Annualized Sharpe Ratio, the better the risk-adjusted performance. Annualized Sharpe Ratio is calculated by taking the average monthly total return of the relevant index and subtracting the then current yield on the 90-Day U.S. Treasury Bill. The annualized return of this series is then divided by the Annualized Volatility of this series, and this result is the Annualized Sharpe Ratio for the relevant index. A higher Sharpe Ratio is not a guarantee that one investment or index will in the future produce better risk adjustment total returns, but USCF believes it is a useful tool for investors to consider when making investment decisions.
The following chart compares the hypothetical total return of the SCI in comparison with the actual total return of one major index and spot copper prices (less storage cost) over a ten-year period.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Ten Year Comparison
of Index Returns of
BCOM HG TR, Spot Copper Price, Spot Copper Price less Storage Cost, and
the Hypothetical Returns of the SCI TR (9/30/2012 – 9/30/2022)*
Source: SHIM, Bloomberg, LME
| * | In addition to the actual performance of the SCI, this chart includes as “SCI Hypothetical TR” the hypothetical performance of the SCI had the changes to the composition of the SCI, which are described above and became effective on January 1, 2021, been effective during the September 30, 2012 through September 30, 2022 period. |
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*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The following chart compares the hypothetical total return of the SCI in comparison with the actual total return of one major index and spot copper prices (less storage cost) over a five-year period.
Five Year
Comparison of Index Returns of
BCOM HG TR, Spot Copper Price, Spot Copper Price less Storage Cost, and the Hypothetical Returns of the SCI (9/30/2017-9/30/2022)*
Source: SHIM, Bloomberg, LME
| * | In addition to the actual performance of the SCI, this chart includes as “SCI Hypothetical TR” the hypothetical performance of the SCI had the changes to the composition of the SCI, which are described above and became effective on January 1, 2021, been effective during the September 30, 2017 through September 30, 2022 period. |
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Impact of Contango and Backwardation on Total Returns
The design of the SCI is such that every month it is made up of different Benchmark Component Copper Futures Contracts, and CPER’s investment must be rebalanced on an ongoing basis to reflect the changing composition of the SCI. In the event of a commodity futures market where near month contracts to expire trade at a higher price than next month contracts to expire, a situation referred to as “backwardation,” then absent the impact of the overall movement in commodity prices, the value of the SCI would tend to rise as it approaches expiration. As a result, CPER may benefit because it would be selling more expensive contracts and buying less expensive ones on an ongoing basis. Conversely, in the event of a commodity futures market where near month contracts trade at a lower price than next month contracts, a situation referred to as “contango,” then absent the impact of the overall movement in commodity prices, the value of the SCI would tend to decline as it approaches expiration. As a result, CPER’s total return may be lower than might otherwise be the case because it would be selling less expensive contracts and buying more expensive ones. The impact of backwardation and contango may cause the total return of CPER to vary significantly from the total return of other price references, such as the spot price of the commodities comprising the SCI. In the event of a prolonged period of contango, and absent the impact of rising or falling commodity prices, this could have a significant negative impact on CPER’s NAV and total return.
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Contango and backwardation may impact the total return on investment in shares of CPER relative to a hypothetical direct investment in the commodities underlying the Benchmark Component Copper Futures Contracts that make up the SCI and, in the future, it is likely the relationship between the market prices of CPER’s shares and changes in the spot prices of the commodities underlying the Benchmark Component Copper Futures Contracts that make up the SCI could be impacted by contango and backwardation. It is important to note that this comparison ignores the potential costs associated with physically owning and storing commodities, which could be substantial.
The impact of backwardation and contango may cause the total return of CPER to vary significantly from the total return of other price references, such as the spot price of copper comprising the SCI. In the event of a prolonged period of contango, and absent the impact of rising or falling commodity prices, it could have a significant negative impact on CPER’s NAV and total return. However, generally, periods of contango or backwardation do not materially impact CPER’s investment objective of having the daily percentage changes in its per share NAV track the daily percentage changes in the price of the SCI since the impact of backwardation and contango tend to equally impact the daily percentage changes in price of both CPER’s shares and the Benchmark Component Copper 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.
What are the Trading Policies of CPER?
Investment Objective
The investment objective of CPER is for the daily changes in percentage terms of its shares’ per share NAV to reflect the daily changes in percentage terms of the SCI, less CPER’s expenses.
CPER seeks to achieve its investment objective by investing so that the average daily percentage change in CPER’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Component Copper Futures Contracts over the same period.
The SCI is designed to reflect the performance of the investment returns from a portfolio of copper futures contracts on the COMEX exchange. The SCI is owned and maintained by SummerHaven Index Management, LLC (“SHIM”) and is calculated and published by the NYSE Arca. The SCI is comprised of either two or three Eligible Copper Futures Contracts that are selected on a monthly basis based on quantitative formulas relating to the prices of the Eligible Copper Futures Contracts developed by SHIM. The Eligible Copper Futures Contracts that at any given time make up the SCI are referred to herein as “Benchmark Component Copper Futures Contracts.”
CPER seeks to achieve its investment objective by investing to the fullest extent possible in the Benchmark Component Copper Futures Contracts. Then, if constrained by regulatory requirements or in view of market conditions, CPER will invest next in other Eligible Copper Futures Contracts based on the same copper as the futures contracts subject to such regulatory constraints or market conditions, and finally, to a lesser extent, in other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Copper Futures Contracts if one or more other Eligible Copper Futures Contracts is not available. When CPER has invested to the fullest extent possible in exchange-traded futures contracts, CPER may then invest in other contracts and instruments based on the Benchmark Component Copper Futures Contracts, other Eligible Copper Futures Contracts or other items based on copper, such as cash-settled options, forward contracts, cleared swap contracts and swap contracts other than cleared swap contracts. Other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Copper Futures Contracts and other contracts and instruments based on the Benchmark Component Copper Futures Contracts are referred to collectively as “Other Copper-Related Investments,” and together with Benchmark Component Copper Futures Contracts and other Eligible Copper Futures Contracts, “Copper Interests.”
USCF believes that the market arbitrage opportunities will cause the daily changes in CPER’s share price on the NYSE Arca on a percentage basis to closely track the daily changes in CPER’s per share NAV on a percentage basis. USCF believes that the net effect of this expected relationship and the expected relationship described above between CPER’s per share NAV and the SCI will be that the daily changes in the price of CPER’s shares on the NYSE Arca on a percentage basis will closely track the daily changes in the SCI on a percentage basis, less CPER’s expenses. While CPER is composed of Benchmark Component Copper Futures Contracts and is therefore a measure of the prices of the corresponding commodities comprising the SCI for future delivery, there is nonetheless expected to be a reasonable degree of correlation between the SCI and the cash or spot prices of the commodities underlying the Benchmark Component Copper Futures Contracts.
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Investors should be aware that CPER’s investment objective is not for its NAV or market price of shares to equal, in dollar terms, the spot prices of the commodities underlying the Benchmark Component Copper Futures Contracts or the prices of any particular group of futures contracts. CPER will not seek to achieve its stated investment objective over a period of time greater than one day. This is because natural market forces called contango and backwardation have impacted the total return on an investment in CPER’s shares during the past year relative to a hypothetical direct investment in the various commodities and, in the future, it is likely that the relationship between the market price of CPER’s shares and changes in the spot prices of the underlying commodities will continue to be so impacted by contango and backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning and storing the commodities, which could be substantial).
Liquidity
CPER invests only in Eligible Copper Futures Contracts and Other Copper-Related Investments that, in the opinion of USCF, are traded in sufficient volume to permit the ready taking and liquidation of positions in these financial interests and in Other Copper-Related Investments that, in the opinion of USCF, may be readily liquidated with the original counterparty or through a third party assuming the position of CPER.
Spot Commodities
While certain Futures Contracts and other Copper-Related Investments traded on the exchange can be physically settled, CPER does not intend to take or make physical delivery. CPER may from time to time trade in Other Copper-Related Investments based on the spot price of copper comprising the SCI.
Leverage
USCF endeavors to have the value of CPER’s Treasuries, cash and cash equivalents, whether held by CPER or posted as margin or other collateral, at all times approximate the aggregate market value of its obligations under its Copper Interests. Commodity pools’ trading positions in futures contracts or other related Copper 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 interest’s) entire market value. While USCF has not and does not intend to leverage the assets of CPER, it is not prohibited from doing so under the Trust Agreement.
Although permitted to do so under the Trust Agreement, CPER has not and does not intend to leverage its assets by making investments beyond its potential ability to meet the potential margin and collateral obligations relating to such investments. Consistent with this, CPER’s investment decisions will take into account the need for CPER to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to avoid, to the extent reasonably possible, CPER becoming leveraged, including by its holding of assets that have a high probability of causing the NAV of CPER to be less than zero.
Borrowings
Borrowings are not used by CPER 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. CPER does not plan to establish credit lines.
OTC Derivatives (Including Spreads and Straddles)
In addition to Futures Contracts, there are also a number of listed options on the Futures Contracts on the principal futures exchanges. These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the copper market. Consequently, CPER may purchase options on copper Futures Contracts on these exchanges in pursuing its investment objective.
In addition to Eligible Copper Futures Contracts and options on Eligible Copper Futures Contracts, there also exists an active non-exchange-traded market in derivatives tied to various commodities. These derivatives transactions (also known as OTC contracts) are usually entered into 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 may not be able to perform its obligations under its contract. To reduce the credit risk that arises in connection with such contracts, each series of the Trust, including CPER, may enter into an agreement with each counterparty based on the Master Agreement published by the International Swaps and Derivatives Association, Inc. (“ISDA”) that provides for the netting of its overall exposure to its counterparty.
USCF assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an OTC contract pursuant to guidelines approved by USCF’s Board.
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CPER may enter into certain transactions where an OTC component is exchanged for a corresponding futures contract (“Exchange for Related Position” or “EFRP” transactions). In the most common type of EFRP transaction entered into by CPER, the OTC component is the purchase or sale of one or more baskets of CPER shares. These EFRP transactions may expose CPER to counterparty risk during the interim period between the execution of the OTC component and the exchange for a corresponding futures contract. Generally, the counterparty risk from the EFRP transaction will exist only on the day of execution.
CPER may employ spreads or straddles in its trading to mitigate the differences in its investment portfolio and its goal of tracking the price of the Benchmark Component Copper Futures Contracts. CPER would use a spread when it chooses to take simultaneous long and short positions in futures written on the same underlying asset, but with different delivery months.
During the period from January 1, 2022 to September 30, 2022, CPER did not invest in any OTC contracts.
Pyramiding
USCF has not employed and will not employ the technique, commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as variation margin for the purchase or sale of additional positions in the same or another commodity interest.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
USCF manages CPER which is a commodity pool that issues shares traded on the NYSE Arca. The chart below shows, as of September 30, 2022, the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for CPER.
| #
of Authorized Participants |
Baskets
Purchased |
Baskets
Redeemed |
Outstanding
Shares | |||
| 10 | 448 | -314 | 6,700,000 | |||
Since the commencement of the offering of CPER’s shares to the public on November 15, 2011 to September 30, 2022, the simple average daily change in the SCI was 0.005%, while the simple average daily change in the per share NAV of CPER over the same time period was 0.002%. The average daily difference was (0.004)% (or (0.3) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the SCI, the average error in daily tracking by the per share NAV was (3.698)%, meaning that over this time period CPER’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
The table below shows the relationship between the trading prices of the shares and the daily NAV of CPER, since inception through September 30, 2022. The first row shows the average amount of the variation between CPER’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the shares continues on the NYSE Arca until 4:00 p.m. New York time while regular trading in the Benchmark Component Copper Futures Contract on the COMEX ceases at 2:30 p.m. New York time and the value of the Benchmark Component Copper Futures Contract, for purposes of determining its end of day NAV, can be determined at that time.
| CPER | ||||
| Average Difference | $ | 0.01 | ||
| Max Premium % | 9.122 | % | ||
| Max Discount % | (5.453 | )% | ||
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For more information on the performance of CPER, see the Performance Tables below.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
COMPOSITE PERFORMANCE DATA FOR CPER
CPER Performance:
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 September 30, 2022): $551,192,036
Total Net Assets as of September 30, 2022: $137,662,285
NAV per Share as of September 30, 2022: $20.55
Worst Monthly Percentage Draw-down: June 2022 (13.80)%
Worst Peak-to-Valley Draw-down: January 2018 – March 2020 (33.68)%
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| Rates of Return* | ||||||||||||||||||||||||
| Month | 2017 | 2018 | 2019 | 2020 | 2021 | 2022** | ||||||||||||||||||
| January | 8.86 | % | (2.99 | )% | 5.96 | % | (10.03 | )% | 0.92 | % | (3.19 | )% | ||||||||||||
| February | (0.84 | )% | (2.35 | )% | 5.68 | % | 0.76 | % | 15.01 | % | 2.81 | % | ||||||||||||
| March | (1.98 | )% | (3.21 | )% | (0.27 | )% | (12.20 | )% | (2.26 | )% | 6.60 | % | ||||||||||||
| April | (2.31 | )% | 1.04 | % | (0.98 | )% | 5.01 | % | 11.53 | % | (7.68 | )% | ||||||||||||
| May | (1.01 | )% | (0.21 | )% | (9.24 | )% | 3.55 | % | 4.80 | % | (2.51 | )% | ||||||||||||
| June | 4.54 | % | (3.80 | )% | 2.97 | % | 11.92 | % | (8.68 | )% | (13.80 | )% | ||||||||||||
| July | 6.80 | % | (4.59 | )% | (1.53 | )% | 5.42 | % | 4.45 | % | (3.75 | )% | ||||||||||||
| August | 6.42 | % | (6.27 | )% | (4.48 | )% | 5.86 | % | (2.44 | )% | (1.81 | )% | ||||||||||||
| September | (4.63 | )% | 5.14 | % | 1.13 | % | (1.00 | )% | (6.60 | )% | (3.02 | )% | ||||||||||||
| October | 4.96 | % | (5.17 | )% | 2.41 | % | 0.43 | 6.75 | % | % | ||||||||||||||
| November | (1.81 | )% | 4.19 | % | 0.73 | % | 12.63 | (2.21 | )% | % | ||||||||||||||
| December | 7.67 | % | (5.46 | )% | 5.22 | % | 2.31 | 4.25 | % | % | ||||||||||||||
| Annual Rate of Return | 28.67 | % | (21.90 | )% | 6.69 | % | 23.83 | %** | 25.41 | % | (24.56 | )% | ||||||||||||
| * | 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. |
| ** | Through September 30, 2022. |
Draw-down: Losses experienced by CPER 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.
Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of CPER. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV that is not equaled or exceeded by a subsequent month-end per share NAV.
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USCF and its Management and Traders
USCF is a single member limited liability company that was formed in the state of Delaware on May 10, 2005. USCF maintains its main business office at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596. USCF is a wholly-owned subsidiary of USCF Investments, a Delaware corporation, which is an intermediate holding company that owns USCF and another advisor of exchange traded funds. USCF Investments is a wholly owned subsidiary of Marygold (publicly traded under the ticker MGLD), a publicly traded holding company that owns various financial and non-financial businesses. Mr. Nicholas Gerber (discussed below), along with certain family members and certain other shareholders, owns the majority of the shares in Marygold. USCF Investments is a holding company that currently holds both USCF, as well as USCF Advisers LLC, an investment adviser registered under the Investment Advisers Act of 1940, as amended, (“USCF Advisers”). USCF Advisers serves as the investment adviser for the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (“SDCI”), the USCF Midstream Energy Income Fund (“UMI”), the USCF Gold Strategy Plus Income Fund (“GLDX”); and the USCF Dividend Income Fund (“UDI”), each of which is a series of the USCF ETF Trust. USCF Advisers was also the investment adviser for the USCF Commodity Strategy Fund (the “Mutual Fund”), a series of the USCF Mutual Funds Trust, until March 2019, when the Mutual Fund liquidated all of its assets and distributed cash pro rata to all remaining shareholders. It was also the investment adviser for two series of the USCF ETF Trust that liquidated all of their assets and distributed cash pro rata to all remaining shareholders: the USCF SummerHaven SHPEN Index Fund (“BUYN”) and the USCF SummerHaven SPEI Index Fund (“BUY”), each a series of the USCF ETF Trust, until May 2020 and October 2020, respectively. The USCF ETF Trust is registered under the 1940 Act. The Board of Trustees for the USCF ETF Trust consists of different independent trustees than those independent directors who serve on the Board of Directors of USCF. USCF is a member of the NFA and registered as a CPO with the CFTC on December 1, 2005 and as a swaps firm on August 8, 2013.
USCF is the sponsor of the Trust and each of its series: USCI, CPER and the USCF Crescent Crypto Index Fund (“XBET”). A registration statement that had been previously filed for XBET was withdrawn on June 25, 2020.
USCF also serves as the general partner of the United States Natural Gas Fund, LP (“UNG”), the United States 12 Month Oil Fund, LP (“USL”), the United States Brent Oil Fund, LP (“BNO”), the United States Gasoline Fund, LP (“UGA”), the United States 12 Month Natural Gas Fund, LP (“UNL”) and the United States Oil Fund, LP (“USO”).
CPER, UNG, UGA, UNL, USL, USO, USCI and BNO are referred to collectively herein as the “Related Public Funds.”
The Related Public Funds are subject to reporting requirements under the Securities Exchange Act of 1934, as amended (the “1934 Act”). For more information about each of the Related Public Funds, investors in CPER may call 1-800-920-0259 or visit www.uscfinvestments.com or the SEC’s website at www.sec.gov.
USCF is required to evaluate the credit risk of CPER to the FCMs, oversee the purchase and sale of CPER’s shares by certain authorized participants (“Authorized Participants”), review daily positions and margin requirements of CPER and manage CPER’s investments. USCF also pays the fees of ALPS Distributors, Inc., which serves as the marketing agent for CPER (the “Marketing Agent”), and The Bank of New York Mellon (“BNY Mellon”), which serves as the administrator (the “Administrator”) and the custodian (the “Custodian”) for CPER. BNY Mellon is also the registrar and transfer agent for the shares of CPER. In no event may the aggregate compensation paid for the Marketing Agent and any affiliate of USCF for distribution-related services in connection with the offering of shares exceed ten percent (10%) of the gross proceeds of this offering.
The business and affairs of USCF are managed by the Board, which is comprised of the Management Directors, each of whom are also executive officers and employees of USCF, 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 USCF pursuant to the terms of the LLC Agreement. Through its Management Directors, USCF manages the day-to-day operations of CPER. The Board has an audit committee, which is made up of the three independent directors (Gordon L. Ellis, Malcolm R. Fobes III and Peter M. Robinson,). The audit committee is governed by an audit committee charter that is posted on CPER’s website at www.uscfinvestments.com. The Board has determined that each member of the audit committee meets the financial literacy requirements of the NYSE Arca and the audit committee charter. The Board has further determined that each of Messrs. Ellis and Fobes have accounting or related financial management expertise, as required by the NYSE Arca, such that each of them is considered an “Audit Committee Financial Expert” as such term is defined in Item 407(d)(5) of Regulation S-K.
CPER has no executive officers. Pursuant to the terms of the Trust Agreement, CPER’s affairs are managed by USCF.
The following are individual Principals, as that term is defined in CFTC Rule 3.1, for USCF: John P. Love, Stuart P. Crumbaugh, Daphne G. Frydman, Nicholas D. Gerber, Melinda D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Scott Schoenberger, Gordon L. Ellis, Malcolm R. Fobes III, Ray W. Allen, Kevin A. Baum, and USCF Investments, Inc., formerly Wainwright Holdings, Inc. The individuals who are Principals due to their positions are John P. Love, Stuart P. Crumbaugh, Daphne G. Frydman, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes III, Ray W. Allen and Kevin A. Baum. In addition, USCF Investments is a Principal because it is the sole member of USCF. None of the Principals owns or has any other beneficial interest in CPER. Andrew F Ngim makes trading and investment decisions for CPER. Ray W. Allen and Andrew F Ngim execute trades on behalf of CPER. In addition, Nicholas D. Gerber, John P. Love, Robert L. Nguyen, Ray W. Allen, Kevin A. Baum, Kathryn Rooney, Maya Lowry, and Ryan Katz are registered with the CFTC as Associated Persons of USCF and are NFA Associate Members. John P. Love, Kevin A. Baum and Ray W. Allen are also registered with the CFTC as Swaps Associated Persons.
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Ray W. Allen, 65, Portfolio Manager of USCF since January 2008. Mr. Allen was the portfolio manager of: (1) UGA from February 2008 until March 2010, and then portfolio manager since May 2015, (2) UHN from April 2008 until March 2010, and then portfolio manager since May 2015, (3) UNL from November 2009 until March 2010, and then portfolio manager since May 2015. In addition, he has been the portfolio manager of: (1) DNO since September 2009, (2) USO and USL since March 2010, (3) BNO since June 2010, (4) UNG since May 2015, (4) United States 3x Oil Fund and United States 3x Short Oil Fund from July 2017 to December 2019, and (5) the USCF Commodity Strategy Fund, a series of USCF Mutual Funds Trust, from October 2017 to March 2019. Mr. Allen also has served as the portfolio manager of the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund, a series of the USCF ETF Trust, since May 2018. Mr. Allen has been a principal of USCF listed with the CFTC and NFA since March 2009 and has been registered as an associated person of USCF since July 2015 and from March 2008 to November 2012. Additionally, Mr. Allen has been approved as an NFA swaps associated person of USCF since July 2015. As of February 2017, he also is an associated person and swap associated person of USCF Advisers, LLC (“USCF Advisers”). USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Allen earned a B.A. in Economics from the University of California at Berkeley and holds an NFA Series 3 registration.
Kevin A. Baum, 51, has served as the Chief Investment Officer of USCF since September 1, 2016 and as a Portfolio Manager of USCF from March 2016 to April 2017. Prior to joining USCF, Mr. Baum temporarily retired from December 2015 to March 2016. Mr. Baum served as the Vice President and Senior Portfolio Manager for Invesco, an investment manager that manages a family of exchange-traded funds, from October 2014 through December 2015. Mr. Baum was temporarily retired from May 2012 through September 2014. From May 1993 to April 2012, Mr. Baum worked as the Senior Portfolio Manager, Head of Commodities for OppenheimerFunds, Inc., a global asset manager. Mr. Baum has been approved as an NFA principal and associated person of USCF since April 2016, as well as a swap associated person of USCF from April 2016 through March 2020 and since November 2020. As of February 2017, he also is an associated person of USCF Advisers, and a swap associated person of USCF Advisers from February 2017 to March 2020 and since June 2021. Mr. Baum served as a branch manager of USCF Advisers from February 2017 through March 2022. Additionally, effective as of June 2021, he is a principal of USCF Advisers. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Baum is a CFA Charterholder, CAIA Charterholder, earned a B.B.A. in Finance from Texas Tech University and holds an NFA Series 3 registration.
Stuart P. Crumbaugh, 58, Chief Financial Officer, Secretary and Treasurer of USCF since May 2015 and also the Chief Financial Officer of The Marygold Companies, Inc., formerly Concierge Technologies, Inc. (“Marygold”), the parent of USCF Investments, Inc. (“USCF Investments”) (formerly Wainwright Holdings, Inc.) since December 2017. He is also the Treasurer and a member of the Board of Directors of Marygold & Co., a subsidiary of Marygold, since November 2019. In addition, Mr. Crumbaugh has served as a director of USCF Investments, the parent and sole member of USCF, since December 2016. Mr. Crumbaugh has been a principal of USCF listed with the CFTC and NFA since July 1, 2015 and, as of January 2017, he is a principal of USCF Advisers. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Since June 2015, Mr. Crumbaugh has been the Treasurer and Secretary of USCF Advisers. He has served as a Management Trustee, Chief Financial Officer and Treasurer of (1) USCF ETF Trust since May 2015 and (2) USCF Mutual Funds Trust since October 2016. Mr. Crumbaugh joined USCF as the Assistant Chief Financial Officer on April 6, 2015. Prior to joining USCF, Mr. Crumbaugh was the Vice President Finance and Chief Financial Officer of Sikka Software Corporation, a software service healthcare company providing optimization software and data solutions from April 2014 to April 6, 2015. Mr. Crumbaugh served as a consultant providing technical accounting, IPO readiness and M&A consulting services to various early stage companies with the Connor Group, a technical accounting consulting firm, for the periods of January 2014 through March 2014; October 2012 through November 2012; and January 2011 through February 2011. From December 2012 through December 2013, Mr. Crumbaugh was Vice President, Corporate Controller and Treasurer of Auction.com, LLC, a residential and commercial real estate online auction company. From March 2011 through September 2012, Mr. Crumbaugh was Chief Financial Officer of IP Infusion Inc., a technology company providing network routing and switching software enabling software-defined networking solutions for major mobile carriers and network infrastructure providers. Mr. Crumbaugh earned a B.A. in Accounting and Business Administration from Michigan State University in 1987 and is a Certified Public Accountant – Michigan (inactive).
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Daphne G. Frydman, 47, General Counsel of USCF and USCF Advisers, LLC since May 2018, and Director of Compliance of USCF since April 2022. She is also the Chief Legal Officer of USCF ETF Trust since May 2018 and Secretary of the same since December 2021. Ms. Frydman served as Deputy General Counsel of USCF and USCF Advisers, LLC from May 2016 through May 2018. From September 2001 through April 2016, Ms. Frydman was an attorney in private practice at the law firm Sutherland Asbill & Brennan LLP. Ms. Frydman is registered as a principal of USCF as of June 1, 2022. Ms. Frydman earned her JD from the Northwestern University Pritzker School of Law and a B.A. in College of Letters and Spanish from Wesleyan University.
Nicholas D. Gerber, 59, Vice President since May 15, 2015 and Management Director since June 2005. Mr. Gerber served as President and Chief Executive Officer of USCF from June 2005 through May 15, 2015 and Chairman of the Board of Directors of USCF from June 2005 through October 2019. Mr. Gerber co-founded USCF in 2005 and prior to that, he co-founded Ameristock Corporation in March 1995, a California-based investment adviser registered under the Investment Advisers Act of 1940 from March 1995 until January 2013. Since January 26, 2015, Mr. Gerber also has served as the Chief Executive Officer, President, and Chairman of the Board of Directors of Marygold, which is a company publicly traded under the ticker symbol “MGLD.” Marygold is the sole shareholder of USCF Investments. He is also the CEO and a member of the Board of Directors of Marygold & Co., a subsidiary of Marygold, since November 2019. Mr. Gerber also is the President and a director of USCF Investments, a position he has held since March of 2004. From August 1995 to January 2013, Mr. Gerber served as Portfolio Manager of Ameristock Mutual Fund, Inc. On January 11, 2013, the Ameristock Mutual Fund, Inc. merged with and into the Drexel Hamilton Centre American Equity Fund, a series of Drexel Hamilton Mutual Funds. Drexel Hamilton Mutual Funds is not affiliated with Ameristock Corporation, the Ameristock Mutual Fund, Inc. or USCF. Mr. Gerber also has served USCF Advisers on the Board of Managers from June 2013 to present, as the President from June 2013 through June 18, 2015, and as Vice President from June 18, 2015 to present. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, since February 2017, is registered as a commodity pool operator, NFA member and swap firm. He also has served as Chairman of the Boards of Trustees of USCF ETF Trust since 2014 and USCF Mutual Funds Trust since October 2016, respectively, (USCF ETF Trust and together with USCF Mutual Funds Trust are referred to as the “Trusts”) and each of the Trusts are investment companies registered under the Investment Company Act of 1940, as amended. In addition, Mr. Gerber served as the President and Chief Executive Officer of USCF ETF Trust from June 2014 until December 2015. Mr. Gerber has been a principal of USCF listed with the CFTC and NFA since November 2005, an NFA associate member and associated person of USCF since December 2005. Additionally, effective as of January 2017, he is a principal of USCF Advisers and, effective as of February 2017, he is an associated person and swap associated person of USCF Advisers. Mr. Gerber earned an MBA degree in finance from the University of San Francisco, a B.A. from Skidmore College and holds an NFA Series 3 registration.
John P. Love, 50, President and Chief Executive Officer of USCF since May 15, 2015, Management Director of USCF since October 2016 and Chairman of the Board of Directors of USCF since October 2019. Mr. Love also is a director of USCF Investments, a position he has held since December 2016. Mr. Love previously served as a Senior Portfolio Manager for the Related Public Funds from March 2010 through May 15, 2015. Prior to that, while still at USCF, he was a Portfolio Manager beginning with the launch of USO in April 2006. Mr. Love was the portfolio manager of USO from April 2006 until March 2010 and the portfolio manager for USL from December 2007 until March 2010. Mr. Love has been the portfolio manager of UNG since April 2007, and the portfolio manager of UGA, UHN, and UNL since March 2010. Mr. Love has served as on the Board of Managers of USCF Advisers since November 2016 and as its President since June 18, 2015. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. He also acted as co-portfolio manager of the Stock Split Index Fund, a series of the USCF ETF Trust for the period from September 2014 to December 2015, when he was promoted to the position of President and Chief Executive Officer of the USCF ETF Trust. Since October 2016 to present, he also has served as the President and Chief Executive of the USCF Mutual Funds Trust. Mr. Love has been a principal of USCF listed with the CFTC and NFA since January 17, 2006. Mr. Love has been registered as an associated person of USCF since February 2015 and from December 1, 2005 to April 16, 2009. Additionally, Mr. Love has been approved as an NFA swaps associated person since February 2015. Mr. Love is a principal of USCF Advisers LLC as of January 2017. Additionally, effective as of February 2017, he is an associated person and swap associated person of USCF Advisers. Mr. Love earned a B.A. from the University of Southern California, holds an NFA Series 3 and FINRA Series 7 registrations and is a CFA Charterholder.
Andrew F Ngim, 61, co-founded USCF in 2005 and has served as a Management Director since May 2005 and, since August 15, 2016, has served as the Chief Operating Officer of USCF. Mr. Ngim has served as the portfolio manager for USCI and CPER since January 2013 and for the United States Agricultural Index Fund from January 2013 to September 2018. Mr. Ngim also served as USCF’s Treasurer from June 2005 to February 2012. In addition, he has been on the Board of Managers and has served as the Assistant Secretary and Assistant Treasurer of USCF Advisers since its inception in June 2013 and Chief Operating Officer of USCF Advisers since March 2021. Prior to and concurrent with his services to USCF and USCF Advisers, from January 1999 to January 2013, Mr. Ngim served as a Managing Director for Ameristock Corporation, a California-based investment adviser, which he co-founded in March 1995, and was Co-Portfolio Manager of Ameristock Mutual Fund, Inc. from January 2000 to January 2013. Mr. Ngim also served as portfolio manager of (a) the following series of the USCF ETF Trust: (1) the Stock Split Index Fund from September 2014 to October 2017, (2) the USCF Restaurant Leaders Fund from November 2016 to October 2017, (3) USCF SummerHaven SHPEI Index Fund from December 2017 to October 2020, (4) USCF SummerHaven SHPEN Index Fund from December 2017 to April 2020, and (b) a series of USCF Mutual Funds Trust, the USCF Commodity Strategy Fund, from March 2017 to March 2019. Mr. Ngim also serves as the portfolio manager for the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund, a series of the USCF ETF Trust, from May 2018 to present. Mr. Ngim serves as a Management Trustee of: (1) the USCF ETF Trust from August 2014 to the present and (2) the USCF Mutual Funds Trust from October 2016 to present. Mr. Ngim has been a principal of USCF listed with the CFTC and NFA since November 2005 and a principal of USCF Advisers LLC since January 2017. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Ngim earned his B.A. from the University of California at Berkeley.
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Robert L. Nguyen, 62, Management Director and principal since July 2015. Mr. Nguyen served on the Board of USCF Investments from December 2014 to December 2016. Mr. Nguyen co-founded USCF in 2005 and served as a Management Director until March 2012. Mr. Nguyen was an Investment Manager with Ribera Investment Management, an investment adviser registered under the Investment Advisers Act of 1940, from January 2013 to March 2015. Prior to and concurrent with his services to USCF, from January 2000 to January 2013, Mr. Nguyen served as a Managing Principal for Ameristock Corporation, a California-based investment adviser registered under the Investment Advisers Act of 1940, which he co-founded in March 1995. Mr. Nguyen was a principal of USCF listed with the CFTC and NFA from November 2005 through March 2012 and an associated person of USCF listed with the CFTC and NFA from November 2007 through March 2012. Mr. Nguyen has been a principal of USCF listed with the CFTC and NFA since July 2015 and an associated person of USCF listed with the CFTC and NFA since December 2015. As of February 2017, he also is an associated person of USCF Advisers. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Nguyen earned his B.S. from California State University at Sacramento, and holds NFA Series 3 and FINRA Series 7 registrations.
Gordon L. Ellis, 75, Independent Director of USCF since September 2005. Previously, Mr. Ellis was a founder of International Absorbents, Inc., Director and Chairman since July 1985 and July 1988, respectively, and Chief Executive Officer and President since November 1996. He also served as Chairman of Absorption Corp., a wholly-owned subsidiary of International Absorbents, Inc., which is a leading developer and producer of environmentally friendly pet care and industrial products, from May July 1985 until July 2010 when it was sold to Kinderhook Industries, a private investment banking firm and remained as a director until March 2013 when Absorption Corp was sold again to J. Rettenmaier & Söhne Group, a German manufacturing firm. Concurrent with that, he founded and has served as Chairman from November 2010 to present of Lupaka Gold Corp., a firm that acquires, explores and developed mining properties and is currently driving an arbitration suit against the Republic of Peru. He also serves as a director of Goldhaven Resources, a firm that acquires, explores and develops mining properties in Canada and Chile, from August 2020 to present. Mr. Ellis has his Chartered Directors designation from The Director’s College (a joint venture of McMaster University and The Conference Board of Canada). He has been a principal of USCF listed with the CFTC and NFA since November 2005. Mr. Ellis is a professional engineer, retired, and earned an MBA in international finance.
Malcolm R. Fobes III, 57, Independent Director of USCF and Chairman of USCF’s audit committee since September 2005. He founded and is the 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. Mr. Fobes serves as Chairman and President of The Berkshire Funds, a mutual fund investment company registered under the Investment Company Act of 1940. Since 1997, Mr. Fobes has also served 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. He 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 has been a principal of USCF listed with the CFTC and NFA since November 2005. He earned a B.S. in finance with a minor in economics from San Jose State University in California.
Peter M. Robinson, 64, Independent Director of USCF since September 2005. Mr. Robinson has been a Research Fellow since 1993 with the Hoover Institution, a public policy think tank located on the campus of Stanford University. He authored three books and has been published in the New York Times, Red Herring, and Forbes ASAP and is the editor of Can Congress Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson has been a principal of USCF listed with the CFTC and NFA since December 2005. He earned an MBA from the Stanford University Graduate School of Business, graduated from Oxford University in 1982 after studying politics, philosophy, and economics and graduated summa cum laude from Dartmouth College in 1979.
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Background of SummerHaven
SummerHaven is a Delaware limited liability company formed on August 11, 2009. Its offices are located at Soundview Plaza, 1266 East Main Street, 4th Floor, Stamford CT 06902. SummerHaven has been registered under the CEA as a commodity pool operator and a commodity trading advisor since October 9, 2009. SummerHaven became an NFA member effective October 9, 2009. From September 2009 to January 2010, SummerHaven was a registered investment adviser under the Investment Advisers Act of 1940, from September 2009 to January 2010, when it withdrew its registration because its assets under management were below $25 million. Since September 2017, SummerHaven has been re-registered as an investment adviser under the Investment Advisers Act of 1940 with the SEC. The firm’s management team has over 50 years of combined capital markets experience including commodity research and modeling, trading, investment management and risk management expertise.
Background of SHIM
SHIM is the owner, creator and licensor of commodity indices including the SummerHaven Dynamic Commodity Index Total ReturnSM (“SDCI”) and the SummerHaven Copper Index Total ReturnSM (“SCI”). SHIM is a Delaware limited liability company formed on August 11, 2009. It maintains its main business office at Soundview Plaza, 1266 East Main Street, 4th Floor, Stamford, CT 06902. The firm maintains a website at www.summerhavenindex.com. The firm creates innovative commodities indices focused on providing investors with better risk-adjusted returns than traditional commodity index benchmarks.
Principals of SummerHaven
Kurt J. Nelson has been employed by SummerHaven since August 2009 as a partner. His duties include investor relations, marketing and product structuring. From September 2007 to July 2009, Mr. Nelson was employed by UBS Investment Bank as a Managing Director where he led the U.S. commodity index for UBS. Mr. Nelson was a supervisory committee member of the UBS Bloomberg CMCI Index and Dow-Jones UBS Commodity Index, and he was responsible for launching the UBS exchange-traded note platform (E-TRACS). From March 1998 to January 2007, Mr. Nelson was employed by AIG Financial Products Corp. as a Managing Director. Mr. Nelson created and managed the high-net-worth derivatives business for AIG Financial Products, and he also provided equity derivative and commodity index solutions for U.S. corporations, institutional dealers and principal dealers. Mr. Nelson was not employed from January 2007 to September 2007. Mr. Nelson became listed as a principal of SummerHaven effective October 1, 2009, as an associated person of SummerHaven effective October 12, 2009 and as an associate member of the NFA effective October 12, 2009. Mr. Nelson is 51 years old.
K. Geert Rouwenhorst has been employed by SummerHaven since April 2009 as a partner. His duties include research and investor relations. From July 1990 to present, Dr. Rouwenhorst has been employed by Yale School of Management as a Professor of Finance. Dr. Rouwenhorst became listed as a principal of SummerHaven effective October 8, 2009, as an associated person of SummerHaven effective September 1, 2011 and as an associate member of the NFA effective September 1, 2011. Dr. Rouwenhorst is 60 years old.
Robert Dieter has served as Chief Financial Officer of SummerHaven since May 2017 and also as Chief Operating Officer and Chief Compliance Officer of SummerHaven since January 2020. At SummerHaven he has responsibility for operations, corporate accounting, tax and financial reporting as well as compliance. Prior to joining SummerHaven in May 2017, Mr. Dieter founded a consulting practice focused on providing chief financial officer and compliance services to small and medium investment advisors where he worked from October 2009 to present. Mr. Dieter co-founded Seacross Global Advisors, a hedge fund firm where he served as the Chief Financial Officer from April 2007 to September 2009. Mr. Dieter received his M.B.A. from Tuck School of Business at Dartmouth College in 1972 and a B.A. from Tufts University in 1969. Mr. Dieter became listed as a principal of SummerHaven effective February 21, 2020.
Babu V. Sonti of SummerHaven Investment Management is the Chief Technology Officer since June 2016 and, since 2021, also the Chief Operating Officer. Previously, he was a Special Consultant to the United Nations Joint Staff Pension Fund from September 2015 to May 2016. Prior to that, Mr. Sonti was the Vice President and Chief Technology Officer of Ameritas Investment Partners, a registered investment adviser managing equity, fixed income and index derivatives, from January 2006 to August 2015 where he was responsible for developing, maintaining and researching infrastructure and trading technologies along with trading operations for equity, fixed income and index derivatives. Mr. Sonti was part of the founding team at Summit Investment Partners from June 1988 where he worked until December 2005, when Summit Investment Partners was acquired by Ameritas. Summit Investment Partners was a registered investment adviser that managed Summit Mutual Funds along with separate accounts with equity, fixed income and index derivatives for institutional investors. Mr. Sonti’s application to be a principal of SummerHaven was submitted to the National Futures Association on March 17, 2022 and remains pending. Mr. Sonti received his M.A. in Mathematics from the University of Maine and was the Assistant Professor of Mathematics & Computer Science at the College of Wooster. Mr. Sonti is 65 years old.
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Custodian, Registrar, Transfer Agent, and Administrator
In its capacity as the Custodian for CPER, The Bank of New York Mellon (“BNY Mellon” or “Custodian”) may hold CPER’s Treasuries, cash and/or cash equivalents pursuant to a custody agreement. BNY Mellon is also the registrar and transfer agent for the shares. In addition, in its capacity as Administrator for CPER, BNY Mellon performs certain administrative and accounting services for CPER and prepares certain SEC, NFA and CFTC reports on behalf of CPER.
As compensation for the services that BNY Mellon provides to CPER in the foregoing capacities, and the services BNY Mellon provides to the Related Public Funds, BNY Mellon receives certain out of pocket costs, transaction fees, and asset-based fees, which are accrued daily and paid monthly by USCF.
BNY Mellon is authorized to conduct a commercial banking business in accordance with the provisions of New York State Banking Law, and is subject to regulation, supervision, and examination by the New York State Department of Financial Services and the Board of Governors of the Federal Reserve System.
Delaware Trustee
Wilmington Trust, N.A. (the “Trustee”) serves as the Trust’s corporate trustee as required under the Delaware Statutory Trust Act (“DSTA”). USCF pays the Trustee $3,000 annually for its services to the Trust.
The Trustee is the sole trustee of the Trust. The rights and duties of the Trustee and USCF with respect to the offering of the shares and CPER management and the shareholders are governed by the provisions of the DSTA and by 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 DSTA. The Trustee does not owe any other duties to the Trust, USCF or the shareholders of CPER. The Trustee’s principal offices are located at 1100 North Market Street, Wilmington, Delaware 19890. The Trustee is unaffiliated with USCF.
The Trustee is permitted to resign upon at least sixty (60) days’ notice to the Trust, provided, that any such resignation will not be effective until a successor Trustee is appointed by USCF. USCF has the discretion to replace the Trustee.
Only the assets of the Trust and USCF are 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 shares. 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 shares. The Trustee’s liability in connection with the issuance and sale of the shares is limited solely to the express obligations of the Trustee set forth in the Trust Agreement.
Under the Trust Agreement, USCF has exclusive management and control of all aspects of the Trust’s business. The Trustee has no duty or liability to supervise the performance of USCF, nor will the Trustee have any liability for the acts or omissions of USCF. The shareholders have no voice in the day to day management of the business and operations of CPER and the Trust, other than certain limited voting rights as set forth in the Trust Agreement. In the course of its management of the business and affairs of CPER and the Trust, USCF may, in its sole and absolute discretion, appoint an affiliate or affiliates of USCF as additional sponsors and retain such persons, including affiliates of USCF, as it deems necessary to effectuate and carry out the purposes, business and objectives of the Trust.
Because the Trustee has no authority over the Trust’s operations, the Trustee itself is not registered in any capacity with the CFTC.
Marketing Agent
CPER also employs ALPS Distributors, Inc. (“ALPS Distributors”) as the Marketing Agent, which is further discussed under “What is the Plan of Distribution?” USCF pays the Marketing Agent an annual fee. In no event may the aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with the offering of shares exceed ten percent (10%) of the gross proceeds of the offering.
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ALPS Distributors’ principal business address is 1290 Broadway, Suite 1000, Denver, Colorado 80203. ALPS Distributors is a broker-dealer registered with the SEC and is a member of FINRA and a member of the Securities Investor Protection Corporation.
Payments to Certain Third Parties
USCF or the Marketing Agent, or an affiliate of USCF or the Marketing Agent, may directly or indirectly make cash payments to certain broker-dealers for participating in activities that are designed to make registered representatives and other professionals more knowledgeable about exchange-traded funds and exchange-traded products, including CPER and the Related Public Funds, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems.
Additionally, pursuant to written agreements, USCF may make payments, out of its own resources, to financial intermediaries in exchange for providing services in connection with the sale or servicing of CPER’s shares, including waiving commissions on the purchase or sale of shares of participating exchange-traded products.
Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker-dealer or intermediary and its clients. The amounts described above, which may be significant, are paid by USCF and/or the Marketing Agent from their own resources and not from the assets of CPER or the Related Public Funds.
Futures Commission Merchants
RBC Capital Markets, LLC
On June 25, 2018, the Trust on behalf of CPER entered into a Futures and Cleared Derivatives Transactions Customer Account Agreement with RBC Capital Markets, LLC (“RBC Capital” or “RBC”) to serve as the FCM for CPER. This agreement requires RBC Capital to provide services to CPER, in connection with the purchase and sale of Futures Contracts and other Copper-Related Investments for CPER and Futures Contracts and Other Commodity-Related Investments for USCI, in each case that may be purchased or sold by or through RBC Capital for CPER’s account, as applicable. For the period June 25, 2018 and after, CPER pays RBC Capital commissions for executing and clearing trades on behalf of CPER.
RBC Capital’s primary address is 30 Hudson Street, 27th Floor, Jersey City, NJ 07302. As of June 25, 2019, RBC Capital became the primary futures clearing broker for CPER. RBC Capital is registered in the United States with FINRA as a broker-dealer and with the CFTC as an FCM. RBC Capital is a member of various U.S. futures and securities exchanges.
RBC Capital is a large broker dealer subject to many different complex legal and regulatory requirements. As a result, certain of RBC Capital’s regulators may from time to time conduct investigations, initiate enforcement proceedings and/or enter into settlements with RBC Capital with respect to issues raised in various investigations. RBC Capital complies fully with its regulators in all investigations being conducted and in all settlements it reaches. In addition, RBC Capital is and has been subject to a variety of civil legal claims in various jurisdictions, a variety of settlement agreements and a variety of orders, awards and judgments made against it by courts and tribunals, both in regard to such claims and investigations. RBC Capital complies fully with all settlements it reaches and all orders, awards and judgments made against it.
RBC Capital has been named as a defendant in various legal actions, including arbitrations, class actions and other litigation including those described below, arising in connection with its activities. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. RBC Capital is also involved, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding RBC Capital’s business, including among other matters, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
RBC Capital contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, RBC Capital cannot predict the loss or range of loss, if any, related to such matters; how or if such matters will be resolved; when they will ultimately be resolved; or what the eventual settlement, fine, penalty or other relief, if any, might be. Subject to the foregoing, RBC Capital believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of RBC Capital.
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On April 27, 2017, pursuant to an offer of settlement, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that RBC Capital engaged in EFRP transactions which failed to satisfy the Rules of the Chicago Board of Trade (the “Chicago Board of Trade”) in one or more ways. Specifically, the Panel found that RBC Capital traders entered into EFRP trades in which RBC Capital accounts were on both sides of the transactions. While the purpose of the transactions was to transfer positions between the RBC Capital accounts, the Panel found that the manner in which the trades occurred violated the Chicago Board of Trade’s prohibition on wash trades. The Panel found that RBC Capital thereby violated CBOT Rules 534 and (legacy) 538.B. and C. In accordance with the settlement offer, the Panel ordered RBC Capital to pay a $175,000 fine. On October 1, 2019, the CFTC issued an order filing and settling charges against RBC Capital for the above activity, as well as related charges. The order required that RBC Capital cease and desist from violating the applicable regulations, pay a $5 million civil monetary penalty, and comply with various conditions, including conditions regarding public statements and future cooperation with the Commission.
Various regulators are conducting inquiries regarding potential violations of antitrust law by a number of banks and other entities, including RBC Capital, regarding foreign exchange trading. Beginning in 2015, putative class actions were brought against RBC Capital and/or Royal Bank of Canada, RBC Capital’s indirect parent, in the U.S. and Canada. These actions were each brought against multiple foreign exchange dealers and allege, among other things, collusive behavior in global foreign exchange trading. In August 2018, the U.S. District Court entered a final order approving RBC Capital’s settlement with class plaintiffs. In November 2018, certain institutional plaintiffs who had previously opted-out of participating in the settlement filed their own lawsuit in U.S. District Court. In May 2020, the U.S. District Court dismissed RBC from the opt-out action, but granted the plaintiffs’ motion to amend the complaint. The Canadian class actions remain pending and RBC Capital has reached a settlement for an immaterial amount with respect to an action brought by a class of indirect purchasers. RBC Capital is awaiting the court’s final approval of the settlement. In October 2020, RBC Capital and Royal Bank of Canada moved to dismiss the amended complaint. On July 28, 2021, the court dismissed Royal Bank of Canada from the case but denied the motion as to RBC. Based on the facts currently known, it is not possible at this time for management to predict the ultimate outcome of these collective matters or the timing of their ultimate resolution.
On April 13, 2015, RBC Capital’s affiliate, Royal Bank of Canada Trust Company (Bahamas) Limited (“RBC Bahamas”), was charged in France with complicity in tax fraud. RBC Bahamas believes that its actions did not violate French law and contested the charge in the French court. The trial of this matter has concluded and a verdict was delivered on January 12, 2017, acquitting the company and the other defendants and on June 29, 2018, the French appellate court affirmed the acquittals. On January 6, 2021, the French Supreme Court issued a judgment reversing the decision of the French Court of Appeal dated June 29, 2018 and sent the case back to the French Court of Appeal for rehearing and therefore the proceeding is currently awaiting a new trial with the French Court of Appeal.
Royal Bank of Canada and other panel banks for the setting of the U.S. dollar London interbank offered rate (“LIBOR”) have been named as defendants in private lawsuits filed in the U.S. with respect to the setting of U.S. dollar LIBOR including a number of class action lawsuits which have been consolidated before the U.S. District Court for the Southern District of New York. RBC Capital has also been named as a defendant in one of those lawsuits. The complaints in those private lawsuits assert claims under various U.S. laws, including U.S. antitrust laws, the U.S. Commodity Exchange Act, and state law. In addition to the LIBOR actions, in January 2019, a number of financial institutions, including RBC Capital, were named in a purported class action in New York alleging violations of the U.S. antitrust laws and common law principles of unjust enrichment in the setting of LIBOR after the Intercontinental Exchange took over administration of the benchmark interest rate from the British Bankers’ Association in 2014 (the “ICE LIBOR action”). On March 26, 2020, the defendants’ motion to dismiss the ICE LIBOR action was granted. The plaintiffs filed a notice of appeal of that ruling to the United States Court of Appeals for the Second Circuit on April 24, 2020 and, thereafter, sought to substitute named plaintiffs. The Second Circuit permitted substitution, but has not yet ruled on the merits of the appeal. In August 2020, Royal Bank of Canada and other financial institutions were named as defendants in a separate, individual (i.e., non-class) action filed in California alleging that the usage and setting of LIBOR constitutes per se collusive conduct. In November 2020 and May 2021, plaintiffs sought a preliminary injunction with respect to the setting of ICE LIBOR; defendants opposed these motions and sought to transfer the matter to New York. On June 3, 2021, the court denied defendants’ motion to transfer. Defendants then moved to dismiss. Plaintiffs’ motions for a preliminary injunction and defendants’ motion to dismiss remain pending. Based on the facts currently known, it is not possible at this time to predict the ultimate outcome of these proceedings or the timing of their resolution.
Please see RBC Capital’s Form BD, which is available on the FINRA BrokerCheck program, for more details.
RBC Capital will act only as clearing broker for CPER and as such will be paid commissions for executing and clearing trades on behalf of CPER. RBC Capital has not passed upon the adequacy or accuracy of this disclosure document. RBC Capital will not act in any supervisory capacity with respect to USCF or participate in the management of USCF or CPER.
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None of CPER’s FCMs is affiliated with CPER or USCF. Therefore, neither USCF nor CPER believes that there are any conflicts of interest with any of CPER’s FCMs or their respective trading principals arising from their acting as an FCM for CPER.
Marex North America, LLC
On August 23, 2021, the Trust on behalf of CPER entered into a Commodity Futures Customer Agreement with Marex North America, LLC (“MNA”) to serve as an FCM for CPER. This agreement requires MNA to provide services to CPER in connection with the purchase and sale of Futures Contracts and Other Copper-Related Investments for CPER, in each case that may be purchased or sold by or through MNA for CPER’s account, as applicable.
MNA’s primary address is 360 Madison Avenue, 3rd Floor, New York, NY 10017. MNA is registered in the United States with the CFTC as an FCM. MNA is a member of various U.S. futures exchanges.
MNA settled with the CFTC in September 2020 to pay a monetary penalty of US$ 250,000 for failure to meet minimum adjusted net capital requirements. MNA improperly accounted for deductions arising out of an agreement that it entered to guarantee a revolving line of credit for an affiliated company when computing its net capital requirement.
MNA will act only as clearing broker for CPER and as such will be paid commissions for executing and clearing trades on behalf of CPER. MNA has not passed upon the adequacy or accuracy of this disclosure document. MNA will not act in any supervisory capacity with respect to USCF or participate in the management of USCF or CPER.
Commodity Trading Advisor
Currently, USCF employs SummerHaven as a commodity trading advisor. SummerHaven provides advisory services to USCF with respect to the SCI and investment decisions for CPER. Its advisory services include, but are not limited to, providing advice regarding the purchase, sale, or holding of commodity interests by CPER in accordance with the advisory agreement between SummerHaven and USCF. For these services, USCF pays fees to SummerHaven. For additional information about the SCI and CPER’s trading program see “Additional Information About the SCI and CPER’s Trading Program.” In addition, USCF employs SummerHaven as a commodity trading advisor for CPER.
SummerHaven’s principal business address is 1266 East Main Street, Soundview Plaza, Fourth Floor, Stamford, CT 06902. Other than as indicated below, there have been no material, civil, administrative, or criminal proceedings pending, on appeal, or concluded against SummerHaven or its principals in the past five (5) years.
On May 18, 2021, without admitting or denying the CFTC’s findings or conclusions, SummerHaven settled a CFTC administrative action arising out of certain trades executed in or around July of 2018 for the commodity futures portfolio of a third-party. Such trades were intended to move positions from one FCM to another. The CFTC alleged that the trades constituted “wash” trades, which are prohibited under the Commodity Exchange Act and CFTC regulations promulgated thereunder. The CFTC also alleged that the trades were non-competitive transactions and, therefore, violated CFTC regulation 1.38, and that their entry evidenced a supervisory failure. In connection with the settlement, SummerHaven has agreed to pay a civil monetary penalty of $500,000 and to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.
USCF has also entered into a licensing agreement with SHIM and SummerHaven. Under this licensing agreement, SHIM and SummerHaven have sub-licensed to USCF, the use of certain names and marks, including the SCI with respect to CPER. For this license, USCF pays a fee to SHIM.
SHIM’s principal business address is 1266 East Main Street, Soundview Plaza, Fourth Floor, Stamford, CT 06902.
This table describes the fees and expenses that you may pay if you buy and hold shares of CPER. You should note that you may pay brokerage commissions on purchases and sales of CPER’s shares, which are not reflected in the table. Authorized Participants will pay applicable creation and redemption fees. See “Creation and Redemption of Shares—Creation and Redemption Transaction Fee,” page 74.
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Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)(1)
| Management Fees(2) | 0.65 | % | ||
| Distribution Fees | NONE | |||
| Other Fund Expenses | 0.23 | % | ||
| Total Annual Fund Operating Expenses | 0.88 | % |
| (1) | Based on amounts for the nine months ended September 30, 2022. The individual expense amounts in dollar terms are shown in the table below. As used in this table, (i) Professional Expenses include expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and Officer Expenses include amounts paid to independent directors and for officers’ liability insurance. |
| (2) | CPER is contractually obligated to pay USCF a management fee based on average daily net assets and paid monthly of 0.65% per annum on its average total net assets. |
| Management Fees | $ | 976,774 | ||
| Brokerage Commissions | $ | 41,446 | ||
| Professional Expenses | $ | 401,201 | ||
| License Fees | $ | 2,273 | ||
| Independent Director and Officer Expenses | $ | 58,708 | ||
| Registration Fee | $ | 24,092 | ||
These amounts are based on CPER’s average total net assets, which are the sum of daily total net assets of CPER divided by the number of calendar days in the year. For the nine months ended September 30, 2022, CPER’s average total net assets were $200,914,255.
The breakeven analysis below indicates the approximate dollar returns and percentage required for the redemption value of a hypothetical investment in a single share of CPER to equal the amount invested twelve months after the investment was made. For purposes of this breakeven analysis, an initial selling price per share of $20.55, which equals the NAV per share on September 30, 2022, is assumed. In order for a hypothetical investment in shares to break even over the next 12 months, assuming a selling price of $20.55 (the net asset value as of September 30, 2022), the investment would have to generate a 0.832% return or $0.171, rounded to $0.17.
This breakeven analysis refers to the redemption of baskets by Authorized Participants and is not related to any gains an individual investor would have to achieve in order to break even. The breakeven analysis is an approximation only. As used in this table, (i) Professional Expenses include expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and Officer Expenses include amounts paid to independent directors and for officers’ liability insurance.
| Initial Selling Price Per Share(1) | $ | 20.55 | ||
| Management Fee (0.65)%(2) | $ | 0.134 | ||
| Creation Basket Fee (0.010)%(3) | $ | (0.002 | ) | |
| Estimated Brokerage Fees (0.021)%(4) | $ | 0.004 | ||
| Interest Income (0.066)%(5) | $ | (0.014 | ) | |
| Independent Director and Officer Expenses (0.029)%(6) | $ | 0.006 | ||
| Professional Expenses (0.200)%(7) | $ | 0.041 | ||
| Registration Fee (0.012)% | $ | 0.002 | ||
| Amount of trading income (loss) required for the redemption value at the end of one year to equal the initial selling price of the Share(8) | $ | 0.171 | ||
| Percentage of initial Selling Price Per Share(8) | 0.832 | % |
| (1) | In order to show how a hypothetical investment in shares would break even over the next 12 months, this breakeven analysis uses an assumed initial selling price of $20.55 per share, which is based on the NAV per share of CPER at the close of trading on September 30, 2022. Investors should note that, because CPER’s NAV changes on a daily basis, the breakeven amount on any given day could be higher or lower than the amount reflected here. |
| (2) | CPER is contractually obligated to pay USCF a management fee of 0.65% per annum on its average total net assets. “Average total net assets” are the sum of the daily total net assets of CPER (the NAV of CPER calculated as set forth in “Calculating Per Share NAV” beginning on page 70) divided by the number of calendar days in the year. On days when markets are closed, the daily total net assets are the daily total net assets from the last day when the market was open. See page 7 for a discussion of net assets of CPER. |
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| (3) | Authorized Participants are required to pay a Creation Basket fee of $350 for each order they place to create one or more baskets. This breakeven analysis assumes a hypothetical investment in a single share, which would equal the $350 Creation Basket fee divided by the total number of outstanding shares plus the 50,000 shares created by the Creation Basket. This calculation will always result in a value that is below 0.010%, but for purposes of this breakeven analysis we assume a creation basket fee of 0.010%. |
| (4) | This amount is based on the actual brokerage fees for CPER calculated on an annualized basis. |
| (5) | Interest earned on CPER’s assets, including its Treasuries holdings. |
| (6) | Independent Director and Officer Expenses include amounts paid to independent directors and for officers’ liability insurance. The foregoing assumes that the average total net assets of CPER as of September 30, 2022, which were $200,914,255, were aggregated with the average total net assets of the Related Public Funds as of September 30, 2022, that the aggregate fees paid to the independent directors for the year ending December 31, 2022 are estimated to be $1,258,000, and that the allocable portion of the fees borne by CPER based on the proportion of its average total net assets when aggregated with the average total net assets of the Related Public Funds equals $75,000. |
| (7) | Professional Expenses include expenses for legal, audit, tax accounting and printing. CPER’s costs attributable to Professional Expenses for the nine months ended September 30, 2022 is $401,201. The number in the break-even table assumes CPER had $200,914,255 in average total net assets during the nine months ended September 30, 2022. |
There are present and potential future conflicts of interest in CPER’s structure and operation you should consider before you purchase shares. USCF, SHIM and SummerHaven will use this notice of conflicts as a defense against any claim or other proceeding made. If USCF, SHIM or SummerHaven are not able to resolve these conflicts of interest adequately, it may impact CPER’s and the Related Public Funds’ ability to achieve their investment objectives.
The officers, directors and employees of USCF, SHIM and SummerHaven do not devote their time exclusively to CPER. These persons are directors, officers or employees of other entities which may compete with CPER for their services. They could have a conflict between their responsibilities to CPER and to those other entities.
USCF, SHIM and SummerHaven have adopted policies that prohibit these companies and their principals, officers, directors and employees from trading futures and related contracts in which either CPER or any of the Related Public Funds invests. These policies are intended to prevent conflicts of interest occurring where USCF, SHIM, SummerHaven or their principals, officers, directors or employees could give preferential treatment to their own accounts or trade their own accounts ahead of or against CPER or any of the Related Public Funds.
USCF has sole current authority to manage the investments and operations of CPER, and this may allow it to act in a way that furthers its own interests which may create a conflict with your best interests. Shareholders have very limited voting rights, which will limit their ability to influence matters such as amendment of the Trust Agreement, change in CPER’s basic investment policy, dissolution of the Trust, or the sale or distribution of CPER’s assets.
USCF serves as the general partner or sponsor to CPER and the Related Public Funds. USCF may have a conflict to the extent that its trading decisions for CPER may be influenced by the effect they would have on the other funds it manages.
In addition, USCF is required to indemnify the officers and directors of the Related Public Funds, if the need for indemnification arises. This potential indemnification will cause USCF’s assets to decrease. If USCF’s other sources of income are not sufficient to compensate for the indemnification, then USCF may terminate and you could lose your investment.
Resolution of Conflicts Procedures
The Trust Agreement provides that whenever a conflict of interest exists or arises between USCF or any of its affiliates, on the one hand, and the Trust, CPER or any shareholders or any other person, on the other hand, any resolution or course of action by USCF in respect of such conflict of interest considering the relative interest of each party (including its own interest) and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable accepted accounting practices or principles.
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Interests of Named Experts and Counsel
USCF has employed Eversheds Sutherland (US) LLP to prepare this prospectus. Neither the law firm nor any other expert hired by USCF on behalf of the Trust and CPER, to give advice on the preparation of this offering document has been hired on a contingent fee basis. None of them have any present or future expectation of interest in USCF, Marketing Agent, Authorized Participants, Custodian, Administrator or other service providers to the Trust and CPER.
Ownership or Beneficial Interest in CPER
As of September 30, 2022, USCF is not aware of any five percent (5%) holder of the shares of CPER. Also, as of such date, USCF nor its the directors or executive officers of USCF own any shares of CPER, and neither SummerHaven nor any of its principals own shares of CPER.
Fiduciary and Regulatory Duties of USCF
The general fiduciary duties which would otherwise be imposed on USCF (which would make its operation of the Trust as described herein impracticable due to the strict prohibition imposed by such duties on, for example, conflicts of interest on behalf of a fiduciary in its dealings with its beneficiaries), are replaced by the terms of the Trust Agreement (to which terms all shareholders, by subscribing to the shares, are deemed to consent).
Additionally, under the Trust Agreement USCF has the following obligations as a sponsor of the Trust:
| · | Devote to the business and affairs of the Trust such of its time as it determines in its discretion (exercised in good faith) to be necessary to conduct the business and affairs of the Trust for the benefit of the Trust and the shareholders; |
| · | Execute, file, record and/or publish all certificates, statements and other documents and do any and all other things as may be appropriate for the formation, qualification and operation of the Trust and for the conduct of its business in all appropriate jurisdictions; |
| · | Appoint and remove independent public accountants to audit the accounts of the Trust and employ attorneys to represent the Trust; |
| · | Use its best efforts to maintain the status of the Trust as a statutory trust for state law purposes and as a partnership for U.S. federal income tax purposes; |
| · | Invest, reinvest, hold uninvested, sell, exchange, write options on, lease, lend and, to the extent permitted by the Trust Agreement, pledge, mortgage and hypothecate the assets of CPER in accordance with the purposes of the Trust and this Prospectus; |
| · | Have fiduciary responsibility for the safekeeping and use of the Trust’s assets, whether or not in USCF’s immediate possession or control; |
| · | Enter into and perform agreements with each Authorized Participant, receive from Authorized Participants and process properly submitted purchase orders, receive Creation Basket Deposits, deliver or cause the delivery of Creation Baskets to for the account of the Authorized Participant submitting a purchase order; |
| · | Receive from Authorized Participants and process, or cause the Marketing Agent to process, properly submitted redemption orders, receive from the redeeming Authorized Participants through the Depository, and thereupon cancel or cause to be cancelled, shares corresponding to the Redemption Baskets to be redeemed; |
| · | Interact with the Depository as required; |
| · | Delegate duties to one or more administrators, as USCF determines; and |
| · | Delegate duties to one or more commodity trading or other advisors, as USCF determines. |
To the extent that under a law, common, statutory, or in equity, USCF has duties (including fiduciary duties) and liabilities relating thereto to the Trust, CPER, the shareholders or to any other person, USCF will not be liable to the Trust, CPER, the shareholders or to any other person for its good faith reliance on the provisions of the Trust Agreement or this Prospectus unless such reliance constitutes gross negligence or willful misconduct on the part of USCF.
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Under Delaware law, a beneficial owner of a statutory trust (such as a shareholder of CPER) may, under certain circumstances, institute legal action on behalf of himself and all other similarly situated beneficial owners (a “class action”) to recover damages for violations of fiduciary duties, or on behalf of a statutory trust (a “derivative action”) to recover damages from a third party where there has been a failure or refusal to institute proceedings to recover such damages. In addition, beneficial owners may have the right, subject to certain legal requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Beneficial owners who have suffered losses in connection with the purchase or sale of their beneficial interests may be able to recover such losses from USCF where the losses result from a violation by USCF of the anti-fraud provisions of the federal securities laws.
Under certain circumstances, shareholders also have the right to institute a reparations proceeding before the CFTC against USCF (a registered commodity pool operator), an FCM, as well as those of their respective employees who are required to be registered under the CEA, and the rules and regulations promulgated thereunder. Private rights of action are conferred by the CEA. Investors in futures and in commodity pools may, therefore, invoke the protections provided thereunder.
The foregoing summary describing in general terms the remedies available to shareholders under federal law is based on statutes, rules and decisions as of the date of this Prospectus. As this is a rapidly developing and changing area of the law, shareholders who believe that they may have a legal cause of action against any of the foregoing parties should consult their own counsel as to their evaluation of the status of the applicable law at such time.
Under the Trust Agreement, USCF, the Trustee and their respective affiliates (collectively, “Covered Persons”) (i) shall have no liability to the Trust, to CPER, or to any shareholder for any loss suffered by the Trust or CPER which arises out of any action or inaction of such Covered Person and (ii) shall not be personally liable for the return or repayment of all or any portion of the capital or profits of any shareholder or assignee thereof, in both cases, provided that such Covered Person, in good faith, determined that such course of conduct was in the best interest of the Trust or CPER and such course of conduct did not constitute gross negligence or willful misconduct of such Covered Person. A Covered Person shall not be liable for the conduct or willful misconduct of any Administrator or other delegatee selected by USCF with reasonable care, provided, however, that the Trustee and its affiliates shall not, under any circumstances be liable for the conduct or willful misconduct of any Administrator or other delegatee or any other person selected by USCF to provide services to the Trust.
The Trust Agreement also provides that USCF (and any other Covered Person performing services on behalf of the Trust or CPER, as applicable, and acting within the scope of USCF’s authority as set forth in the Trust Agreement) shall be indemnified by the Trust (or by CPER separately to the extent the matter in question relates to a single fund or disproportionately affects a specific fund in relation to another fund) against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it in connection with its activities for the Trust or a fund, as applicable, provided that (i) USCF was acting on behalf of or performing services for the Trust or a fund, as applicable, and has determined, in good faith, that such course of conduct was in the best interests of the Trust or a fund, as applicable and such liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Trust Agreement on the part of USCF and (ii) any such indemnification will only be recoverable from the assets of the Trust or of CPER. All rights to indemnification permitted under the Trust Agreement shall not be affected by the dissolution or other cessation to exist of USCF, or the withdrawal, adjudication of bankruptcy or insolvency of USCF, or the filing of a voluntary or involuntary petition in bankruptcy under Title 11 of the Bankruptcy Code by or against USCF.
USCF shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of the U.S. federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation costs), (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation cost) or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made.
The payment of any indemnification shall be allocated, as appropriate, among the series funds in the Trust, including CPER. The Trust and its series shall not incur the cost of that portion of any insurance which insures any party against any liability, the indemnification of which is prohibited under the Trust Agreement.
Expenses incurred in defending a threatened or pending civil, administrative or criminal action, suit or proceeding against USCF shall be paid by the Trust in advance of the final disposition of such action, suit or proceeding, if (i) the legal action relates to the performance of duties or services by USCF on behalf of the Trust or any fund, as applicable; (ii) the legal action is initiated by a party other than the Trust or any fund; and (iii) USCF undertakes to repay the advanced funds with interest to the Trust or any fund, as applicable, in cases in which it is not entitled to indemnification under the Trust Agreement.
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In the event the Trust or any Fund, as applicable, is made a party to any claim, dispute, demand or litigation or otherwise incurs any loss, liability, damage, cost or expense as a result of or in connection with any shareholder’s (or assignee’s) obligations or liabilities unrelated to the business of the Trust or any Fund, as applicable, such shareholder (or assignees cumulatively) is required under the Trust Agreement to indemnify, defend, hold harmless and reimburse or such fund, as applicable, for all such loss, liability, damage, cost and expense incurred, including attorneys’ and accountants’ fees.
The Trustee will not be liable or accountable to the Trust or to any other person or under any other agreement to which the Trust is a party, except for the Trustee’s own gross negligence or willful misconduct. USCF also indemnifies the Trustee (in its capacity as Trustee and individually) and its successors, assigns, legal representatives, officers, directors, shareholders, employees, agents and servants from and against any and all liabilities, obligations, losses, damages, penalties, taxes (excluding taxes payable by the Trustee on or measured by any compensation received by the Trustee for its services hereunder or any indemnity payments received by the Trustee under the Trust Agreement), claims, actions, suits, costs, expenses or disbursements (including reasonable legal fees and expenses) in any way relating to or arising out of the formation, operation or termination of the Trust, the execution, delivery and performance of any other agreements to which the Trust is a party or the action or inaction of the Trustee, except for expenses resulting from the gross negligence or willful misconduct of any of the indemnified parties.
According to applicable law, indemnification of USCF is payable only if USCF determined, in good faith, that the act, omission or conduct that gave rise to the claim for indemnification was in the best interest of the Trust and CPER and the act, omission or activity that was the basis for such loss, liability, damage, cost or expense was not the result of negligence or misconduct and such liability or loss was not the result of negligence or misconduct by USCF, and such indemnification or agreement to hold harmless is recoverable only out of the assets of CPER and not from the members, individually.
Provisions of Federal and State Securities Laws
This offering is made pursuant to federal and applicable state securities laws. The SEC and state securities agencies take the position that indemnification of USCF that arises out of an alleged violation of such laws is prohibited unless certain conditions are met.
These conditions require that no indemnification of USCF or any underwriter for CPER may be made in respect of any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the party seeking indemnification and the court approves the indemnification; (ii) such claim has been dismissed with prejudice on the merits by a court of competent jurisdiction as to the party seeking indemnification; or (iii) a court of competent jurisdiction approves a settlement of the claims against the party seeking indemnification and finds that indemnification of the settlement and related costs should be made, provided that, before seeking such approval, USCF or other indemnitee must apprise the court of the position held by regulatory agencies against such indemnification. These agencies are the SEC and the securities administrator of the State or States in which the plaintiffs claim they were offered or sold interests.
Provisions of the 1933 Act and NASAA Guidelines
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to USCF or its directors, officers, or persons controlling the Trust and CPER, CPER has been informed that the SEC and the various state administrators believe that such indemnification is against public policy as expressed in the 1933 Act and the North American Securities Administrators Association, Inc. (“NASAA”) commodity pool guidelines and is therefore unenforceable.
Management; Voting by Shareholders
The shareholders of CPER take no part in the management or control, and have no voice in the Trust’s operations or business. USCF generally has the right to amend the Trust Agreement as it applies to the Trust provided that the shareholders have the right to vote only if expressly required under Delaware or federal law or rules or regulations of the Exchange, or if submitted to the shareholders by USCF in its sole discretion. No amendment affecting the Trustee shall be binding upon or effective against the Trustee unless consented to by the Trustee in the form of an instruction letter.
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Meetings of the Trust’s shareholders may be called by USCF and may be called by it upon the written request of shareholders holding at least 50% of the outstanding shares of the Trust or CPER, as applicable. USCF shall deposit in the United States mail or electronically transmit written notice to all shareholders of CPER of the meeting and the purpose of the meeting, which shall be held on a date not less than 30 nor more than 60 days after the date of mailing of such notice, at a reasonable time and place. Where the meeting is called upon the written request of the shareholders such written notice shall be mailed or transmitted not more than 45 days after such written request for a meeting was received by USCF. Any notice of meeting shall be accompanied by a description of the action to be taken at the meeting. Shareholders may vote in person or by proxy at any such meeting.
Any action required or permitted to be taken by shareholders by vote may be taken without a meeting by written consent setting forth the actions so taken. Such written consents shall be treated for all purposes as votes at a meeting. If the vote or consent of any shareholder to any action of the Trust, CPER or any shareholder, as contemplated by the Trust Agreement, is solicited by USCF, the solicitation shall be effected by notice to each shareholder given in the manner provided in accordance with the Trust Agreement. The Trust Agreement provides that shareholders are deemed to have consented to any proposals recommended by USCF in the shareholder notice unless such shareholders timely object to the proposals. Therefore, a lack of a response by a shareholder will have the same effect as if that shareholder had provided affirmative written consent for the proposed action. USCF and all parties dealing with the Trust may act in reliance on such deemed activity.
The Trust will dissolve at any time upon the happening of any of the following events:
| · | The filing of a certificate of dissolution or revocation of USCF’s charter (and the expiration of 90 days after the date of notice to USCF of revocation without a reinstatement of its charter) or upon written notice by USCF of its withdrawal as Sponsor, unless (i) at the time there is at least one remaining Sponsor and that remaining Sponsor carries on the business of the Trust or (ii) within 90 days of such event of withdrawal all the remaining shareholders agree in writing to continue the business of the Trust and to select, effective as of the date of such event, one or more successor Sponsors. If the Trust is terminated as the result of an event of withdrawal and a failure of all remaining shareholders to continue the business of the Trust and to appoint a successor Sponsor as provided above within 120 days of such event of withdrawal, shareholders holding shares representing at least a majority (over 50%) of the NAV (not including shares held by USCF and its affiliates) may elect to continue the business of the Trust by forming a new statutory trust, or reconstituted trust, on the same terms and provisions as set forth in the Trust Agreement. Any such election must also provide for the election of a Sponsor to the reconstituted trust. If such an election is made, all shareholders of the Trust shall be bound thereby and continue as shareholders of the reconstituted trust. |
| · | The occurrence of any event which would make unlawful the continued existence of the Trust. |
| · | In the event of the suspension, revocation or termination of USCF’s registration as a commodity pool operator, or membership as a commodity pool operator with the NFA (if, in either case, such registration is required at such time unless at the time there is at least one remaining Sponsor whose registration or membership has not been suspended, revoked or terminated). |
| · | The Trust becomes insolvent or bankrupt. |
| · | The shareholders holding shares representing at least seventy-five percent (75%) of the NAV (which excludes the shares of USCF) vote to dissolve CPER, notice of which is sent to USCF not less than ninety (90) business days prior to the effective date of termination. |
| · | The determination of USCF that the aggregate net assets of CPER in relation to the operating expenses of the Trust make it unreasonable or imprudent to continue the business of the Trust. |
| · | The Trust is required to be registered as an investment company under the 1940 Act. |
| · | DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable. |
The Trust and CPER keep their books of record and account at its office located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596, or at the offices of the Administrator located at 240 Greenwich Street, New York, New York, 10286, or such office, including of an administrative agent, as it may subsequently designate upon notice. These books and records are open to inspection by any person who establishes to the Trust’s satisfaction that such person is a shareholder upon reasonable advance notice at all reasonable times during the usual business hours of the Trust and CPER.
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The Trust keeps a copy of the Trust Agreement on file in USCF’s office which will be available for inspection by any shareholder on reasonable advance notice at all times during its usual business hours upon reasonable advance notice.
Statements, Filings, and Reports to Shareholders
At the end of each fiscal year, the Trust will furnish to banks, broker dealers and trust companies (“DTC Participants”) for distribution to each person who is a shareholder at the end of the fiscal year an annual report containing the Trust’s audited financial statements and other information about the Trust and CPER. USCF is responsible for the registration and qualification of the shares under the federal securities laws and federal commodities laws and any other securities and blue-sky laws of the United States or any other jurisdiction as USCF may select. USCF is responsible for preparing all reports required by the SEC, CFTC, and the NYSE Arca, but has entered into an agreement with the Administrator to prepare these reports as required by the SEC, CFTC and the NYSE Arca on the Trust’s behalf.
The financial statements of the Trust will be audited, as required by law and as may be directed by USCF, by an independent registered public accounting firm designated from time to time by USCF. The accountants’ report will be furnished by the Trust to shareholders upon request. The Trust will make such elections, file such tax returns, and prepare, disseminate and file such tax reports, as it is advised by its counsel or accountants are from time to time required by any applicable statute, rule or regulation.
In addition to periodic reports filed with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, all of which can be accessed on the SEC’s website at www.sec.gov or on CPER’s website at www.uscfinvestments.com, the Trust pursuant to the Trust Agreement, will provide the following reports to shareholders in the manner prescribed below:
Annual Reports. Within 90 days after the end of each fiscal year, USCF shall cause to be delivered an annual report containing the following:
| (i) | financial statements of the Trust, including without limitation, a balance sheet as of the end of the of the Trust’s fiscal year and statements of income, Trust’s equity and changes in financial position, for such fiscal year, which shall be prepared in accordance with accounting principles generally accepted in the United States of America consistently applied and shall be audited by a firm of independent certified public accountants registered with the Public Company Accounting Oversight Board, |
| (ii) | a general description of the activities of the Trust during the period covered by the report, and |
| (iii) | a report of any material transactions between the Trust and USCF or any of its affiliates, including fees or compensation paid by the Trust and the services performed by USCF or any such affiliate for such fees or compensation. |
Quarterly Reports. Within 45 days after the end of each quarter of each fiscal year, USCF shall cause to be delivered, a quarterly report containing a balance sheet and statement of income for the period covered by the report, each of which may be unaudited but shall be certified by USCF as fairly presenting the financial position and results of operations of the Trust during the period covered by the report. The report shall also contain a description of any material event regarding the business of the Trust during the period covered by the report.
Monthly Reports. Within 30 days after the end of each month, USCF shall cause to be delivered, a monthly report containing an account statement, which will include a statement of income (loss) and a statement of changes in NAV, for the prescribed period. In addition, the account statement will disclose any material business dealings between the Trust, USCF, commodity trading advisor, FCMs, or the principals thereof that previously have not been disclosed in this prospectus or any amendment thereto, other account statements or annual reports.
The Trust will provide information to its shareholders to the extent required by applicable SEC, CFTC, and NYSE Arca requirements. An issuer, such as the Trust, of exchange-traded securities may not always readily know the identities of the investors who own those securities. The Trust and CPER will post the same information described above on www.uscfinvestments.com.
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The fiscal year of CPER is the calendar year. USCF may select an alternate fiscal year.
Governing Law; Consent to Delaware Jurisdiction
The rights of USCF, the Trust, CPER, DTC (as registered owner of CPER’s global certificate for shares) and the shareholders are governed by the laws of the State of Delaware. USCF, the Trust, CPER and DTC and, by accepting shares, each DTC Participant and each shareholder, consent to the exclusive jurisdiction of the courts of the State of Delaware and any federal courts located in Delaware. Such consent is not required for any person to assert a claim of Delaware jurisdiction over USCF, the Trust or CPER.
Litigation and Claims
From time to time, USCF, the Trust and CPER may be involved in legal proceedings arising primarily from the ordinary course of its business. None of the Trust or CPER is currently party to any material legal proceedings. In addition, USCF, as sponsor of the Trust and general partner of the Related Public Funds may, from time to time, be involved in litigation arising out of its operations in the ordinary course of business. Except as described herein, USCF is not currently party to any material legal proceedings.
Optimum Strategies Action
On April 6, 2022, USO and USCF were named as defendants in an action filed by Optimum Strategies Fund I, LP, a purported investor in call option contracts on USO (the “Optimum Strategies Action”). The action is pending in the U.S. District Court for the District of Connecticut at Civil Action No. 3:22-cv-00511.
The Optimum Strategies Action asserts claims under the Securities Exchange Act of 1934, as amended (the “1934 Act”), Rule 10b-5 thereunder, and the Connecticut Uniform Securities Act. It purports to challenge statements in registration statements that became effective in February 2020, March 2020, and on April 20, 2020, as well as public statements between February 2020 and May 2020, in connection with certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaint seeks damages, interest, costs, attorney’s fees, and equitable relief.
USCF and USO intend to vigorously contest such claims and have moved for their dismissal.
Settlement of SEC and CFTC Investigations
On November 8, 2021, USCF and USO announced a resolution with each of the SEC and the CFTC relating to matters set forth in certain Wells Notices issued by the staffs of each of the SEC and CFTC as more fully described below.
On August 17, 2020, USCF, USO, and John Love received a “Wells Notice” from the staff of the SEC (the “SEC Wells Notice”). The SEC Wells Notice stated that the SEC staff made a preliminary determination to recommend that the SEC file an enforcement action against USCF, USO, and Mr. Love alleging violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, as amended (the “1933 Act”), and Section 10(b) of the 1934 Act, and Rule 10b-5 thereunder.
Subsequently, on August 19, 2020, USCF, USO, and Mr. Love received a Wells Notice from the staff of the CFTC (the “CFTC Wells Notice”). The CFTC Wells Notice stated that the CFTC staff made a preliminary determination to recommend that the CFTC file an enforcement action against USCF, USO, and Mr. Love alleging violations of Sections 4o(1)(A) and (B) and 6(c)(1) of the Commodity Exchange Act of 1936, as amended (the “CEA”), 7 U.S.C. §§ 6o(1)(A) and (B) and 9(1) (2018), and CFTC Regulations 4.26, 4.41, and 180.1(a), 17 C.F.R. §§ 4.26, 4.41, 180.1(a) (2019).
On November 8, 2021, acting pursuant to an offer of settlement submitted by USCF and USO, the SEC issued an order instituting cease-and-desist proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 8A of the 1933 Act, directing USCF and USO to cease and desist from committing or causing any violations of Section 17(a)(3) of the 1933 Act, 15 U.S.C. § 77q(a)(3) (the “SEC Order”). In the SEC Order, the SEC made findings that, from April 24, 2020 to May 21, 2020, USCF and USO violated Section 17(a)(3) of 1933 Act, which provides that it is “unlawful for any person in the offer or sale of any securities to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.” USCF and USO consented to entry of the SEC Order without admitting or denying the findings contained therein, except as to jurisdiction.
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Separately, on November 8, 2021, acting pursuant to an offer of settlement submitted by USCF, the CFTC issued an order instituting cease-and-desist proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 6(c) and (d) of the CEA, directing USCF to cease and desist from committing or causing any violations of Section 4o(1)(B) of the CEA, 7 U.S.C. § 6o(1)(B), and CFTC Regulation 4.41(a)(2), 17 C.F.R. § 4.41(a)(2) (the “CFTC Order”). In the CFTC Order, the CFTC made findings that, from on or about April 22, 2020 to June 12, 2020, USCF violated Section 4o(1)(B) of the CEA and CFTC Regulation 4.41(a)(2), which make it unlawful for any commodity pool operator (“CPO”) to engage in “any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant” and prohibit a CPO from advertising in a manner which “operates as a fraud or deceit upon any client or participant or prospective client or participant,” respectively. USCF consented to entry of the CFTC Order without admitting or denying the findings contained therein, except as to jurisdiction.
Pursuant to the SEC Order and the CFTC Order, in addition to the command to cease and desist from committing or causing any violations of Section 17(a)(3) of the 1933 Act, Section 4o(1)(B) of the CEA, and CFTC Regulation 4.14(a)(2), civil monetary penalties totaling two million five hundred thousand dollars ($2,500,000) in the aggregate were required to be paid to the SEC and CFTC, of which one million two hundred fifty thousand dollars ($1,250,000) was paid by USCF to each of the SEC and the CFTC, respectively, pursuant to the offsets permitted under the orders.
In re: United States Oil Fund, LP Securities Litigation
On June 19, 2020, USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder Robert Lucas (the “Lucas Class Action”). The Court thereafter consolidated the Lucas Class Action with two related putative class actions filed on July 31, 2020 and August 13, 2020, and appointed a lead plaintiff. The consolidated class action is pending in the U.S. District Court for the Southern District of New York under the caption In re: United States Oil Fund, LP Securities Litigation, Civil Action No. 1:20-cv-04740.
On November 30, 2020, the lead plaintiff filed an amended complaint (the “Amended Lucas Class Complaint”). The Amended Lucas Class Complaint asserts claims under the 1933 Act, the 1934 Act, and Rule 10b-5. The Amended Lucas Class Complaint challenges statements in registration statements that became effective on February 25, 2020 and March 23, 2020 as well as subsequent public statements through April 2020 concerning certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The Amended Lucas Class Complaint purports to have been brought by an investor in USO on behalf of a class of similarly-situated shareholders who purchased USO securities between February 25, 2020 and April 28, 2020 and pursuant to the challenged registration statements. The Amended Lucas Class Complaint seeks to certify a class and to award the class compensatory damages at an amount to be determined at trial as well as costs and attorney’s fees. The Amended Lucas Class Complaint named as defendants USCF, USO, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes III, as well as the marketing agent, ALPS Distributors, Inc., and the Authorized Participants: ABN Amro, BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets, Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corporation, Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC.
The lead plaintiff has filed a notice of voluntary dismissal of its claims against BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Morgan Stanley & Company, Inc., Nomura Securities International, Inc., RBC Capital Markets, LLC, SG Americas Securities LLC, and UBS Securities LLC.
USCF, USO, and the individual defendants in In re: United States Oil Fund, LP Securities Litigation intend to vigorously contest such claims and have moved for their dismissal.
Wang Class Action
On July 10, 2020, purported shareholder Momo Wang filed a putative class action complaint, individually and on behalf of others similarly situated, against defendants USO, USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes, III, ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC, in the U.S. District Court for the Northern District of California as Civil Action No. 3:20-cv-4596 (the “Wang Class Action”).
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The Wang Class Action asserted federal securities claims under the 1933 Act, challenging disclosures in a March 19, 2020 registration statement. It alleged that the defendants failed to disclose to investors in USO certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The Wang Class Action was voluntarily dismissed on August 4, 2020.
Mehan Action
On August 10, 2020, purported shareholder Darshan Mehan filed a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III (the “Mehan Action”). The action is pending in the Superior Court of the State of California for the County of Alameda as Case No. RG20070732.
The Mehan Action alleges that the defendants breached their fiduciary duties to USO and failed to act in good faith in connection with a March 19, 2020 registration statement and offering and disclosures regarding certain extraordinary market conditions that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaint seeks, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. All proceedings in the Mehan Action are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.
USCF, USO, and the other defendants intend to vigorously contest such claims.
In re United States Oil Fund, LP Derivative Litigation
On August 27, 2020, purported shareholders Michael Cantrell and AML Pharm. Inc. DBA Golden International filed two separate derivative actions on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the “Cantrell Action”) and Civil Action No. 1:20-cv-06981 (the “AML Action”), respectively.
The complaints in the Cantrell and AML Actions are nearly identical. They each allege violations of Sections 10(b), 20(a) and 21D of the 1934 Act, Rule 10b-5 thereunder, and common law claims of breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. These allegations stem from USO’s disclosures and defendants’ alleged actions in light of the extraordinary market conditions in 2020 that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaints seek, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. The plaintiffs in the Cantrell and AML Actions have marked their actions as related to the Lucas Class Action.
The Court consolidated the Cantrell and AML Actions under the caption In re United States Oil Fund, LP Derivative Litigation, Civil Action No. 1:20-cv-06974 and appointed co-lead counsel. All proceedings in In re United States Oil Fund, LP Derivative Litigation are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.
USCF, USO, and the other defendants intend to vigorously contest the claims in In re United States Oil Fund, LP Derivative Litigation.
Legal Opinion
Richards, Layton & Finger, P.A. has been retained to advise the Trust and USCF with respect to the shares being offered hereby and has passed upon the validity of the shares being issued hereunder. Eversheds Sutherland (US) LLP has also provided CPER with its opinion with respect to federal income tax matters addressed herein.
Experts
Spicer Jeffries LLP, an independent registered public accounting firm, has audited the statements of financial condition of CPER as of December 31, 2021 and December 31, 2020, including the schedule of investments as of December 31, 2021 and 2020, and the related statements of operations, changes in partners’ capital and cash flows for the years ended December 31, 2021, 2020 and 2019, that appear in the annual report on Form 10-K that is incorporated by reference. The financial statements of CPER in the Form 10-K were included therein in reliance upon the report of Spicer Jeffries LLP dated February 25, 2022, given on its authority of such firm as experts in accounting and auditing.
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Material U.S. Federal Income Tax Considerations
The following discussion summarizes the material U.S. federal income tax consequences of the purchase, ownership and disposition of shares in CPER, and the U.S. federal income tax treatment of CPER, as of the date hereof. In general, this discussion is applicable to a shareholder who holds its shares as a capital asset. This summary does not purport to be a complete description of the income tax considerations applicable to an investment in shares. For example, we have not described tax consequences that may be relevant to certain types of shareholders subject to special treatment under United States federal income tax laws, including dealers or traders in securities, commodities or currencies, financial institutions, tax-exempt entities, insurance companies, persons holding shares as a part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated transaction for U.S. federal income tax purposes, or holders of shares whose “functional currency” is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Code, Treasury Regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified (possibly with retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below.
Investors considering the purchase, ownership or disposition of shares should consult their own tax advisors concerning the U.S. federal income tax consequences in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction.
As used herein, a “U.S. shareholder” is a beneficial owner of a share that is for U.S. federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or other entity classified as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income tax, regardless of its source; or (iv) a trust, (x) the administration of which is subject to the supervision of a U.S. court and one or more “United States persons” (within the meaning of the Code) have the authority to control all substantial decisions of the trust, or (y) that has made a valid election under applicable Treasury Regulations to be treated as a “United States person” (within the meaning of the Code). A “non-U.S. shareholder” generally is a beneficial owner of a share that is neither a U.S. shareholder nor a partnership for U.S. federal income tax purposes. If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our shares, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partnership, or a partner of a partnership, holding our shares should consult his, her, or its own tax advisor regarding the U.S. federal income tax consequences of investing in our shares.
USCF, on behalf of CPER, has received the opinion of Eversheds Sutherland (US) LLP, counsel to the Trust, that, subject to the conditions, limitations and assumptions stated in this discussion, the material U.S. federal income tax consequences to CPER and to U.S. shareholders and non-U.S. shareholders (as defined below) will be as described in the following paragraphs. In rendering its opinion, Eversheds Sutherland (US) LLP has relied on the facts and assumptions described in this disclosure document as well as certain factual representations made by the Trust and USCF. The opinion of Eversheds Sutherland (US) LLP is not binding on the IRS, and as a result, the IRS may not agree with the U.S. federal income tax positions taken by CPER. If challenged by the IRS, CPER’s U.S. federal income tax positions might not be sustained by the courts. No ruling has been requested from the IRS with respect to any matter affecting CPER or prospective investors.
INVESTORS CONSIDERING THE PURCHASE OF SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF U.S. FEDERAL ESTATE OR GIFT TAX LAWS; STATE, LOCAL, AND FOREIGN TAX LAWS; AND INCOME TAX TREATIES.
U.S. Federal Income Tax Status of the Trust and CPER
The Trust is organized and operated as a Delaware statutory trust in accordance with the provisions of the Trust Agreement and applicable state law. Notwithstanding the Trust’s status as a statutory trust and CPER’s status as a series of that trust, due to the nature of its activities, CPER will be treated as a partnership rather than a trust for U.S. federal income tax purposes. In addition, the trading of shares on the NYSE Arca will cause CPER to be classified as a “publicly traded partnership” for U.S. federal income tax purposes. Under the Code, a publicly traded partnership is generally taxable as a corporation for U.S. federal income tax purposes. In the case of an entity (such as CPER) that is not registered under the 1940 Act, however, an exception to this general rule applies, if at least 90% of the entity’s gross income is “qualifying income” for each taxable year of its existence. For this purpose, “qualifying income” is defined as including, in pertinent part, interest (other than from a financial business), dividends, and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards, and options with respect to commodities, “qualifying income” includes income and gains from commodities and futures, forwards, options and swaps, and other notional principal contracts with respect to commodities. In connection with the opinion provided by Eversheds Sutherland (US) LLP, the Trust and USCF have represented, among other things, the following to Eversheds Sutherland (US) LLP:
| · | At least 90% of CPER’s gross income for each taxable year will be derived from (i) income and gains from commodities (not held as inventory) or futures, forwards, options, OTC swap transactions, cleared swaps and other notional principal contracts with respect to commodities, and (ii) interest income; |
| · | CPER is organized and operated in accordance with its governing agreements and applicable law; and |
| · | CPER has not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes. |
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Based in part on these representations, Eversheds Sutherland (US) LLP is of the opinion that CPER will be classified as a partnership that it is not taxable as a corporation for U.S. federal income tax purposes. CPER’s taxation as a partnership, rather than a corporation, will require USCF to conduct CPER’s business activities in such a manner that it satisfies the qualifying income exception on a continuing basis. No assurance can be given that CPER’s operations for any given year will produce income that satisfies the requirements of the qualifying income exception. Eversheds Sutherland (US) LLP will not review CPER’s ongoing compliance with these requirements and will have no obligation to advise the Trust, CPER, or CPER’s shareholders in the event of any subsequent change in the facts, representations, or applicable law relied upon in reaching its opinion.
If CPER failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case CPER could be required to pay over amounts determined by the IRS), CPER would be taxable as a corporation for U.S. federal income tax purposes and would be subject to U.S. federal income tax imposed at applicable corporate rates. In that event, shareholders of CPER would not report their share of CPER’s income or loss on their U.S. federal income tax returns. In addition, any distributions to shareholders would be treated as dividends to the extent of CPER’s current and accumulated earnings and profits. Subject to holding period and other requirements, any such dividend would be a qualified dividend subject to U.S. federal income tax at the lower maximum U.S. federal income tax rates applicable to long-term capital gains. To the extent a distribution exceeds CPER’s current and accumulated earnings and profits, such excess would be treated as a return of capital to the extent of the shareholder’s adjusted tax basis in its shares and would reduce the shareholder’s adjusted tax basis in its shares accordingly (but not below zero), and to the extent the distribution is not a dividend and exceeds the shareholder’s adjusted tax basis in its shares, such excess is treated as gain from the sale or exchange of property. Accordingly, if CPER were taxable as a corporation for U.S. federal income tax purposes, such treatment would likely have a material adverse effect on the economic return from an investment in CPER and on the value of the shares.
The remainder of this summary assumes that CPER is classified as a partnership for U.S. federal income tax purposes and not as a corporation.
U.S. Shareholders
U.S. Federal Income Tax Consequences of Ownership of Shares
Taxation of CPER’s Income. No U.S. federal income tax is paid by CPER on its income. Instead, CPER files annual information returns, and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable share of CPER’s income, gain, loss, deduction and credit reported on CPER’s partnership information return. These items must be reported by the applicable shareholder without regard to the amount (if any) of cash or property the shareholder receives as a distribution from CPER during the taxable year. As a result, if, for example, CPER recognizes ordinary income in the form of interest on Treasuries and other investments, and net capital gain from Eligible Copper Futures Contracts and Other Copper-Related Investments for a taxable year, shareholders must report their share of these items, regardless of whether CPER makes any distributions to shareholders. Consequently, a shareholder may be allocated income or gain recognized by CPER, but receive no cash distribution with which to pay its tax liability resulting from such allocation, or may receive a distribution that is insufficient to pay such liability. Because USCF currently does not intend to make distributions, it is likely that, in any year CPER realizes net income and/or gain, a U.S. shareholder that is allocated income or gain from CPER will be required to pay taxes on its allocable share of such income or gain from sources other than CPER distributions.
Monthly Conventions for Allocations of CPER’s Profit and Loss and Capital Account Restatement. Under Code section 704, the determination of a partner’s distributive share of any item of income, gain, loss, deduction or credit is governed by the applicable organizational document unless the allocation provided by such document lacks “substantial economic effect.” An allocation that lacks substantial economic effect nonetheless will be respected, if it is in accordance with the partners’ interests in the partnership, determined by taking into account all facts and circumstances relating to the economic arrangements among the partners. Subject to the discussion below concerning certain conventions to be used by CPER, allocations of CPER income pursuant to the Trust Agreement should be considered as having substantial economic effect or as being in accordance with a shareholder’s interest in CPER.
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In situations where a partner’s interest in a partnership is sold or otherwise transferred during a taxable year, the Code generally requires that partnership tax items for the year be allocated to the partner using either an interim closing of the books or a daily proration method. CPER allocates tax items using an interim closing of the books method under which income, gain, loss, deduction and credit are determined on a monthly “mark-to-market” basis, taking into account CPER’s accrued income and deductions and gains and losses (both realized and unrealized) for the month. The tax items for each month during the taxable year will then be allocated among the holders of shares in proportion to the number of shares owned by them as of the close of business on the last trading day of the previous month (the “monthly allocation convention”).
Under the monthly allocation convention, an investor who holds a share as of the close of business on the last trading day of the previous month will be treated for purposes of making allocations as if it owned the share throughout the current month, even if such investor disposes of such share during the current month. For example, an investor who buys a share on April 10 of a year and sells it on May 20 of the same year will be allocated all of the tax items attributable to May (because the investor is deemed to hold the share through the last day of May), but will not be allocated any of the tax items attributable to April. The tax items attributable to that share for April will be allocated to the person who is the actual or deemed holder of the share as of the close of business on the last trading day of March.
Under the monthly convention, an investor who purchases and sells a share during the same month, and therefore does not hold (and is not deemed to hold) the share at the close of business on the last trading day of either that month or the previous month, will receive no allocations with respect to that share for any period. Accordingly, investors may receive no allocations with respect to shares that they actually held, or may receive allocations with respect to shares attributable to periods that they did not actually hold the shares.
By investing in shares, a U.S. shareholder agrees that, in the absence of new legislation, regulatory or administrative guidance, or judicial rulings to the contrary, it will file its U.S. federal income tax returns in a manner that is consistent with the monthly allocation convention as described above and with the IRS Schedules K-1, K-2, K-3, and/or any successor form provided to shareholders by the Trust.
In addition, for any month in which a Creation Basket is issued or a Redemption Basket is redeemed, CPER generally will credit or debit the “book” capital accounts of its existing shareholders with any unrealized gain or loss, on CPER’s assets. The capital accounts as adjusted in this manner will be used in making tax allocations intended to account for the differences between the adjusted tax basis and fair market value of assets of CPER at the time new shares are issued or outstanding shares are redeemed (so-called “reverse Code section 704(c) allocations”). The intended effect of these adjustments is to equitably allocate among shareholders any unrealized appreciation or depreciation in CPER’s assets existing at the time of a contribution or redemption for book and tax purposes.
USCF believes that application of the conventions described above is consistent with the intent of the partnership provisions of the Code and the applicable Treasury Regulations, and that the resulting allocations should have substantial economic effect or otherwise should be respected as being in accordance with shareholders’ interests in CPER for U.S. federal income tax purposes. The Code and existing Treasury Regulations do not expressly permit adoption of these conventions, although the monthly allocation convention described above is consistent with methods permitted under the applicable Treasury Regulations, as well as the legislative history for the provisions that require allocations to appropriately reflect changes in ownership interests. It is possible that the IRS could successfully challenge CPER’s allocation conventions on the ground that they do not satisfy the technical requirements of the Code or Treasury Regulations, requiring a shareholder to report a greater or lesser share of items of income, gain, loss, deduction, or credit than if our conventions were respected. USCF is authorized to revise our allocation method to conform to the requirements of future Treasury Regulations.
The assumptions and conventions used by CPER in making tax allocations may cause a shareholder to be allocated more or less income or loss for U.S. federal income tax purposes than its proportionate share of the economic income or loss realized by CPER during the period it held its shares. This “mismatch” between taxable and economic income or loss in some cases may be temporary, reversing itself in a later period when the shares are sold, but could be permanent. For example, a shareholder could be allocated income accruing before it purchased its shares, resulting in an increase in the adjusted tax basis of the shares (see “Tax Basis of Shares”, below). On a subsequent disposition of the shares, the additional amount of tax basis might produce a capital loss the deduction of which may be limited (see “Limitations on Deductibility of Losses and Certain Expenses”, below).
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Section 754 Election. CPER has made the election permitted by section 754 of the Code, which election is irrevocable without the consent of the IRS. The effect of this election is that, in connection with a secondary market sale, CPER adjusts the purchaser’s proportionate share of the adjusted tax basis of its assets to fair market value, as reflected in the price paid for the shares, as if the purchaser had directly acquired an interest in CPER’s assets. The section 754 election is intended to eliminate disparities between a partner’s adjusted tax basis in its partnership interest and its share of the adjusted tax bases of the partnership’s assets, so that the partner’s allocable share of taxable gain or loss on a disposition of an asset will correspond to its share of the appreciation or depreciation in the value of the asset since it acquired its interest. Depending on the price paid for shares and the adjusted tax bases of CPER’s assets at the time of the purchase, the effect of the section 754 election on a purchaser of shares may be favorable or unfavorable. In order to make the appropriate tax basis adjustments in a cost-effective manner, CPER will use certain simplifying conventions and assumptions. In particular, all transfers of shares in CPER will be deemed to take place at a price (the “single monthly price”) equal to the value of such share at the end of the Business Day during the month in which the transfer takes place on which the value of a share is lowest at close of the market. Adjustments to be made under sections 734(b) and 743(b) of the Code will be made using the same monthly convention, including by reference to the single monthly price. It is possible the IRS will successfully assert that the conventions and assumptions applied are improper and require different tax basis adjustments to be made, which could adversely affect some shareholders.
Section 1256 Contracts. For U.S. federal income tax purposes, CPER generally is required to use a “mark-to-market” method of accounting under which unrealized gains and losses on instruments constituting “section 1256 contracts” are recognized currently. A section 1256 contract is defined as: (1) a futures contract that is traded on or subject to the rules of a national securities exchange, which is registered with the SEC, a domestic board of trade designated as a contract market by the CFTC, or any other board of trade or exchange designated by the Secretary of the Treasury, and with respect to which the amount required to be deposited and the amount that may be withdrawn depends on a system of “marking to market”; (2) a forward contract on exchange-traded foreign currencies, where the contracts are traded in the interbank market; (3) a non-equity option traded on or subject to the rules of a qualified board or exchange; (4) a dealer equity option; or (5) a dealer securities futures contract.
Under these rules, section 1256 contracts held by CPER at the end of each taxable year are treated as if they were sold for their fair market value on the last business day of the taxable year (i.e., are “marked to market”). In addition, any gain or loss realized from a disposition, termination, or marking-to-market of a section 1256 contract is generally treated as long-term capital gain or loss to the extent of 60 percent thereof, and as short-term capital gain or loss to the extent of 40percent thereof, without regard to the actual holding period (“60 – 40 treatment”).
Many of CPER’s Eligible Copper Futures Contracts and some of its Other Copper-Related Investments will qualify as “section 1256 contracts” under the Code. Gain or loss recognized through disposition, termination, or marking-to-market of CPER’s section 1256 contracts will be subject to 60 – 40 treatment and allocated to shareholders in accordance with the monthly allocation convention. Cleared swaps and other commodity swaps will likely not qualify as section 1256 contracts. If a commodity swap is not treated as a section 1256 contract, any gain or loss on the swap recognized at the time of disposition or termination will be long-term or short-term capital gain or loss depending on the holding period of the swap.
Limitations on Deductibility of Losses and Certain Expenses. A number of different provisions of the Code may defer or disallow the deduction of losses or expenses allocated to shareholders by CPER, including but not limited to, those described below.
A shareholder’s deduction of its allocable share of any loss of CPER is limited to the lesser of (1) the adjusted tax basis in its shares or (2) in the case of a shareholder that is an individual or a closely held corporation, the amount which the shareholder is considered to have “at risk” with respect to CPER’s activities. In general, the amount at risk will be a shareholder’s invested capital, plus its share of any recourse debt of CPER for which it is liable. Losses in excess of the lesser of (1) the adjusted tax basis in a shareholder’s shares or (2) the amount at risk must be deferred until years in which CPER generates additional taxable income against which to offset such carryover losses or until additional capital is placed at risk.
Non-corporate taxpayers are permitted to deduct capital losses only to the extent of their capital gains for the taxable year, plus $3,000 of other income. Unused capital losses can be carried forward and used to offset capital gains in future years. In addition, a non-corporate taxpayer may elect to carry back net losses on section 1256 contracts to each of the three preceding years and use them to offset section 1256 contract gains in those years, subject to certain limitations. Corporate taxpayers generally may deduct capital losses only to the extent of capital gains, subject to special carryback and carryforward rules.
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For taxable years beginning before January 1, 2026, otherwise deductible expenses incurred by non-corporate taxpayers constituting “miscellaneous itemized deductions,” generally including investment-related expenses (other than interest and certain other specified expenses), are not deductible. For taxable years beginning on or after January 1, 2026, such miscellaneous itemized deductions are deductible only to the extent they exceed 2 percent of the taxpayer’s adjusted gross income for the year. Although the matter is not free from doubt, we believe the management fees that CPER pays to USCF and other expenses CPER incurs will constitute investment-related expenses subject to the miscellaneous itemized deduction limitation, rather than expenses incurred in connection with a trade or business, and will report these expenses consistent with that interpretation. In addition, for taxable years beginning on or after January 1, 2026, the Code imposes additional limitations on the amount of certain itemized deductions allowable to individuals with adjusted gross income in excess of certain amounts by reducing the otherwise allowable portion of such deductions by an amount equal to the lesser of:
| · | 3% of the individual’s adjusted gross income in excess of certain threshold amounts; or |
| · | 80% of the amount of certain itemized deductions otherwise allowable for the taxable year. |
For taxable years beginning before January 1, 2026, noncorporate shareholders are entitled to a deduction (subject to certain limitations) equal to their “combined qualified business income.” “Combined qualified business income” for this purpose includes 20% of a noncorporate taxpayer’s “qualified publicly traded partnership income.” In general, “qualified publicly traded partnership income” includes a noncorporate taxpayer’s allocable share of “qualified items” of income, gain, deduction, and loss. A “qualified item” for this purpose is an item of income, gain deduction, or loss that (1) is effectively connected with the conduct of a trade or business within the United States and (2) is includible income for the taxable year. As discussed below, although the matter is not free from doubt, CPER believes that the activities directly conducted by CPER will not result in CPER being engaged in a trade or business within in the United States. See “Non-U.S. Shareholders—Withholding on Allocations and Distributions” below. As a result, we do not anticipate that any of our items of income, gain, deduction, or loss will be reported as “qualified publicly traded partnership income” eligible for the deduction for “combined qualified business income.” “Qualified publicly traded partnership income” also includes any gain or loss from the sale of an interest in a partnership to extent attributable to “unrealized receivables” or “inventory” under section 751 (for a discussion of section 751, see “Tax Consequences of Disposition of Shares” below). A noncorporate taxpayer that recognizes any gain or loss from the sale of an interest in CPER that is attributable to “unrealized receivables” or “inventory” under section 751 should consult with such taxpayer’s tax advisor to determine whether any portion of such gain or loss constitutes “qualified publicly traded partnership income” eligible for the deduction for “combined qualified business income.”
A taxpayer is generally prohibited from deducting business interest to the extent that it exceeds the sum of (i) business interest income of such taxpayer, (ii) 30% of the adjusted taxable income of such taxpayer, plus (iii) the floor plan financing interest of such taxpayer. In the case of partnerships, this determination is made at the partnership level. To the extent that the business income of the partnership exceeds the amount necessary to absorb all of the partnership’s business interest, such excess amount is allocated to the partners as excess business income, which amount may be used against any business interest of the partner (but not any other partnerships). To the extent that the partnership has any disallowed business interest expense, such amount is allocated among the partners, reduces the partners’ adjusted tax basis in their partnership interests by their allocable shares, and is carried forward to future years. Such carryforward may only be used as a deduction to the extent that the partnership has excess business income in the future. In the event that a partner transfers a partnership interest with any excess business interest carryforward amounts, such amounts increase the partner’s adjusted tax basis in its partnership interest immediately before the transfer. Although it is not free from doubt, CPER does not anticipate that it will be treated as engaged in a trade or business. As a result, CPER does not anticipate that any portion of its interest expense (if any) will constitute business interest or that shareholders will be allocated any excess business income as a result of holding CPER shares.
Non-corporate shareholders generally may deduct “investment interest expense” only to the extent of their “net investment income.” Investment interest expense of a shareholder will generally include any interest accrued by CPER and any interest paid or accrued on direct borrowings by a shareholder to purchase or carry its shares, such as interest with respect to a margin account. Net investment income generally includes gross income from property held for investment (including “portfolio income” under the passive loss rules but not, absent an election, long-term capital gains or certain qualifying dividend income), less deductible expenses other than interest directly connected with the production of investment income.
To the extent that CPER allocates losses or expenses to you that must be deferred or are disallowed as a result of these or other limitations in the Code, the Treasury Regulations thereunder, or other U.S. federal income tax authorities, you may be taxed on income in excess of your economic income or distributions (if any) on your shares. As one example, you could be allocated and required to pay tax on your share of interest income accrued by CPER for a particular taxable year, and in the same year, allocated a share of a capital loss that you cannot deduct currently because of the limitations discussed above. As another example, you could be allocated and required to pay tax on your share of interest income and capital gain for a year, but be unable to deduct some or all of your share of management fees and/or margin account interest incurred by you with respect to your shares. Shareholders are urged to consult their own tax advisors regarding the effect of limitations under the Code, the Treasury Regulations thereunder, and other U.S. federal income tax authorities on their ability to deduct their allocable share of CPER’s losses and expenses.
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Tax Basis of Shares
A shareholder’s adjusted tax basis in its shares is important in determining (1) the amount of taxable gain or loss it will realize on the sale or other disposition of its shares, (2) the amount of non-taxable distributions that it may receive from CPER, and (3) its ability to utilize its distributive share of any losses of CPER on its tax return. A shareholder’s initial tax basis of its shares will equal its cost for the shares, plus its share of CPER’s liabilities (if any) at the time of purchase. In general, a shareholder’s “share” of those liabilities will equal the sum of (i) the entire amount of any otherwise nonrecourse liability of CPER as to which the shareholder or an affiliate is the creditor, guarantor, or otherwise bears the economic risk of loss (a “partner nonrecourse liability”) and (ii) a pro rata share of any nonrecourse liabilities of CPER that are not partner nonrecourse liabilities as to any shareholder.
A shareholder’s adjusted tax basis in its shares generally will be (1) increased by (a) its allocable share of CPER’s taxable income and gain, and (b) any additional contributions by the shareholder to CPER; and (2) decreased (but not below zero) by (a) its allocable share of CPER’s tax deductions and losses, and (b) any distributions by CPER to the shareholder. For this purpose, a net increase in a shareholder’s share of CPER’s liabilities will be treated as a contribution of cash by the shareholder to CPER and a net decrease in that share will be treated as a distribution of cash by CPER to the shareholder. Pursuant to certain IRS rulings, a shareholder will be required to maintain a single, “unified” adjusted tax basis in all shares that it owns. As a result, when a shareholder that acquired its shares at different prices sells less than all of its shares, such shareholder will not be entitled to specify particular shares (e.g., those with a higher basis) as having been sold. Rather, it must determine its gain or loss on the sale by using an “equitable apportionment” method to allocate a portion of its unified basis in its shares to the shares sold.
Treatment of CPER Distributions. If CPER makes non-liquidating distributions to shareholders, such distributions generally will not be taxable to the shareholders for U.S. federal income tax purposes except to the extent that the sum of (i) the amount of cash and (ii) the fair market value (subject to certain exceptions and adjustments) of marketable securities distributed exceeds the shareholder’s adjusted basis of its interest in CPER immediately before the distribution. Any cash distributions in excess of a shareholder’s tax basis generally will be treated as gain from the sale or exchange of shares.
U. S. Federal Income Tax Consequences of Disposition of Shares
If a shareholder sells its shares, it will recognize gain or loss equal to the difference between the amount realized and its adjusted tax basis for the shares sold. A shareholder’s amount realized will be the sum of the cash and the fair market value of other property received, plus its share of any CPER debt outstanding.
Gain or loss recognized by a shareholder on the sale or exchange of shares held for more than one year will generally be taxable as long-term capital gain or loss; otherwise, such gain or loss will generally be taxable as short-term capital gain or loss. A special election is available under the Treasury Regulations that will allow shareholders to identify and use the actual holding periods for the shares sold for purposes of determining whether the gain or loss recognized on a sale of shares will give rise to long-term or short-term capital gain or loss. It is expected that most shareholders will be eligible to elect, and generally will elect, to identify and use the actual holding period for shares sold. If a shareholder fails to make the election or is unable to identify the holding periods of the shares sold, the shareholder may have a split holding period in the shares sold. Under such circumstances, a shareholder will be required to determine its holding period in the shares sold by first determining the portion of its entire interest in CPER that would give rise to long-term capital gain or loss, if its entire interest were sold, and the portion that would give rise to short-term capital gain or loss, if the entire interest were sold. The shareholder would then treat each share sold as giving rise to long-term capital gain or loss and short-term capital gain or loss in the same proportions as if it had sold its entire interest in CPER.
Under section 751 of the Code, a portion of a shareholder’s gain or loss from the sale of shares (regardless of the holding period for such shares), will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized receivables” or “inventory” owned by CPER. The term “unrealized receivables” includes, among other things, market discount bonds and short-term debt instruments to the extent such items would give rise to ordinary income, if sold by CPER. However, the short-term capital gain on section 1256 contracts resulting from 60 – 40 treatment, described above, should not be subject to this rule.
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If some or all of a shareholder’s shares are lent by its broker or other agent to a third party — for example, for use by the third party in covering a short sale — the shareholder may be considered as having made a taxable disposition of the loaned shares, in which case —
| · | the shareholder may recognize taxable gain or loss to the same extent as if it had sold the shares for cash; |
| · | any of CPER’s income, gain, loss, deduction or credit allocable to those shares during the period of the loan will not be reportable by the shareholder for tax purposes; and |
| · | any distributions the shareholder receives with respect to the shares under the loan agreements will be fully taxable to the shareholder, most likely as ordinary income. |
Shareholders desiring to avoid these and other possible consequences of a deemed disposition of their shares are urged to seek advice from their tax advisors.
Other U.S. Federal Income Tax Matters
Information Reporting. The Trust will report tax information to the beneficial owners of shares and the IRS. Shareholders of CPER are generally treated as its beneficial owners for U.S. federal income tax purposes. Accordingly, CPER will furnish its shareholders each year with tax information on IRS Schedules K-1, K-2, and K-3 (Form 1065), as applicable, which will be used by the shareholders in completing their tax returns. The IRS has ruled that assignees of partnership interests who have not been admitted to a partnership as partners, but who have the capacity to exercise substantial dominion and control over the assigned partnership interests, will be considered beneficial owners for U.S. federal income tax purposes. On the basis of such ruling and except as otherwise provided herein, we will treat any person whose shares are held on their behalf by a broker or other nominee as a shareholder, if that person has the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of the shares.
Persons who hold an interest in CPER as a nominee for another person are required to furnish to us the following information: (1) the name, address, and taxpayer identification number of the beneficial owner and the nominee; (2) whether the beneficial owner is (a) a person that is not a U.S. person, (b) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or (c) a tax-exempt entity; (3) the amount and description of shares acquired or transferred for the beneficial owner; and (4) certain information, including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and certain information on shares they acquire, hold or transfer for their own account. The nominee is required to supply the beneficial owner of the shares with the information furnished to CPER. Penalties may apply for failure to report required information.
Partnership Audit Procedures. The IRS may audit the U.S. federal income tax returns filed by CPER. Partnerships are generally treated as separate entities for purposes of U.S. federal income tax audits, judicial review of administrative adjustments by the IRS, and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss, deduction and credit are determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the shareholders.
CPER may be liable for U.S. federal income tax on any “imputed underpayment” resulting from an adjustment due to an IRS audit. The amount of the imputed underpayment generally includes increases in allocations of items of income or gains to any shareholder and decreases in allocations of items of deduction, loss, or credit to any shareholder without any offset for any corresponding reductions in allocations of items of income or gain to any shareholder or increases in allocations of items of deduction, loss, or credit to any shareholder. If CPER is required to pay any U.S. federal income tax arising from an imputed underpayment, the resulting tax liability would reduce the net assets of CPER and would likely have an adverse impact on the value of the shares. Under certain circumstances, CPER may be eligible to make an election to cause the shareholders to take into account the amount of any imputed underpayment, including any interest and penalties. The ability of a publicly traded partnership, such as CPER, to elect this treatment is uncertain. If the election is made, CPER would be required to provide shareholders who owned beneficial interests in the shares in the year to which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjusted K-1s”). The shareholders would be required to take the adjustment into account in the taxable year in which the Adjusted K-1s are issued. The Code generally requires CPER to designate one person as the “partnership representative” who has sole authority to defend against an audit with the IRS, challenge any adjustment in a court of law, and settle any audit or other proceeding. The Trust Agreement appoints USCF as the partnership representative of CPER.
Reportable Transaction Disclosure Rules. In certain circumstances, the Code, Treasury Regulations, and certain IRS administrative guidance require that the IRS be notified of certain taxable transactions through a disclosure statement attached to a taxpayer’s U.S. federal income tax return. These disclosure rules may apply to transactions, irrespective of whether they are structured to achieve particular tax benefits. These disclosure rules could require disclosure by the Trust or shareholders, if a shareholder incurs a loss in excess of a specified threshold from a sale or redemption of its shares, or possibly in other circumstances. While these rules generally do not require disclosure of a loss recognized on the disposition of an asset in which the taxpayer has a “qualifying basis” (generally is an adjusted tax basis equal to and solely determined by the amount of cash paid by the taxpayer for such asset) and satisfies certain other requirements, they do apply to a loss recognized with respect to interests in a pass-through entity, such as the shares. Significant penalties may be imposed in connection with a failure to comply with these reporting requirements. Shareholders should consult their own tax advisors concerning the application of these reporting requirements to their specific situation.
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Additional Tax on Investment Income. Individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly), and certain estates and trusts, are subject to an additional 3.8% tax on their “net investment income,” which generally includes income from interest, dividends, annuities, royalties, rents, and net capital gains (other than certain amounts earned from trades or businesses). The income subject to the additional 3.8% tax includes any income from businesses involved in the trading of financial instruments or commodities.
Tax-Exempt Organizations. Subject to numerous exceptions, qualified retirement plans and individual retirement accounts, charitable organizations, and certain other organizations that otherwise are exempt from U.S. federal income tax (collectively “exempt organizations”) nonetheless are subject to the tax on unrelated business taxable income (“UBTI”). Generally, UBTI means the gross income derived by an exempt organization from a trade or business that it regularly carries on, the conduct of which is not substantially related to the exercise or performance of its exempt purpose or function, less allowable deductions directly connected with that trade or business. If CPER were to regularly carry on (directly or indirectly) a trade or business that is unrelated with respect to an exempt organization shareholder of CPER, then in computing its UBTI, the shareholder must include its share of (1) CPER’s gross income from the unrelated trade or business, whether or not distributed, and (2) CPER’s allowable deductions directly connected with that gross income.
UBTI generally does not include dividends, interest, or payments with respect to securities loans and gains from the sale of property (other than property held for sale to customers in the ordinary course of a trade or business). Nonetheless, income on, and gain from the disposition of, “debt-financed property” is UBTI. Debt-financed property generally is income-producing property (including securities), the use of which is not substantially related to the exempt organization’s tax-exempt purposes, and with respect to which there is “acquisition indebtedness” at any time during the taxable year (or, if the property was disposed of during the taxable year, the 12-month period ending with the disposition). Acquisition indebtedness includes debt incurred to acquire property, debt incurred before the acquisition of property, if the debt would not have been incurred but for the acquisition, and debt incurred subsequent to the acquisition of property, if the debt would not have been incurred but for the acquisition and, at the time of acquisition, the incurrence of debt was foreseeable. The portion of the income from debt-financed property attributable to acquisition indebtedness is equal to the ratio of the average outstanding principal amount of acquisition indebtedness, over the average adjusted tax basis of the property for the year. CPER currently does not anticipate that it will borrow money to acquire investments; however, CPER cannot be certain that it will not borrow for such purpose in the future. In addition, an exempt organization shareholder that incurs acquisition indebtedness to purchase its shares in CPER may have UBTI.
The U.S. federal income tax rate applicable to an exempt organization shareholder on its UBTI generally will be either the corporate or trust tax rate, depending upon the U.S. federal income tax classification of the shareholder. CPER may report to each such shareholder information as to the portion, if any, of the shareholder’s income and gains from CPER for any year that will be treated as UBTI. The calculation of that amount is complex, and there can be no assurance that CPER’s calculation of UBTI will be accepted by the IRS. An exempt organization shareholder will be required to make payments of estimated U.S. federal income tax with respect to its UBTI. Shareholders should consult their own tax advisors concerning the application of the UBTI rules to their specific situation.
Regulated Investment Companies. Interests in and income from “qualified publicly traded partnerships” satisfying certain gross income tests are treated as qualifying assets and income, respectively, for purposes of determining eligibility for regulated investment company (“RIC”) status. A RIC may invest up to 25% of its assets in interests in a qualified publicly traded partnership. The determination of whether a publicly traded partnership, such as CPER, is a qualified publicly traded partnership is made on an annual basis. CPER expects to be a qualified publicly traded partnership in each of its taxable years. However, such qualification is not assured.
Non-U.S. Shareholders
Generally, non-U.S. shareholders who derive U.S. source income or gain from investing or engaging in a U.S. business are subject to tax in the United States with respect to two categories of income. The first category consists of amounts that are fixed, determinable, annual and periodic income, such as interest, dividends and rent that are not connected with the operation of a U.S. trade or business (“FDAP”). The second category is income that is effectively connected with the conduct of a U.S. trade or business (“ECI”). FDAP income (other than interest that is considered “portfolio interest”) is generally subject to a 30 percent withholding tax, which may be reduced for certain categories of income by an income tax treaty between the United States and the recipient’s country of residence. In contrast, ECI is generally subject to U.S. tax on a net basis at graduated rates upon the filing of a U.S. tax return. Where a non-U.S. shareholder derives ECI as a result of an investment in a partnership, the ECI is subject to withholding tax at a rate of 37% (39.6% for taxable years beginning after December 31, 2025) for individual shareholders and a rate of 21% for corporate shareholders.
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Withholding on Allocations and Distributions. The Code provides that a non-U.S. shareholder who is a partner in a partnership that is engaged in the conduct of a U.S. trade or business during a taxable year will also be considered to be engaged in the conduct of a U.S. trade or business during that year. Classifying an activity by a partnership as an investment or an operating business is a factual determination. Under certain safe harbors in the Code, an investment fund whose activities consist of trading in stocks, securities, or commodities for its own account generally will not be considered to be engaged in the conduct of a U.S. trade or business, unless it is a dealer in such stocks, securities, or commodities. This safe harbor applies to investments in commodities only if the commodities are of a kind customarily dealt on an organized commodity exchange and if the transaction is of a kind customarily consummated at such place. Although the matter is not free from doubt, CPER believes that the activities directly conducted by CPER will not result in CPER being engaged in the conduct of a trade or business within in the United States. However, there can be no assurance that the IRS would not successfully assert that CPER’s activities constitute a U.S. trade or business.
In the event that CPER’s activities were considered to constitute a U.S. trade or business, CPER would be required to withhold at (1) the highest rate specified in section 1 of the Code (currently 37% (39.6% for taxable years beginning after December 31, 2025)) on allocations of income to individual non-U.S. shareholders, and (2) the highest rate specified in Code Section 11(b) (currently 21%) on allocations of our income to corporate non-U.S. shareholders, when such income is allocated or distributed. A non-U.S. shareholder with ECI will generally be required to file a U.S. federal income tax return, and the return will provide the Non-U.S. shareholder with the mechanism to seek a refund of any withholding in excess of such shareholder’s actual U.S. federal income tax liability. Any amount withheld by CPER on behalf of a non-U.S. shareholder will be treated as a distribution to the non-U.S. shareholder to the extent possible. In some cases, CPER may not be able to match the economic cost of satisfying its withholding obligations to a particular non-U.S. shareholder, which may result in such cost being borne by CPER, generally, and accordingly, by all shareholders.
If CPER is not treated as engaged in the conduct of a U.S. trade or business, a non-U.S. shareholder may nevertheless be treated as having FDAP income, which would be subject to a 30% withholding tax (possibly subject to reduction by income tax treaty), with respect to some or all of its distributions from CPER or its allocable share of CPER’s income. Amounts withheld on behalf of a non-U.S. shareholder will be treated as being distributed to such shareholder to the extent possible. In some cases, CPER may not be able to match the economic cost of satisfying its withholding obligations to a particular non-U.S. shareholder, which may result in such cost being borne by CPER, generally, and accordingly, by all shareholders.
To the extent any interest income allocated to a non-U.S. shareholder that otherwise constitutes FDAP is considered “portfolio interest,” neither the allocation of such interest income to the non-U.S. shareholder nor a subsequent distribution of such interest income to the non-U.S. shareholder will be subject to withholding, provided that the non-U.S. shareholder is not otherwise engaged in the conduct of a trade or business in the United States and provides CPER with a timely and properly completed and executed IRS Form W-8BEN, W-8BEN-E, or other applicable form. In general, “portfolio interest” is interest paid on debt obligations issued in registered form, unless the “recipient” owns 10% or more of the voting power of the issuer.
The Trust expects that most of CPER’s interest income will qualify as “portfolio interest.” In order for CPER to avoid withholding on any interest income allocable to non-U.S. shareholders that would qualify as “portfolio interest,” it will be necessary for all non-U.S. shareholders to provide CPER with a timely and properly completed and executed Form W-8BEN, W-8BEN-E, or other applicable IRS form.
Recently issued U.S. Treasury Regulations require withholding on certain distributions occurring on or after January 1, 2023 made by a publicly traded partnership. An exception under these rules applies if a publicly traded partnership certifies that it is not engaged in a trade or business within the United States at any time during its taxable year through the publicly traded partnership’s designated date. In order to make this certification, the publicly traded partnership must issue a “qualified notice” indicating that it qualifies for this exception. A broker may not rely on such a certification if it has actual knowledge that the certification is incorrect or unreliable. CPER intends to issue qualified notices that satisfy the applicable requirements and which confirms this exception from withholding. Certain aspects of these rules remain unclear. Until the IRS issues guidance further clarifying these rules, non-U.S. shareholders are urged to consult their tax advisors regarding the impact of these rules on an investment in our shares, and brokers are urged consult their tax advisors in making withholding decisions pursuant to these rules.
Gain from Sale of Shares. Gain from the sale or exchange of the shares may be taxable to a non-U.S. shareholder if the non-U.S. shareholder is a nonresident alien individual who is present in the U.S. for 183 days or more during the taxable year. In such case, the nonresident alien individual will be subject to a 30 percent withholding tax on the amount of such individual’s gain. In addition, if CPER is treated as being engaged in a U.S. trade or business, a portion of the gain on the sale or exchange will be treated as effectively connected income subject to U.S. federal income tax to the extent that a sale of CPER’s assets would give rise to effectively connected income. Section 1446(f) of the Code was enacted as part of the Tax Cuts and Jobs Act of 2017. Section 1446(f) of the Code provides that certain transfers of a partnership interest, including an interest in a publicly traded partnership, may be subject to 10% withholding. However, the U.S. Treasury Department and the IRS have suspended these rules for transfers of certain publicly traded partnership interests, including certain transfers of our shares, that occur before January 1, 2023.
Under recently finalized U.S. Treasury Regulations, brokers generally are required to withhold on certain transfers of interests in partnerships, including interests in publicly traded partnerships. An exception under these rules applies if a publicly traded partnership certifies that it is not engaged in a trade or business within the United States at any time during its taxable year through the publicly traded partnership’s designated date. In order to make this certification, the publicly traded partnership must issue a “qualified notice” indicating that it qualifies for this exception. A broker may not rely on such a certification if it has actual knowledge that the certification is incorrect or unreliable. CPER intends to issue qualified notices that satisfy the applicable requirements and which confirms this exception from withholding. In addition, certain aspects of these rules remain unclear. Until the IRS issues guidance further clarifying these rules, non-U.S. shareholders are urged to consult their tax advisors regarding the impact of these rules on an investment in our shares, and brokers are urged to consult their tax advisors in making withholding decisions pursuant to these rules.
Branch Profits Tax on Corporate Non-U.S. Shareholders. In addition to the taxes noted above, any non-U.S. shareholders that are classified as corporations for U.S. federal income tax purposes may also be subject to an additional tax, the branch profits tax, at a rate of 30%. The branch profits tax is imposed on a corporate non-U.S. shareholder’s dividend equivalent amount, which generally consists of the corporation’s after-tax earnings and profits that are effectively connected with the conduct of the corporation’s U.S. trade or business, but are not reinvested in a U.S. trade or business. This tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the non-U.S. shareholder is a “qualified resident.”
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Prospective non-U.S. shareholders should consult their tax advisor with regard to these and other issues unique to non-U.S. shareholders.
U.S. Shareholders
A U.S. shareholder may be subject to information reporting and backup withholding when such U.S. shareholder receives taxable distributions on the shares and proceeds from the sale or other disposition of the shares (including a redemption of the shares). Certain U.S. shareholders generally are not subject to information reporting or backup withholding. A U.S. shareholder will be subject to backup withholding, if such U.S. shareholder is not otherwise exempt and such U.S. shareholder:
| · | fails to furnish the U.S. shareholder’s U.S. TIN, which, for an individual, generally is his or her U.S. social security number; |
| · | furnishes an incorrect U.S. TIN; |
| · | is notified by the IRS that the U.S. shareholder has failed properly to report payments of interest or dividends; or |
| · | fails to certify, under penalties of perjury, on an IRS Form W-9 (Request for Taxpayer Identification Number and Certification) or a suitable substitute form (or other applicable certificate), that the U.S. shareholder has furnished a correct U.S. TIN and that the IRS has not notified the U.S. shareholder that the U.S. shareholder is subject to backup withholding. |
U.S. shareholders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. Backup withholding is not an additional U.S. federal income tax, and taxpayers may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund, if they timely provide certain information to the IRS.
Non-U.S. Shareholders
The amount of taxable distributions that we pay to any non-U.S. shareholder on the shares will be reported to the non-U.S. shareholder and to the IRS annually on an IRS Form 1042-S, regardless of the amount of U.S. federal income tax withheld. Copies of these information returns may also be made available under the provisions of a specific income tax treaty or agreement with the tax authorities of the country in which the non-U.S. shareholder resides. However, a non-U.S. shareholder generally will not be subject to backup withholding and certain other information reporting with respect to payments that we make to the non-U.S. shareholder, provided that we do not have actual knowledge or reason to know that such non-U.S. shareholder is a “United States person” within the meaning of the Code, and the non-U.S. shareholder complies with applicable certification and disclosure requirements and furnishes to us the requisite information.
If a non-U.S. shareholder sells or exchanges a share through a United States broker or the United States office of a foreign broker, or such sale is deemed to occur through a United States office of a foreign broker, the proceeds from such sale or exchange will be subject to information reporting and backup withholding, unless the non-U.S. shareholder provides a withholding certificate establishing that such holder is not a U.S. shareholder to the broker and such broker does not have actual knowledge or reason to know that such holder is a U.S. shareholder, or the non-U.S. shareholder is an exempt recipient eligible for an exemption from information reporting and backup withholding. If a non-U.S. shareholder sells or exchanges a share through the foreign office of a broker who is a “United States person” (within the meaning of the Code) or a “U.S. middleman” (as that that term is defined under applicable Treasury Regulations), the proceeds from such sale or exchange will be subject to information reporting, unless the non-U.S. shareholder provides to such broker a withholding certificate establishing that such shareholder is not a U.S. shareholder and such broker does not have actual knowledge or reason to know that such evidence is false, or the non-U.S. shareholder is an exempt recipient eligible for an exemption from information reporting. In circumstances where information reporting by the foreign office of such a broker is required, backup withholding will be required only if the broker has actual knowledge that the holder is a U.S. shareholder.
A non-U.S. shareholder generally will be entitled to credit any amounts withheld under the backup withholding rules against the non-U.S. shareholder’s U.S. federal income tax liability or may claim a refund, provided that the required information is furnished to the IRS in a timely manner.
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Non-U.S. shareholders are urged to consult their tax advisors regarding the application of information reporting and backup withholding to their particular situations, the availability of an exemption therefrom, and the procedures for obtaining such an exemption, if available.
Foreign Account Tax Compliance Act Provisions
Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions (“FFIs”), unless such FFIs either: (i) enter into an agreement with the U.S. Treasury Department to report certain required information with respect to accounts held by certain specified U.S. persons (or held by foreign entities that have certain specified U.S. persons as substantial owners); or (ii) reside in a jurisdiction that has entered into an intergovernmental agreement (“IGA”) with the United States to collect and share such information and comply with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S.-source interest and dividends. While the Code would also require withholding on the payments of the gross proceeds from the sale of any property that could produce U.S. source interest or dividends, the U.S. Treasury Department has indicated its intent to eliminate this requirement. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a specified U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding tax on certain payments to certain foreign entities that are not FFIs, unless the foreign entity certifies that it does not have a greater than 10% U.S. owner that is a specified U.S. person or provides the withholding agent with identifying information on each greater than 10% U.S. owner that is a specified U.S. person. Depending on the status of a beneficial owner and the status of the intermediaries through which the owner holds its shares, a beneficial owner could be subject to this 30% withholding tax with respect to distributions on its shares. Under certain circumstances, a beneficial owner might be eligible for refunds or credits of such taxes.
In addition to U.S. federal income taxes, shareholders may be subject to other taxes, such as foreign (non-U.S.) income taxes, state and local income taxes; unincorporated business taxes; business franchise taxes; gift, estate, or inheritance taxes; or intangible taxes that may be imposed by the various jurisdictions in which CPER does business or owns property or where the shareholders reside. Although an analysis of these various taxes is not presented here, each prospective shareholder should consider their potential impact on its investment in CPER. It is each shareholder’s responsibility to file the appropriate U.S. federal, state, local, and foreign tax returns. Eversheds Sutherland (US) LLP has not provided an opinion concerning any aspects of state, local, or foreign tax, or U.S. federal tax, other than those U.S. federal income tax issues discussed herein.
Certain ERISA and Related Considerations
General
Most employee benefit plans and individual retirement accounts (“IRAs”) are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the Code, or both. This section discusses certain considerations that arise under ERISA and the Code that a fiduciary of: (i) an employee benefit plan as defined in ERISA; (ii) a plan as defined in Section 4975 of the Code; or (iii) any collective investment vehicle, business trust, investment partnership, pooled separate account or other entity the assets of which are treated as comprised (at least in part) of “plan assets” under the ERISA plan asset rules (“plan asset entity”) who has investment discretion should take into account before deciding to invest in the entity’s assets in CPER. Employee benefit plans, plans defined under Section 4975 of the Code and plan asset entities are collectively referred to below as “plans,” and fiduciaries with investment discretion are referred to below as “plan fiduciaries.”
This summary is based on the provisions of ERISA, the Code and applicable guidance as of the date hereof. This summary is not intended to be complete, but only to address certain questions under ERISA and the Code. The summary does not include state or local law.
Potential plan investors are urged to consult with their own professional advisors concerning the appropriateness of an investment in CPER and the manner in which shares should be purchased.
Special Investment Considerations
Investments by plans governed by ERISA are subject to ERISA’s fiduciary requirements, including the requirements of investment prudence and diversification. As a result, each plan fiduciary must consider the facts and circumstances that are relevant to their plan’s specific circumstances when evaluating an investment in CPER, including the role that an investment in CPER would play in the plan’s overall investment portfolio, taking into account the plan’s purpose, the risk and loss of potential return with respect to the investment, the liquidity, the current return of the total portfolio relative to the anticipated cash flow needs of the plan, and the projected return of the portfolio and relative to the plan’s objectives. Each plan fiduciary, before deciding to invest in CPER, must be satisfied that its investment in CPER is prudent for the plan, that the investments of the plan are properly diversified and that an investment in CPER complies with the terms of the plan.
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CPER and Plan Assets
Regulations issued under ERISA contains rules for determining when an investment by a plan in an equity interest of a statutory trust will result in the underlying assets of the statutory trust being deemed “plan assets” for purposes of ERISA and Section 4975 of the Code. Those rules provide that assets of a statutory trust will not be deemed to be assets of a plan that purchases an equity interest in the statutory trust if the equity interest purchased qualifies as a publicly-offered security. If the underlying assets of a statutory trust are considered to be assets of any plan for purposes of ERISA or Section 4975 of the Code, the operations of that trust would be subject to and, in some cases, limited by the provisions of ERISA and Section 4975 of the Code.
An equity interest will qualify as a publicly offered security if it is:
| (1) | freely transferable (determined based on the relevant facts and circumstances); |
| (2) | part of a class of securities that is widely held (meaning that the class of securities is owned by 100 or more investors independent of the issuer and of each other); and |
| (3) | either (a) part of a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or (b) sold to the plan as part of a public offering pursuant to an effective registration statement under the 1933 Act and the class of which such security is a part is registered under the 1934 Act within 120 days (or such later time as may be allowed by the SEC) after the end of the fiscal year of the issuer in which the offering of such security occurred. |
Regulations under ERISA state that the determination of whether a security is “freely transferable” is to be made based on all of the relevant facts and circumstances. In the case of a security that is part of an offering in which the minimum investment is $10,000 or less, the following requirements, alone or in combination, ordinarily will not affect a finding that the security is freely transferable: (1) a requirement that no transfer or assignment of the security or rights relating to the security be made that would violate any federal or state law; and (2) a requirement that no transfer or assignment be made without advance written notice given to the entity that issued the security.
USCF believes that the conditions described above are satisfied with respect to the shares of CPER. USCF believes that the shares of CPER therefore constitute publicly-offered securities, and the underlying assets of CPER will not be deemed to be “plan assets” under applicable ERISA regulations.
Prohibited Transactions
ERISA and the Code generally prohibit certain transactions involving plans and persons who have certain specified relationships to plans.
In general, CPER shares may not be purchased with the assets of a plan if USCF, the clearing brokers, the trading advisors (if any), or any of their affiliates, agents or employees:
| · | exercise any discretionary authority or discretionary control with respect to management of the plan; |
| · | exercise any authority or control with respect to management or disposition of the assets of the plan; |
| · | render investment advice for a fee or other compensation, direct or indirect, with respect to any money or other property of the plan; |
| · | have any authority or responsibility to render investment advice with respect to any money or other property of the plan; or |
| · | have any discretionary authority or discretionary responsibility in the administration of the plan. |
Also, a prohibited transaction may occur under ERISA or the Code when circumstances indicate that (1) the investment in shares is made or retained for the purpose of avoiding application of the fiduciary standards of ERISA, (2) the investment in shares constitutes an arrangement under which CPER is expected to engage in transactions that would otherwise be prohibited if entered into directly by the plan purchasing the shares, (3) the investing plan, by itself, has the authority or influence to cause CPER to engage in such transactions, or (4) a person who is prohibited from transacting with the investing plan may, but only with the aid of certain of its affiliates and the investing plan, cause CPER to engage in such transactions with such person.
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Special IRA Rules
Individual retirement accounts (“IRAs”) are not subject to ERISA’s fiduciary standards, but are subject to their own rules, including the prohibited transaction rules of Section 4975 of the Code, which generally mirror ERISA’s prohibited transaction rules. For example, IRAs are subject to special custody rules and must maintain a qualifying IRA custodial arrangement separate and distinct from CPER and its custodial arrangement. If a separate qualifying custodial arrangement is not maintained, an investment in the shares will be treated as a distribution from the IRA. Additionally, IRAs are prohibited from investing in certain commingled investments, and USCF makes no representation regarding whether an investment in shares is an inappropriate commingled investment for an IRA. Finally, in applying the prohibited transaction provisions of Section 4975 of the Code, in addition to the rules summarized above, the individual for whose benefit the IRA is maintained is also treated as the creator of the IRA. For example, if the owner or beneficiary of an IRA enters into any transaction, arrangement, or agreement involving the assets of his or her IRA to benefit the IRA owner or beneficiary (or his or her relatives or business affiliates) personally, or with the understanding that such benefit will occur, directly or indirectly, such transaction could give rise to a prohibited transaction that is not exempted by any available exemption. Moreover, in the case of an IRA, the consequences of a non-exempt prohibited transaction are that the IRA’s assets will be treated as if they were distributed, causing immediate taxation of the assets (including any early distribution penalty tax applicable under Section 72 of the Code), in addition to any other fines or penalties that may apply.
Exempt Plans
Governmental plans and church plans are generally not subject to ERISA, and the prohibited transaction provisions described above do not apply to them. These plans are, however, subject to prohibitions against certain related-party transactions under Section 503 of the Code, which are similar to the prohibited transaction rules described above. In addition, the fiduciary of any governmental or church plan should consider any applicable state or local laws and any restrictions and duties of common law imposed upon the plan.
No view is expressed as to whether an investment in CPER (and any continued investment in CPER), or the operation and administration of CPER, is appropriate or permissible for any governmental plan or church plan under Code Section 503, or under any state, county, local or other law relating to that type of plan.
Allowing an investment in CPER is not to be construed as a representation by the Trust, CPER, USCF, any trading advisor, any clearing broker, the Marketing Agent or legal counsel or other advisors to such parties or any other party that this investment meets some or all of the relevant legal requirements with respect to investments by any particular plan or that this investment is appropriate for any such particular plan. The person with investment discretion should consult with the plan’s attorney and financial advisors as to the propriety of an investment in CPER in light of the circumstances of the particular plan, current tax law and ERISA.
THE FOREGOING SUMMARY OF ERISA CONSIDERATIONS IS BASED UPON ERISA, JUDICIAL DECISIONS, DEPARTMENT OF LABOR REGULATIONS AND RULINGS IN EXISTENCE ON THE DATE HEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE. THE SUMMARY IS GENERAL IN NATURE AND DOES NOT ADDRESS EVERY ERISA ISSUE THAT MAY BE APPLICABLE TO AN INVESTMENT IN CPER OR TO A PARTICULAR INVESTOR.
Registered Form
Shares 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 shares in certificated form. The Administrator keeps a record of all shareholders and holders of the shares in certified form in the registry (the “Register”). USCF recognizes transfers of shares in certificated form only if done in accordance with the Trust Agreement. The beneficial interests in such shares are held in book-entry form through participants and/or accountholders in DTC.
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Book Entry
Individual certificates are not issued for the shares. Instead, shares 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 shares outstanding at any time. Shareholders 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 banks, brokers, dealers, trust companies and others who hold interests in the shares through DTC Participants or Indirect Participants, in each case who satisfy the requirements for transfers of shares. DTC Participants acting on behalf of investors holding shares through such participants’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement System. Shares are credited to DTC Participants’ securities accounts following confirmation of receipt of payment.
DTC
DTC has advised CPER as follows: DTC 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 1934 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.
The shares are only transferable through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer their shares through DTC by instructing the DTC Participant holding their shares (or by instructing the Indirect Participant or other entity through which their shares are held) to transfer the shares. Transfers are made in accordance with standard securities industry practice.
Transfers of interests in shares 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 CPER that it will take any action permitted to be taken by a shareholder (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, each 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 shareholder of any particular series asserts against the series a valid claim with respect to its indebtedness or shares, the creditor or shareholder 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 each 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 shares 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, CPER or USCF on behalf of the Trust or CPER, 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 CPER. 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 CPER and the Trust to USCF. The Trustee does not provide custodial services with respect to the assets of CPER.
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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 shareholders, although entitled under Delaware law to the same limitation on personal liability as stockholders in a private corporation for profit organized under the laws of the State of Delaware, are not so entitled in such state. To protect shareholders against any loss of limited liability, the Trust Agreement provides that each written obligation undertaken by USCF on behalf of the Trust or CPER shall give notice that the obligation is not binding upon the shareholders individually but is binding only upon the assets and property of CPER, and no resort shall be had to the shareholders’ personal property for satisfaction of such obligation. Furthermore, the Trust and CPER indemnify all shareholders of CPER against any liability that such shareholders might incur solely based on their status as shareholders of one or more shares (other than for taxes for which such shareholder is liable under the Trust Agreement).
What is the Plan of Distribution?
Buying and Selling Shares
Most investors buy and sell shares of CPER in secondary market transactions through brokers. Shares trade on the NYSE Arca under the ticker symbol “CPER.” Shares are bought and sold throughout the trading day like other publicly traded securities. When buying or selling shares through a broker, most investors incur customary brokerage commissions and charges. Shareholders are encouraged to review the terms of their brokerage account for details on applicable charges.
Marketing Agent and Authorized Participants
The offering of CPER’s shares is a best efforts offering. CPER continuously offers Creation Baskets consisting of 50,000 shares through the Marketing Agent, to Authorized Participants. Authorized Participants pay a $350 fee for each order to create or redeem one or more Creation Baskets or Redemption Baskets. Through September 30, 2022, the fee of the Marketing Agent, which is borne by USCF, was equal to 0.06% on CPER’s assets up to the first $3 billion and 0.04% on CPER’s assets in excess of $3 billion. The agreement with the Marketing Agent has been amended and, commencing October 1, 2022, the fee of the Marketing Agent, which is calculated daily and payable monthly and borne by USCF, is equal to 0.025% of CPER’s total net assets. In no event may the aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with this offering exceed ten 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 Participants will not make any sales to any account over which they have discretionary authority without the prior written approval of a purchaser of shares.
The per share price of shares offered in Creation Baskets on any subsequent day will be the total NAV of CPER calculated shortly after the close of the core trading session on the NYSE Arca on that day divided by the number of issued and outstanding shares of CPER. An Authorized Participant is not required to sell any specific number or dollar amount of shares.
When an Authorized Participant executes an agreement with USCF on behalf of CPER (each such agreement, an “Authorized Participant Agreement”), such Authorized Participant becomes part of the group of parties eligible to purchase baskets from, and put baskets for redemption to, CPER. An Authorized Participant is under no obligation to create or redeem baskets, and an Authorized Participant is under no obligation to offer to the public shares of any baskets it does create.
As of September 30, 2022, the Trust had the following Authorized Participants: BNP Paribas Securities Corp., Citadel Securities LLC, Credit Suisse Securities USA LLC, Goldman Sachs & Company, Jefferies LLC, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Inc., RBC Capital Markets LLC and Virtu Americas LLC.
Because new shares can be created and issued on an ongoing basis, at any point during the life of CPER, a “distribution,” as such term is used in the 1933 Act, will be occurring. Authorized Participants, 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. In addition, any purchaser who purchases shares with a view towards distribution of such shares may be deemed to be a statutory underwriter.
Authorized Participants will comply with the prospectus delivery requirements in connection with the sale of shares to customers. For example, an Authorized Participant, other broker-dealer firm or its client will be deemed a statutory underwriter if it purchases a Creation Basket from CPER, breaks the Creation Basket down into the constituent shares and sells the shares to its customers; or if it chooses to couple the creation of a supply of new shares with an active selling effort involving solicitation of secondary market demand for the shares. Authorized Participants may also engage in secondary market transactions in shares that would not be deemed “underwriting.” For example, an Authorized Participant may act in the capacity of a broker or dealer with respect to shares that were previously distributed by other Authorized Participants. A determination of whether a particular market participant is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that would lead to designation as an underwriter and subject them to the prospectus-delivery and liability provisions of the 1933 Act.
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Dealers who are neither Authorized Participants nor “underwriters” but are nonetheless participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with shares that are part of an “unsold allotment” within the meaning of Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(a)(3) of the 1933 Act.
USCF intends any broker-dealers selling shares will be members of FINRA. Investors intending to create or redeem baskets through Authorized Participants in transactions not involving a broker-dealer registered in such investor’s state of domicile or residence should consult their legal advisor regarding applicable broker-dealer or securities regulatory requirements under the state securities laws prior to such creation or redemption.
While the Authorized Participants may be indemnified by USCF, they will not be entitled to receive a discount or commission from the Trust or USCF for their purchases of Creation Baskets.
CPER’s per share NAV is calculated by:
| · | Taking the current market value of its total assets; |
| · | Subtracting any liabilities; and |
| · | Dividing that total by the total number of outstanding shares. |
The Administrator calculates the per share NAV of CPER once each NYSE Arca trading day. The per share NAV for a normal trading day is released after 4:00 p.m. New York time. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time. The Administrator uses the closing prices on the relevant Futures Exchanges of the Benchmark Component Copper Futures Contracts (determined at the earlier of the close of such exchange or 2:30 p.m. New York time) for the contracts traded on the Futures Exchanges, but calculates or determines the value of all other investments of CPER using market quotations, if available, or other information customarily used to determine the fair value of such investments as of the earlier of the close of the NYSE Arca or 4:00 p.m. New York time in accordance with the current Administrative Agency Agreement among the Administrator, CPER and USCF. “Other information” customarily used in determining fair value includes information consisting of market data in the relevant market supplied by one or more third parties including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other market data in the relevant market; or information of the types described above from internal sources if that information is of the same type used by CPER in the regular course of its business for the valuation of similar transactions. The information may include costs of funding, to the extent costs of funding are not and would not be a component of the other information being utilized. Third parties supplying quotations or market data may include, without limitation, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources of market information.
In addition, in order to provide updated information relating to CPER for use by investors and market professionals, the NYSE Arca calculates and disseminates throughout the core trading session on each trading day an updated indicative fund value. The indicative fund value is calculated by using the prior day’s closing per share NAV of CPER as a base and updating that value throughout the trading day to reflect changes in the most recently reported trade price level of the SCI as reported by Bloomberg, L.P. or another reporting service.
The indicative fund value share basis disseminated during NYSE Arca core trading session hours should not be viewed as an actual real time update of the per share NAV, because the per share NAV is calculated only once at the end of each trading day based upon the relevant end of day values of CPER’s investments.
The indicative fund value is disseminated on a per share basis every 15 seconds during regular NYSE Arca core trading session hours of 9:30 a.m. New York time to 4:00 p.m. New York time. The normal trading hours of the COMEX ends prior to the close of the core trading session on NYSE Arca. As a result, there will be a gap in time at the beginning and/or the end of each day during which CPER’s shares are traded on the NYSE Arca, but real-time futures exchange trading prices for Benchmark Component Copper Futures Contracts traded on the COMEX are not available. During such gaps in time the indicative fund value will be calculated based on the end of day price of such Benchmark Component Copper Futures Contracts from Futures Exchanges immediately preceding trading session. In addition, Other Copper-Related Investments and Treasuries held by CPER will be valued by the Administrator, using rates and points received from client-approved third-party vendors (such as Reuters and WM Company) and advisor quotes. These investments will not be included in the indicative fund value.
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The NYSE Arca disseminates the indicative fund value through the facilities of CTA/CQ High Speed Lines. In addition, the indicative fund value is published on the NYSE Arca’s website and is available through on-line information services such as Bloomberg and Reuters.
Dissemination of the indicative fund value provides additional information that is not otherwise available to the public and is useful to investors and market professionals in connection with the trading of CPER’s shares on the NYSE Arca. Investors and market professionals are able throughout the trading day to compare the market price of CPER and the indicative fund value. If the market price of CPER’s shares diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades. For example, if CPER appears to be trading at a discount compared to the indicative fund value, a market professional could buy CPER’s shares on the NYSE Arca and sell short copper futures contracts. Such arbitrage trades can tighten the tracking between the market price of CPER and the indicative fund value and thus can be beneficial to all market participants.
The Trust reserves the right to adjust the share price of CPER in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits. Such splits would decrease (in the case of a split) or increase (in the case of a reverse split) the proportionate NAV per share, but would have no effect on the net assets of CPER or the proportionate voting rights of shareholders.
Creation and Redemption of Shares
CPER creates and redeems shares from time to time, but only in one or more Creation Baskets or Redemption Baskets. The creation and redemption of baskets are only made in exchange for delivery to CPER or the distribution by CPER of the amount of Treasuries and/or cash represented by the baskets being created or redeemed, the amount of which is based on the combined NAV of the number of shares included in the baskets being created or redeemed determined as of 4:00 p.m. New York time on the day the order to create or redeem baskets is properly received.
Authorized Participants are the only persons that may place orders to create and redeem baskets. Authorized Participants 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 as described below, and (2) DTC Participants. To become an Authorized Participant, a person must enter into an Authorized Participant Agreement with USCF on behalf of CPER (each such agreement, an “Authorized Participant Agreement”). The Authorized Participant Agreement provides the procedures for the creation and redemption of baskets and for the delivery of the Treasuries and any cash required for such creations and redemptions. The Authorized Participant Agreement and the related procedures attached thereto may be amended by CPER, without the consent of any shareholder or Authorized Participant. Authorized Participants pay a transaction fee of $350 to CPER for each order they place to create one or more Creation Baskets or to redeem one or more Redemption Baskets. The transaction fee may be reduced, increased or otherwise changed by USCF. Authorized Participants who make deposits with CPER in exchange for baskets receive no fees, commissions or other form of compensation or inducement of any kind from either CPER or USCF, and no such person will have any obligation or responsibility to CPER or USCF to effect any sale or resale of shares.
Certain Authorized Participants are expected to be capable of participating directly in the physical copper market and the Copper Interests markets. Some Authorized Participants or their affiliates may from time to time buy or sell copper or Copper Interests and may profit in these instances. USCF believes that the size and operation of the copper market make it unlikely that an Authorized Participant’s direct activities in the copper or securities markets will significantly affect the price of copper, Copper Interests, or the price of its shares.
Each Authorized Participant is required to be registered as a broker-dealer under the 1934 Act and is a member in good standing with FINRA, or exempt from being or otherwise not required to be registered as a broker-dealer or a member of FINRA, and qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Participants may also be regulated under federal and state banking laws and regulations. Each Authorized Participant has its own set of rules and procedures, internal controls and information barriers as it determines is appropriate in light of its own regulatory regime.
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Under the Authorized Participant Agreement, USCF, and the Trust under limited circumstances, have agreed to indemnify the Authorized Participants against certain liabilities, including liabilities under the 1933 Act, and to contribute to the payments the Authorized Participants may be required to make in respect of those liabilities.
The following description of the procedures for the creation and redemption of baskets is only a summary and an investor should refer to the relevant provisions of the Trust Agreement and the form of Authorized Participant Agreement for more detail. The Trust Agreement is attached to this prospectus. The form of Authorized Participant Agreement is filed as an exhibit to the registration statement of which this prospectus is a part. See “Where You Can Find More Information” for information about where you can obtain the registration statement.
Creation Procedures
On any business day, an Authorized Participant may place an order with the Marketing Agent to create one or more baskets. For purposes of processing purchase and redemption orders, a “business day” means any day other than a day when the NYSE Arca, the New York Stock Exchange, or any futures exchange upon which a Benchmark Component Copper Futures Contract is traded is closed for regular trading. Purchase orders must be placed by 10:30 a.m. New York time or the close of regular trading on the NYSE Arca, whichever is earlier. The day on which the Marketing Agent receives a valid purchase order is referred to as the purchase order date.
By placing a purchase order, an Authorized Participant agrees to deposit Treasuries, cash or a combination of Treasuries and cash with the Trust, as described below. Prior to the delivery of baskets for a purchase order, the Authorized Participant must also have wired to the Custodian the nonrefundable transaction fee due for the purchase order. Authorized Participants may not withdraw a creation request, except as otherwise set forth in the procedures in the Authorized Participant Agreement.
The manner by which creations are made is dictated by the terms of the Authorized Participant Agreement. By placing a purchase order, an Authorized Participant agrees to (1) deposit Treasuries, cash, or a combination of Treasuries and cash with the Custodian of CPER, and (2) if required by USCF in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other OTC transaction (through itself or a designated acceptable broker) with CPER for the purchase of a number and type of futures contracts at the closing settlement price for such contracts on the purchase order date. If an Authorized Participant fails to consummate (1) and (2), the order shall be cancelled. The number and type of contracts specified shall be determined by USCF, in its sole discretion, to meet CPER’s investment objective and shall be purchased as a result of the Authorized Participant’s purchase of shares.
Determination of Required Deposits
The total deposit required to create each Creation Basket (“Creation Basket Deposit”) is the amount of Treasuries and/or cash that is in the same proportion to the total assets of CPER (net of estimated accrued but unpaid fees, expenses and other liabilities) on the purchase order date as the number of shares to be created under the purchase order is in proportion to the total number of shares outstanding on the purchase order date. USCF determines, directly in its sole discretion or in consultation with the Administrator, the requirements for Treasuries and the amount of cash, including the maximum permitted remaining maturity of the Treasury and proportions of Treasuries and cash, that may be included in deposits to create baskets. The Marketing Agent will publish such requirements at the beginning of each business day. The amount of cash deposit required is the difference between the aggregate market value of the Treasuries required to be included in a Creation Basket Deposit as of 4:00 p.m. New York time on the date the order to purchase is properly received and the total required deposit.
Delivery of Required Deposits
An Authorized Participant who places a purchase order is responsible for transferring to CPER’s account with the Custodian the required amount of Treasuries and/or cash by noon New York time on the second business day following the purchase order date. Upon receipt of the deposit amount, the Administrator directs DTC to credit the number of baskets ordered to the Authorized Participant’s DTC account on the second business day following the purchase order date. The expense and risk of delivery and ownership of Treasuries until such Treasuries have been received by the Custodian on behalf of CPER shall be borne solely by the Authorized Participant.
Because orders to purchase baskets must be placed by 10:30 a.m., New York time, but the total payment required to create a basket during the continuous offering period will not be determined until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Participants will not know the total amount of the payment required to create a basket at the time they submit an irrevocable purchase order for the basket. CPER’s per share NAV and the total amount of the payment required to create a basket could rise or fall substantially between the time an irrevocable purchase order is submitted and the time the amount of the purchase price in respect thereof is determined.
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Rejection of Purchase Orders
USCF acting by itself or through the Marketing Agent shall have the absolute right, but no obligation, to reject a purchase order or a Creation Basket Deposit if USCF determines that:
| · | the purchase order or Creation Basket Deposit is not in proper form; |
| · | it would not be in the best interest of the shareholders of CPER; |
| · | due to position limits or otherwise, investment alternatives that will enable CPER to meet its investment objective are not available to CPER at that time; |
| · | the acceptance of the purchase order or the Creation Basket Deposit would have adverse tax consequences to CPER or its shareholders; |
| · | the acceptance or receipt of which would, in the opinion of counsel to USCF, be unlawful; or |
| · | circumstances outside the control of USCF, the Marketing Agent or the Custodian make it, for all practical purposes, not feasible to process Creation Baskets (including if USCF determines that the investments available to CPER at that time will not enable it to meet its investment objective). |
None of USCF, the Marketing Agent or the Custodian will be liable for the rejection of any purchase order or Creation Basket Deposit.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or more baskets mirror the procedures for the creation of baskets. On any business day, an Authorized Participant may place an order with the Marketing Agent to redeem one or more baskets. Redemption orders must be placed by 10:30 a.m. New York time or the close of regular trading on the NYSE Arca, whichever is earlier. A redemption order so received will be effective on the date it is received in satisfactory form by the Marketing Agent (“Redemption Order Date”). The redemption procedures allow Authorized Participants to redeem baskets and do not entitle an individual shareholder to redeem any shares in an amount less than a Redemption Basket, or to redeem baskets other than through an Authorized Participant.
By placing a redemption order, an Authorized Participant agrees to deliver the baskets to be redeemed through DTC’s book-entry system to CPER not later than noon New York time on the second business day following the effective date of the redemption order. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant must also have wired to USCF’s account at the Custodian the non-refundable transaction fee due for the redemption order. An Authorized Participant may not withdraw a redemption order, except as otherwise set forth in the procedures in the Authorized Participant Agreement.
The manner by which redemptions are made is dictated by the terms of the Authorized Participant Agreement. By placing a redemption order, an Authorized Participant agrees to (1) deliver the Redemption Basket to be redeemed through DTC’s book-entry system to CPER’s account with the Custodian no later than 3:00 p.m. New York time on the second business day following the effective date of the redemption order (“Redemption Order Date”), and (2) if required by USCF in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other OTC transaction (through itself or a designated acceptable broker) with CPER for the purchase of a number and type of futures contracts at the closing settlement price for such contracts on the Redemption Order Date. If an Authorized Participant fails to consummate (1) and (2) above, the order shall be cancelled. The number and type of contracts specified shall be determined by USCF, in its sole discretion, to meet CPER’s investment objective and shall be sold as a result of the Authorized Participant’s sale of shares.
Determination of Redemption Distribution
The redemption distribution from CPER consists of a transfer to the redeeming Authorized Participant of an amount of Treasuries and/or cash that is in the same proportion to the total assets of CPER (net of estimated accrued but unpaid fees, expenses and other liabilities) on the date the order to redeem is properly received as the number of shares to be redeemed under the redemption order is in proportion to the total number of shares outstanding on the date the order is received. USCF, directly or in consultation with the Administrator, determines the requirements for Treasuries and the amounts of cash, including the maximum permitted remaining maturities of the Treasuries and proportions of Treasuries and cash, that may be included in distributions to redeem baskets. The Marketing Agent will publish an estimate of the redemption distribution per basket as of the beginning of each business day.
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Delivery of Redemption Distribution
The redemption distribution due from CPER will be delivered to the Authorized Participant on the second business day following the redemption order date if, by 3:00 p.m., New York time on such second business day, CPER’s DTC account has been credited with the baskets to be redeemed. If CPER’s DTC account has not been credited with all of the baskets to be redeemed by such time, the redemption distribution will be delivered to the extent of whole baskets received. Any remainder of the redemption distribution will be delivered on the next business day to the extent of remaining whole baskets received if USCF receives the fee applicable to the extension of the redemption distribution date which USCF may, from time to time, determine and the remaining baskets to be redeemed are credited to CPER’s DTC account by 3:00 p.m., New York time on such next business day. Any further outstanding amount of the redemption order shall be cancelled. Pursuant to information from USCF, the Custodian will also be authorized to deliver the redemption distribution notwithstanding that the baskets to be redeemed are not credited to CPER’s DTC account by 3:00 p.m., New York time on the second business day following the redemption order date if the Authorized Participant has collateralized its obligation to deliver the baskets through DTC’s book entry-system on such terms as USCF may from time to time determine.
Suspension or Rejection of Redemption Orders
USCF may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which the NYSE Arca or any of the futures exchanges upon which a Benchmark Component Copper Futures Contract is traded is closed other than customary weekend or holiday closings, or trading on the NYSE Arca or such futures exchanges is suspended or restricted, (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of Treasuries is not reasonably practicable, or (3) for such other period as USCF determines to be necessary for the protection of the shareholders. For example, USCF may determine that it is necessary to suspend redemptions to allow for the orderly liquidation of CPER’s assets at an appropriate value to fund a redemption. If USCF has difficulty liquidating CPER’s positions, e.g., because of a market disruption event in the futures markets, a suspension of trading by the exchange where the futures contracts are listed or an unanticipated delay in the liquidation of a position in an OTC contract, it may be appropriate to suspend redemptions until such time as such circumstances are rectified. None of USCF, the Marketing Agent, the Administrator or the Custodian will be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.
Redemption orders must be made in whole baskets. USCF acting by itself or through the Marketing Agent may, in its sole discretion, reject any Redemption Order (1) USCF determines that the Redemption Order is not in proper form, (2) the fulfillment of which its counsel advises may be illegal under applicable laws and regulations, or (3) if circumstances outside the control of USCF, the Marketing Agent or the Custodian make it for all practical purposes not feasible for the shares to be delivered under the Redemption Order. USCF may also reject a redemption order if the number of shares being redeemed would reduce the remaining outstanding shares to 100,000 shares (i.e., two baskets) or less.
Creation and Redemption Transaction Fee
To compensate CPER for its expenses in connection with the creation and redemption of baskets, an Authorized Participant is required to pay a transaction fee to CPER of $350 per order to create or redeem baskets, regardless of the number of baskets in such order. An order may include multiple baskets. The transaction fee may be reduced, increased or otherwise changed by USCF. USCF shall notify DTC of any change in the transaction fee and will not implement any increase in the fee for the redemption of baskets until thirty (30) days after the date of the notice.
Tax Responsibility
Authorized Participants are responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value added tax or similar tax or governmental charge applicable to the creation or redemption of baskets, regardless of whether or not such tax or charge is imposed directly on the Authorized Participant, and agree to indemnify USCF and CPER if they are required by law to pay any such tax, together with any applicable penalties, additions to tax and interest thereon.
Secondary Market Transactions
As noted, CPER creates and redeems shares from time to time, but only in one or more Creation Baskets or Redemption Baskets. The creation and redemption of baskets are only made in exchange for delivery to CPER or the distribution by CPER of the amount of Treasuries and cash represented by the baskets being created or redeemed, the amount of which will be based on the aggregate NAV of the number of shares included in the baskets being created or redeemed determined on the day the order to create or redeem baskets is properly received.
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As discussed above, Authorized Participants are the only persons that may place orders to create and redeem baskets. Authorized Participants must be 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. An Authorized Participant is under no obligation to create or redeem baskets, and an Authorized Participant is under no obligation to offer to the public shares of any baskets it does create. Authorized Participants that do offer to the public shares from the baskets they create will do so at per-share offering prices that are expected to reflect, among other factors, the trading price of the shares on the NYSE Arca, the per share NAV of CPER at the time the Authorized Participant purchased the Creation Baskets, the per share NAV at the time of the offer of the shares to the public, the supply of and demand for shares at the time of sale, and the liquidity of the Copper Interests. Baskets are generally redeemed when the price per share is at a discount to the per share NAV.
Shares initially comprising the same basket but offered by Authorized Participants to the public at different times may have different offering prices. An order for one or more baskets may be placed by an Authorized Participant on behalf of multiple clients. Authorized Participants who make deposits with CPER in exchange for baskets receive no fees, commissions or other forms of compensation or inducement of any kind from either CPER or USCF, and no such person has any obligation or responsibility to USCF or CPER to effect any sale or resale of shares. Shares trade in the secondary market on the NYSE Arca. Shares may trade in the secondary market at prices that are lower or higher relative to their per share NAV.
The amount of the discount or premium in the trading price relative to the per share NAV may be influenced by various factors, including, among other things, the number of investors who seek to purchase or sell shares in the secondary market, the availability of Creation Baskets, the liquidity of the Copper Interests, and the market for Other Copper-Related Investments. In addition, while CPER’s shares trade during the core trading session on the NYSE Arca until 4:00 p.m. New York time, liquidity in the market for Copper Interests may be reduced after the determination of the settlement price by COMEX at 2:30 p.m. New York time. CPER’s NAV is calculated based on the settlement price of the Benchmark Component Copper Futures Contracts at 2:30 p.m. Eastern Time and the closing share price of CPER on the NYSE Arca takes into account changes in the price of the Benchmark Component Copper Futures Contracts that occur after the settlement price is determined. As a result, during this time, trading spreads, and the resulting premium or discount, on the shares may widen.
USCF causes CPER to transfer the proceeds from the sale of Creation Baskets to the Custodian or another custodian for use in trading activities. USCF will invest CPER’s assets in Copper Interests. When CPER purchases Copper Interests that are exchange-traded, CPER will be required to deposit typically 5% to 30% with the FCM on behalf of the exchange a portion of the value of the contract or other interest as security to ensure payment for the obligation under the Copper Interests at maturity. This deposit is known as initial margin. Counterparties in transactions in OTC contracts will generally impose similar collateral requirements on CPER. USCF will invest CPER’s assets that remain after margin and collateral are posted in short-term Treasuries, cash and/or cash equivalents. Subject to these margin and collateral requirements, USCF has sole authority to determine the percentage of assets that are:
| · | held as margin or collateral with FCMs or other custodians; |
| · | used for other investments; and |
| · | held in bank accounts to pay current obligations and as reserves. |
Approximately 5% to 30% of CPER’s assets have normally been committed as margin for commodity futures contracts. However, from time to time, the percentage of assets committed as margin may be substantially more, or less, than such range. An FCM, counterparty, government agency or commodity exchange could increase margin or collateral requirements applicable to CPER to hold trading positions at any time. Ongoing margin and collateral payments will generally be required for both exchange-traded and OTC contracts based on changes in the value of the Copper Interests. Furthermore, ongoing collateral requirements with respect to OTC contracts are negotiated by the parties, and may be affected by overall market volatility, volatility of the SCI, the ability of the counterparty to hedge its exposure under the Copper Interests, and each party’s creditworthiness. Margin is merely a security deposit and has no bearing on the profit or loss potential for any positions held. In light of the differing requirements for initial payments under exchange-traded and OTC contracts and the fluctuating nature of ongoing margin and collateral payments, it is not possible to estimate what portion of CPER’s assets will be posted as margin or collateral at any given time. The Treasuries, cash and cash equivalents held by CPER will constitute reserves that will be available to meet ongoing margin and collateral requirements. All interest income will be used for CPER’s benefit. USCF invests the balance of CPER’s assets not invested in Copper Interests or held in margin as reserves to be available for changes in margin. All interest income is used for CPER’s benefit.
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CPER’s assets posted as margin for Eligible Copper Futures Contracts are held in segregated accounts pursuant to the CEA and CFTC regulations. Collateral posted in connection with OTC contracts held with CPER’s FCM will be similarly segregated and if held with other counterparties will be segregated pursuant to contract between CPER and its counterparties.
If CPER enters into a swap agreement, it must post both collateral and independent amounts to its swap counterparty(ies). The amount of collateral CPER posts changes according to the amounts owed by CPER to its counterparty on a given swap transaction, while independent amounts are fixed amounts posted by CPER at the start of a swap transaction. Collateral and independent amounts posted to swap counterparties will be held by a third-party custodian.
Additional Information About the SCI and CPER’s Trading Program
The overall return on the SCI is generated by two components: (i) uncollateralized returns from the Benchmark Component Copper Futures Contracts comprising the SCI, and (ii) a daily fixed income return reflecting the interest earned on hypothetical 3-month Treasuries, calculated using the weekly auction rate for 3-Month Treasuries published by the U.S. Department of the Treasury. SHIM is the owner of the SCI.
Table 1 below lists the Futures Exchange on which the Eligible Copper Futures Contracts are listed and quotation details. Table 2 lists the Eligible Copper Futures Contracts, their sector designation and maximum allowable tenor.
TABLE 1
| Commodity | Designated Contract | Exchange | Units | Quote | ||||
| Copper | Copper | COMEX | 25,000 lbs. | U.S. cents/pound | ||||
TABLE 2
| Commodity Name | Commodity Symbol | Allowed Contracts | Max. Tenor | |||
| Copper | HG | Mar, May, Jul, Sep, Dec | 12 | |||
Prior to the end of each month, SHIM determines the composition of the SCI and provides such information to the NYSE Arca. Values of the SCI are computed by the NYSE Arca and disseminated approximately every fifteen (15) seconds from 8:00 a.m. to 5:00 p.m., New York City time, which also publishes a daily SCI value at approximately 5:30 p.m., New York City time, under the index ticker symbol “SCI.” Only settlement and last-sale prices are used in the SCI’s calculation, bids and offers are not recognized — including limit-bid and limit-offer price quotes. Where no last-sale price exists, typically in the more deferred contract months, the previous days’ settlement price is used. This means that the underlying SCI may lag its theoretical value. This tendency to lag is evident at the end of the day when the SCI value is based on the settlement prices of the Benchmark Component Copper Futures Contracts, and explains why the underlying SCI often closes at or near the high or low for the day.
Composition of the SCI
The composition of the SCI on any given day, as determined and published by SHIM, is determinative of the benchmark for CPER. However, it is not possible to anticipate all possible circumstances and events that may occur with respect to the SCI and the methodology for its composition, weighting and calculation. Accordingly, a number of subjective judgments must be made in connection with the operation of the SCI that cannot be adequately reflected in this description of the SCI. All questions of interpretation with respect to the application of the provisions of the index methodology for the SCI, including any determinations that need to be made in the event of a market emergency or other extraordinary circumstances, will be resolved by SHIM.
Contract Expirations
Because the SCI is comprised of actively traded contracts with scheduled expirations, it can be calculated only by reference to the prices of contracts for specified expiration, delivery or settlement periods, referred to as contract expirations. The contract expirations included in the SCI for each commodity during a given year are designated by SHIM, provided that each contract must be an active contract. An active contract for this purpose is a liquid, actively-traded contract expiration, as defined or identified by the relevant trading facility or, if no such definition or identification is provided by the relevant trading facility, as defined by standard custom and practice in the industry.
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If a futures exchange, such as the COMEX, ceases trading in all contract expirations relating to an Eligible Copper Futures Contract, SHIM may designate a replacement contract. The replacement contract must satisfy the eligibility criteria for inclusion in the SCI. To the extent practicable, the replacement will be effected during the next monthly review of the composition of the SCI. If that timing is not practicable, SHIM will determine the date of the replacement based on a number of factors, including the differences between the existing Benchmark Component Copper Futures Contract and the replacement contract with respect to contractual specifications and contract expirations.
The designation of a replacement contract could affect the value of the SCI, either positively or negatively, depending on the price of the contract that is eliminated and the prices of the replacement contract. It is impossible, however, to predict the effect of these changes, if they occur, on the value of the SCI.
Contract Selection and Weighting
Weights for each of the Benchmark Component Copper Futures Contracts are determined for the next month. The methodology used to calculate the SCI weighting is based solely on quantitative data using observable futures prices and is not subject to human bias.
The monthly weighting selection is a process based upon examination of the relevant futures prices for copper:
| 1) | On CPER’s Selection Date (“CPER’s Selection Date”): |
| a) | the copper futures curve is assessed to be in either backwardation or contango (as discussed below); and |
| b) | the Three Eligible Copper Futures Contracts are identified. For each month, the Three Eligible Copper Futures Contracts are as follows |
| Month | January | February | March | April | May | June | July | August | September | October | November | December |
| Closest to Expiration Futures Contract | Mar | Mar | May | May | Jul | Jul | Sep | Sep | Dec | Dec | Dec | Mar |
| Eligible Futures Contracts | Mar | May | May | Jul | Jul | Sep | Sep | Dec | Dec | Dec | Mar | Mar |
| May | July | July | Sep | Sep | Dec | Dec | Mar | Mar | Mar | May | May | |
| July | Sep | Sep | Dec | Dec | Mar | Mar | May | May | May | Jul | Jul | |
A futures curve in backwardation occurs when the price of the closest-to-expiration Allowed Contract is greater than or equal to the price of the next closest-to-expiration Allocated Contract. These contracts will have expirations that are approximately two or three months apart. A curve not in backwardation is defined as being in contango, which occurs when the price of the closest-to-expiration contract is less than the price of the next closest-to-expiration contract.
2a) Backwardation: If the copper futures curve is in backwardation on the Selection Date, the SCI takes positions in the first Eligible Copper Futures Contract, weighted at 100%.
A hypothetical example is included below, with the selected Eligible Copper Futures Contract shaded below:
| Copper Futures Contract | Expiration Date | Contract Price | ||||||
| Nearest-to-maturity | December-10 | 374.70 | ||||||
| Next nearest-to-maturity | March-11 | 365.20 | ||||||
| Eligible Copper Futures Contracts | Price | |||
| December-10 | 374.70 | |||
2b) Contango: If the copper futures curve is in contango, then the SCI takes positions in first three Eligible Copper Futures Contracts, each position is weighted at 33.33%.
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A hypothetical example is included below, with the three selected Eligible Copper Futures Contracts indicated below:
| Copper Futures Contract | Expiration Date | Contract Price | ||||||
| Nearest-to-maturity | December-10 | 374.00 | ||||||
| Next nearest-to-maturity | March-11 | 375.70 | ||||||
| Eligible Copper Futures Contracts | Price | |||
| December-10 | 374.00 | |||
| March-11 | 375.70 | |||
| May-11 | 376.30 | |||
Due to the dynamic monthly weighting calculation, the individual weights will vary-over time, depending on the price observations each month. CPER’s Selection Date for the SCI is the 10th business day of the calendar month.
The following graph shows the weights of the Benchmark Component Copper Futures Contracts selected for inclusion in the SCI as of September 30, 2022.
Portfolio Construction
The portfolio rebalancing takes place during the Rebalancing Period. At the end of each of the days in the Rebalancing Period one fourth of the prior month portfolio positions are replaced by the new weights for the Benchmark Component Copper Futures Contracts determined on CPER’s Selection Date.
SCI Total Return Calculation
The value of the SCI on any business day is equal to the product of (i) the value of the SCI on the immediately preceding business day multiplied by (ii) one plus the sum of the day’s returns for another version of the SCI known as the SummerHaven Dynamic Copper Index Excess Return (“SCI ER”) (explained below) and one business day’s interest from the hypothetical Treasury Bill portfolio. The value of the SCI will be calculated and published by the NYSE Arca.
SCI Base Level
The SCI was set to 100 on January 2, 1991.
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SCI ER Calculation
The total return of the SCI ER reflects the percentage change of the market values of the underlying commodity futures. During the Rebalancing Period, the SCI changes its contract holdings and weightings during a four day period. The value of the SCI ER at the end of a business day “t” is equal to the SCI ER value on day “t -1” multiplied by the sum of the daily percentage price changes of each commodity future factoring in each respective commodity future’s notional holding on day “t -1”.
Rebalancing Period
The SCI is rebalanced during the 11th through 14th business days of each calendar month, when existing positions are placed by new positions and weightings based on the signals used for contract selection on 10th business day of the calendar month as outlined above.
Changes to the SCI effective on December 31, 2020
Previously, the SCI could have been comprised of two or three Eligible Copper Futures Contracts. Beginning with the commodity selection process that was scheduled to occur on December 31, 2020, the rebalancing period for the SCI changed from the first four business days of each month to the 11th-14th business days of each month, based on signals used for contract selection on the 10th business day of each month, rather than the last business day of each month. In addition, commencing with the first commodity selection date occurring after the change: the SCI was revised as follows: the number of Eligible Copper Futures Contracts was reduced, and the SCI itself is now comprised of one or three Eligible Copper Futures Contracts. Previously, the SCI could have comprised of two or three Eligible Copper Futures Contracts. These revisions to the composition of the SCI are intended to ensure that the SCI components at any given time represent copper futures contracts for which there is an active and liquid trading market.
This prospectus contains information you should consider when making an investment decision about the shares. You may rely only on the information contained in this prospectus or any applicable prospectus supplement. None of the Trust, CPER or USCF has authorized any person to provide you with different information and, if anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell the shares in any jurisdiction where the offer or sale of the shares is not permitted.
The information contained in this prospectus was obtained from us and other sources believed by us to be reliable.
You should rely only on the information contained in this prospectus or any applicable prospectus supplement or any information incorporated by reference to this prospectus. We have not authorized anyone to provide you with any information that is different. If you receive any unauthorized information, you must not rely on it. You should disregard anything we said in an earlier document that is inconsistent with what is included in this prospectus or any applicable prospectus supplement or any information incorporated by reference to this prospectus. Where the context requires, when we refer to this “prospectus,” we are referring to this prospectus and (if applicable) the relevant prospectus supplement.
You should not assume that the information in this prospectus or any applicable prospectus supplement is current as of any date other than the date on the front page of this prospectus or the date on the front page of any applicable prospectus supplement.
We include cross references in this prospectus to captions in these materials where you can find further related discussions. The table of contents tells you where to find these captions.
SUMMARY OF PROMOTIONAL AND SALES MATERIAL
CPER uses the following promotional or sales material:
| · | CPER’s website, www.uscfinvestments.com; and |
| · | CPER Fact Sheet found on CPER’s website. |
The materials described above are not a part of this prospectus or the registration statement of which this prospectus is a part.
This section is provided here as a convenience to you.
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USCF owns trademark registrations for USCI (and Design) (U.S. Reg. No. 4437230) for “Fund investment services,” in use since September 30, 2012, and USCI UNITED STATES COMMODITY INDEX FUND (U.S. Reg. No. 4005166) for “Fund investment services,” in use since August 10, 2010. USCF owns trademark registrations for CPER UNITED STATES COPPER INDEX FUND (and Design) (U.S. Reg. No. 4440922) for “Financial investment services in the field of copper futures contracts, cash-settled options on copper futures contracts, forward contracts for copper, over-the-counter transactions based on the price of copper, and indices based on the foregoing,” in use since September 30, 2012, UNITED STATES COPPER INDEX FUND (U.S. Reg. No. 4270057) for “Fund investment services,” in use since November 15, 2011, and THE FIRST COPPER ETF (U.S. Reg. No. 4472746) for “Financial investment services in the field of copper futures contracts, cash-settled options on copper futures contracts, forward contracts for copper, over-the-counter transactions based on the price of copper, and indices based on the foregoing,” in use since February 13, 2012. USCF relies upon these trademarks through which it markets its services and strives to build and maintain brand recognition in the market and among current and potential investors. So long as USCF continues to use these trademarks to identify its services, without challenge from any third party, and properly maintains and renews the trademark registrations under applicable laws, rules and regulations, it will continue to have indefinite protection for these trademarks under current laws, rules and regulations.
USCF owns trademark registrations for USCF (and Design) (U.S. Reg. No. 5127374) for “Fund investment services,” in use since April 10, 2016, USCF (U.S. Reg. No. 5040755) for “Fund investment services,” in use since June 24, 2008, and INVEST IN WHAT’S REAL (U.S. Reg. No. 5450808) for “Fund investment services,” in use since April 2016. USCF relies upon these trademarks and service mark through which it markets its services and strives to build and maintain brand recognition in the market and among current and potential investors. So long as USCF continues to use these trademarks to identify its services, without challenge from any third party, and properly maintains and renews the trademark registrations under applicable laws, rules and regulations, it will continue to have indefinite protection for these trademarks under current laws, rules and regulations. USCF has been granted two patents Nos. 7,739,186 and 8,019,675, for systems and methods for an exchange traded fund (ETF) that tracks the price of one or more commodities.
WHERE YOU CAN FIND MORE INFORMATION
The Trust has filed on behalf of CPER a registration statement on Form S-3 with the SEC under the 1933 Act. This prospectus does not contain all of the information set forth in the registration statement (including the exhibits to the registration statement), parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information about the Trust, CPER, or the shares, please refer to the registration statement, which you may access online at www.sec.gov. Information about the Trust, CPER, and the shares can also be obtained from CPER’s website, http://www.uscfinvestments.com. CPER’s website address is only provided here as a convenience to you and the information contained on or connected to the website is not part of this prospectus or the registration statement of which this prospectus is part. The Trust is subject to the informational requirements of the 1934 Act and USCF, on behalf of the Trust and CPER, will file certain reports and other information with the SEC under the 1934 Act. USCF will file an updated prospectus annually for CPER pursuant to the 1933 Act. The reports and other information can be accessed online at www.sec.gov.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes “forward-looking statements” which generally relate to future events or future performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in this prospectus that address activities, events or developments that will or may occur in the future, including such matters as changes in inflation in the United States, movements in the stock market, movements in U.S. and foreign currencies, and movements in the commodities markets and indexes that track such movements, CPER’s operations, USCF’s plans and references to CPER’s future success and other similar matters, are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses USCF has made based on its perception of historical trends, current conditions and expected future developments, as well as other factors appropriate in the circumstances. Whether or not actual results and developments will conform to USCF’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in this prospectus, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments. See “Risk Factors Involved with an Investment in CPER” Consequently, all the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results or developments USCF anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, CPER’s operations or the value of its shares.
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INCORPORATION BY REFERENCE OF CERTAIN INFORMATION
We are a reporting company and file annual, quarterly and current reports and other information with the SEC. The rules of the SEC allow us to “incorporate by reference” information that we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. Any reports filed by us with the SEC subsequent to the date of this prospectus and before the date that any offering of any securities by means of this prospectus and any accompanying prospectus supplement is terminated will automatically update, and where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this prospectus until all of the securities offered by this prospectus and any accompanying prospectus supplement have been sold or we otherwise terminate the offering of these securities; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K, or other information “furnished” to the SEC, which is not deemed filed is not and will not be incorporated by reference. This prospectus incorporates by reference the documents set forth below that have been previously filed with the SEC.
| · | Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022. |
| · | Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed with the SEC on May 6, 2022. |
| · | Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 5, 2022. |
| · | Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022, filed with the SEC on November 7, 2022. |
| · | Current Report on Form 8-K, filed with the SEC on October 3, 2022. |
Any statement contained in a document incorporated by reference in this prospectus shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document that also is or is deemed to be incorporated by reference in this prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We will provide to each person to whom a prospectus is delivered, including any beneficial owner, a copy of these filings at no cost, upon written or oral request at the following address or telephone number:
United States
Commodity Index Funds Trust
Attention: Katie Rooney
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, California 94596
(510) 522-9600
Our website is www.uscfinvestments.com. We make our electronic filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available on our website free of charge as soon as practicable after we file or furnish them with the SEC. The information contained on our website does not constitute a part of this prospectus, and our website address supplied above is intended to be an inactive textual reference only and not an active hyperlink to our website.
CPER and USCF may collect or have access to certain non-public personal information about current and former investors. Non-public personal information may include information received from investors, such as an investor’s name, social security number and address, as well as information received from brokerage firms about investor holdings and transactions in shares of CPER.
CPER and USCF do not disclose non-public personal information except as required by law or as described in their Privacy Policy. In general, CPER and USCF restrict access to the non-public personal information they collect about investors to those of their and their affiliates’ employees and service providers who need access to such information to provide products and services to investors.
CPER and USCF maintain safeguards that comply with federal and applicable state law to protect investors’ non-public personal information. These safeguards are reasonably designed to (1) ensure the security and confidentiality of investors’ records and information, (2) protect against any anticipated threats or hazards to the security or integrity of investors’ records and information, and (3) protect against unauthorized access to or use of investors’ records or information that could result in substantial harm or inconvenience to any investor. Third-party service providers with whom CPER and USCF share non-public personal information about investors must agree to follow appropriate standards of security and confidentiality, which includes safeguarding such nonpublic personal information physically, electronically and procedurally.
A copy of USCF’s current Privacy Policy is available at http://www.uscfinvestments.com.
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In this prospectus, each of the following terms has the meaning set forth after such term:
1933 Act: The Securities Act of 1933.
1934 Act: The Securities Exchange Act of 1934.
1940 Act: Investment Company Act of 1940.
Adjusted K-1: A statement to investors who owned beneficial interests in the shares in the year to which the adjusted allocations relate setting forth their proportionate shares of the adjustment.
Administrator: BNY Mellon.
Authorized Participant: A person that purchases or redeems Creation Baskets or Redemption Baskets, respectively, from or to CPER.
Authorized Participant Agreement: An agreement with USCF on behalf of CPER whereby a person becomes an Authorized Participant.
Backup Withholding: U.S. federal income tax that is required to be withheld.
Basket: A block of 50,000 shares.
Benchmark Component Copper Futures Contracts: The one or three Eligible Copper Futures Contracts that make up the SCI at any one time. Beginning with the first commodity selection process that occurred after the commodity selection process that was scheduled to occur on December 31, 2020, the Benchmark Component Copper Futures Contracts is the two or three Eligible Futures Contracts that make up the SCI at any one time.
BNO: United States Brent Oil Fund, LP.
BNY Mellon: The Bank of New York Mellon.
Board: USCF’s board of directors.
Business Day: Any day other than a day when the COMEX, NYSE Arca, the New York Stock Exchange, or any of the Futures Exchanges upon which an Eligible Copper Futures Contract is traded is closed for regular trading.
CEA: Commodity Exchange Act.
CFTC: Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and options in the United States.
Cleared Swap Contract: A financial contract, whose value is designed to track the return on stocks, bonds, currencies, commodities, or some other benchmark, that is submitted to a central clearinghouse after it is either traded OTC or on an exchange or other trading platform.
COMEX: Commodity Exchange, Inc.
Code: Internal Revenue Code of 1986, as amended.
Commodity Pool: An enterprise in which several individuals contribute funds in order to trade futures contracts or options on futures contracts collectively.
Commodity Pool Operator or CPO: Any person engaged in a business which is of the nature of an investment trust, syndicate, or similar enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in any commodity for future delivery or commodity option on or subject to the rules of any contract market.
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Commodity Trading Advisor or CTA: Subject to certain exceptions set forth in the Commodity Exchange Act, any person who for compensation or profit, (i) engages in the business of advising others, either directly or through publications, writings, or electronic media, as to the value of or the advisability of trading in any commodity for future delivery or commodity option on or subject to the rules of any contract market, or (ii) as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to in (i).
Copper Interests: Benchmark Component Copper Futures Contracts and Other Copper-Related Investments.
CPER: United States Copper Index Fund.
Creation Basket: A block of 50,000 shares used by CPER to issue shares.
Creation Basket Deposit: The total deposit required to create each basket.
Custodian: The Bank of New York Mellon.
DCM: Designated contract market.
DNO: United States Short Oil Fund, LP.
DTC: The Depository Trust Company. DTC will act as the securities depository for the shares.
DTC Participant: An entity that has an account with DTC.
ECI: Income that is effectively connected with the conduct of a U.S. trade or business.
Eligible Copper Futures Contracts: Futures contracts for copper that are traded on the COMEX.
ERISA: Employee Retirement Income Security Act of 1974.
Exchange for Related Position (EFRP): An off market transaction which involves the swapping (or exchanging) of an over-the-counter (OTC) position for a futures position. The OTC transaction must be for the same or similar quantity or amount of a specified commodity, or a substantially similar commodity or instrument. The OTC side of the EFRP can include swaps, swap options, or other instruments traded in the OTC market. In order for an EFRP transaction to take place, the OTC side and futures components must be “substantially similar” in terms of either value or quantity. The net result is that the OTC position (and the inherent counterparty credit exposure) is transferred from the OTC market to the futures market. EFRPs can also work in reverse, where a futures position can be reversed and transferred to the OTC market.
FDAP: Amounts that are fixed, determinable, annual and periodic income, such as interest, dividends and rent that are not connected with the operation of a U.S. trade or business.
FCM: Futures Commission Merchant.
FFI: Foreign financial institution.
FINRA: Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers.
Futures Exchanges: The COMEX or other futures exchanges that trade copper.
IGA: Intergovernmental agreement.
Indirect Participants: Banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly.
IRA: Individual retirement account.
IRS: U.S. Internal Revenue Service.
ISDA: International Swaps and Derivatives Association, Inc.
Limited Liability Company (LLC): A type of business ownership combining several features of corporation and partnership structures.
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LLC Agreement: USCF’s Sixth Amended and Restated Limited Liability Company Agreement, dated as of May 15, 2015 (as amended from time to time).
LME: London Metal Exchange.
Management Directors: The four management directors that make up USCF’s board of directors.
Margin: The amount of equity required for an investment in futures contracts.
Marketing Agent: ALPS Distributors, Inc.
Marygold: The Marygold Companies, Inc., formerly Concierge Technologies Inc., a company publicly traded under the ticker symbol “MGLD.”
NAV: Net asset value of CPER.
NFA: National Futures Association.
NYSE Arca: NYSE Arca, Inc.
Option: The right, but not the obligation, to buy or sell a futures contract or forward contract at a specified price on or before a specified date.
Other Copper-Related Investments: Contracts and instruments based on the Eligible Copper Futures Contracts or copper, such as cash-settled options, forward contracts, cleared swap contracts and OTC transactions.
OTC Derivative: A financial contract, whose value is designed to track the return on stocks, bonds, currencies, commodities, or some other benchmark, that is traded OTC or off organized exchanges.
Position Limits Rule: Regulatory limits imposed by the CFTC on speculative positions in certain physical commodity futures and option contracts and swaps that are economically equivalent to such contracts in the agriculture, energy and metals markets and rules addressing the circumstances under which market participants would be required to aggregate their positions with other persons under common ownership or control.
Redemption Basket: A block of 50,000 shares used by CPER to redeem shares.
Redemption Order Date: The date a redemption order is received in satisfactory form and approved by the Marketing Agent.
Register: The record of all Shareholders and holders of the shares in certificated form kept by the Administrator.
Related Public Funds: United States Copper Index Fund, LP (“CPER”); United States 12 Month Natural Gas Fund, LP (“UNL”); United States 12 Month Oil Fund, LP (“USL”); United States Oil Fund, LP (“USO”); United States Gasoline Fund, LP (“UGA”); United States Natural Gas Fund, LP (“UNG”); United States Brent Oil Fund, LP (“BNO”); United States Commodity Index Fund (“USCI”).
Selection Date: The last business day of the calendar month with respect to CPER.
SCI: The SummerHaven Copper Index Total Return owned and maintained by SummerHaven Index Management, LLC.
SEC: Securities and Exchange Commission.
Secondary Market: The stock exchanges and the OTC market. Securities are first issued as a primary offering to the public. When the securities are traded from that first holder to another, the issues trade in these secondary markets.
SEF: A swap execution facility.
Shareholders: Holders of units.
Shares: Common shares representing fractional undivided beneficial interests in CPER.
SHIM: SummerHaven Index Management, LLC.
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Spot Contract: A cash market transaction in which the buyer and seller agree to the immediate purchase and sale of a commodity, usually with a two-day settlement.
SummerHaven: SummerHaven Investment Management, LLC.
Swap Contract: Swap transactions generally involve contracts between two parties to exchange a stream of payments computed by reference to a notional amount and the price of the asset that is the subject of the swap. Some swap transactions are cleared through central counterparties. These transactions, known as cleared swaps, involve two counterparties first agreeing to the terms of a swap transaction, then submitting the transaction to a clearing house that acts as the central counterparty. Swap transactions that are not cleared through central counterparties are called “uncleared” or “over-the-counter” (“OTC”) swaps.
Tracking Error: Possibility that the daily NAV of a Fund will not track the Applicable Index.
Trading Advisor: SummerHaven Investment Management, LLC.
Treasuries: Obligations of the U.S. government with remaining maturities of 2 years or less.
Trust: United States Commodity Index Funds Trust.
Trust Agreement: The Fourth Amended and Restated Declaration of Trust and Trust Agreement of the Trust effective as of December 15, 2017.
UBTI: Unrelated business taxable income.
UGA: United States Gasoline Fund, LP.
UHN: United States Diesel-Heating Oil Fund, LP.
UNG: United States Natural Gas Fund, LP.
UNL: United States 12 Month Natural Gas Fund, LP.
USAG: United States Agriculture Index Fund.
USCF: The sponsor of CPER, United States Commodity Funds LLC, a Delaware limited liability company, which is registered as a Commodity Pool Operator, who controls the investments and other decisions of CPER and other Funds.
USCF Investments: USCF Investments, Inc., formerly Wainwright Holdings, Inc.
USCI: United States Commodity Index Fund.
USL: United States 12 Month Oil Fund, LP.
USO: United States Oil Fund, LP.
USOD: United States 3x Oil Fund.
USOU: United States 3x Short Oil Fund.
Valuation Day: Any day as of which CPER calculates its NAV.
You: The owner or holder of shares.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Set forth below is an estimate (except as indicated) of the amount of fees and expenses (other than underwriting commissions and discounts) payable by the registrant in connection with the issuance and distribution of the shares pursuant to the prospectus contained in this registration statement.
| Amount SEC registration fee (actual) | $ | 0 | ||
| NYSE Arca Listing Fee (actual) | $ | 0 | ||
| FINRA filing fees (actual) | N/A | |||
| Blue Sky expenses | N/A | |||
| Auditor’s fees and expenses (estimate) | $ | 1 | ||
| Legal fees and expenses (estimate) | $ | 20,000 | ||
| Printing expenses (estimate) | $ | 1 | ||
| Total | $ | 1 | ||
| 1 | Because an indeterminable amount of securities is covered by this registration statement, the total expenses in connection with the issuance and distribution of the securities are, therefore, not currently determinable. |
Item 15. Indemnification of Directors and Officers
USCF, the Trustee and their respective Affiliates (collectively, “Covered Persons”) shall have no liability to the United States Commodity Index Funds Trust (the “Trust”), United States Copper Index Fund (“CPER”), or to any unitholder for any loss suffered by the Trust or CPER which arises out of any action or inaction of such Covered Person if such Covered Person, in good faith, determined that such course of conduct was in the best interest of the Trust or CPER and such course of conduct did not constitute gross negligence or willful misconduct of such Covered Person. A Covered Person shall not be liable for the conduct or willful misconduct of any administrator or other delegatee selected by USCF with reasonable care, provided, however, that the Trustee and its affiliates shall not, under any circumstances be liable for the conduct or willful misconduct of any administrator or other delegatee or any other person selected by USCF to provide services to the Trust.
USCF shall be indemnified by the Trust (or by a series separately to the extent the matter in question relates to a single series or disproportionately affects a specific series in relation to other series) against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by it in connection with its activities for the Trust or CPER, as applicable, provided that (i) USCF was acting on behalf of or performing services for the Trust or CPER, as applicable and has determined, in good faith, that such course of conduct was in the best interests of the Trust or CPER, as applicable and such liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Trust’s Amended and Restated Trust Agreement (“Trust Agreement”) on the part of USCF and (ii) any such indemnification will only be recoverable from the assets of the applicable series. All rights to indemnification permitted provided for under the Trust Agreement shall not be affected by the dissolution or other cessation to exist of USCF, or the withdrawal, adjudication of bankruptcy or insolvency of USCF, or the filing of a voluntary or involuntary petition in bankruptcy under Title 11 of the Bankruptcy Code by or against USCF.
The payment of any indemnification shall be allocated, as appropriate, among the Trust’s series. The Trust and its series shall not incur the cost of that portion of any insurance which insures any party against any liability, the indemnification of which is prohibited under the Trust Agreement.
Expenses incurred in defending a threatened or pending action, suit or proceeding against USCF shall be paid by the Trust in advance of the final disposition of such action, suit or proceeding, if (i) the legal action relates to the performance of duties or services by USCF on behalf of the Trust; (ii) the legal action is initiated by a party other than the Trust; and (iii) USCF undertakes to repay the advanced funds with interest to the Trust in cases in which it is not entitled to indemnification.
In the event the Trust is made a party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection with any unitholder’s (or assignee’s) obligations or liabilities unrelated to the Trust business, such unitholder (or assignees cumulatively) is required under the Trust Agreement to indemnify the Trust for all such liability and expense incurred, including attorneys’ and accountants’ fees.
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The Trustee will not be liable or accountable to the Trust or to any other person or under any other agreement to which the Trust is a party, except for the Trustee’s own gross negligence or willful misconduct. USCF also indemnifies the Trustee and its successors, assigns, legal representatives, officers, directors, shareholders, employees, agents and servants from and against any and all liabilities, obligations, losses, damages, penalties, taxes, claims, actions, suits, costs, expenses or disbursements (including reasonable legal fees and expenses) in any way relating to or arising out of the formation, operation or termination of the Trust, the execution, delivery and performance of any other agreements to which the Trust is a party or the action or inaction of the Trustee, except for to the extent resulting from the gross negligence or willful misconduct of any of the indemnified parties.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
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| * | Filed herewith. |
| (1) | Incorporated by reference to the Annual Report on Form 10-K for the United States Commodity Index Funds Trust for the year ended December 31, 2015 filed on March 11, 2016. |
| (2) | Incorporated by reference to the initial Registration Statement on Form S-1 (File No. 333-164024) filed on December 24, 2009. |
| (3) | Incorporated by reference to Registrant’s Current Report on Form 8-K, filed on April 24, 2018. |
| (4) | Incorporated by reference to Amendment No. 5 to the Registration Statement on Form S-1/A (File No. 333-164024) filed on July 23, 2010. |
| (5) | Incorporated by reference to Amendment No. 1 to the Registration Statement on Form S-1/A (File No. 333-170844) filed on August 31, 2011. |
| (6) | Incorporated by reference to Registrant’s Current Report on Form 8-K, filed on December 15, 2017. |
| (7) | Incorporated by reference to Registrant’s Post-Effective Amendment No. 2 to Form S-1 (File No. 333-195018) filed on March 31, 2016. |
| (8) | Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012. |
| (9) | Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-170844) filed on August 31, 2011. |
| (10) | Incorporated by reference to Registrant’s Current Report on Form 8-K, filed on October 3, 2022. |
| (11) | Incorporated by reference to Registrant's Current Report on Form 8-K, filed on August 24, 2021. |
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes:
(1) To send to the trustee at least on an annual basis a detailed statement of any transactions with the Sponsor or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to the Sponsor or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.
(2) To provide to the trustee the financial statements required by Form 10-K for the first full fiscal year of operations of the partnership.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut Creek, State of California, on November 8, 2022.
| UNITED STATES COMMODITY INDEX FUNDS TRUST | ||
| By: | United States Commodity Funds LLC as Sponsor | |
| By: | /s/ John P. Love | |
| John P. Love | ||
| President and Chief Executive Officer | ||
The undersigned directors and officers of the General Partner United States Commodity Index Funds Trust hereby constitute and appoint John P. Love and Stuart P. Crumbaugh and each of them with full power to act without the other and with full power of substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below this registration statement on Form S-3 and any and all amendments thereto, including pre-effective and post-effective amendments to this registration statement and to sign any and all additional registration statements relating to the same offering of securities as this registration statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and thereby ratify and confirm that all such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. The document may be executed by signatories hereto on any number of counterparts, all of which shall constitute one and the same instrument.
| Signature | Title | Date | ||
| /s/ John P. Love | President and Chief Executive Officer | November 8, 2022 | ||
| John P. Love | (Principal Executive Officer) | |||
| /s/ Stuart P. Crumbaugh | Chief Financial Officer | November 8, 2022 | ||
| Stuart P. Crumbaugh | (Principal Financial and Accounting Officer) | |||
| /s/ Nicholas D. Gerber | Management Director | November 8, 2022 | ||
| Nicholas D. Gerber | ||||
| /s/ Andrew F Ngim | Management Director | November 8, 2022 | ||
| Andrew F Ngim | ||||
| /s/ Robert L. Nguyen | Management Director | November 8, 2022 | ||
| Robert L. Nguyen | ||||
| /s/ Peter M. Robinson | Independent Director | November 8, 2022 | ||
| Peter M. Robinson | ||||
| /s/ Gordon L. Ellis | Independent Director | November 8, 2022 | ||
| Gordon L. Ellis | ||||
| /s/ Malcolm R. Fobes III | Independent Director | November 8, 2022 | ||
| Malcolm R. Fobes III |
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Exhibit 5.1
November 8, 2022
United States
Commodity Index Funds Trust
c/o United States Commodity Funds LLC
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, CA 94596
Re: United States Commodity Index Funds Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel to United States Commodity Index Funds Trust (the “Trust”), a Delaware statutory trust organized in series (the “Trust”), in connection with the matters set forth herein. This opinion is being delivered to you at your request.
We have examined and relied upon such records, documents, certificates and other instruments as in our judgment are necessary or appropriate to enable us to render the opinions expressed below, including the following documents:
| (a) | The Certificate of Trust of the Trust, as filed with the Secretary of State of the State of Delaware (the “Secretary of State”) on December 21, 2009 (the “Certificate of Trust”); |
| (b) | The Declaration of Trust and Trust Agreement of the Trust, dated as of December 21, 2009, between United States Commodity Funds LLC, a Delaware limited liability company, as sponsor (the “Sponsor”), and Wilmington Trust Company, a Delaware corporation with trust powers, as trustee (the “Trustee”) of the Trust |
| (c) | The Registration Statement on Form S-3, filed by the Trust with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Registration Statement”), including a prospectus (the “Prospectus”) relating to the beneficial interests (the “Units”) in the United States Copper Index Fund series of the Trust (the “Fund”); |
United States Commodity Index Funds Trust
November 8, 2022
Page 2
| (d) | The Fourth Amended and Restated Declaration of Trust and Trust Agreement of the Trust, dated as of December 15, 2017, between the Sponsor and the Trustee (the “Trust Agreement”) filed as an exhibit to the Registration Statement; |
| (e) | A form of Authorized Participant Agreement entered into by the Trust, the Sponsor and each Authorized Participant (collectively the “Participant Agreements”) filed as an exhibit to the Registration Statement; and |
| (f) | A Certificate of Good Standing for the Trust, dated November 7, 2022, obtained from the Secretary of State. |
As to various questions of fact material to our opinion, we have relied upon the representations made in the foregoing documents. With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures. Capitalized terms used herein and not otherwise defined are used as defined in, or by reference in, the Trust Agreement.
Based upon and subject to the foregoing and subject to the assumptions, exceptions, qualifications and limitations set forth hereinbelow, it is our opinion that:
1. The Trust has been duly formed and is validly existing as a statutory trust under the Delaware Statutory Trust Act, 12 Del. C. § 3801 et seq. (the “Act”).
2. The Units to be issued by the Trust will be validly issued and, subject to the qualifications set forth herein, will be fully paid and nonassessable beneficial interests in the Trust, as to which the Unitholders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit under the General Corporation Law of the State of Delaware. Unitholders may be obligated to make certain payments provided for in Section 5.7(f) of the Trust Agreement.
3. Assuming that (i) separate and distinct records are maintained for each series of the Trust, including the Fund, (ii) the assets associated with each series of the Trust, including the Fund, are held in such separate and distinct records (directly or indirectly including through a nominee or otherwise) and accounted for in such separate and distinct records separately from the other assets of the Trust or any other series thereof, (iii) the notice of the limitation on liabilities of a series provided in Section 3804(a) of the Act is continuously set forth in the Certificate of Trust and (iv) the Trust Agreement continuously provides for those matters described in (i), (ii) and (iii) of this paragraph 3, the Fund shall be entitled to the benefits of the limitation on interseries liability set forth in Section 3804(a) of the Act.
United States Commodity Index Funds Trust
November 8, 2022
Page 3
The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:
A. The foregoing opinions are limited to the laws of the State of Delaware (excluding securities laws) currently in effect. We have not considered and express no opinion on the laws of any other state or jurisdiction, including federal laws or rules and regulations thereunder.
B. We have assumed (i) that the Trust Agreement and the Certificate of Trust have not been amended and will be in full force and effect when the Units are issued by the Trust, (ii) except to the extent set forth in paragraph 1 above, the due creation, due formation or due organization, as the case may be, and valid existence in good standing of each party to the documents examined by us (other than the Trust) under the laws of the jurisdiction governing its creation, formation or organization, (iii) the legal capacity of each natural person who is a party to the documents examined by us, (iv) that each of the parties to the documents examined by us (other than the Trust) has the power and authority to execute and deliver, and to perform its obligations under, such documents, (v) that each of the parties to the documents examined by us (other than the Trust) has duly authorized, executed and delivered such documents, (vi) the due submission to the Sponsor of a Purchase Order by each Authorized Participant; (vii) the due acceptance by the Sponsor of each Purchase Order and the due issuance in accordance with the Trust Agreement and the Participant Agreements of the Units relating thereto to the Authorized Participants; (viii) the payment by each Authorized Participant to the Trust of the full consideration due from it for the Units subscribed to by it; (ix) the Units will be offered and sold as described in the Registration Statement, the Trust Agreement and the Participant Agreements and (x) that any amendment or restatement of any document reviewed by us has been accomplished in accordance with, and was permitted by, the relevant provisions of said document prior to its amendment or restatement from time to time.
C. We have not participated in the preparation of the Registration Statement (except for providing this opinion) or the Prospectus and assume no responsibility for their contents, other than this opinion.
D. The opinions in paragraph 3 above are subject to (i) applicable bankruptcy, insolvency, moratorium, receivership, reorganization, fraudulent transfer and similar laws relating to and affecting the rights and remedies of creditors generally and (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law). In addition, we express no opinion as to the validity or enforceability of provisions of the Trust Agreement that purport to bind a Person that is not a party to the Trust Agreement.
United States Commodity Index Funds Trust
November 8, 2022
Page 4
We hereby consent to the use of this opinion as an exhibit to the Registration Statement filed with the Securities and Exchange Commission. We also hereby consent to the use of our name under the heading “Legal Matters” in the Prospectus. In giving the foregoing consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations thereunder.
| Very truly yours, | |
 | |
JWP/CZD
Exhibit 8.1
 |
Eversheds Sutherland (US) LLP |
| 700 Sixth Street, NW, Suite 700 | |
| Washington, DC 20001-3980 | |
| D: +1 202.383.0256 | |
| F: +1 202.637.3593 | |
| jonsambur@eversheds-sutherland.com |
Exhibit 8.1
November 8, 2022
United States Commodity Funds LLC
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, California 94596-4438
Re: Registration Statement on Form S-3 to be filed with the SEC on or about November 8, 2022 with respect to the United States Copper Index Fund
Ladies and Gentleman:
We have acted as tax counsel for United States Commodity Funds LLC, a Delaware limited liability company, with respect to certain legal matters in connection with the offer and sale of shares representing beneficial interests in the United States Copper Index Fund (“CPER”), a series of the United States Commodity Index Funds Trust (the “Trust”), a Delaware statutory trust. We have also participated in the preparation of a Registration Statement on Form S-3 (the “Registration Statement”) to which this opinion letter is an exhibit. In connection therewith, we have participated in the preparation of the discussion set forth under the caption “Material U.S. Federal Income Tax Considerations” (the “Discussion”) in the Registration Statement.
In rendering our opinions, we have considered the representation letter dated November 8, 2022 (the “Representation Letter”) and relied upon the Internal Revenue Code of 1986, as amended (the “Code”), the regulations promulgated thereunder (the “Regulations”), rulings and other judicial decisions regarding the Code and the Regulations by the courts, and administrative interpretations of the Code and the Regulations by the Internal Revenue Service (“IRS”), all as they exist as of the date hereof. The Code, Regulations, rulings and judicial decisions by the courts, and IRS administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect.
Based on the foregoing, we are of the opinion that:
| 1. | The Discussion, subject to the qualifications and assumptions stated in the Discussion, the limitations and qualifications set forth herein, and the representations in the Representation Letter, although general in nature, constitutes, in all material respects, a fair and accurate summary under current law of the material United States federal income tax consequences of the ownership and disposition of an interest in CPER. The United States federal income tax consequences of the ownership and disposition of an interest in CPER by a holder will depend upon that holder’s particular situation, and we express no opinion as to the completeness of the Discussion as applied to any particular holder. |
| 2. | CPER will be treated as a partnership that is not taxable as a corporation for United States federal income tax purposes. |
* * * * *
This opinion letter is limited to the matters specifically set forth herein, and no opinions are intended to be implied or may be inferred beyond those expressly stated herein. Our opinions are rendered as of the date hereof and we assume no obligation to update or supplement these opinions or any matter related to these opinions to reflect any change of fact, circumstances, or law after the date hereof.
Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com.
| 2 |
Furthermore, our opinions are not binding on the IRS or a court. In addition, we must note that our opinions represent merely our best legal judgment on the matters presented and that others may disagree with our conclusions herein. There can be no assurance that the IRS will not take a contrary position or that a court would agree with our opinions if litigated.
We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the references to our firm—Eversheds Sutherland (US) LLP—and these opinions contained in the Discussion. In giving this consent, we do not admit that we are “experts” under the Securities Act of 1933, as amended, or under the rules and regulations of the Securities and Exchange Commission relating thereto, with respect to any part of the Registration Statement.
| Very truly yours, | |
| /s/ Eversheds Sutherland (US) LLP | |
| Eversheds Sutherland (US) LLP |
Exhibit 23.3
SPICER
JEFFRIES LLP
Certified Public Accountants
4601 DTC BOULEVARD • SUITE 700
DENVER, COLORADO 80237
TELEPHONE: (303) 753-1959
FAX: (303) 753-0338
www.spicerjeffries.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to incorporation by reference in this Registration Statement on Form S-3 for United States Copper Index Fund of our report dated February 25, 2022 relating to the statements of financial condition as of December 31, 2021 and 2020, including the schedule of investments as of December 31, 2021 and 2020, and the related statements of operations, changes in partners’ capital and cash flows for the years ended December 31, 2021, 2020 and 2019 of United States Copper Index Fund included in the Form 10-K of United States Copper Index Fund for the year ended December 31, 2021, and to the reference to our Firm as “Experts” in the Prospectus, which is part of this Registration Statement.
/s/ Spicer Jeffries LLP
Spicer Jeffries LLP
Denver, Colorado
November 8, 2022
Exhibit 10.21
RBC CAPITAL MARKETS, LLC
FUTUREs and
CLEARED DERIVATIVES TRANSACTIONS
CUSTOMER ACCOUNT AGREEMENT
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INSTRUCTIONS AND CONTENTS
To open one or more accounts with RBC Capital Markets, LLC (“RBCCM”) for engaging in futures and cleared swaps transactions, the following forms (or documents contained therein) must be properly completed and signed by you (the “Customer”) where indicated:
| · | Customer Agreement |
| · | Schedule 1 – Form of Cleared Derivatives Addendum (if applicable), including schedules and annexes thereto. |
| · | Schedule 2 – Form of ERISA Addendum for Customer and its Advisor (if Customer cannot make the representation contained in Section 3.1(h)) |
| · | Customer Account Application and Documentation |
In addition, you must read the disclosure statements applicable to you or the products you trade as provided in the RBC Capital Markets, LLC Disclosure booklet provided to you with the Customer Account Application.
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RBC CAPITAL MARKETS, LLC
FUTURES AND CLEARED DERIVATIVES TRANSACTIONS
Customer Agreement
| 1. | Introduction; CONTRACTS; NO ADVICE |
1.1 This Futures and Cleared Derivatives Transactions Customer Agreement (together with all schedules, addenda hereto and the Customer Account Application, the “Agreement”) between RBC Capital Markets, LLC (“RBCCM”) and the customer as defined in the signature block herein (“Customer”) shall govern the one or more futures, options on futures and/or cleared swaps accounts of Customer (collectively, the “Account”) that are carried for Customer by RBCCM, and sets forth the terms of RBCCM’s agreement to act as Customer’s broker for the execution, clearance and/or carrying of commodity contracts, futures contracts, swaps, forwards, options on futures contracts and similar transactions and options thereon and interests therein (including, without limitation, exchange for risk transactions, block trades and, to the extent not governed by any other agreement between the parties, commodities delivered as a result of the settlement thereof) (collectively, “Contracts”).
1.2 This Agreement also includes, and each of the Customer and RBCCM expressly agrees to apply, the Cleared Derivatives Addendum substantially in the form attached at Schedule 1 hereto (as such addendum may be amended from time to time and agreed between the parties to this Agreement), to Cleared Derivatives Transactions (as defined therein) and, if applicable to Customer, Schedule 2 (ERISA Addendum). This Agreement also incorporates the information contained in Customer’s completed account application (“Customer Account Application”) and any accompanying documents, as listed in the Instructions and Contents thereto. For purposes of this Agreement, “Business Day” means a day, other than a Saturday, Sunday or New York or United States Federal holiday, on which commercial banks are open for business in New York, New York.
1.3 Customer agrees that RBCCM is responsible solely for the execution, clearing and/or carrying of Contracts in the Account in accordance with the terms of this Agreement. Customer is responsible for all investment and trading decisions for the Account. Any advice or market information communicated by RBCCM with respect to any Account opened by Customer hereunder is incidental to the conduct of RBCCM’s business as a futures commissions merchant and such advice or information does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any Contract and will not serve as the primary basis for any decision by or on behalf of Customer. RBCCM shall have no discretionary authority, power or control over any decisions made by or on behalf of Customer in respect of the Account, regardless of whether Customer relies on the advice of RBCCM in making any such decision. Customer acknowledges that RBCCM and it managing directors, officers, employees and affiliates may take or hold positions in, or advise customers concerning, contracts that are the subject of advice from RBCCM to Customer. The trading recommendations and advice of RBCCM and its managing directors, officer, employees and affiliates, while provided in good faith, may be inconsistent with or contrary to positions held by RBCCM or its affiliates and any advice given by RBCCM to Customer. Customer understands that all price quotations, trade reports and other information are subject to correction, as well as delays in reporting.
| 2. | applicable law |
2.1 The Account and each Contract shall be subject to: (a) the Commodity Exchange Act, as amended from time to time (“CEA”), and all rules (“CFTC Regulations”) and interpretations of the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”); (b) as applicable, the Securities Exchange Act, as amended from time to time, and all rules and interpretations of the Securities and Exchange Commission (“SEC”); (c) all applicable laws and the regulations, rules and orders of all regulatory and self-regulatory organizations with appropriate jurisdiction, including, but not limited to, the constitution, by-laws, rules, regulations, orders, adjustments, rulings, resolutions, interpretations and customs and usages of the contract market, exchange, board of trade, swap execution facility, or trading facility, system or platform (each, an “Execution Facility”) or the clearing organization (“Clearing Organization”) where such Contract is executed and/or cleared; and (d) any other laws, rules, regulations or customs, usages or practices of the industry applicable to the trading of Contracts (items referred to in clauses (a) through (d) (inclusive) are referred to collectively as “Applicable Law”).
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2.2 Neither RBCCM nor any of its partners, officers, employees or agents shall be liable as a result of any action taken by RBCCM, or any floor brokers, executing brokers, carrying brokers or clearing brokers, to comply with Applicable Law. The provisions of this Applicable Law section shall survive the termination of this Agreement.
| 3. | Representations |
3.1 Customer represents, warrants and covenants to RBCCM, as of the time of entering into this Agreement and as of the time of entering into each Contract (at which such time Customer shall be deemed to repeat each of the representations, warranties and covenants below) that:
(a) it is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant, in good standing under such laws;
(b) (i) it is duly authorized to (A) enter into this Agreement and effect any Contract entered into in connection herewith, (B) perform its obligations under this Agreement and any Contract entered into in connection herewith (including, but not limited to, the transfer of required margin and the grant of a security interest in Collateral (as defined in the Security section below), (C) deliver this Agreement and any Contract entered into in connection herewith, and (ii) it has taken all necessary action to authorize such execution, performance and delivery;
(c) it has obtained all authorizations of any governmental body or other consents required in connection with this Agreement or any Contract entered into in connection herewith, such authorizations or consents are in full force and effect and all conditions of any such authorizations or consents have been complied with and the execution of this Agreement does not violate any Applicable Law, charter, ordinance or other agreement applicable to Customer;
(d) no litigation, arbitration or administrative proceeding or claim is in progress, pending or, to Customer’s knowledge, threatened, that could affect the legality, validity or enforceability of this Agreement or any Contract entered into in connection herewith, or Customer’s ability to perform its obligations under this Agreement or any Contract entered into in connection herewith;
(e) each person executing this Agreement is duly authorized to do so;
(f) each of the persons acting for Customer are duly authorized and empowered to give instructions to RBCCM on behalf of Customer to take any action with respect to Contracts;
(g) except as disclosed in writing to RBCCM in the Customer Account Application, Customer is acting solely as principal and not as agent for any other party and no one other than Customer has any interest in or control over the Account;
(h) at all times during the existence of an Account, such Account shall not contain: (i) plan assets subject to the provisions of Title I, Subtitle B, Part 4 of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (“Code”), or (ii) assets of a governmental plan or other plan subject to restrictions similar or analogous to those contained in the foregoing provisions of ERISA or the Code;
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(i) all trades and transactions effected by Customer under this Agreement comply with Applicable Law, are legitimate and all monies and assets applied to such transactions are the result of bona fide activities;
(j) it has, on each date on which it transfers margin to RBCCM under this Agreement, the full and unqualified right to transfer margin to RBCCM as required under the terms of this Agreement or any Contract entered into in connection herewith, and any such margin so transferred shall be beneficially owned by Customer and free and clear of any mortgage, lien, claim, charge or other encumbrance on each such date and the provision of such margin to RBCCM will not constitute or result in a breach of any trust, agreement or undertaking whatsoever;
(k) it is responsible for the agents it selects and expressly waives any and all claims, rights or causes of action which Customer has, or may have, against RBCCM, its directors, officers or employees arising in whole or in part, directly or indirectly, out of any act or omission of such party;
(l) it agrees RBCCM is not acting as a fiduciary for or an advisor to Customer in respect of the Account, this Agreement or any Contract entered into in connection herewith; and
(m) if Customer engages in any “exchange for related position” transactions, including but not limited to an exchange of futures for physicals, swaps, options or other physical or financial instruments, (collectively “EFRPs”): (i) it will, upon request, provide RBCCM with sufficient evidence of the related instruments or goods; (ii) as required by applicable laws, rules and regulations, Customer shall create, retain and produce upon request of the applicable exchange, government authority, regulatory self-regulatory organization documents (including, but not limited to, contracts, confirmations invoices and documents of title) with respect to the related transactions underlying an EFRP; (iii) it has reviewed and understands the applicable provisions of the rulebooks of each Execution Facility and Clearing Organization concerning EFRPs; and (iv) all EFRPs will comply with such rules and regulations, including, but not limited to, the obligation that all EFRPs be “bona fide” transactions.
3.2 RBCCM represents, warrants and covenants to Customer that, at the time of entering into this Agreement and at the time of entering into each Contract (at which such time RBCCM shall be deemed to repeat each of the representations, warranties and covenants below):
(a) it is duly registered as a futures commission merchant (“FCM”) under the CEA;
(b) it is not subject to any order, judgment, or decree of any court of competent jurisdiction preventing RBCCM from engaging in or continuing to engage in clearance and settlement of Contracts as a member of each applicable clearing organization or exchange where it is a member; and
(c) it is not suspended or expelled from membership in the applicable Clearing Organization or Execution Facility or disqualified with respect to membership or participation in any United States self-regulatory organization where it is a member.
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| 4. | Commissions, Costs, Fees and other payments |
4.1 Customer understands that RBCCM charges commissions for the execution and/or clearing of Contracts based upon its commission rates in effect at the time of execution and clearing or agreed to with Customer from time to time. In addition to such commissions, Customer agrees to pay such other costs or expenses incurred in connection with Contracts, including without limitation:
(a) all brokerage charges, give-up fees, commissions and service charges as RBCCM may from time to time charge as memorialized in a written schedule of commissions and charges, together with all other applicable fees, charges, taxes and duties;
(b) all Execution Facility, Clearing Organization, NFA or other regulatory or self-regulatory fees, charges, fines, penalties, or other expenses, and any taxes incurred or imposed with respect to the Account;
(c) any trading losses, periodic payments, premiums, debit balance, deficiency, or other liability related to the Account;
(d) any tax imposed with respect to any transaction by any competent taxing authority;
(e) any interest, as is customarily charged by RBCCM based upon its rates then in effect or, at a rate as may be agreed between Customer and RBCCM from time to time in writing signed by both parties, on any debit balance or deficiency with respect to the Account; and
(f) any other charges or costs incurred by RBCCM with respect to the Account, including, but not limited to, reasonable attorneys’ fees incurred in collecting any unpaid debit balance or deficiency.
4.2 If insufficient funds exist in the Account for any such payment under this Commissions, Costs, Fees and Other Payments section, Customer agrees that any payment required to be made hereunder shall be made by wire transfer to an account designated by RBCCM, unless otherwise agreed by RBCCM.
4.3 If Customer makes any payment hereunder or pursuant hereto which is subject to any deduction or withholding whatsoever, Customer shall pay to RBCCM such additional amount as is necessary to ensure that the amount actually received by RBCCM will equal the full amount RBCCM would have received had no such deduction or withholding been made.
4.4 Customer shall be responsible for any RBCCM internal or regulatory capital charges of cost of funding or other costs relating to Customer’s delay in posting margin or making any payments or deliveries.
| 5. | Margin and OTHER OBLIGATIONS |
5.1 Customer shall timely deposit and maintain with RBCCM at all times initial or original margin for Customer’s Account (including any additional initial margin amount required of RBCCM by the relevant Execution Facility and/or Clearing Organization in respect of non-hedge positions and any additional initial margin imposed by the relevant Execution Facility and/or Clearing Organization as a result of Customer’s violation of any risk or position limit). Customer shall pay to RBCCM, upon a demand made by RBCCM by 11:00 AM Central Time on any business day, the amount of any additional or variation margin required by Applicable Law for the Account and any additional amounts as may be required by RBCCM in its commercially reasonable discretion (which may be required prior to establishing any positions or Contracts) by 2:00 PM Central Time on that business day. If such a demand is made after 11:00 AM Central Time on any business day, Customer shall pay to RBCCM the margin by 11:00 AM Central Time on the next business day. Customer may also be required (in RBCCM’s sole discretion) to fund any margin requirements related to Contracts before such Contracts are entered into. Customer acknowledges that an Execution Facility and/or Clearing Organization may increase the amount of minimum initial margin required by it in respect of an open position at any time and, in particular, may make intraday calls for margin and Customer agrees to meet such calls within one hour.
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5.2 RBCCM shall advise Customer of the types of assets RBCCM will accept, as eligible margin, which may be subject to valuations, haircuts and concentration limits imposed by Applicable Law or RBCCM. In no event shall RBCCM accept letters of credit from Customer as margin for cleared swaps.
5.3 RBCCM may in its sole discretion reject or delay its acceptance of any Contract or its processing of any order while determining the Account’s margin status and decline to accept any Contract or order which would leave the Account undermargined.
5.4 Customer acknowledges and agrees that RBCCM shall have the right to transfer or pledge Collateral (as hereinafter defined) deposited by Customer to any Execution Facility and/or Clearing Organization, or to transfer or pledge other property to any Execution Facility and/or Clearing Organization in substitution for margin, and that any such transfer, pledge or substitution shall not affect RBCCM’s rights or Customer’s obligations under this Agreement.
5.5 RBCCM shall treat all Collateral in the Account as belonging to Customer and shall segregate such Collateral in accordance with Applicable Law.
| 6. | Netting OF PAYMENTS AND DELIVERIES |
Unless otherwise specified by RBCCM, and subject to Applicable Law, all payments and deliveries between Customer and RBCCM with respect to the Account shall be made on a net basis and RBCCM shall not be obligated to make any payment or delivery to Customer unless and until RBCCM has received from Customer all appropriate documents, deliveries and/or good funds then due and owing by Customer to RBCCM. Customer acknowledges that it shall be a satisfaction and discharge of any payment or delivery obligation of RBCCM hereunder for such payment or delivery to be made by RBCCM to Customer on such net basis.
| 7. | Security |
7.1 Except to the extent proscribed by Applicable Law not subject to waiver, all Contracts, cash, securities, and/or any other property of Customer (either individually or jointly held with others) whatsoever (collectively, with all proceeds thereof, the “Collateral”) at any time held by RBCCM, or carried by others on behalf of the Account either individually or on an omnibus basis for customers of RBCCM, hereby are pledged to RBCCM and shall be subject to a general lien, first priority security interest and right of offset and recoupment in RBCCM’s favor to secure any indebtedness or other amounts, obligations and/or liabilities at any time owing from Customer to RBCCM or its affiliates (collectively, the “Customer’s Liabilities”). To the extent permitted by Applicable Law regarding segregation, investment and pledging of Collateral, Customer hereby grants RBCCM the right to borrow, pledge, repledge, hypothecate, rehypothecate, loan or invest any of the Collateral, and without any obligation to pay or to Account to Customer for any interest, income or benefit that may be derived therefrom. RBCCM shall be under no obligation to deliver the same property deposited with RBCCM or received by RBCCM for the Account of Customer, but may deliver other property of like or equivalent kind or amount.
7.2 Customer covenants and warrants that it shall not grant any lien or security interest on the Collateral to any person without the prior written consent of RBCCM.
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| 8. | events of default |
8.1 Each of the following shall constitute an event of default by Customer (each, an “Event of Default”):
(a) Customer: (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they come due; (iii) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (iv) (A) institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organization or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor, or similar official, or (B) it has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any insolvency or bankruptcy law or similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and such proceeding or petition is instituted or presented by a person or entity not described in clause (A) above and either (1) results in a judgment of insolvency or bankruptcy or the entry of an order for relief of the making of an order for its winding-up or liquidation or (2) is not dismissed, discharged, stayed or restrained in each case within fifteen (15) days of the institution or presentation thereof; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (vi) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets; (vii) has a secured party take possession of all or substantially all of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within fifteen (15) days thereafter; (viii) causes or is subject to any event with respect to it which, under the applicable laws of the jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) above (inclusive); or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts;
(b) Customer breaches or fails to timely and fully perform any of its obligations to RBCCM hereunder, including, but not limited to, failure to pay margin or premium under this Agreement or any Contract entered into in connection herewith;
(c) if Customer states that it will not perform any material obligation to any RBCCM Affiliate under this Agreement or under any other agreement between Customer and an RBCCM Affiliate or Customer otherwise disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of this Agreement or any other agreement between the Customer and an RBCCM Affiliate;
(d) any material representation, warranty or covenant made by Customer under or in connection with this Agreement or any Contract entered into in connection herewith is not, or ceases to be, accurate and complete in any material respect;
(e) any organization of which Customer is a member, or any regulatory authority with competent jurisdiction over Customer suspends the conduct of Customer’s usual business or revokes authorizations, membership, licenses or other similar approvals;
(f) any execution facility, clearing organization, self-regulatory organization or governmental or quasi-governmental authority, orders an emergency or other material action which affects the ability of the Customer to perform or requires liquidation of Customer’s Account;
(g) if, after notifying Customer and offering Customer the opportunity to provide adequate assurances acceptable to RBCCM within a reasonable period of time under the circumstances, (i) RBCCM considers it necessary for RBCCM’s protection or to prevent what it believes to be a material violation of Applicable Law, or (ii) any action is taken or event occurs which RBCCM considers, in its sole discretion, might have a material adverse effect upon Customer’s ability to perform its obligations under this Agreement;
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(h) the occurrence of any default, termination event or similar condition (howsoever characterized, (which, for the avoidance of doubt, includes, without limitation, the occurrence of an Additional Termination Event under any ISDA Master Agreement) by Customer or Customer’s Guarantor (if any) under any other agreement with RBCCM or an RBCCM Affiliate, including but not limited to an ISDA Master Agreement, swap agreement, repurchase agreement, forward contract, securities agreement, master netting agreement, any agreement for borrowed money or any guaranty or other credit support document relating to the foregoing; or
(i) if Customer has been required to submit a guaranty issued by a parent, affiliate or third party to guaranty the obligations of the Account (“Guarantor”), the occurrence of any of the above events of default has occurred with respect to the Guarantor or Guarantor has withdrawn the guaranty without the consent of RBCCM.
| 9. | remedies |
9.1 If an Event of Default has occurred, or if directed or required by a regulatory or self-regulatory body or Execution Facility and/or Clearing Organization, RBCCM may, in its sole discretion, and subject to Applicable Law, exercise one or more of the following rights on behalf of itself and as agent for the Affiliates (each, a “Remedy” and collectively the “Remedies”):
(a) liquidate, close-out, terminate any Contracts or cancel any or all of Customer’s open or outstanding orders or other Account activities with RBCCM, including, without limitation terminating any or all of RBCCM’s obligations for future performance to Customer hereunder, and recover related costs from Customer;
(b) treat any or all of Customer’s obligations due to RBCCM as immediately due and payable;
(c) set-off any obligations of RBCCM to Customer against any obligations of Customer to RBCCM;
(d) sell any Collateral and apply any Collateral or the proceeds of the sale of any Collateral to satisfy any obligations of Customer to RBCCM;
(e) buy, sell or liquidate any other funds, securities or property of Customer within the custody of RBCCM, whether or not within the Account, to satisfy any obligations of Customer to RBCCM, and/or enter into and/or liquidate straddle or spread positions, in such manner as RBCCM determines to be commercially reasonable or otherwise hedge or engage in other risk reducing transactions; and
(f) borrow or buy any options, securities, Contracts or other property for the Account or hedge, or enter into any other risk reducing transaction, including exchange of futures for risk transactions on behalf of the Account as RBCCM deems necessary and recover related costs from Customer;
9.2 RBCCM may exercise each Remedy without any additional demand for margin or additional margin or notice of sale or purchase or other notification to Customer. In all cases, a prior demand, call or notice of the time or place of sale or purchase shall not be considered a waiver of RBCCM’s right to exercise any Remedy without demand, call or notice as herein provided. Any purchase, sale, offset or liquidation may be made in RBCCM’s sole discretion. RBCCM shall not be responsible or liable for any losses incurred by Customer, including accrued or anticipated lost profits, or any damages which Customer may suffer, because of any RBCCM action or inaction with respect to its Remedies. For the avoidance of doubt, any Contract entered into by RBCCM pursuant to this Remedies section on behalf of Customer that offsets a Contract in the Account, shall, in accordance with applicable Clearing Organization regulations and procedures, be deemed pro tanto a settlement or adjustment of the original Contract and, accordingly, a reduction in the Account’s open position in the relevant Contract.
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9.3 Any purchases and sales by RBCCM pursuant to this Remedies section may be effected, in the sole discretion of RBCCM: (a) in public or private transactions, (b) in whatever manner and with whatever counterparty RBCCM deems appropriate, (c) at such prices at RBCCM deems satisfactory all in accordance with Applicable Law
9.4 Customer appoints RBCCM as Customer’s attorney-in-fact to sign, complete, and deliver any and all documents necessary or appropriate to enter into Contracts or exercise other Remedies in accordance with this Remedies section.
9.5 In all cases, Customer shall remain liable for the payment of any deficiency remaining in the Account upon demand, together with interest thereon at RBCCM’s rate then in effect or as may be agreed between Customer and RBCCM, and all costs relating to collection by RBCCM under any Remedy (including reasonable attorney’s fees and expenses).
9.6 For the purposes of this Agreement, “Affiliate” means, in respect of RBCCM, RBCCM’s parent company and all companies controlled by or under common control with, RBCCM.
9.7 Any sum resulting from a liquidation and termination under another agreement between Customer and RBCCM may at RBCCM’s discretion be added to or discounted from the amounts owed pursuant to this Remedies section.
9.8 Any sum resulting from a liquidation and termination pursuant to this Remedies section shall be applied to any outstanding amounts owed to RBCCM or RBCCM Affiliates hereunder or other expenses incurred by Customer in the Account owed to third parties (such as give-up fees) and any remainder thereafter will be remitted to Customer.
| 10. | CONTRACTS; Position Limits; CLEARING |
10.1 RBCCM agrees to act as Customer’s agent for the execution, clearance and/or carrying of Contracts hereunder. Notwithstanding this or any provision in this Agreement, RBCCM is not required to act in accordance with Customer’s instructions with respect to Contracts where to do so would constitute a breach of any Applicable Law. RBCCM reserves the right to refuse to clear a Contract or accept any order from Customer in RBCCM’s discretion, though RBCCM agrees to promptly notify Customer of any such refusal.
10.2 Customer will not exceed any position limits that may be established by RBCCM in its sole discretion or any limits imposed by Applicable Law. RBCCM shall have the right, at any time and in its sole discretion, to immediately limit the size and number of open positions (net or gross), Contract types and other Contract parameters of or applicable to Customer with respect to the Account. RBCCM shall promptly notify Customer of the need for RBCCM to so limit the size of Customer’s open positions.
10.3 Absent a separate written agreement with Customer with respect to “give-up” transactions, RBCCM may, in its sole discretion, but shall not be obligated to, accept from executing brokers Contracts executed by such brokers that are to be given up to RBCCM for clearance or carrying in any Account If there is a give-up agreement in place, RBCCM will accept a transaction given up to it for clearing hereunder only if acceptance thereof would not breach any position or other limits applicable to the Account. RBCCM shall not be liable to Customer for any losses, costs, expenses or damages arising from any discrepancy between details in Customer’s instructions to an executing broker and details of transactions submitted to RBCCM for clearing. Any dispute relating to a transaction given up or attempted to be given up to RBCCM for clearing shall be determined pursuant to requirements imposed under Applicable Law.
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10.4 RBCCM, for and on behalf of Customer, is authorized in its discretion to select floor brokers and, on Exchanges where RBCCM is not a clearing member, clearing brokers, which will act as brokers and agents in connection with transactions in Contracts for the Account. RBCCM shall use reasonable care and skill, act in good faith and exercise due diligence when selecting floor brokers or clearing brokers.
| 11. | Communications |
11.1 RBCCM may transmit all reports of Contracts, confirmations, statements, notices and other communications required or permitted under this Agreement or Applicable Law to Customer at the address or email or to any of the telephone or facsimile numbers specified by Customer on its Customer Account Application, or at such other address, email or number as Customer may specify by advance written notice to RBCCM. Any report, statement, notice or other communication transmitted to Customer may be given in the following manners and shall be deemed delivered, whether or not Customer actually received them: (a) in the case of a communication transmitted to Customer orally, by email, telephone or fax, immediately upon transmission to Customer, (b) if in writing and delivered in person or by courier, on the date it is delivered, or (c) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date it is deposited in the mail.
11.2 Customer agrees to give RBCCM all notices hereunder (a) by telephone, promptly confirmed in writing, or (b) by email or facsimile (provided that customer’s facsimile machine generates proof of the facsimile transmission and Customer retains that proof of transmission). Customer agrees to be responsible for any failure to notify RBCCM where it is required to, and for any delay in notifying RBCCM of any errors or omissions in any Contracts, confirmations, statements, notices and other communications. Any required notification by the Customer should be directed to:
| RBC Capital Markets, LLC —Client Services | |
| 500 West Madison Street | |
| Suite 2500 | |
| Chicago, IL 60661 | |
| Telephone: 312-559-2050 | |
| Email: futuresclientservice@rbccm.com | |
| Facsimile: 312-559-2055 |
11.3 Communications from Customer to RBCCM shall be deemed received by RBCCM only when actually received. Any oral instructions accepted by RBCCM shall be deemed not to violate any laws or regulations requiring contracts to be in writing and Customer hereby waives any such defense.
| 12. | CONFIRMATIONS AND STATEMENTS |
12.1 Confirmation of Contracts and any other notices, reports or statements sent to Customer by RBCCM shall be conclusive and binding on Customer unless Customer notifies RBCCM to the contrary: (a) in the case of an oral notice, report or statement, immediately upon Customer or its agent receiving it or (b) in the case of a written notice, report or statement (including, without limitation, those communications delivered electronically), promptly following receipt of such notice, report or statement but in any event before the opening of trading on the Execution Facility on which such transaction occurs on the business day immediately following the trade date. Customer shall immediately notify RBCCM if Customer does not receive confirmation of a Contract it believes has been executed. Absent giving such notice, or willful misconduct or gross negligence on the part of RBCCM, Customer shall be deemed estopped from objecting, and to have waived any such objection, with respect to the execution or non-execution of such Contract. Customer agrees to be responsible for any delay or failure in notifying RBCCM of any errors or omissions.
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12.2 RBCCM has the right to correct any error or omission it discovers, and adjust Customer’s Account accordingly. RBCCM shall promptly notify Customer in writing of adjustments made to the Account.
| 13. | Delivery Obligations |
13.1 If Customer has a Contract position which could require Customer to sell or deliver any property, Customer shall either supply RBCCM with the property to be so delivered, or with instructions to cover the position, in such manner and before any deadline RBCCM may set. If Customer fails to do so then RBCCM may purchase or borrow for the account of Customer (on such terms and conditions as RBCCM in its sole discretion may determine) any property necessary to make such sale or delivery. If Customer has a Contract position which could require Customer to take delivery of any property, Customer shall deposit sufficient funds with RBCCM for RBCCM to do so, on demand by RBCCM, or give RBCCM instructions to liquidate the position, before any deadline RBCCM may set. Customer must provide RBCCM with three (3) Business Days’ notice prior to last notice day or last trading day (whichever is sooner) if Customer intends to make or take delivery of any Contract.
13.2 RBCCM shall have no responsibility for any action that it takes or fails to take with respect to any Contract unless and until RBCCM receives acceptable and timely instructions from Customer indicating the action to be taken.
| 14. | Furnishing Information; reporting and disclosure |
14.1 To ensure compliance with Applicable Law and to timely respond to regulatory requests, RBCCM may, from time to time, contact Customer to obtain certain documents and information. Customer agrees to promptly furnish RBCCM with such documents and information as RBCCM requests, including, but not limited to information regarding cash or OTC positions related to any exchange for risk transaction or any position limit.
14.2 Customer acknowledges that RBCCM may provide certain portions of its services under this Agreement to Customer utilizing third-party service providers and Customer consents to the use of such third-party service providers including such third-party service providers having access to information regarding Customer’s transactions under this Agreement. Customer agrees to cooperate with any reasonable request RBCCM may make in order to respond to any inquiries made by any third-party service provider.
14.3 Customer shall promptly notify RBCCM of any material adverse change to the financial condition of Customer, regardless of whether Customer has previously furnished financial information to RBCCM.
| 15. | Events Beyond RBCCM’s Control; liability; responsibility for losses |
15.1 To the extent permitted by Applicable Law, Customer agrees to waive any and all claims, rights or causes of action which it has or may have against RBCCM or its officers, employees, agents or Affiliates (collectively, the “RBCCM Group”) for any consequential or punitive damages and to limit any claims or rights arising out of any Contracts executed or not executed, or otherwise arising from this Agreement or the Account, to Customer’s direct out-of-pocket damages. References in this Agreement to Applicable Law are not intended to establish any private right of action or any other basis for any claim by Customer. No member of the RBCCM Group shall be liable as a result of any action taken by RBCCM, any member of the RBCCM Group or any clearing brokers or floor brokers, to comply with Applicable Law.
15.2 RBCCM Group shall not be liable for any expenses, losses, damages, liabilities, demands, charges, claims, penalties, fines and taxes of any kind or nature (including legal expenses and attorneys’ fees) (“Losses”) by or with respect to any matters pertaining to any Account, except to the extent that such Losses have resulted from RBCCM Group’s gross negligence or willful misconduct. In no way shall any of the RBCCM Group be liable for any Losses caused directly or indirectly by any events beyond its control, including, without limitation, any: (i) governmental, judicial, Execution Facility, Clearing Organization, or other self-regulatory organization action or order; (ii) labor disputes, riots, sabotage, insurrection, fires, flood, storm, explosions, earthquakes, electrical power failures, acts of God, war, both declared and undeclared, or acts of terrorism; (iii) suspension or termination of trading; (iv) delays or failures in the performance of any of RBCCM’s obligations hereunder, directly or indirectly caused by the occurrences of any contingency beyond the direct control of RBCCM, including, but not limited to, a breakdown or failure of hardware, software, electronic trading systems, order routing systems, or other transmission systems, devices or communication facilities, including where such failure is caused by a computer virus; (v) failure or delay by any Execution Facility or Clearing Organization with respect to any Contracts executed and/or cleared for Customer’s Accounts.
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15.3 RBCCM Group shall have no liability for, and Customer agrees to hold RBCCM Group harmless from, all Losses that result from: (a) Customer’s or its agents’ misrepresentation, act or omission, (b) RBCCM Group following Customer’s or its agents’ directions or failing to follow Customer’s or its agents’ unlawful or unreasonable directions; (c) any advice, recommendation or prediction made or given by a representative of RBCCM whether or not made or given at the request of Customer; (d) any activities or services of RBCCM Group in connection with the Account (including, without limitation, any technology services, reporting, trading, or research services); or (e) any action taken by RBCCM to exercise its remedies pursuant to the Remedies section of this Agreement. Nothing in this paragraph shall in any manner restrict RBCCM’s rights pursuant to the Events of Default and Remedies sections of this Agreement.
15.4 Customer acknowledges that business on an Execution Facility or Clearing Organization may from time to time be suspended, restricted, closed or otherwise impeded (a “Business Impediment”). Any such Business Impediment may result in RBCCM being unable to enter into, clear or otherwise effect Contracts. Customer shall remain fully liable for all existing open positions, new positions or eliminated positions notwithstanding any such Business Impediment.
15.5 RBCCM does not guarantee the performance of any Execution Facility or Clearing Organization, clearing firm or other third party (including floor brokers and banks) and shall have no responsibility or liability to Customer hereunder in connection with the performance or non-performance by any such person to RBCCM of its obligations in respect of any Contract or other property of the Customer.
15.6 Customer hereby agrees to compensate RBCCM Group for any and all (i) Losses incurred by RBCCM Group in connection with the execution and/or clearing of Contracts for Customer’s Account(s) hereunder, other than such Losses for which RBCCM Group is responsible pursuant to the provisions above and (ii) Losses incurred by RBCCM Group as a result, directly or indirectly, of Customer’s failure to comply with any provision of, or to perform any obligation under, this Agreement.
| 16. | Transfer of Funds |
Customer hereby expressly agrees that RBCCM may, without prior notice to Customer, transfer between or among any regulated or unregulated Account(s) and any other account(s) in which Customer has an interest (maintained with RBCCM or any RBCCM Affiliate) such amount of funds, equities, securities or other property which in RBCCM’s reasonable business judgment may be necessary, including to avoid margin calls or to reduce a debit balance or otherwise satisfy any obligation owing to RBCCM or its Affiliates. As permitted by Applicable Law, RBCCM and Customer understand and agree that they intend this provision to be enforceable by and for the benefit of each Affiliate. Although it is impracticable to identify each such Affiliate by name, the parties nevertheless agree that this provision extends to each party which holds Customer assets or with whom Customer has or will have a contractual relationship.
| 17. | Termination; TRANSFER OF POSITIONS |
17.1 This Agreement shall continue in force until notice of termination is given in accordance with the Communications section of this Agreement: (a) by Customer to RBCCM at any time in writing or (b) by RBCCM to Customer upon at least five (5) days’ notice of such termination. Termination of this Agreement shall not, however, relieve either party of any liability or obligation incurred prior to such termination. Once notice of termination has been given by either RBCCM or Customer, RBCCM shall be under no obligation to accept any new Contracts or orders under this Agreement.
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17.2 Customer shall, after receiving notice of termination from RBCCM, either close out or liquidate open positions in the Account (and in so doing satisfy all liabilities to RBCCM arising hereunder including, without limitation, payment of any applicable commissions, fees and expenses due to RBCCM hereunder) or elect and arrange for such open positions (Contracts and Collateral) to be transferred to another registered FCM clearing member. Such close out, liquidation or transfer shall be effected by Customer within fifteen (15) Business Days after delivery of such notice to Customer. In the event that Customer does not close-out, liquidate or transfer to another registered FCM clearing member all open positions in the Account by such date, RBCCM shall have the right to exercise any of the rights set forth in the Remedies section of this Agreement. In the event RBCCM terminates this Agreement, other than due to an Event of Default pursuant to the Events of Default section hereof, Customer shall not be liable for the costs related to any election by it to have its open positions transferred to another registered FCM clearing member (including any fees related to such transfer). Customer shall first satisfy all liabilities it has to RBCCM arising hereunder.
17.3 In the event this Agreement is terminated by either party and Customer elects to have its positions or a portion thereof transferred to another registered FCM upon satisfaction by Customer of all liabilities to RBCCM arising hereunder (including, without limitation, payment of any applicable commissions, fees and expenses due to RBCCM), RBCCM shall transfer (a) to the relevant transferee all such Contracts then held in the Account and related Collateral, and (b) to such transferee or another person, as Customer may instruct, all remaining cash, securities and other property held in the Account. If Customer has requested this Agreement be terminated, it shall terminate upon the final transfer of positions and Collateral. If such transfer represents less than all Contracts, any such transfer will be subject to a condition that Customer deliver to RBCCM prior to the transfer such margin as is required by RBCCM in addition to such margin that is otherwise required by Applicable Law hereunder. The representations and indemnities contained in this Agreement shall survive any termination of this Agreement. Customer shall be responsible to RBCCM for all fees related to such transfer.
| 18. | Tape Recordings |
Each party to this Agreement may record or monitor in real-time any telephone conversation between any of its employees or employees of its Affiliates with the other party. Any records of such conversations are the recording party’s sole property. Each party agrees to such recording without further notice, and agrees to obtain any necessary consent of, and give any necessary notice of such recording to, its relevant personnel through manuals, policies or otherwise. Each party waives any and all rights to object to the admissibility into evidence of any such recording in any legal proceeding, and accepts such records as conclusive evidence of the content of such conversations. In addition, communications by mail, electronic communications systems, facsimile or otherwise may be monitored and recorded by either party. However, this Agreement shall not obligate either party to make or maintain any such recordings.
| 19. | Currency Exchange Risk |
If any Contract is effected on any Execution Facility or Clearing Organization in a foreign currency, any profit or loss arising as a result of a fluctuation in the exchange rate affecting such currency will be entirely for the account and risk of Customer. Initial and subsequent deposits of margin shall be made in United States currency, unless RBCCM requests any such deposit in the currency of some other country, in which case such deposit shall be made in such currency. Unless Customer shall have given RBCCM specific written instructions to the contrary, when any Contract is liquidated, RBCCM shall debit or credit the Account in the relevant currency of the Contract and shall convert on a monthly basis the balance in the Account in United States currency at a rate of exchange determined by RBCCM in good faith and on the basis of prevailing market rates.
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| 20. | prevention of money laundering aND terroriSt financing |
Without prejudice to the other provisions hereof, RBCCM is required to act in accordance with the laws, regulations and requests or public and regulatory authorities operating in various jurisdictions which relate to, among other things, the prevention of money laundering, terrorist financing and the provision of financial and other services to any persons or entities which may be subject to sanctions. Applicable Law requires financial institutions such as RBCCM to obtain, verify and retain identifying information about each Customer Account. RBCCM may therefore request Customer’s name and address, and for individuals, date of birth and other identifying information. RBCCM may take any action which it, its sole discretion, considers appropriate to take in accordance with all such laws, regulations and requests and RBCCM will not be liable for losses (whether direct of consequential) or damage suffered by Customer arising out of RBCCM’s compliance with such regulations.
| 21. | Severability |
In the event that any provision of this Agreement or the application thereof to any party hereto is declared to be illegal, invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision, unless the deletion of such provision shall impair the benefits of the remaining provisions of this Agreement.
| 22. | modification; Amendment |
22.1 Whenever any statute shall be enacted which shall affect in any manner or be inconsistent with any of the provisions hereof, or whenever any rule or regulation shall be prescribed or promulgated by the CFTC, an Execution Facility, Clearing Organization or other agency or body having jurisdiction over RBCCM or the Contracts, which shall affect in any manner or be inconsistent with any of the provisions hereof, the provisions of this Agreement so affected shall be deemed modified or superseded, as the case may be, by such statute, rule or regulation, and all other provisions of this Agreement and the provisions as modified or superseded, shall in all respects continue to be in full force and effect. RBCCM shall use commercially reasonable efforts to give notice to Customer of any material change in conduct under this Agreement required by any such statute, rule or regulation.
22.2 Subject to the above, no amendment, modification or waiver in respect of this Agreement shall be effective unless and until agreed in writing (including a writing evidenced by a facsimile or e-mail) executed by both RBCCM and Customer.
| 23. | waiverS |
The rights and remedies conferred upon RBCCM hereunder shall be cumulative, and its forbearance to exercise any right, privilege or remedy available to it under this Agreement or Applicable Law shall not constitute a waiver of its right to take such action at any time thereafter.
| 24. | representations of the investment advisor [Strike if inapplicable] |
24.1 If this Agreement has been entered into by an investment advisor on behalf of the Customer (“Advisor”), Advisor represents and warrants that, as of the date hereof and on the date each Contract is executed or cleared hereunder, that: (a) Advisor has exercised reasonable care to assure that Customer is duly authorized and empowered to execute and deliver this Agreement and to effect purchases and sales of Contracts through RBCCM; (b) Advisor has been authorized by Customer to negotiate, sign and enter into and thereafter amend, without limitation, agreements relating to Contracts (including this Agreement (and any predecessor to this Agreement), electronic trading agreements, give-up agreements, related agreements and acknowledge risk and other disclosure statements on Customer’s behalf); and (C) no person other than Customer and Advisor has or will have any control over the Account, except as otherwise disclosed to RBCCM in writing. Advisor agrees to notify RBCCM promptly in writing, if any above representation or warranty ceases to be accurate and complete in any material respect.
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24.2 The parties hereto hereby agree that this Agreement is entered into by Advisor acting solely in its capacity as Advisor and/or authorized signatory of Customer listed herein or any Customer subsequently added by joinder agreement severally and not jointly. It is also understood and agreed that this Agreement shall constitute a separate agreement between RBCCM and the Customer, as if each Customer had executed a separate agreement naming only itself as Customer (a “Separate Agreement”). No Customer shall have any liability under this Agreement for the obligations of any other customer managed by Advisor.
| 25. | Entire Agreement |
This Agreement, the Customer Account Application and the forms annexed hereto between RBCCM and Customer, together constitute the entire agreement between Customer and RBCCM regarding transactions in Contracts, and supersede any prior agreements between the parties with respect to such subject matter. This Agreement shall apply to any Account of Customer carried by RBCCM for the execution, clearance and/or carrying of Contracts, including any such Account opened before this Agreement became effective.
| 26. | assignment and successors |
Neither party may assign this Agreement for any reason whatsoever without the other party’s prior written consent, which shall not be unreasonably withheld, provided that RBCCM may assign this Agreement to a properly registered affiliate authorized to carry the Customer’s account.
| 27. | Captions |
Any captions appearing with each paragraph of this Agreement are for the convenience of the parties. Captions shall not be treated as part of this Agreement, nor shall they change the legal effect of any paragraph.
| 28. | Governing Law; consent to jurisdiction |
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law, except to the extent pre-empted by Federal law. With respect to any suit, action or proceedings relating to any dispute arising out of or in connection with this Agreement (“Proceedings”), each party irrevocably (a) submits to the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, (b) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party, and (c) agrees, to the extent permitted by applicable law, that the bringing of Proceedings in any one or more jurisdictions will not preclude the bringing of Proceedings in any other jurisdiction. Customer also agrees that any service of process mailed to Customer at any address previously specified to RBCCM shall be deemed a proper service of process on Customer.
| 29. | Waiver of Jury Trial; SOVEREIGN IMMUNITY |
29.1 Each of RBCCM and Customer waives any right it may have to a jury trial of any claim or cause of action in connection with this Agreement. This Agreement may be filed as a written consent to trial by the court.
29.2 Each of RBCCM and Customer irrevocably waives, to the fullest extent permitted by Applicable Law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other grounds.
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| 30. | Counterparts |
This Agreement may be executed and delivered in counterparts (including by facsimile transmission or by email), each of which shall be deemed an original. The parties intend that faxed signatures and electronically imaged signatures such as .pdf files shall constitute original signatures and are binding on all parties.
| 31. | CROSS-TRADE, BLOCK AND PRE-EXECUTION DISCUSSION CONSENT |
Customer agrees that RBCCM, and its managing directors, officers, employees, Affiliates, agents and floor brokers where acting on RBCCM’s behalf, may take the other side of a Contract, or engage in pre-execution discussions, including block trades, in accordance with the provisions and limitations prescribed by Applicable Law.
| 32. | INCONSISTENCIES |
In the case of any inconsistency between the terms of this Agreement and the “Cleared Derivatives Addendum” with respect to “Transactions” (both as defined in the Cleared Derivatives Addendum), the Cleared Derivatives Addendum shall take precedence only with respect to such Transactions.
| 33. | MASTER NETTING AGREEMENT |
This Agreement is a “master netting agreement” as defined in Section 101(38A) of Title 11 of the United States Code, and RBCCM shall be entitled to the protections afforded by, among other sections, Section 362(b)(27) and 561 of Title 11 of the United States Code.
| 34. | ACCEPTANCE |
This Agreement shall be deemed to be accepted by RBCCM or become a binding contract between Customer and RBCCM when RBCCM opens an Account for Customer and RBCCM has notified Customer that the Account is open and RBCCM has provided Customer an Account number.
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| 35. | DISCLOSURE acknowledgement |
By signature below, Customer acknowledges that it has received the following (please check all boxes):
| x | Customer acknowledges that this Agreement contains a Transfer of Funds and Cross Trade, Block and Pre-Execution Discussion consent provisions. |
| x | Customer hereby acknowledges that it has received, read and understands, and has retained a copy of: (1) the Risk Disclosure Statement for Futures and Options (CFTC Regulation 1.55(c)) and (2) the Uniform Futures and Options on Futures Risk Disclosures booklet. |
IN WITNESS WHEREOF, Customer has executed this Agreement as of the date written below.
UNITED STATES COMMODITY INDEX FUNDS TRUST, a Delaware statutory trust (the “Trust”), on behalf of each series thereof listed on Appendix A to this Agreement as it may be amended from time to time, severally and not jointly (each a “Fund” or “Customer” and collectively, the “Funds”),
BY: UNITED STATES COMMODITY FUNDS LLC, as Sponsor
| By: |  |
||
| Signature | |||
| John P. Love, President and Chief Executive Officer | |||
| Print Name and Title | |||
| June 1, 2018 | |||
| Date | |||
* The terms of this Agreement shall apply separately and respectively to each Fund, and each reference to the “Trust” herein shall mean the Trust on behalf of each Fund. RBCCM hereby acknowledges that its rights and obligations with respect to a Fund shall not create any right or other obligations with respect to any other Fund listed on Appendix A, as amended from time to time. RBCCM agrees to look solely to the assets of the Fund in respect of any claim against or obligation of the Fund. The RBCCM acknowledges and agrees that liability of the Fund, as a series of the Trust, is limited pursuant to Section 3804(a) of the Delaware Statutory Trust Act, such that (a) the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Fund shall be enforceable against the assets of the Fund only, and not against the assets of the Trust generally or the assets of any other series of the Trust, and (b) none of the debts, liabilities, obligations and expenses incurred, contracted for, or otherwise existing with respect to the Trust generally and any other series of the Trust shall be enforceable against the assets of the Fund.
RBC Capital Markets, LLC
| By: | |||
| Signature | |||
| Print Name and Title | |||
| Date |
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SCHEDULE 1
ADDENDUM
FORM OF CLEARED DERIVATIVES TRANSACTIONS
This Cleared Derivatives Transactions Addendum (“Cleared Derivatives Addendum”) is dated as of [·], supplements the Futures and Cleared Derivatives Transactions Customer Agreement (“Agreement”) that [Customer] (“Customer”) has entered into with RBC Capital Markets, LLC (“Clearing Member”) and, except as the parties may otherwise agree in writing, supersedes any prior addendum to the Agreement between the parties with respect to Cleared Derivatives Transactions.
1. Interpretation.
(a) Cleared Derivatives Transactions. Customer acknowledges and agrees that, except as provided below, this Cleared Derivatives Addendum shall apply to all swaps, forwards, options or similar transactions that are (i) entered into by Customer in the over-the-counter market, or (ii) executed or traded by Customer on or subject to the rules or protocols of any multilateral or other trading facility, system or platform, including any communication network or auction facility, permitted under Applicable Law (each, an “Execution Facility”) or any designated contract market, and, in the case of either (i) or (ii), subsequently submitted to and accepted for clearing at a clearing organization, including but not limited to, a derivatives clearing organization registered as such under the Commodity Exchange Act (“CEA”) (each, a “Clearing Organization”) (collectively, “Cleared Derivatives Transactions”) and carried in the Customer account holding such Cleared Derivatives Transactions (the “Cleared Derivatives Account”).1
Cleared Derivatives Transactions under this Cleared Derivatives Addendum shall not include futures contracts and options on futures contracts executed on or subject to the rules of a U.S. designated contract market subject to regulation by the Commodity Futures Trading Commission (“CFTC”) (including derivatives transactions entered into over-the-counter and cleared as futures or options on futures contracts) or on a foreign board of trade subject to regulation in its home jurisdiction.2 Except as otherwise specifically provided in this Cleared Derivatives Addendum or Customer’s transaction confirmations, Cleared Derivatives Transactions shall be deemed for all purposes of the Agreement to be “Contracts,” “Futures,” “Futures Contracts” or such other defined term used in the Agreement to refer to the products covered thereby (such Contracts, Futures, Futures Contracts or such other term, and including without limitation Cleared Derivatives Transactions, hereinafter, “Contracts”).
1 Note to Contracting Parties: Parties should consider whether the defined term “Cleared Derivatives Account” covers the account that holds Cleared Derivatives Transactions as well as any accounts that may hold the related collateral for Cleared Derivatives Transactions. To the extent that the Cleared Derivatives Transactions and related collateral are not held in the same account, parties may wish to amend the definition of “Cleared Derivatives Account” by replacing “carried in the Customer account holding such Cleared Derivatives Transactions (the “Cleared Derivatives Account”)” with “carried in the Customer account holding such Cleared Derivatives Transactions and any associated account(s) holding Credit Support (as defined in Section 7 of this Cleared Derivatives Addendum) (collectively, the “Cleared Derivatives Account”).”
In addition, parties should take care to confirm that this defined term is consistent with the approach they have adopted with respect to separating the liquidation of listed futures and exchange-traded options and Cleared Derivatives Transactions, or integrating the liquidation of such transactions, as more fully discussed in notes 8 and 9 of this Cleared Derivatives Addendum.
2 The extent to which this Cleared Derivatives Addendum will apply to certain security-based swaps, including CDS on narrow-based indices and single names, will depend on the scope of the regulations to be adopted by the Commodity Futures Trading Commission and the Securities and Exchange Commission. This Cleared Derivatives Addendum may have to be revised to reflect those regulatory requirements.
* This Addendum is published by the Futures Industry Association (FIA) and the International Swaps and Derivatives Association (ISDA). It is protected by copyright and cannot be used, revised or distributed except as provided herein or as amended on the publishers’ websites. This Addendum may be reproduced, distributed, and revised solely for the purpose of participants documenting their own commercial transactions. If participants make revisions to the publishers’ Addendum form then they must include the publishers’ copyright notice along with the additional notice: This document is based on the Addendum standard published by the FIA and ISDA. As permitted by the license RBC Capital Markets, LLC has revised the published document. The publishers’ version can be reviewed at www.futuresindustry.org and www.isda.org.
©The Futures Industry Association and the International Swaps and Derivatives Association, Inc. 2012. Reproduction, distribution, and revisions, are permitted solely for the purpose of participants documenting their own commercial transactions. This notice may not be removed.
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(b) Definitions. Unless otherwise specified in this Cleared Derivatives Addendum, all capitalized terms used herein shall have the meanings defined in the Agreement.
2. Representations, Warranties and Covenants.3 In addition to the representations, warranties and covenants made by Customer in the Agreement, at the time of entering into this Cleared Derivatives Addendum and again upon each date on which a Cleared Derivatives Transaction is submitted to and accepted for clearing and settlement as a Cleared Derivatives Transaction in accordance with this Cleared Derivatives Addendum:
(a) Clearing Member Representations, Warranties and Covenants. Clearing Member represents, warrants and covenants to Customer that:
(i) Due Authorization. Clearing Member is, and for so long as it is responsible for Cleared Derivatives Transactions thereon will remain, a Clearing Member of each applicable Clearing Organization and authorized to clear Cleared Derivatives Transactions. Clearing Member is duly registered with the CFTC as a futures commission merchant under the CEA.
(ii) No Violation. Clearing Member is not subject to any order, judgment or decree of any court of competent jurisdiction preventing Clearing Member from engaging in or continuing to engage in clearing and settlement of Cleared Derivatives Transactions.
(iii) Qualifications. Clearing Member is not suspended or expelled from membership in the applicable Clearing Organization or any U.S. futures self-regulatory organization.
(iv) Customer Collateral. Clearing Member shall maintain and treat all collateral deposited by Customer to margin Cleared Derivatives Transactions in accordance with Applicable Law.
(v) Clearing Member Payee Representations. Clearing Member (or, in the case of a Clearing Member that is a disregarded entity for United States federal income tax purposes, its owner) agrees that each representation specified in the Schedule as being made by it for the purpose of Section 2(a)(v) of this Cleared Derivatives Addendum is accurate and true. Clearing Member will give notice if this representation fails to be accurate and true promptly upon learning of such failure. Such notice will include the new Clearing Member Payee Tax representations and Clearing Member Tax Documents as Clearing Member agrees are accurate and true. Upon delivery of such a notice, the prior Clearing Member Payee Tax representations and Clearing Member Tax Documents are deemed amended as set forth in such notice. The prior Clearing Member Payee Tax representations and Clearing Member Tax Documents shall remain in effect until the date specified in such notice for the purposes of outstanding Cleared Derivatives Transactions.
(b) Customer Representations, Warranties and Covenants. Customer represents, warrants and covenants to Clearing Member that:
(i) Eligible Participant. Customer is, and at the time it enters into any Cleared Derivatives Transaction it will be, as applicable with respect to such Cleared Derivatives Transaction, an “eligible contract participant” as defined in the CEA, or, if on or prior to December 31, 2012, an “eligible swap participant” as defined in CFTC Rule 35.1 as in effect prior to December 31, 2011.
3 Note to Contracting Parties: Where relevant, the parties may want to consider including in the Schedule additional terms, representations and warranties relating to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or the Internal Revenue Code of 1986, as amended (the “Code”), including matters such as whether the assets involved in the transaction constitute “plan assets” under ERISA or the Code, the availability of an applicable exemption from the prohibited transaction rules under ERISA and the Code and the fiduciary status of the parties. Whether such additional terms, representations and warranties are necessary and advisable is a complex issue, and the parties should consult with counsel and also consider whether they are adequately covered in the Agreement.
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(ii) Due Authorization. Prior to submitting a Cleared Derivatives Transaction for clearing and settlement through Customer’s Cleared Derivatives Account with Clearing Member, Customer will have obtained any approval, authorization, license or permit required by Applicable Law to perform its obligations under this Cleared Derivatives Addendum. Customer will ensure that any such approval, authorization, license or permit remains valid and in force to the extent required under Applicable Law at any time Customer enters into any Cleared Derivatives Transactions or maintains any open Cleared Derivatives Transactions.
(iii) Relationship Between the Parties. Customer is acting for its own account, and has made its own independent decisions to enter into the Cleared Derivatives Transactions and submit such Cleared Derivatives Transactions for clearing and settlement through Customer’s Cleared Derivatives Account with Clearing Member, based upon its own judgment and upon advice from such advisers as it has deemed necessary, as to whether such action is appropriate or proper. It is not relying on any communication (written or oral) of Clearing Member as investment advice or as a recommendation to enter into and clear the Cleared Derivatives Transactions. Customer is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of entering into and submitting the Cleared Derivatives Transactions for clearing and settlement in accordance with this Cleared Derivatives Addendum, including, but not limited to, the risk that: (1) the regulations applicable to Cleared Derivatives Transactions, including the rules, regulations and procedures of the applicable Clearing Organization and each Execution Facility or designated contract market, if any, that Customer uses in connection with Cleared Derivatives Transactions, may differ from the regulations applicable to the execution and clearing of futures contracts; and (2) such Cleared Derivatives Transactions may not be afforded the same legal and regulatory treatment as may be afforded the execution and clearing of futures contracts. Clearing Member is not acting as a fiduciary for or an adviser to Customer in respect of the Cleared Derivatives Transactions.
(iv) Customer Payee Representations. Customer agrees that each representation specified in the Schedule as being made by it for the purpose of Section 2(b)(iv) of this Cleared Derivatives Addendum is accurate and true. Customer will give notice if this representation fails to be accurate and true promptly upon learning of such failure. Such notice will include the new Customer Payee Tax representations and Customer Tax Documents as Customer agrees are accurate and true. Upon delivery of such a notice, the prior Customer Payee Tax representations and Customer Tax Documents are deemed amended as set forth in such notice. The prior Customer Payee Tax representations and Customer Tax Documents shall remain in effect until the date specified in such notice for the purposes of outstanding Cleared Derivatives Transactions.
3. Applicable Law; Other Agreements. Customer acknowledges and agrees that Cleared Derivatives Transactions are governed by the rules of the relevant Execution Facility, designated contract market, if any, and Clearing Organization, all of which shall be deemed to be Applicable Law, and by the terms and conditions of any user agreement or other agreement with any Execution Facility, designated contract market, if any, or Clearing Organization that Customer enters into in order to transact or clear Cleared Derivatives Transactions. Customer further acknowledges and agrees that Clearing Member is acting hereunder in reliance on Customer having obtained such authorizations and approvals, and having entered into such Agreements, as are necessary to perform Customer’s obligations under this Cleared Derivatives Addendum.
4. Transactions Not Accepted for Clearing. Except as the parties may otherwise agree in writing, either at or prior to the time the relevant transaction is entered into, if a Clearing Organization does not accept a transaction submitted for clearing, Clearing Member shall have no further rights or obligations hereunder with respect to such transaction.
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5. Limitation of Liability. Except as the parties may otherwise agree in writing, Customer understands and agrees that Clearing Member is not responsible for the performance or non-performance by any Clearing Organization with respect to any transaction or any electronic or other system, whether offered by Clearing Member or otherwise, that Customer employs to enter into any transaction. Further, Clearing Member is not a party to any agreement between Customer and any Execution Facility, designated contract market, if any, or Clearing Organization. Clearing Member specifically disclaims all liability for any loss, cost or damage of any type or nature arising from or relating to Customer’s use of any system or device furnished by any Execution Facility or designated contract market, if any, for transactions, unless directly caused by Clearing Member’s gross negligence or willful misconduct. Without limiting the foregoing, no party to this Cleared Derivatives Addendum shall be required to pay or be liable to any other party for any consequential, indirect or punitive damages, opportunity costs or lost profits (whether or not arising from its negligence, gross negligence or willful misconduct).
6. Transfer of Positions. Except as the parties may otherwise agree in writing or as Applicable Law may hereafter specifically require, upon receipt of a written instruction from Customer containing the information required by National Futures Association Compliance Rule 2-27, as amended, supplemented or interpreted from time to time, or any analogous rule adopted by the National Futures Association intended to apply to Cleared Derivatives Transactions (the “Portability Rule”), Clearing Member, consistent with the requirements of the Portability Rule, shall transfer Customer’s Cleared Derivatives Account, or such portion thereof as Customer shall direct (regardless of whether the Portability Rule is applicable), provided, however, that Clearing Member shall not be required to transfer all or any portion of Customer’s Cleared Derivatives Account if there has been, and is continuing, a Close-out Event (as defined in Section 7 of this Cleared Derivatives Addendum ).
7. Liquidation Upon a Close-out Event or Tax Liquidation Event.
(a) Close-out Methodology/Process.
(i) In the case of:
(A) a default, event of default or other similar condition or event (however described) that, under the terms of the Agreement, gives rise to any right of Clearing Member to liquidate any or all Cleared Derivatives Transactions held in Customer’s Cleared Derivatives Account or Contracts held in the Customer’s Account (a “Close-out Event”); or
(B) a Tax Liquidation Event (as defined in Section 8 of this Cleared Derivatives Addendum),
(in either case, a “Liquidation Event”), subject to any limitations set forth in the Agreement, Clearing Member shall be entitled to:
(x) with respect to a Close-out Event, designate a day not earlier than the date of the occurrence of such Close-out Event as the “Liquidation Date” with respect to all Cleared Derivatives Transactions; and
(y) with respect to a Tax Liquidation Event, designate a day not earlier than thirty (30) days from the effective date of written notice to Customer of the occurrence of such Tax Liquidation Event as the “Liquidation Date” with respect to the Affected Transaction(s) that may be terminated in accordance with Section 8(d) of this Cleared Derivatives Addendum.
(ii) In order to cause the liquidation of all Designated Transactions, Clearing Member will enter into one or more Close-out Transactions at any time on or as soon as commercially reasonable following such Liquidation Date; provided, however, that:
(A) Clearing Member, and, in the case of Mitigation Transactions, Clearing Member or its affiliates, shall also be entitled at any time to enter into one or more Risk-reducing Transactions and/or Mitigation Transactions; and
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(B) (1) if Clearing Member, after undertaking commercially reasonable efforts, reasonably determines in good faith that: (x) Close-out Transactions for one or more Designated Transactions or Risk-reducing Transactions (or portions thereof), as the case may be, are not readily available, (y) entry into such transactions would produce a result that would not satisfy the Liquidation Standard, or (z) determining the ready availability of such transactions would require the active solicitation of quotations in the relevant market and such active solicitation of quotations would result in valuations under Section 7(b)(i)(B) of this Cleared Derivatives Addendum that would not satisfy the Liquidation Standard, Clearing Member will, after making such a determination, be entitled to value such Designated Transactions or Risk-reducing Transactions (or portions thereof), as the case may be, and
(2) if Clearing Member or any of its affiliates has entered into one or more Mitigation Transactions, Clearing Member or such affiliate will (to the extent it has not liquidated such Mitigation Transactions in accordance with Section 7(b)(i)(A) of this Cleared Derivatives Addendum) value such Mitigation Transactions (or such portions thereof that are not liquidated) corresponding to any Designated Transactions or Risk-Reducing Transactions either liquidated by entry into a Close-out Transaction or deemed liquidated in accordance with Section 7(a)(ii)(B)(xx) of this Cleared Derivatives Addendum, in each case, by (xx) determining the value of such Designated Transactions, Risk-reducing Transactions and/or Mitigation Transactions (or portions thereof) in accordance with Section 7(b)(i)(B) of this Cleared Derivatives Addendum, at which time such Designated Transactions and/or Risk-reducing Transactions (or portions thereof) will be deemed to have been liquidated for purposes of this Cleared Derivatives Addendum, and such Mitigation Transactions (or portions thereof) will cease to be Mitigation Transactions for purposes of this Cleared Derivatives Addendum and be deemed liquidated; (yy) promptly removing such Designated Transactions and/or Risk-reducing Transactions (or portions thereof) from Customer’s Cleared Derivatives Account; and (zz) upon the removal of such Designated Transactions and/or Risk-reducing Transactions (or portions thereof) from Customer’s Cleared Derivatives Account, procuring the return of any margin supporting such Designated Transactions and/or Risk-reducing Transactions at the relevant Clearing Organization(s) to Customer’s Cleared Derivatives Account, subject to Clearing Member’s rights with respect thereto under Section 7(d) of this Cleared Derivatives Addendum.
In determining which actions to take and when such actions should be taken and in taking any such actions in accordance with Section 7 of this Cleared Derivatives Addendum (other than Section 7(a)(i) of this Cleared Derivatives Addendum), Clearing Member (and to the extent relevant, its affiliates) shall act in accordance with the Liquidation Standard. Many factors may be relevant to determining if such action is consistent with the Liquidation Standard, including, but not limited to: managing Clearing Member’s market exposure in respect of Designated Transactions and related Credit Support and Customer Balances in connection with a Liquidation Event; effecting the liquidation in a cost effective manner; the amount of Credit Support and Customer Balances available to Clearing Member in connection with the Liquidation Event; a bankruptcy, insolvency or similar proceeding in respect of Customer and any limitations associated therewith; the prevailing market conditions; and the type, complexity, size and number of Designated Transactions. While these factors may be relevant, Clearing Member must always act in good faith, in accordance with Applicable Law and use commercially reasonable procedures in order to produce a commercially reasonable result.
(iii) Customer appoints Clearing Member as Customer’s attorney-in-fact to sign, complete, and deliver any and all documents reasonably necessary or appropriate, and to take such other actions or incidental steps that are reasonably necessary, to enter into Close-out Transactions and Risk-reducing Transactions, in each case in order to exercise its rights under Section 7 of this Cleared Derivatives Addendum.
(b) Termination Amount.
(i) On or as soon as commercially reasonable following the taking of actions in accordance with Section 7(a) of this Cleared Derivatives Addendum, Clearing Member, and, in the case of Mitigation Transactions, Clearing Member or its affiliates, acting in accordance with the Liquidation Standard, will determine an amount or amounts, if any, payable in connection with the liquidation or deemed liquidation of one or more Designated Transactions or Risk-reducing Transactions (each, a “Termination Amount”), which amounts, subject to the Liquidation Standard, may be determined separately for different liquidated or deemed liquidated Designated Transactions and Risk-reducing Transactions or groups thereof. Subject to Section 7(e) of this Cleared Derivatives Addendum, a Termination Amount will be an amount equal to the sum of:
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(A) the sum of the aggregate amount of trading losses (expressed as a positive number) and trading gains (expressed as a negative number), in each case that are incurred by Clearing Member, and, in the case of Mitigation Transactions, Clearing Member or its affiliates, in entering into Close-out Transactions or Risk-reducing Transactions and entering into or liquidating Mitigation Transactions, including all upfront payments made or received in connection with any such transactions;
(B) without duplication of amounts determined under Section 7(b)(i)(A) of this Cleared Derivatives Addendum, in respect of any Designated Transactions, Risk-reducing Transactions and Mitigation Transactions or portions thereof that are deemed liquidated in accordance with Section 7(a)(ii)(B) of this Cleared Derivatives Addendum, the sum of the valuations for such transactions (or relevant portions thereof) as of the relevant Close-out Date, taking into account the terms of such transactions, including any payment or delivery obligations of the parties thereto (whether absolute or contingent) in relation to those transactions (or relevant portions thereof) that would have been required to be performed after the relevant Close-out Date and any option rights in relation to such transactions, as determined by Clearing Member or, in the case of Mitigation Transactions, Clearing Member or its affiliates, in good faith and in a commercially reasonable manner, and for which determination Clearing Member may consider, without limitation, (x) quotations (firm or indicative) for Close-out Transactions, or for transactions that would otherwise close out or offset such Designated Transactions, Risk-reducing Transactions or Mitigation Transactions, supplied by one or more third parties, (y) relevant market data supplied by one or more third parties, including relevant prices, marks and other market data provided by the Clearing Organization on which a Designated Transaction, Risk-reducing Transaction or, if applicable, Mitigation Transaction is cleared, or (z) information of the types described in clause (x) or (y) above from internal sources (including, but not limited to, pricing or other valuation models) that are, at the time of the determination, used by Clearing Member or an affiliate of Clearing Member in the regular course of its business for the valuation of similar transactions; provided, however, that Clearing Member will consider relevant quotations, prices, marks and other market data in accordance with (x) and (y) above, unless Clearing Member reasonably believes in good faith that relevant quotations, prices, marks and other market data are not readily available, or that consideration of a quotation, price, mark or piece of market data would produce a result that would not satisfy the Liquidation Standard;
(C) without duplication of amounts determined under Sections 7(b)(i)(A) and 7(b)(i)(B) of this Cleared Derivatives Addendum, (x) the sum of (1) with respect to each Designated Transaction and Risk-reducing Transaction, all amounts that became due and remain unpaid to Clearing Member or a Clearing Organization from Customer on or prior to the relevant Close-out Date and (2) with respect to each Mitigation Transaction, all amounts that were paid by or became due (and remain unpaid) from Clearing Member or its affiliates to a Clearing Organization or another counterparty on or prior to the relevant Close-out Date (in each case, expressed as a positive number), and (y) the sum of (1) with respect to each Designated Transaction and Risk-reducing Transaction, all amounts that became due and remain unpaid to Customer from a Clearing Organization or Clearing Member on or prior to the relevant Close-out Date and (2) with respect to each Mitigation Transaction, all amounts that were paid or became due (and remain unpaid) to Clearing Member or its affiliates from a Clearing Organization or another counterparty on or prior to the relevant Close-out Date (in each case, expressed as a negative number); and
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(D) without duplication of amounts determined under Sections 7(b)(i)(A), 7(b)(i)(B) and 7(b)(i)(C) of this Cleared Derivatives Addendum, any and all reasonable, documented, out-of-pocket expenses (including, without limitation, booking, ticket, commission or similar fees imposed by a Clearing Organization or another Clearing Member, and external attorneys’ fees) and any costs of funding4 that Clearing Member or an affiliate of Clearing Member incurs in connection with the exercise of remedies under this Section 7 of this Cleared Derivatives Addendum (expressed as a positive number).
(ii) Subject to Sections 7(c) and 7(d) of this Cleared Derivatives Addendum, and except as the parties may have otherwise agreed:
(A) if a Termination Amount is a positive number, Customer will be obligated for such Termination Amount to Clearing Member; or
(B) if a Termination Amount is a negative number, Clearing Member will be obligated for the absolute value of such Termination Amount to Customer.
(iii) The Net Termination Amount in connection with a Close-out Event will be due and payable on the business day on which delivery of the Net Termination Amount Statement is effective. The Net Termination Amount in connection with a Tax Liquidation Event will be due and payable on the second business day following the business day on which delivery of the Net Termination Amount Statement is effective. Subject to Section 7(l) of this Cleared Derivatives Addendum, and except as the parties may have otherwise agreed:
(A) if the Net Termination Amount is a positive number, Customer will be obligated for such Net Termination Amount to Clearing Member; or
(B) if the Net Termination Amount is a negative number, Clearing Member will be obligated for the absolute value of such Net Termination Amount to Customer.
(c) On or after the occurrence of a Liquidation Event and except as otherwise provided in the Agreement, Clearing Member, in addition to any other rights it has under the Agreement or otherwise, shall be entitled, acting in good faith, in a commercially reasonable manner and in accordance with Applicable Law, to:
(i) (A) sell or otherwise dispose of or realize on any Credit Support received by Clearing Member and apply the proceeds of such Credit Support to any Termination Amounts or amounts due and owing from Customer to Clearing Member under the Cleared Derivatives Addendum or the Agreement; (B) set off or apply the value of any Credit Support received by Clearing Member against any Termination Amounts or amounts due and owing from Customer to Clearing Member under the Cleared Derivatives Addendum or the Agreement; and (C) set off or apply the value of any Credit Support received by Customer against amounts owed to Customer under the Cleared Derivatives Addendum (and Customer shall be liable for the excess, if any, of the amount of Credit Support received by Customer over amounts due and owing to Customer under the Cleared Derivatives Addendum or the Agreement);5
4 Note to Contracting Parties: Parties may wish to further define “costs of funding”. A sample definition of “Funding Costs” is set out below:
“Funding Costs” means, without duplication of any other amounts due from Customer hereunder, including interest costs in accordance with Section 7(g) of this Cleared Derivatives Addendum, the costs for the Clearing Member (or, as relevant, its affiliate) to borrow the amount of its (or, as relevant, its affiliate’s) own funds that, after application of any available Credit Support and Customer Balances, it (or, as relevant, its affiliate) has posted as margin or collateral reasonably attributable to a Designated Transaction, Risk-reducing Transaction or Mitigation Transaction, from the Liquidation Date to the Close-out Date[, calculated using an interest rate equal to [·]].
5 Note to Contracting Parties: Note that Clearing Member remedies with respect to Credit Support in Section 7(c)(i) of this Cleared Derivatives Addendum are limited to obligations under the Cleared Derivatives Addendum; parties may wish to expand provisions to include a broader set of obligations arising under the Agreement or otherwise. For example, the phrase “any obligations of Customer to Clearing Member under the Cleared Derivatives Addendum” could be amended to be “any obligations of Customer to Clearing Member under this Cleared Derivatives Addendum, the Agreement or otherwise” in each case in which such phrase appears in the provisions relating to Credit Support.
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(ii) sell, set off, apply or otherwise dispose of or realize on any or all of the cash and non-cash balances in the Customer’s Account and Cleared Derivatives Account (regardless of whether such balances were required to be held by Clearing Member in Customer’s Account or Cleared Derivatives Account in accordance with Applicable Law or in accordance with the Agreement) (such balances, “Customer Balances”6) and set off or apply the proceeds of such Customer Balances to any Termination Amounts or other obligations of Customer to Clearing Member under the Cleared Derivatives Addendum or the Agreement; and
(iii) take such other or further actions as Clearing Member, acting in good faith and in a commercially reasonable manner, determines reasonably necessary or appropriate for the protection of its rights hereunder to the fullest extent permitted under Applicable Law.
(d) Following the occurrence of a Liquidation Event, Clearing Member shall be entitled to retain all Credit Support and Customer Balances as security for all obligations of Customer to Clearing Member under the Cleared Derivatives Addendum and the Agreement; provided, however, that as soon as reasonably practicable following satisfaction in full of Customer’s obligations to Clearing Member under the Cleared Derivatives Addendum and the Agreement, Clearing Member will return to Customer any Credit Support or Customer Balances remaining after the liquidation, setoff and/or application under Section 7(c) of this Cleared Derivatives Addendum and the Agreement. Each party will remain liable for amounts owing, if any, and remaining unpaid by it after any liquidation, setoff and/or application under Section 7(c) of this Cleared Derivatives Addendum and the Agreement.
(e) (i) No amounts that would otherwise be expressed as a negative number in Section 7(b) of this Cleared Derivatives Addendum that are due or that may become due from a Clearing Organization shall be taken into account in determining a Termination Amount, unless such amounts have been Paid to Clearing Member at or prior to the time of the calculation of a Termination Amount. If any such amounts are Paid by a Clearing Organization to Clearing Member at any time after the calculation of a Termination Amount, then Clearing Member shall, promptly after any receipt thereof, net and set off such amounts against, and reduce, any amounts owed by Customer in accordance with this Section 7 of this Cleared Derivatives Addendum that remain unpaid at such time, if any, and pay all such amounts that are not so netted or set off to Customer (and such amounts shall be held as Credit Support until netted, set off or paid to Customer in accordance with this Section 7(e) of this Cleared Derivatives Addendum), subject to any other available rights of setoff. For purposes of this Section 7(e) of this Cleared Derivatives Addendum, “Paid” means satisfied or discharged through the receipt of funds or the exercise of any right of setoff or netting.
(ii) Costs, losses or reductions in gains attributable to the default of a party to a Mitigation Transaction may not be taken into account in calculating a Termination Amount, unless the defaulting party is a Clearing Organization.
(f) (i) The liquidation or deemed liquidation of a Designated Transaction or Risk-reducing Transaction (or portion thereof) under Section 7 of this Cleared Derivatives Addendum shall, if such liquidation or deemed liquidation does not result in an equivalent liquidation of such Designated Transaction or Risk-reducing Transaction (or portion thereof) in accordance with Clearing Organization rules, regulations or procedures, nonetheless be deemed an equivalent liquidation of such transaction for purposes of this Cleared Derivatives Addendum.
Similarly, the definition of “Credit Support” is limited to collateral or margin transferred in respect of Cleared Derivatives Transactions. Parties may wish to broaden the scope of Credit Support by deleting the phrase “with respect to one or more Cleared Derivatives Transactions” in the definition of “Credit Support”.
Parties should also note that there is little coordination between the close-out provisions of the Agreement and those of the Cleared Derivatives Addendum, other than Section 7(l) of this Cleared Derivatives Addendum, and parties may wish to provide for such coordination.
6 Note to Contracting Parties: “Customer Balances” is limited to cash and non-cash balances in Customer’s Cleared Derivatives Account in respect of Cleared Derivatives Transactions. Parties may wish to expand the scope of Customer Balances to include cash and non-cash balances that are not related to Cleared Derivatives Transactions (e.g., futures-related cash and non-cash balances) by deleting the phrase “in respect of one or more Cleared Derivatives Transactions” in the definition of “Customer Balances” and including balances in accounts other than Customer’s Cleared Derivatives Account.
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(ii) Unless previously liquidated or deemed liquidated in accordance with Section 7 of this Cleared Derivatives Addendum, any Designated Transactions or Risk-reducing Transactions removed from Customer’s Cleared Derivatives Account by any means other than an Offsetting Transaction shall be deemed liquidated for purposes of Section 7 of this Cleared Derivatives Addendum and valued in accordance with Section 7(b)(i)(B) of this Cleared Derivatives Addendum, unless Applicable Law requires such removal and a valuation in accordance with Section 7(b)(i)(B) of this Cleared Derivatives Addendum would produce a result that would not satisfy the Liquidation Standard, in which event such valuation shall be performed as soon as reasonably practicable thereafter in accordance with the Liquidation Standard.
(g) Subject to any limitation of liability provisions (howsoever described) in the Agreement, if Customer defaults in the performance of any payment obligation, Customer will, to the extent permitted by Applicable Law, be required to pay interest (before as well as after judgment) on the overdue amount to Clearing Member on demand in the same currency as such overdue amount, for the period from (and including) the original due date for such payment to (but excluding) the date of actual payment, at the rate agreed by the parties from time to time. If Customer defaults in the performance of any obligation required to be settled by delivery, it will compensate Clearing Member on demand if, and to the extent, provided for in the terms of the relevant Designated Transaction or elsewhere in the Agreement.
(h) Subject to any limitation of liability provisions (howsoever described) in the Agreement, if Clearing Member defaults in the performance of any payment obligation, Clearing Member will, to the extent permitted by Applicable Law, be required to pay interest (before as well as after judgment) on the overdue amount to Customer on demand in the same currency as such overdue amount, for the period from (and including) the original due date for such payment to (but excluding) the date of actual payment, at the rate agreed by the parties from time to time. If Clearing Member defaults in the performance of any obligation required to be settled by delivery, it will compensate Customer on demand if, and to the extent, provided for in the terms of the relevant Designated Transaction or elsewhere in the Agreement.
(i) For the avoidance of doubt, Sections 7(g) and 7(h) of this Cleared Derivatives Addendum will apply solely with respect to obligations arising under this Section 7 of this Cleared Derivatives Addendum, and will not apply to interest payable by Customer on debit balances or by Clearing Member on equity balances in Customer’s Cleared Derivatives Account in the ordinary course, which will be at the rate agreed by the parties from time to time.
(j) From the Liquidation Date and until Clearing Member provides Customer with the statement described in Section 7(k) of this Cleared Derivatives Addendum with respect to such Liquidation Date, Clearing Member will provide Customer, upon Customer’s reasonable request, information relating to any Mitigation Transaction that Clearing Member or any of its affiliates intend to take into account in computing a Termination Amount.
(k) On or as soon as reasonably practicable following the liquidation or deemed liquidation of all Designated Transactions and Risk-reducing Transactions, Clearing Member will provide to Customer a statement (the “Net Termination Amount Statement”):
(i) showing, in reasonable detail, the calculation of all Termination Amounts (including the details of all Close-out Transactions, Risk-reducing Transactions and Mitigation Transactions, realized gains and losses on such transactions; the amount of any Credit Support and Customer Balances sold or otherwise disposed of and the amount of Credit Support and Customer Balances set off or otherwise applied against any Termination Amounts; and any other data or information used in making any such calculations);
(ii) specifying all relevant quotations received by Clearing Member and its affiliates in connection with determining all Termination Amounts;
(iii) specifying the Net Termination Amount; and
(iv) giving details of the relevant account to which any amount payable to Clearing Member is to be paid.
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(l) Clearing Member shall be entitled to net: (i) any Net Termination Amount payable by it against any amounts due to it and unpaid by Customer under the Agreement and (ii) any amounts due and payable to Customer under the Agreement against any Net Termination Amount payable to Clearing Member. Nothing in this Section 7 of this Cleared Derivatives Addendum is intended to or shall limit or restrict any right that either party may have under this Cleared Derivatives Addendum or any other agreement or Applicable Law to set off any obligation (whether or not arising under this Cleared Derivatives Addendum) payable by such party against any obligation (whether or not arising under this Cleared Derivatives Addendum) payable to such party.7
Where one or more types of Cleared Derivatives Transactions have been margined on a portfolio basis with other transactions (whether cleared or uncleared), application of the Liquidation Standard may require Clearing Member to liquidate all such transactions on a combined (rather than standalone) basis. In recognition of the foregoing, Customer acknowledges and agrees that certain transactions may, in accordance with the Liquidation Standard, appropriately be liquidated later in time than would otherwise be the case had such transactions been margined on a standalone basis. In addition, Customer acknowledges and agrees that Cleared Derivatives Transactions of a particular type may, in accordance with the Liquidation Standard, appropriately be liquidated at different times, including, without limitation, in the case of Cleared Derivatives Transactions of a particular type carried simultaneously in multiple Customer account classes in accordance with applicable CFTC and Securities Exchange Commission segregation regimes.
(m) Clearing Member may take advice from agents and affiliates regarding Clearing Member’s exercise of rights and remedies under this Cleared Derivatives Addendum and may delegate to an agent or affiliate the exercise of such rights and remedies; provided that Clearing Member shall be liable for actions of its agents and affiliates, and such delegation will not excuse any obligations of or any standards of conduct applicable to Clearing Member.
(n) each of Clearing Member and Customer intends that Clearing Member’s rights and remedies benefit from the bilateral netting and8 clearing organization netting provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended (“FDICIA”) (12 U.S.C. § 4401 et seq.), and any applicable safe harbor provisions of the Bankruptcy Code relating to commodity contracts or similar safe harbor provisions in any other applicable federal or state insolvency law.
(o) Definitions. As used in this Cleared Derivatives Addendum:
“Close-out Date” means (i) with respect to each Designated and Risk-reducing Transaction, the date on which a Close-out Transaction was entered into in respect of such Designated Transaction or Risk-reducing Transaction or such Designated Transaction or Risk-reducing Transaction was otherwise liquidated or deemed liquidated and (ii) with respect to each Mitigation Transaction, the date on which such Mitigation Transaction ceases to be a Mitigation Transaction under this Cleared Derivatives Addendum.
“Close-out Transactions” means Offsetting Transactions and Sale/Novation Transactions.
7 Note to Contracting Parties: It may be appropriate in certain cases for the parties to include additional language with respect to portfolio margining and its potential effects on liquidation where the parties have agreed to portfolio margining. Sample language is provided below:
“Where one or more types of Cleared Derivatives Transactions have been margined on a portfolio basis with other transactions (whether cleared or uncleared), application of the Liquidation Standard may require Clearing Member to liquidate all such transactions on a combined (rather than standalone) basis. In recognition of the foregoing, Customer acknowledges and agrees that certain transactions may, in accordance with the Liquidation Standard, appropriately be liquidated later in time than would otherwise be the case had such transactions been margined on a standalone basis. In addition, Customer acknowledges and agrees that Cleared Derivatives Transactions of a particular type may, in accordance with the Liquidation Standard, appropriately be liquidated at different times, including, without limitation, in the case of Cleared Derivatives Transactions of a particular type carried simultaneously in multiple customer account classes in accordance with applicable CFTC and Securities Exchange Commission segregation regimes.”
8 Note to Contracting Parties: Parties should consider whether to include the reference to the bilateral netting provisions applicable to “financial institutions” under FDICIA.
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“Credit Support” means with respect to a party to this Cleared Derivatives Addendum, collateral or margin (including any income paid or payable with respect to such collateral or margin) that has been transferred to or received by a party to this Cleared Derivatives Addendum as security or to provide setoff or netting rights (whether used to secure or provide setoff or netting rights with respect to current exposure or otherwise, but not as a settlement of gains or losses) and not subsequently returned by that party to the other party to this Cleared Derivatives Addendum. This Cleared Derivatives Addendum is not intended to affect the characterization of Credit Support for purposes other than the mechanics of this Section 7 of this Cleared Derivatives Addendum.
“Designated Transactions” means, with respect to a Close-out Event, all Cleared Derivatives Transactions, and, with respect to a Tax Liquidation Event, all Affected Transactions, in each case in respect of which a Liquidation Date has been designated or deemed designated.
“Liquidation Standard” means, with respect to determining whether and when to take a course of action, and in taking any such course of action, on or following a Liquidation Date, a standard that entails acting in good faith, in accordance with Applicable Law and using commercially reasonable procedures in order to produce a commercially reasonable result; provided further, that Clearing Member may effect Close–out Transactions, Risk-reducing Transactions and Mitigation Transactions with Clearing Member or Clearing Member’s affiliates, and an affiliate of Clearing Member may effect a Mitigation Transaction with Clearing Member or another of Clearing Member’s affiliates, only to the extent that such transactions are executed on an arm’s length basis and at then prevailing market prices, as determined in any commercially reasonable manner by Clearing Member; provided, however, if Clearing Member, acting reasonably and in good faith, determines there are no relevant prevailing market prices for such transactions at such time or that actively soliciting quotations for such transactions would produce prevailing market prices for such transactions that would not satisfy the Liquidation Standard, such transactions may be executed on an arm’s length basis at a commercially reasonable price.
“Mitigation Transactions” means, with respect to one or more Designated Transactions, one or more transactions, which may be cleared or uncleared, and which are not effected in Customer’s Cleared Derivatives Account (and thus are not Risk-reducing Transactions), effected by Clearing Member or an affiliate of Clearing Member on or after the Liquidation Date in order to hedge or reduce the risk of such Designated Transactions (or portions thereof) on an individual or a portfolio basis. For the avoidance of doubt, references to the “liquidation” or “deemed liquidation” of a Mitigation Transaction shall not require the termination or sale/novation of such transaction, but shall refer to the point in time that such transaction is no longer considered a Mitigation Transaction for purposes of this Cleared Derivatives Addendum.
“Net Termination Amount” means the sum of all Termination Amounts calculated in connection with a Liquidation Event, less the sum of the values of any Credit Support and Customer Balances that, in accordance with Section 7(c) of this Cleared Derivatives Addendum, have been set-off or otherwise applied to any Termination Amount or other amount calculated in connection with such Liquidation Event.
“Offsetting Transactions” means, with respect to one or more Designated Transactions or Risk-reducing Transactions, one or more Cleared Derivatives Transactions, effected in Customer’s Cleared Derivatives Account (which transactions may be executed with Clearing Member, an affiliate of Clearing Member or an unaffiliated third party) that (i) are cleared on the same Clearing Organization as such Designated Transactions or Risk-reducing Transactions; (ii) in accordance with applicable Clearing Organization rules, regulations and procedures, result in a proportional liquidation of such Designated Transactions and/or Risk-reducing Transactions; and (iii) are not Sale/Novation Transactions.
“Risk-reducing Transactions” means, with respect to one or more Designated Transactions, one or more cleared transactions effected in Customer’s Cleared Derivatives Account (which transactions may be executed with Clearing Member, an affiliate of Clearing Member or an unaffiliated third party) on or after the Liquidation Date in order to hedge or reduce the risk of such Designated Transactions (or portions thereof) on an individual or a portfolio basis and that are not Sale/Novation Transactions.
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“Sale/Novation Transactions” means, with respect to one or more Designated Transactions or Risk-reducing Transactions, (x) one or more transactions (other than Offsetting Transactions and Risk-reducing Transactions) consisting of a sale, assignment, novation or any similar arrangement in accordance with which Clearing Member, an affiliate of Clearing Member or an unaffiliated third party (an “Assignee”) acquires all or part of such Designated Transactions and/or Risk-reducing Transactions, or (y) the obligations of Customer are otherwise substituted or replaced, in whole or in part, with the obligations of an Assignee (and the old obligations are extinguished).
8. Tax Provisions.
(a) Additional Amounts. Notwithstanding any provision of any Contract or Agreement to the contrary:
(i) As of the date hereof, (A) neither Clearing Member nor Customer expects to deduct or withhold any tax, duty, fee, levy or charge that is imposed by any taxing authority in connection with any Cleared Derivatives Transaction (other than an Other Tax (as defined below)) (“Tax”) from any payment it makes with respect to a Cleared Derivatives Transaction, and (B) Clearing Member does not expect to receive any payment from a Clearing Organization pursuant to a Cleared Derivatives Transaction from which any deduction or withholding has been made for or on account of any Tax. For purposes of the preceding sentence, the word “Tax” shall not include any Tax imposed pursuant to Sections 1471 through 1474 of the Internal Revenue Code, as amended, as of the date hereof or any successor provisions (or the United States Treasury Regulations or other guidance issued thereunder) (“FATCA”). Clearing Member and Customer further agree to take commercially reasonable efforts to timely notify the other party of any changes in the expectations set forth in clauses (A) and (B) of this Section 8(a)(i) of this Cleared Derivatives Addendum.
(ii) In the event that any payment made by Clearing Member or Customer is subject to deduction or withholding for or on account of Tax, then the party that is so required to deduct or withhold (“X”) will:
(A) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon determining that such deduction or withholding is required; and
(B) promptly forward to the other party (“Y”) an official receipt (or a certified copy) or other documentation required by law, evidencing such payment to such authorities, and upon the reasonable request of Y computations setting forth in reasonable detail the amount of any such deduction or withholding payable by X.
(iii) In the case of a payment made by Customer to Clearing Member, Customer shall pay to Clearing Member such additional amounts as may be necessary to ensure that the amounts received by Clearing Member are equal to the amounts Clearing Member is obligated to pay to the Clearing Organization with respect to such Cleared Derivatives Transaction after taking into account any withholding or deduction of Tax imposed on any such payment and any withholding or deduction of Tax imposed on the corresponding payment by Clearing Member to Clearing Organization; provided that Customer will not be required to pay any such additional amounts in respect of any Tax that would not have been imposed on the payment by Customer to Clearing Member but for:
(A) a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and Clearing Member;
(B) Clearing Member consolidating or amalgamating with, or merging with or into, or transferring all or substantially all of its business assets to, or reorganizing, reincorporating or reconstituting into or as, another entity (a “Clearing Member Merger”);
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(C) the failure of Clearing Member to comply with its obligations under Sections 8(e)(i) and 2(a)(v) of this Cleared Derivatives Addendum; or
(D) the Clearing Member’s failure to satisfy the applicable requirements to establish that such payment is exempt from withholding under FATCA (“Clearing Member FATCA noncompliance”);
provided further that Customer will not be required to pay any such additional amounts in respect of any Tax that would not have been imposed on the payment by Clearing Member to Clearing Organization but for a Clearing Member Merger or the failure of Clearing Member to comply with its obligations under Section 8(e)(ii)(B) of this Cleared Derivatives Addendum.
(iv) In the event that a payment made by Clearing Organization to Clearing Member is subject to deduction or withholding for or on account of any Tax (a “Clearing Organization Level Tax”), then the amount of the payment made by Clearing Member to Customer shall be equal to the after-tax amount received from the Clearing Organization with respect to Customer’s Cleared Derivatives Transaction, reduced by the amount of any Tax imposed on the payment from Clearing Member to Customer; provided that if Customer has complied with its obligations in accordance with Sections 2(b)(iv) and 8(e)(i) of this Cleared Derivatives Addendum, Clearing Member shall be obligated to pay to Customer such additional amounts as may be necessary to ensure that the amounts paid to Customer will equal the full amounts Customer would have received but for:
(A) a Clearing Member Merger;
(B) a Clearing Member FATCA noncompliance; or
(C) failure of Clearing Member to comply with Section 8(e)(ii)(A) of this Cleared Derivatives Addendum.
(v) A Tax for which a party is obligated to pay additional amounts in accordance with Sections 8(a)(iii) or (iv) of this Cleared Derivatives Addendum is referred to as an “Indemnifiable Tax.”
(b) Tax Indemnity. If (i) any payment made by X under any Cleared Derivatives Transaction is subject to deduction or withholding for or on account of any Tax which is not an Indemnifiable Tax, (ii) X does not so deduct or withhold, and (iii) any liability resulting from such Tax is assessed directly against X then, except to the extent Y has satisfied or then satisfies the liability in a manner that eliminates X’s liability for such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest and penalties, except where such penalties are solely attributable to the gross negligence or willful misconduct of X). In addition, if (x) (A) any payment under a Cleared Derivatives Transaction made by Clearing Member to Clearing Organization is subject to deduction or withholding for or on account of any Tax, other than as a result of a Clearing Member Merger or the failure of Clearing Member to comply with its obligations under Section 8(e)(ii)(B) of this Cleared Derivatives Addendum, or on account of any Other Tax or (B) any payment under a Cleared Derivatives Transaction made by Clearing Organization to Clearing Member is subject to deduction or withholding for or on account of any Clearing Organization Level Tax, other than as a result of a Clearing Member Merger, Clearing Member FATCA noncompliance or the failure of Clearing Member to comply with its obligations under Section 8(e)(ii)(A) of this Cleared Derivatives Addendum, or on account of any Other Tax; (y) Clearing Member or Clearing Organization does not so deduct or withhold (or pay the Other Tax); and (z) any liability resulting from such Tax, Clearing Organization Level Tax or Other Tax (including any related liability for interest and penalties) is assessed directly against Clearing Member, or is assessed directly against Clearing Organization and Clearing Organization, pursuant to its rules, requires Clearing Member to indemnify Clearing Organization for any such liability, Customer will promptly pay to Clearing Member an amount equal to such liability (including any withholding or deduction of Tax imposed on or in respect of Clearing Member’s payment to satisfy such liability).
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(c) Other Taxes. Each Customer will pay any stamp, registration, documentation, excise (including insurance premium excise), sales, value added, transaction (including financial transaction) tax or similar tax (“Other Tax”) levied or imposed upon it or in respect of its execution, performance or enforcement of any Agreement, contract or transaction in connection with any Cleared Derivatives Transaction and will indemnify Clearing Member against any such Other Tax levied or imposed upon Clearing Member or in respect of Clearing Member’s execution, performance or enforcement of any Agreement, contract or transaction in connection with any Cleared Derivatives Transaction (including, for the avoidance of doubt, as required to fulfill any indemnity to a Clearing Organization relating to an Other Tax). Clearing Member shall use reasonable efforts to avoid the imposition of any Other Taxes; provided, however that such efforts shall not require Clearing Member to incur additional costs or regulatory burdens that Clearing Member considers in its good faith reasonable judgment to be material.
(d) Tax Liquidation Events. If, as a result of a Clearing Member Merger or a Change in Tax Law (as defined below), on the next succeeding payment date Clearing Member will, or there is a substantial likelihood that it will, either:
(i) not be entitled to receive additional amounts under Section 8(a)(iii) of this Cleared Derivatives Addendum (other than pursuant to Sections 8(a)(iii)(C) and (D) of this Cleared Derivatives Addendum) with respect to a Cleared Derivatives Transaction; or
(ii) be required to pay additional amounts pursuant to Section 8(a)(iv) of this Cleared Derivatives Addendum (other than pursuant to Section 8(a)(iv)(B) and (C) of this Cleared Derivatives Addendum) with respect to a Cleared Derivatives Transaction,
(in either case, a “Tax Liquidation Event”), then such Clearing Member shall have the right to terminate any Cleared Derivatives Transactions so affected by the Tax Liquidation Event (the “Affected Transactions”) in accordance with the provisions of Section 7 of this Cleared Derivatives Addendum, unless Customer and Clearing Member agree that:
(x) Customer shall pay to Clearing Member any additional amounts to which Clearing Member would otherwise have been entitled in the absence of Sections 8(a)(iii)(A) and (B) of this Cleared Derivatives Addendum; and
(y) Customer will not be entitled to receive additional amounts pursuant to Section 8(a)(iv) of this Cleared Derivatives Addendum, as applicable.
“Change in Tax Law” shall mean the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs after the parties enter into the relevant Cleared Derivatives Transaction.
Nothing in this Section 8(d) of this Cleared Derivatives Addendum is intended to restrict any rights Customer otherwise has to transfer its positions in the Affected Transaction(s) to another Clearing Member (the “Receiving Clearing Member”). Subject to any provision of any Contract or Agreement to the contrary, if pursuant to a Clearing Member Merger a Tax Liquidation Event has occurred and is continuing (and provided that no Event of Default with respect to Customer has occurred and is continuing), Clearing Member shall indemnify and hold Customer harmless from and against any booking, ticket, commission or similar fees imposed by the Clearing Member or by a Receiving Clearing Member, or similar fees imposed under the rules of a Clearing Organization, in each case incurred by a Customer as a result of Customer’s transfer of the balances and positions in Customer’s Cleared Derivatives Account to a Receiving Clearing Member.
(e) Tax Documents.
(i) Clearing Member – Customer Tax Documents. Clearing Member and Customer each agree to deliver to the other party, or, in certain cases under subparagraph (B) below, to such government or taxing authority as the other party reasonably directs:
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(A) Any forms, documents or certificates relating to taxation (a “Tax Document”) specified in the Schedule; and
(B) Upon reasonable demand by the other party, any Tax Document that may be required or reasonably requested in writing in order to allow such other party to make a payment under a Cleared Derivatives Transaction without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate;
in each case by the date specified in the Schedule or, if none is specified, as soon as reasonably practicable. A form, document or certificate shall not qualify as a Tax Document provided by a party unless it is valid, accurate and completed in a manner reasonably satisfactory to the other party, and is executed and delivered with any reasonably required certification.
(ii) Clearing Organization – Clearing Member Tax Documents.
(A) Clearing Member agrees to provide to Clearing Organization (1) any Tax Document specified in the Clearing Organization’s rules and (2), upon reasonable demand by such Clearing Organization, any Tax Document that may be required or reasonably requested in writing in order to allow Clearing Organization to make a payment under a Cleared Derivatives Transaction without any deduction or withholding for or on account of any Clearing Organization Level Tax or with such deduction or withholding at a reduced rate; and
(B) Clearing Member agrees to request from Clearing Organization any Tax Document that may be required in order to allow Clearing Member to make a payment to Clearing Organization under a Cleared Derivatives Transaction without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate;
in each case as soon as reasonably practicable.
(f) Margin. For purposes of this Section 8 of this Cleared Derivatives Addendum, any interest or other payment made in respect of margin, or to the extent relevant any amount paid on any other amount treated as collateral, that is provided in respect of a Cleared Derivatives Transaction shall be treated as a payment under the Cleared Derivatives Transaction.
(g) Other Provisions.
(i) For the avoidance of doubt, nothing in this Section 8 of this Cleared Derivatives Addendum is intended to affect in any way the application of any Clearing Organization rules to payments made to, or received by, a Clearing Organization under a Cleared Derivatives Transaction.
(ii) For the avoidance of doubt, this Cleared Derivatives Addendum shall be interpreted in a manner consistent with treating any interest paid under a Cleared Derivatives Transaction as paid on an obligation in registered form for purposes of Section 871(h) of the Internal Revenue Code, as amended, as of the date hereof or any successor provision.
(iii) In the event that Cleared Derivatives Transactions include any equity swap transaction that is subject to tax imposed on payments treated as dividends from sources within the United States under Section 871(m) of the Internal Revenue Code, as amended, as of the date hereof or any successor provision, with respect to that transaction, Customer and Clearing Member agree to negotiate in good faith to make such modifications to Section 8 of this Cleared Derivatives Addendum as may be appropriate.
9. Relationship to Agreement; Inconsistency. In the event of a conflict between the provisions of the Agreement and the provisions of this Cleared Derivatives Addendum, the provisions of this Cleared Derivatives Addendum will govern with respect to the subject matter of this Cleared Derivatives Addendum.
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10. Required Disclosure. As of the date of this Cleared Derivatives Addendum, the Securities and Exchange Commission (“SEC”) requires Clearing Member to disclose to Customer the following:
(a) the SEC does not regulate Clearing Member with respect to the capacity in which it is acting hereunder for Cleared Derivatives Transactions;
(b) funds and collateral held by Clearing Member for Cleared Derivatives Transactions will be held in an account class designated for Cleared Derivatives Transactions under Applicable Law but will not be afforded protection under SEC Rules 8c-1, 15c2-1, 15c3-2 or 15c3-3 or under the Securities Investor Protection Act of 1970, and will not be entitled to Securities Investor Protection Corporation (“SIPC”) coverage or excess SIPC insurance coverage and, in the unlikely event of Clearing Member’s insolvency, Customer’s rights shall be determined pursuant to the commodity broker liquidation provisions of the Bankruptcy Code and the CFTC’s Part 190 Rules; and in an insolvency proceeding, the insolvency law of the applicable jurisdiction may affect Customer’s ability to recover funds and securities, or the speed of any such recovery.
In Witness Whereof, the parties have executed this Cleared Derivatives Addendum to the Agreement on the respective dates specified below with effect from the date specified on the first page of this Cleared Derivatives Addendum.
| UNITED STATES COMMODITY INDEX FUNDS TRUST, a Delaware statutory trust (the “Trust”), on behalf of each series thereof listed on Appendix A to this Agreement as it may be amended from time to time, severally and not jointly (each a “Fund” or “Customer” and collectively, the “Funds”), | RBC CAPITAL MARKETS LLC | |
| BY: United States Commodity Funds LLC, as sponsor |
| By: | |
By: | ||
| Name: | John P. Love | Name: | ||
| Title: | President and CEO | Title: | ||
| Date: | June 1, 2018 | Date: |
| [FIDUCIARY, in its individual corporate capacity with respect to the representations and warranties contained in Section 2] |
| By: | ||
| Name: | ||
| Title: | ||
| Date: |
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SCHEDULE
TO THE
CLEARED DERIVATIVES ADDENDUM
dated as of June 1, 2018 between
RBC Capital Markets, LLC ( “Clearing Member”) and United States Commodity Index Funds Trust (“Customer”)
The following terms and conditions (the “Schedule”) will supplement the Cleared Derivatives Addendum between Clearing Member and Customer with respect to the Cleared Derivatives Transactions (as defined herein).
Accordingly, the parties agree as follows:
(a) Agreement Name: Futures and Cleared Derivatives Transactions Customer Account Agreement.
(b) Clearing Member: RBC Capital Markets, LLC
Payee Tax Representation. For the purpose of Section 2(a)(v) of the Cleared Derivatives Addendum, Clearing Member makes the following representations:
(i) It is organized as a limited liability company under the laws of Minnesota,
(ii) It is treated as a partnership for U.S. federal income tax purposes, and
(iii) It is a “U.S. person” (as that term is defined in Section 7701(a)(30) of the United States Internal Revenue Code of 1986, as amended).
ERISA Representations. For the purpose of Section 2 of the Cleared Derivatives Addendum, Clearing Member does not make any representations.
Tax Form. For the purpose of Section 8(e)(i)(A) of the Cleared Derivatives Addendum, Clearing Member agrees to deliver Form W-9 or any successor of such form completed accurately and in a manner reasonably acceptable to Customer, (1) upon execution of this Agreement, (2) promptly upon reasonable demand by Customer, and (3) promptly upon learning that the information on any such previously delivered Form is inaccurate or incorrect.
(c) Customer:
Payee Tax Representation. For the purpose of Section 2(b)(iv) of the Cleared Derivatives Addendum, Customer, and where Customer is an agent, each principal for whom Customer acts as agent, makes the representations specified in the Tax Representations and Forms Annex.
ERISA Representations. For the purpose of Section 2 of the Cleared Derivatives Addendum, Customer makes the representations in 3.1(h) of the Agreement or Schedule 2 of the Agreement.
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Tax Form. For the purpose of Section 8(e)(i)(A) of the Cleared Derivatives Addendum, Customer, and where Customer is an agent, each principal for whom Customer acts as agent, agrees to deliver the Tax Forms, or any successors of such forms, described in the Tax Representations and Forms Annex, completed accurately and in a manner reasonably acceptable to Clearing Member, .(1) upon execution of this Agreement, (2) promptly upon reasonable demand by Clearing Member, and (3) promptly upon learning that the information on any such previously delivered Form is inaccurate or incorrect.
In Witness Whereof, the parties have executed this Schedule to the Cleared Derivatives Addendum to the Agreement on the respective dates specified below with effect from the date specified on the first page of this Cleared Derivatives Addendum.
| UNITED STATES COMMODITY INDEX FUNDS TRUST, a Delaware statutory trust (the “Trust”), on behalf of each series thereof listed on Appendix A to this Agreement as it may be amended from time to time, severally and not jointly (each a “Fund” or “Customer” and collectively, the “Funds”), | RBC CAPITAL MARKETS, LLC | |
| BY: United States Commodity Funds LLC, as sponsor |
| By: | |
By: | ||
| Name: | John P. Love | Name: | ||
| Title: | President and CEO | Title: | ||
| Date: | June 4, 2018 | Date: | ||
| [FIDUCIARY, in its individual corporate capacity with respect to the representations and warranties contained in Section 2] |
| By: | ||
| Name: | ||
| Title: | ||
| Date: |
36
TAX REPRESENTATIONS AND FORMS ANNEX TO THE
SCHEDULE TO THE CLEARED DERIVATIVES ADDENDUM
CUSTOMER NAME (or, where Customer is an agent, the name of the principal who is making the representations and providing the documents):
UNITED STATES COMMODITY INDEX FUNDS TRUST
For purposes of the representations made in this Annex:
“Beneficial owner” has the meaning ascribed to it by Section 1.1441-1(c)(6) of the U.S. Treasury Regulations.
“FATCA” means Sections 1471 through 1474 of the Code, any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.
“Specified Treaty” means the income tax convention or treaty between the [insert jurisdiction of Customer, or, where Customer is an agent, the jurisdiction of the principal who is making the representations and providing the documents] and the Government of the United States.
“Specified Jurisdiction” means the United States.
Instructions: Check one box.
| x | U.S. Entity |
| (A) | (i) It is a statutory trust organized under the laws of the State of Delaware, and (ii) it is a “U.S. person” as that term is defined in Section 7701(a)(30) of the United States Internal Revenue Code of 1986, as amended (“the Code”). |
| (B) | It will deliver a U.S. Internal Revenue Service Form W-9. |
| o | Non-U.S. Corporation |
| (A) | (i) It is organized under the laws of [insert type of entity] and (ii) it is a foreign corporation for U.S. federal income tax purposes. |
| (B) | It is a “foreign financial institution” (“FFI”) within the meaning of section 1471(d) of the Code, it has a GIIN number, and that number is: _______________________. |
| (C) | In respect of a Cleared Derivative Transaction where it is acting through an office or discretionary agent located in the United States, (i) each payment received or to be received by it in connection with this Agreement will be effectively connected with its conduct of a trade or business in the United States, and (ii) it will deliver a U.S. Internal Revenue Service Form W-8ECI. |
| (D) | In every other case, (i) each payment received or to be received by it will be received by a “foreign person” and a “non-U.S. branch of a foreign person” (as those terms are used in Sections 1.6041-4(a)(4) and 1.1441-4(a)(3)(ii), respectively, of the United States Treasury Regulations), (ii) no part of any payments received or to be received by it in connection with this Agreement will be effectively connected with its conduct of a trade or business in the United States, (iii) it is fully eligible for the benefits of the “Business Profits” or “Industrial and Commercial Profits” provision, as the case may be, the “Interest” provision or the “Other Income” provision (if any) of the Specified Treaty with respect to any payment described in such provisions and received or to be received by it in connection with this Agreement and no such payment is attributable to a trade or business carried on by it through a permanent establishment in the Specified Jurisdiction, and (iv) it will deliver a U.S. Internal Revenue Service Form W-8BEN-E of each office or branch of Customer through which Customer is considered to be acting for purposes of FATCA, provided, however, that where Customer is an agent and the foregoing representations are made by the principal, such forms will be delivered by each office or branch of the principal through which such principal is considered to be acting for purposes of FATCA. |
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| o | Nonwithholding Foreign Partnership |
| A. | (i) It is organized under the laws of [insert type of entity] and (ii) it is a Nonwithholding Foreign Partnership for U.S. federal income tax purposes. |
| B. | It is a “foreign financial institution” (“FFI”) within the meaning of section 1471(d) of the Code, it has a GIIN number, and that number is: ______________________. |
| C. | It will deliver a U.S. Internal Revenue Service Form W-8IMY and transmit U.S. Internal Revenue Service tax forms of the beneficial owners and the associated withholding statement as required by Form W-8IMY. For purposes of the representations made in this Annex, “beneficial owner” has the meaning ascribed to it by Section 1.1441-1(c)(6) of the U.S. Treasury Regulations. |
| D. | Where the beneficial owner’s tax form is U.S. Internal Revenue Service Form W-8BEN-E, the beneficial owner (i) is organized under the laws of [insert type of entity], (ii) is a foreign corporation for U.S. federal income tax purposes, (iii) will deliver a U.S. Internal Revenue Service Form W-8BEN-E for each office or branch through which it is considered to be acting for purposes of FATCA, and (iv) each payment received or to be received by the beneficial owner will be received by a “foreign person” and a “non-U.S. branch of a foreign person” (as those terms are used in Sections 1.6041-4(a)(4) and 1.1441-4(a)(3)(ii), respectively, of the United States Treasury Regulations), (v) no part of any payments received or to be received by it in connection with this Agreement will be effectively connected with its conduct of a trade or business in the United States, (vi) it is a “foreign financial institution” (“FFI”) within the meaning of section 1471(d) of the Code, it has a GIIN number, and that number is: _______________________, and (iv) with respect to any payment under this Agreement that is treated as interest for U.S. federal income tax purposes, the beneficial owner either (a) is not a bank within the meaning of Section 881(c)(3)(A) of the Code or (b) no part of such interest payment received or to be received constitutes a payment on an extension of credit made by it pursuant to a loan agreement entered into the ordinary course of its trade or business, within the meaning of Section 881(c)(3)(A) of the Code. |
| E. | Where the beneficial owner’s tax form is U.S. Internal Revenue Service Form W-9, the beneficial owner (i) is a [insert type of entity] organized under the laws of [insert applicable jurisdiction], (ii) is a “U.S. person” as that term is defined in Section 7701(a)(30) of the Code, and (iii) will deliver a U.S. Internal Revenue Service Form W-9. |
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SCHEDULE 2
Addendum for Customers Covered by ERISA
(To be Completed by an Employee Benefit Plan Customer and Its Trading Advisor)
If Customer is a Plan, as defined below, Customer agrees that the following terms shall be applicable to and shall constitute a part of the Futures and Cleared Derivatives Transactions Customer Agreement to which this Addendum is attached, including any other Addendums (the “Agreement”), and all capitalized terms used but not defined in this Addendum shall have the respective meanings assigned to such terms in the Agreement:
1. Additional Definitions.
“Applicable Law” as defined in the Agreement shall include Part 4 of Title I of ERISA, Section 4975 of the Code, or any provision of U.S. federal state or local law, or a non-U.S. law governing similar employee benefit plans which imposes requirements similar to those found in part 4 of Title I of ERISA or in Section 4975 of the Code.
“Code” means the Internal Revenue Code of 1986 (the “Code”).
“ERISA” means the Employee Retirement Income Security Act of 1974.
“Investment Fiduciary” means the person or entity with authority to direct the management and disposition of a Plan’s assets which are invested pursuant to the Agreement, and which has signed this Addendum as Investment Fiduciary.
“Plan” means (i) an employee benefit plan subject to Part 4 of Title I of ERISA, (ii) any plan to which section 4975 of the Code applies, (iii) any employee benefit plan which is subject to Applicable Law or (iv) any entity whose underlying assets include assets of a Plan described in subparagraph (i), (ii) or (iii) by reason of such Plan’s investment in such entity.
2. Additional Representations, Warranties and Agreements of Customer.
Customer continuously represents and warrants to RBCCM, and agrees with RBCCM as follows, and if Customer is an entity described in clause (iv) of the definition of Plan, it has authority to and makes such representations, warranties and agreements with respect to itself and each Plan which invests in Customer:
(a) the investment Fiduciary signing this Addendum on behalf of Customer has all power and authority necessary to execute this Addendum and to make all representations, warranties and agreements in this Addendum on behalf of Customer; and
(b) Customer’s entering into and performance of the Agreement are authorized and permissible under the laws, regulations, rules and governing documents applicable to Customer.
3. Representations, Warranties and Agreements of Investment Fiduciary.
Investment Fiduciary continuously represents and warrants to RBCCM, and agrees with RBCCM as follows, in its individual and fiduciary capacity:
(a) it is authorized and empowered to execute and deliver the Agreement, which constitute a valid and binding agreement of Customer in accordance with its terms, it shall cause Customer to perform all of the agreements on Customer’s part to be performed under the Agreement, and its entering into and performance of the Agreement are authorized and permissible under the laws, regulations, rules and governing documents applicable to Investment Fiduciary;
(b) no information provided by RBCCM or any of its employees has formed or will form a primary basis for its investment decisions on behalf of Customer;
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(c) it is and shall be a “fiduciary” within the meaning of ERISA, the Code or Applicable Law, as applicable, with respect to Customer, and has determined that the purchase and sale of Contracts by Customer is appropriate for Customer and permissible under the laws, regulations, rules and governing documents applicable to Customer;
(d) it is either: (i) a commodity trading advisor registered as such pursuant to the CEA and a member of the NFA and it either has furnished Customer with a copy of its commodity trading advisor disclosure document, which disclosure document fully complies with the requirements of CFTC Regulation 4.31, or it is exempt from being required to deliver such a disclosure document to Customer pursuant to CFTC Regulation 4.7; or (ii) not required to be registered as a commodity trading advisor;
(e) it is solely responsible for satisfying the requirements of Section 404(b) of ERISA and any regulations promulgated thereunder with respect to Customer’s assets in the Account;
(f) it has received a schedule of all fees applicable to the Account, and it has determined that such fees are appropriate and reasonable in amount; and
(g) prior to entering into the Agreement, it has considered any tax considerations of the purchase and sale of Contracts by Customer that it, in light of its fiduciary obligations, deems appropriate.
4. Representations, Warranties and Agreements of Customer and Investment Fiduciary.
Each of Customer and Investment Fiduciary, the latter in its fiduciary and individual capacity, continuously represent and warrant to RBCCM and agrees, on a several, and not a joint basis, at all times as follows:
(a) it does not regard RBCCM or any of its employees as a “fiduciary” (within the meaning of ERISA, the Code or Applicable Law, as applicable) with respect to Customer’s assets in the Account, including, without reservation, by virtue of RBCCM’s reservation or exercise of any rights RBCCM has in connection with the Agreement; and
(b) neither its entering into nor its performance of the Agreement constitutes or will constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or a transaction that is similarly prohibited or restricted under Applicable Law
5. Additional Customer Defaults.
The following events, in addition to those specified in the Events of Default section of the Agreement, shall constitute Customer events of default giving rise to all of the rights and remedies of RBCCM as specified in the Remedies section of the Agreement:
(a) (i) a “reportable event” described in Section 4043(c) of ERISA (other than a reportable event with respect to which the 30-day notice requirement has been waived by the Pension Benefit Guaranty Corporation (the “PBGC”) by regulation) or an event described in Section 4043(b) of ERISA occurs with respect to Customer; (ii) either (1) a notice of intent to terminate the Customer is or is required to be filed with the PBGC under Title IV of ERISA, (2) participants and retirees under the Customer are notified of a proposed termination of the Customer or (3) the Customer is terminated; (iii) the PBGC institutes proceedings to terminate, or causes a trustee to be appointed to administer, the Customer; (iv) either (1) Customer fails to meet the minimum funding standards described in Section 412 of the Code or Section 302 of ERISA, whether or not waived or (2) any contribution required to be made to Customer under the Code, ERISA or Applicable Law is not made when due; (v) the authority of the Investment Fiduciary to act on behalf of the Customer is terminated unless, concurrently therewith, a successor Investment Fiduciary, acceptable to RBCCM in its sole discretion, is duly appointed and such successor executes documentation satisfactory to RBCCM in its sole discretion; and (vi) any representation or warranty made or repeated or deemed to have been made or repeated herein by Customer or Investment Fiduciary proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated.
(b) Any of the events set forth in Events of Default section of the Agreement occurs with respect to any settlor of Customer or any plan sponsor of Customer.
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6. Plan Assets.
The Investment Fiduciary, in its fiduciary and individual capacity, Customer and RBCCM each agree at all times during the term of the Agreement that any assets pledged as margin for Contracts in connection with this Agreement do not and will not constitute “plan assets” within the meaning of the Department of Labor’s plan asset regulation at 29 CFR Section 2510.3-101 as modified in application by Section 3(42) of ERISA.
7. Compensation.
Plan administrators of investors that are subject to ERISA may be required to report on Form 5500 Annual Return/Report compensation paid to service providers, including for this purpose, compensation paid to RBCCM under the Agreement. The descriptions contained in the Agreement of fees and commissions are intended to satisfy the disclosure requirements for “eligible indirect compensation” for Schedule C of Form 5500.
Customer, ________________________________.
| By/Signature: | |||
| Name: | |||
| Title: | |||
| Date: |
Investment Fiduciary, ____________________________, not individually, but solely in its capacity as Advisor of Customer.
| By/Signature: | |||
| Name: | |||
| Title: | |||
| Date: |
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APPENDIX A
UNITED STATES COMMODITY INDEX FUNDS TRUST – Series funds
| United States Commodity Index Fund |
| United States Copper Index Fund |
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