Filed Pursuant to Rule 424(b)(3)
File
No. 333-230583
PROSPECTUS
United
States 12 Month Natural Gas Fund, LP®*
24,400,000
Shares
*Principal
U.S. Listing Exchange: NYSE Arca, Inc.
The United States
12 Month Natural Gas Fund, LP (“UNL”) is an exchange traded fund organized as a limited partnership that issues shares that
trade on the NYSE Arca stock exchange (“NYSE Arca”). UNL’s investment objective is to track a benchmark of short-term
natural gas futures contracts. UNL pays its general partner, United States Commodity Funds LLC (“USCF”), a limited liability
company, a management fee and incurs operating costs. USCF and UNL are located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek,
California 94596. The telephone number for both USCF and UNL is 510.522.9600. In order for a hypothetical investment in shares to break
even over the next 12 months, assuming a selling price of $8.37 (the net asset value as of February 28, 2021), the investment would have
to generate a 0.454% return or $0.038, rounded to $0.04. The amount for this breakeven analysis takes into account
a fee waiver, which USCF may terminate at any time in its discretion.
UNL is
an exchange traded fund. This means that most investors who decide to buy or sell shares of UNL shares 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 “UNL” 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 UNL’s marketing agent, ALPS Distributors,
Inc. (the “Marketing Agent”). The price of a basket is equal to the net asset value (“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 UNL’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 UNL’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 UNL, 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 natural gas futures contracts in which UNL 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 prices of natural gas and
the natural gas futures contracts that serve as UNL’s investment benchmark. INVESTING IN UNL INVOLVES RISKS SIMILAR TO
THOSE INVOLVED WITH AN INVESTMENT DIRECTLY IN THE NATURAL GAS MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE NATURAL
GAS MARKETS. Investing in UNL 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 UNL” beginning on page 4.
The offering
of UNL’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 UNL are available or practicable. UNL 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.
UNL 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 April 29, 2021.
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 3 AND A STATEMENT
OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 39.
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 4.
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
PROSPECTUS
SUMMARY
This
is only a summary of the prospectus and, while it contains material information about UNL and its shares, it does not contain
or summarize all of the information about UNL 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 UNL”
beginning on page 4, before making an investment decision about the shares. For a glossary of defined terms, see Appendix A.
United
States 12 Month Natural Gas Fund, LP (“UNL”), a Delaware limited partnership, 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”).
UNL is managed and controlled by United States Commodity Funds LLC (“USCF”), a Delaware limited liability company.
USCF is registered as a CPO with the CFTC and is a member of the NFA.
UNL’s Investment Objective
and Strategy
The investment
objective of UNL is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”)
to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured
by the daily changes in the average of the prices of specified short-term futures contracts on natural gas called the “Benchmark
Futures Contracts”, plus interest earned on UNL’s collateral holdings, less UNL’s expenses.
UNL seeks
to achieve its investment objective by investing so that the average daily percentage change in UNL’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 Futures Contracts over the same period.
What are the “Benchmark
Futures Contracts”?
The Benchmark
Futures Contracts are the futures contracts on natural gas as traded on the New York Mercantile Exchange (the “NYMEX”)
that are the near month contract to expire, and the contracts for the following 11 months, for a total of 12 consecutive months’
contracts, except when the near month contract is within two weeks of expiration, in which case they are measured by the futures
contracts that are the next month contract to expire and the contracts for the following 11 consecutive months. When calculating
the daily movement of the average price of the 12 contracts, each contract month is equally weighted.
UNL seeks
to achieve its investment objective by investing primarily in futures contracts for natural gas that are traded on the NYMEX,
ICE Futures Europe and ICE Futures U.S. (together, “ICE Futures”), or other U.S. and foreign exchanges (collectively,
“Futures Contracts”) and, to a lesser extent, in order to comply with regulatory requirements, or in view of market
conditions, other natural gas investments such as cash-settled options on Futures Contracts, forward contracts for natural gas,
cleared swap contracts, and non-exchange traded (“over-the-counter” or “OTC”) transactions that are based
on the price of natural gas, crude oil and other petroleum-based fuels, as well as futures contracts for crude oil, heating oil,
gasoline, and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Natural
Gas-Related Investments”). Market conditions that USCF currently anticipates could cause UNL to invest in Other Natural
Gas-Related Investments include those allowing UNL to obtain greater liquidity or to execute transactions with more favorable
pricing. For convenience and unless otherwise specified, Futures Contracts and Other Natural Gas-Related Investments collectively
are referred to as “Natural Gas Interests” in this prospectus.
In addition,
USCF believes that market arbitrage opportunities will cause daily changes in UNL’s share price on the NYSE Arca on a percentage
basis to closely track daily changes in UNL’s per share NAV on a percentage basis. USCF further believes that the daily
changes in average of the prices of the Benchmark Futures Contracts have historically closely tracked the daily changes in the
spot price of natural gas. USCF believes that the net effect of these two expected relationships will be that the daily changes
in the price of UNL’s shares on the NYSE Arca on a percentage basis will continue to closely track the daily changes in
the spot price of natural gas on a percentage basis, less UNL’s expenses.
Specifically,
UNL seeks to achieve its investment objective by investing so that the average daily percentage change in UNL’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 Futures Contracts over the same period.
Investors
should be aware that UNL’s investment objective is not for its NAV or market price of shares to equal, in dollar
terms, the spot price of natural gas or any particular futures contract based on natural gas nor is UNL’s investment
objective for the percentage change in its NAV to reflect the percentage change of the price of any particular futures contract
as measured over a time period greater than one day. This is because natural market forces called contango and backwardation
have impacted the total return on an investment in UNL’s shares during the past year relative to a hypothetical direct investment
in natural gas and, in the future, it is likely that the relationship between the market price of UNL’s shares and changes
in the spot prices of natural gas 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 natural gas, which could be substantial.)
Principal Investment Risks
of an Investment in UNL
An investment
in UNL involves a degree of risk. Some of the risks you may face are summarized below. A more extensive discussion of these risks
appears beginning on page 4.
Investment Risk
Investors
may choose to use UNL as a means of investing indirectly in natural gas. INVESTING IN UNL INVOLVES RISKS SIMILAR TO THOSE INVOLVED
WITH AN INVESTMENT DIRECTLY IN THE NATURAL GAS MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE NATURAL GAS MARKETS.
Investing in UNL 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 UNL”
beginning on page 4.
Correlation Risk
To the
extent that investors use UNL as a means of indirectly investing in natural gas, there is the risk that the daily changes in the
price of UNL’s shares on the NYSE Arca on a percentage basis will not closely track the daily changes in the spot price
of natural gas 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 UNL’s NAV; the changes in UNL’s NAV do not correlate closely with the changes in the average price
of the Benchmark Futures Contracts; or the changes in the average price of the Benchmark Futures Contracts do not closely correlate
with the changes in the cash or spot price of natural gas. This is a risk because if these correlations do not exist, then investors
may not be able to use UNL as a cost-effective way to indirectly invest in natural gas or as a hedge against the risk of loss
in natural gas-related transactions.
USCF believes
that holding futures contracts whose expiration dates are spread out over a 12 month period of time will cause the total return
of such a portfolio to vary compared to a portfolio that holds only a single month’s contract (such as the near month contract).
In particular, USCF believes that the total return of a portfolio holding contracts with a range of expiration months will be
impacted differently by the price relationship between different contract months of the same commodity future compared to the
total return of a portfolio consisting of the near month contract. For example, in cases in which the near month contract’s
price is higher than the price of contracts that expire later in time (a situation known as “backwardation” in the
futures markets), then absent the impact of the overall movement in natural gas prices, the value of the near month contract would
tend to rise as it approaches expiration. Conversely, in cases in which the near month contract’s price is lower than the
price of contracts that expire later in time (a situation known as “contango” in the futures markets), then absent
the impact of the overall movement in natural gas prices, the value of the near month contract would tend to decline as it approaches
expiration. The total return of a portfolio that owned the near month contract and “rolled” forward each month by
selling the near month contract as it approached expiration and purchasing the next month contract to expire would be positively
impacted by a backwardation market, and negatively impacted by a contango market. Depending on the exact price relationship of
the different month’s prices, portfolio expenses, and the overall movement of natural gas prices, the impact of backwardation
and contango could have a major impact on the total return of such a portfolio over time. USCF believes that based on historical
evidence, a portfolio that held futures contracts with a range of expiration dates spread out over a 12 month period of time would
typically be impacted less by the positive effect of backwardation and the negative effect of contango compared to a portfolio
that held contracts of a single near month. As a result, absent the impact of any other factors, a portfolio of 12 different monthly
contracts would tend to have a lower return than a near month only portfolio in a backwardation market and a higher total return
in a contango market. However, there can be no assurance that such historical relationships would provide the same or similar
results in the future.
Volatility
in the natural gas market could limit UNL’s ability to have a substantial portion of its assets invested in the Benchmark
Futures Contracts. In such a circumstance, UNL 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 Natural Gas-Related Investments.
Tax Risk
UNL is organized
and operated as a limited partnership in accordance with the provisions of its limited partnership agreement and applicable state
law, and therefore, has a more complex tax treatment than conventional mutual funds.
Over-the-Counter (“OTC”)
Contract Risk
UNL may
also invest in Other Natural Gas-Related Investments, many of which are negotiated over-the-counter or “OTC” contracts
that are not as liquid as Futures Contracts and expose UNL to credit risk that its counterparty may not be able to satisfy its
obligations to UNL.
Other Risks
UNL pays
fees and expenses that are incurred regardless of whether UNL 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, UNL generally does not distribute cash to shareholders. You should not
invest in UNL if you will need cash distributions from UNL to pay taxes on your share of income and gains of UNL, if any, or for
any other reason.
You will
have no rights to participate in the management of UNL and will have to rely on the duties and judgment of USCF to manage UNL.
UNL 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. USCF’s officers, directors and employees do
not devote their time exclusively to UNL. USCF’s persons are directors, officers or employees of other entities that may
compete with UNL for their services, including other commodity pools (funds) that USCF manages. USCF could have a conflict between
its responsibilities to UNL and to those other entities. As a result of these and other relationships, parties involved with UNL
have a financial incentive to act in a manner other than in the best interests of UNL and the shareholders.
UNL’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold shares of UNL. You should note that you may pay brokerage
commissions on purchases and sales of UNL’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 66.
Annual
Fund Operating Expenses (expenses that you pay each year
as a percentage of the value of your investment)
Management Fees(1)
|
|
|
0.75
|
%
|
Other Expenses(1)
|
|
|
1.41
|
%
|
Expense Waiver(2)
|
|
|
(1.26
|
)%
|
Net Expenses Excluding Management Fees
|
|
|
0.15
|
%
|
Total Annual Fund Operating Expenses After Fee Waiver
|
|
|
0.90
|
%
|
|
|
|
|
|
(1)
|
Based
on amounts for the year ended December 31, 2020. 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
|
|
$
|
35,924
|
|
Professional Expenses
|
|
$
|
62,653
|
|
Brokerage commissions
|
|
$
|
1,633
|
|
Independent Director and Officer Expenses
|
|
$
|
2,711
|
|
License fees
|
|
$
|
718
|
|
|
|
|
|
|
These amounts are based
on UNL’s average total net assets, which are the sum of daily total net assets of UNL divided by the number of calendar
days in the year. For the year ended December 31, 2020, UNL’s average total net assets were $4,790,202.
|
(2)
|
USCF
has voluntarily agreed to pay certain expenses typically borne by UNL. USCF has no obligation
to continue such payments. If this agreement were terminated, the Annual Fund Operating
Expenses could increase, which would negatively impact your total return from an investment
in UNL.
|
RISK
FACTORS INVOLVED WITH AN INVESTMENT IN UNL
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 UNL’s financial statements
and related notes, that are incorporated by reference. See “Incorporation by Reference of Certain Information”, page
69.
UNL’s
investment objective is for the daily percentage changes in the NAV per share to reflect the daily percentage changes of the spot
price of natural gas delivered at the Henry Hub, Louisiana as measured by the daily changes in the average of the prices of 12
futures contracts on natural gas traded on the New York Mercantile Exchange (the “NYMEX”), consisting of the near
month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months’ contracts,
except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract
that is the next month contract to expire and the contracts for the following 11 consecutive months (the “Benchmark Futures
Contracts”), plus interest earned on UNL’s collateral holdings, less UNL’s expenses. UNL seeks to achieve its
investment objective by investing so that the average daily percentage change in UNL’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
Futures Contracts over the same period.
UNL’s
investment strategy is designed to provide investors with a means of investing indirectly in natural gas and to hedge against
movements in the spot price of natural gas. An investment in UNL involves investment risk similar to a direct investment in Natural
Gas Interests. An investment in UNL also involves investment risk similar to a direct investment in Futures Contracts and Other
Natural Gas-Related Investments, and correlation risk, or the risk that investors purchasing shares to hedge against movements
in the price of natural gas will have an efficient hedge only if the price they pay for their shares closely correlates with the
price of natural gas. In addition to investment risk and correlation risk, an investment UNL involves tax risks, OTC and other
risks.
Investment Risk
The
daily changes in percentage terms of UNL’s shares per share NAV relates directly to daily changes in the average of the
prices of the Benchmark Futures Contracts and other assets held by UNL and fluctuations in the prices of these assets could materially
adversely affect an investment in UNL’s shares. Past performance is not necessarily indicative of futures results; all or
substantially all of an investment in UNL could be lost.
The net
assets of UNL consist primarily of investments in Futures Contracts and, to a lesser extent, in Other Natural Gas-Related Investments.
The NAV of UNL’s shares relates directly to the value of these assets (less liabilities, including accrued but unpaid expenses),
which in turn relates to the price of natural gas in the marketplace. Natural gas prices depend on local, regional and global
events or conditions that affect supply and demand for natural gas.
Economic
conditions impacting natural gas. The demand for natural gas 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 natural
gas demand and therefore may have an adverse impact on natural gas 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, pandemics, (e.g. COVID-19) government austerity programs, or currency exchange rate fluctuations, can also impact
the demand for natural gas. 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 natural gas.
Other
natural gas demand-related factors. Other factors that may affect the demand for natural gas and therefore its price,
include technological improvements in energy efficiency; seasonal weather patterns, which affect the demand for natural gas associated
with heating; increased competitiveness of alternative energy sources that have so far generally not been competitive with natural
gas without the benefit of government subsidies or mandates; and changes in technology or consumer preferences that alter fuel
choices, such as toward alternative fueled vehicles.
Other
natural gas supply-related factors. Natural gas prices also vary depending on a number of factors affecting supply. For
example, increased supply from the development of new natural gas sources and technologies to enhance recovery from existing sources
tends to reduce natural gas prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly,
increases in industry refining or manufacturing capacity may impact the supply of natural gas. Natural gas supply levels can also
be affected by factors that reduce available supplies, such natural disasters, disruptions in competitors’ operations, or
unexpected unavailability of distribution channels that may disrupt supplies. Technological change can also alter the relative
costs for companies in the natural gas industry to find, produce, and transport natural gas, which in turn, may affect the supply
of and demand for natural gas.
Other
factors impacting the natural gas market. The supply of and demand for natural gas 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 UNL.
COVID-19
Risk and other infectious disease outbreaks could negatively affect the valuation and performance of UNL’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 has now been detected 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 is expected to 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 increasingly 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 quasigovernmental 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 UNL. 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 UNL and, on the global economy, cannot be determined with certainty.
The COVID-19 pandemic and its effects may last for an extended period of time, and could result in significant and continued market
volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, and a substantial
economic downturn or recession. The foregoing could impair UNL’s ability to maintain operational standards (such as with
respect to satisfying redemption requests), disrupt the operations of UNL’s service providers, adversely affect the value
and liquidity of UNL’s investments, and negatively impact UNL’s performance and your investment in UNL. The extent
to which COVID-19 will affect UNL and UNL’s service providers and portfolio investments will depend on future developments,
which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19
and the actions taken to contain COVID-19. Given the significant economic and financial market disruptions associated with the
COVID-19 pandemic, the valuation and performance of UNL’s investments could be impacted adversely.
An
investment in UNL may provide little or no diversification benefits. Thus, in a declining market, UNL may have no gains to offset
losses from other investments, and an investor may suffer losses on an investment in UNL while incurring losses with respect to
other asset classes.
Historically,
Futures Contracts and Other-Natural-Gas 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, UNL’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 UNL’s shares. In such a case, UNL may have no gains to offset losses from other investments,
and investors may suffer losses on their investment in UNL at the same time they incur losses with respect to other investments.
Variables
such as drought, floods, weather, pandemics, embargoes, tariffs and other political events may have a larger impact on natural
gas prices and natural gas-linked instruments, including Futures Contracts and Other Natural Gas-Related Investments, than on
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 natural gas and prices of other financial assets, such as stocks and bonds,
are negatively correlated. In the absence of negative correlation, UNL cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice versa.
Historical
performance of UNL and the Benchmark Futures Contracts is not indicative of future performance.
Past performance
of UNL or the Benchmark Futures Contracts is not necessarily indicative of future results. Therefore, past performance of UNL
or the Benchmark Futures Contracts should not be relied upon in deciding whether to buy shares of UNL.
Correlation Risk
Investors
purchasing shares to hedge against movements in the price of natural gas will have an efficient hedge only if the price investors
pay for their shares closely correlates with the price of natural gas. Investing in UNL’s shares for hedging purposes involves
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 average of the prices of the Benchmark Futures Contracts.
|
|
·
|
Daily
percentage changes in the average of the prices of the Benchmark Futures Contracts may
not closely correlate with daily percentage changes in the price of natural gas.
|
Volatility
in the natural gas market could limit UNL’s ability to have a substantial portion of its assets invested in the Benchmark
Futures Contracts. In such a circumstance, UNL 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 Natural Gas-Related Investments.
The
market price at which investors buy or sell shares may be significantly less or more than NAV.
UNL’s
NAV per share will change throughout the day as fluctuations occur in the market value of UNL’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 UNL by Authorized Participants in Redemption Baskets. USCF
expects that exploitation of certain arbitrage opportunities by Authorized Participants and their clients and customers will tend
to cause the public trading price to track NAV per share closely over time, but there can be no assurance of that. For example,
a shortage of UNL shares in the market and other factors could cause UNL’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 UNL 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 UNL 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.
Price
differences may relate primarily to supply and demand forces at work in the secondary trading market for shares that are closely
related to, but not identical to, the same forces influencing the prices of natural gas and the Benchmark Futures Contracts at
any point in time. For example, a shortage of UNL shares in the market and other factors could cause UNL’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 UNL 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 UNL 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. See the
risk factor, An unanticipated number of Creation Basket requests during a short period of time could result in a shortage
of shares, below.
The NAV
of UNL’s shares may also be influenced by non-concurrent trading hours between the NYSE Arca and the various futures exchanges
on which natural gas is traded. While the shares trade on the NYSE Arca from 9:30 a.m. to 4:00 p.m. Eastern Time, the trading
hours for the futures exchanges on which natural gas trades may not necessarily coincide during all of this time. For example,
while the shares trade on the NYSE Arca until 4:00 p.m. Eastern Time, liquidity in the global natural gas market will be reduced
after the determination of the settlement price by the NYMEX at 2:30 p.m. Eastern Time. UNL’s NAV is calculated based on
the settlement price of the Benchmark Futures Contracts at 2:30 p.m. Eastern Time and the closing share price of UNL on the NYSE
Arca taking into account changes in the price of the Benchmark Futures Contracts that occur after the settlement price is determined.
As a result, during periods when the NYSE Arca is open and the futures exchanges on which natural gas is traded are closed, trading
spreads and the resulting premium or discount on the shares may widen and, therefore, increase the difference between the price
of the shares and the NAV of the shares.
Daily
percentage changes in UNL’s NAV may not correlate with daily percentage changes in the average of the prices of the Benchmark
Futures Contracts.
It is
possible that the daily percentage changes in UNL’s NAV per share may not closely correlate to daily percentage changes
in the average of the prices of the Benchmark Futures Contracts. Non-correlation may be attributable to disruptions in the market
for natural gas, the imposition of position or accountability limits by regulators or exchanges, or other extraordinary circumstances.
As UNL approaches or reaches position limits with respect to the Benchmark Futures Contracts and other Futures Contracts or in
view of market conditions, UNL may begin investing in Other Natural Gas-Related Investments. In addition, UNL is not able to replicate
exactly the changes in the price of the Benchmark Futures Contracts because the total return generated by UNL is reduced by expenses
and transaction costs, including those incurred in connection with UNL’s trading activities, and increased by interest income
from UNL’s holdings of Treasuries (defined below). Tracking the Benchmark Futures Contracts requires trading of UNL’s
portfolio with a view to tracking the Benchmark Futures Contracts over time and is dependent upon the skills of USCF and its trading
principals, among other factors.
An
investment in UNL is not a proxy for investing in the natural gas markets, and the daily percentage changes in the price of the
Benchmark Futures Contracts, or the NAV of UNL, may not correlate with daily percentage changes in the spot price of natural gas.
An investment
in UNL is not a proxy for investing in the natural gas markets. To the extent that investors use UNL as a means of indirectly
investing in natural gas, there is the risk that the daily changes in the price of UNL’s shares on the NYSE Arca, on a percentage
basis, will not closely track the daily changes in the spot price of natural gas 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 UNL’s NAV; the changes in UNL’s
NAV do not correlate closely with the changes in the price of the Benchmark Futures Contracts; or the changes in the price of
the Benchmark Futures Contracts do not closely correlate with the changes in the cash or spot price of natural gas. This is a
risk because if these correlations do not exist, then investors may not be able to use UNL as a cost-effective way to indirectly
invest in natural gas or as a hedge against the risk of loss in natural gas-related transactions. The degree of correlation among
UNL’s share price, the price of the Benchmark Futures Contracts and the spot price of natural gas depends upon circumstances
such as variations in the speculative natural gas market, supply of and demand for Futures Contracts (including the Benchmark
Futures Contracts) and Other Natural Gas-Related Investments, and technical influences on trading natural gas futures contracts.
Investors who are not experienced in investing in natural gas futures contracts or the factors that influence that market or speculative
trading in the natural gas 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 UNL shares than
such other investors with such experience and resources.
Natural
forces in the natural gas futures market known as “backwardation” and “contango” may increase UNL’s
tracking error and/or negatively impact total return.
UNL’s
Benchmark Futures Contracts consist of the near month contract to expire and the futures contracts for the 11 following months,
until the near month contract is within two weeks of expiration, at which time the Benchmark Futures Contracts are changed over
a one day period to consist of the next month contract to expire and the 11 following months of futures contracts. In the event
of a natural gas futures market where near month contracts trade at a higher price than next month to expire contracts, a situation
described as “backwardation” in the futures market, then absent the impact of the overall movement in natural gas
prices the value of the Benchmark Futures Contracts would tend to rise as it approaches expiration. Conversely, in the event of
a natural gas 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 natural gas prices the value
of the benchmark contracts would tend to decline as it approaches expiration. When compared to total return of other price indices,
such as the spot price of natural gas, the impact of backwardation and contango may cause the total return of UNL’s per
share NAV to vary significantly. Moreover, absent the impact of rising or falling natural gas prices, a prolonged period of contango
could have a significant negative impact on UNL’s per share NAV and total return and investors could lose part or all of
their investment. See “Additional Information About UNL, its Investment Objective and Investments” for a discussion
of the potential effects of contango and backwardation.
While
contango and backwardation are consistently present in trading in the futures markets, such conditions can be exacerbated by market
forces. For example, extraordinary market conditions in the crude oil markets, including “super contango” (a higher
level of contango arising from the overabundance of oil being produced and the limited availability of storage for such excess
supply), occurred during 2020, in the crude oil futures markets due to over-supply of crude oil in the face of weak demand during
the COVID-19 pandemic when disputes among oil-producing countries regarding limitations on the production of oil also were occurring.
Volatility in the natural gas market was also elevated, but it did not reach the same extreme levels as the volatility in the
oil futures market did. However, increased volatility in the future could impact UNL’s ability to have a substantial portion
of its assets invested in the Benchmark Futures Contract. In such a circumstance, UNL could, if it determined it appropriate to
do so in light of market conditions and regulatory requirements, invest in other Futures Contract and/or Other Natural-Gas Related
Investments.
See “Additional
Information About UNL, its Investment Objective and Investments” for a discussion of the potential effects of contango and
backwardation.
Accountability
levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error, by
limiting UNL’s investments, including its ability to fully invest in the Benchmark Futures Contracts, which could cause
the price of shares to substantially vary from the price of the Benchmark Futures Contracts.
Designated
contract markets, such as the NYMEX and ICE Futures, 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 UNL is not) may hold, own or control. These levels and position limits apply to
the futures contracts that UNL invests in to meet its investment objective. In addition to accountability levels and position
limits, the NYMEX and ICE Futures 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.
The accountability
levels for the Benchmark Futures Contracts and other Futures Contracts traded on U.S.-based futures exchanges, such as the NYMEX,
are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s
positions. The current accountability level for investments for any one-month in the Benchmark Futures Contracts is 6,000 contracts.
In addition, the NYMEX imposes an accountability level for all months of 12,000 net futures contracts for natural gas. In addition,
the ICE Futures maintains the same accountability levels, position limits and monitoring authority for its natural gas contract
as the NYMEX. If UNL and the Related Public Funds exceed these accountability levels for investments in the futures contracts
for natural gas, the NYMEX and ICE Futures will monitor such exposure and may ask for further information on their activities,
including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of UNL and the
Related Public Funds. If deemed necessary by the NYMEX and/or ICE Futures, UNL could be ordered to reduce its Natural Gas NG Futures
Contracts to below the 6,000 single month and/or 12,000 all month accountability level.
Position
limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any
person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. In addition to accountability
levels and position limits that may apply at any time, the NYMEX and the ICE Futures impose position limits on contracts held
in the last few days of trading in the near month contract to expire. It is unlikely that UNL will run up against such position
limits because UNL’s investment strategy is to close out its positions and “roll” from the near month contracts
to expire to the next month contracts during a one day period beginning two weeks from expiration of the contracts.
On October 15,
2020, the CFTC approved 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 Position Limits Rule
sets position limits for the spot month and non-spot month; however, the non-spot month limits only apply in respect of the agricultural
futures contracts that are currently subject to position limits under Part 150 of the CFTC regulations (the “legacy agricultural
contracts”). With respect to regulatory oversight, the Position Limits Rule delegates authority to designated contract markets
and swap execution facilities to oversee certain aspects of the position limits framework. In addition to setting the federal
position limits, the Position Limits Rule also provides several exemptions from such position limits, including an expanded list
of enumerated bona fide hedge exemptions and certain spread exemptions. Further, the Position Limits Rule sets forth two alternative
processes for pursuing an exemption for non-enumerated hedge positions. Other than for the legacy agricultural contracts, compliance
with the limits imposed by the Position Limits Rule will not be required until 2022, except that economically equivalent swaps
need not comply with the Position Limits Rule until 2023.
The
Benchmark Futures Contracts will be subject to position limits under the Position Limits Rule, and UNL’s trading does not
qualify as a enumerated bona fide hedge. Accordingly, the Position Limits Rule could negatively impact the ability of UNL to meet
its investment objective by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets
of UNL in particular amounts and types of its permitted investments.
Until
such time as compliance with the Position Limits Rule is required, the regulatory architecture in effect prior to the adoption
of the Position Limit Rule will govern transactions in commodities and related derivatives. Under that system, the CFTC enforces
federal limits on speculation in the nine legacy agricultural contracts, while futures exchanges establish and enforce position
limits and accountability levels for other agricultural products and certain energy products (e.g., oil and natural gas).
Under
existing CFTC regulations and the Position Limits Rule, for the purpose of position limits, a market participant is generally
required, subject to certain narrow exceptions, to aggregate all positions for which that participant controls the trading decisions
with all positions for which that participant has a 10% or greater ownership interest in an account or position, as well as the
positions of two or more persons acting pursuant to an express or implied agreement or understanding with that market participant
(the “Aggregation Rules”).
Risk
mitigation measures imposed by UNL’s FCMs have the potential to cause tracking error by limiting UNL’s investments,
including its ability to fully invest in the Benchmark Futures Contracts and other Futures Contracts, which could cause the price
of UNL’s shares to substantially vary from the price of the Benchmark Futures Contracts.
UNL’s
futures commission merchants (“FCMs”) have discretion to impose limits on the positions that UNL may hold in
the Benchmark Futures Contracts as well as certain other months. To date, UNL’s FCMs have not imposed any such limits. However,
were UNL’s FCMs to impose limits, UNL’s ability to have a substantial portion of its assets invested in the Benchmark
Futures Contracts and other Futures Contracts could be severely limited, which could lead UNL to invest in other Futures Contracts
or, potentially, Other Natural Gas-Related Investments. UNL could also have to more frequently rebalance and adjust the types
of holdings in its portfolio than is currently the case. This could inhibit UNL 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 UNL’s FCMs could limit UNL’s
ability to invest the proceeds of the purchases of Creation Baskets in Benchmark Futures Contracts and other Futures Contracts.
If this were the case, UNL may invest in other permitted investments, including Other Natural Gas-Related Investments, and may
hold larger amounts of Treasuries, cash and cash equivalents, which could impair UNL’s ability to meet its investment objective.
Tax Risk
An
investor’s tax liability may exceed the amount of distributions, if any, on its shares.
Cash
or property will be distributed at the sole discretion of USCF. USCF 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 UNL’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.
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 UNL in making allocations for tax purposes and other factors, an
investor’s allocable share of UNL’s income, gain, deduction or loss may be different than its economic profit or loss
from its shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in it being
taxed on amounts in excess of its economic income.
Items
of income, gain, deduction, loss and credit with respect to shares could be reallocated, and UNL 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
UNL in allocating those items, with potential adverse consequences for an investor.
The U.S.
tax rules pertaining to partnerships are complex and their application to large, publicly traded partnerships such as UNL is in
many respects uncertain. UNL applies certain assumptions and conventions in an attempt to comply with the intent of the applicable
rules and to report taxable income, gains, deductions, losses and credits in a manner that properly reflects shareholders’
economic gains and losses. These assumptions and conventions may not fully comply with all aspects of the Internal Revenue Code
of 1986, as amended (the “Code”), and applicable Treasury Regulations, however, and it is possible that
the IRS will successfully challenge UNL’s allocation methods and require UNL to reallocate items of income, gain, deduction,
loss or credit in a manner that adversely affects investors.
UNL may
be liable for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment as a result
of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gains
to any investor and decreases in allocations of items of deduction, loss, or credit to any investor without any offset for any
corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of deduction,
loss, or credit to any investor. If UNL is required to pay any U.S. federal income taxes on any imputed understatement, the resulting
tax liability would reduce the net assets of UNL and would likely have an adverse impact on the value of the shares. Under certain
circumstances, UNL may be eligible to make an election to cause the investors to take into account the amount of any imputed understatement,
including any interest and penalties. The ability of a publicly traded partnership such as UNL to make this election is uncertain.
If the election is made, UNL 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.
UNL
could be treated as a corporation for federal income tax purposes, which may substantially reduce the value of the shares.
UNL has
received an opinion of counsel that, under current U.S. federal income tax laws, UNL 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 UNL’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) UNL is organized and operated
in accordance with its governing agreements and applicable law and (iii) UNL does not elect to be taxed as a corporation for federal
income tax purposes. Although USCF anticipates that UNL has satisfied and will continue to satisfy the “qualifying income”
requirement for all of its taxable years, that result cannot be assured. UNL has not requested and will not request any ruling
from the IRS with respect to its classification as a partnership not taxable as a corporation for federal income tax purposes.
If the IRS were to successfully assert that UNL is taxable as a corporation for federal income tax purposes in any taxable year,
rather than passing through its income, gains, losses and deductions proportionately to shareholders, UNL would be subject to
tax on its net income for the year at corporate tax rates. In addition, although USCF does not currently intend to make distributions
with respect to shares, any distributions would be taxable to shareholders as dividend income. Taxation of UNL as a corporation
could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of the shares.
UNL
is organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state
law, and therefore, UNL has a more complex tax treatment than traditional mutual funds.
UNL is
organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law.
No U.S. federal income tax is paid by UNL on its income. Instead, UNL will furnish shareholders each year with tax information
on IRS Schedule K-1 (Form 1065) and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable
share of the income, gain, loss and deduction of UNL.
This
must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from UNL
during the taxable year. A shareholder, therefore, may be allocated income or gain by UNL 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 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 UNL 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 UNL. It is each shareholder’s
responsibility to file the appropriate U.S. federal, state, local and foreign tax returns.
If
UNL 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, UNL may be required to pay withholding tax with respect to allocations to Non-U.S. shareholders. Although
the LP Agreement provides that any such withholding will be treated as being distributed to the Non-U.S. shareholder, UNL 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. tax laws on UNL is uncertain.
U.S.
tax laws and Treasury regulations are subject to change, sometimes with retroactive effect. We cannot predict with certainty how
any changes in the tax laws might affect the U.S. economy, the demand for and the price of commodities, or our status as a publicly
traded partnership. As a result, it is possible that the changes in the Code,
as well as any U.S. Treasury regulations, administrative interpretations or court decisions interpreting the Code could have unexpected
or negative impacts on UNL and some or all of its shareholders. Shareholders are urged to consult with their tax advisor regarding
tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in UNL.
OTC Contract Risk
UNL
will be subject to credit risk with respect to counterparties to OTC contracts entered into by UNL or held by special purpose
or structured vehicles.
UNL 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 UNL, in which case UNL could suffer significant losses on these contracts. The two-way
margining requirements imposed by U.S. regulators are intended to mitigate this risk.
If a
counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, UNL may experience
significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. UNL may obtain only limited recovery
or may obtain no recovery in such circumstances.
Valuing
OTC derivatives may be less certain than actively traded financial instruments.
In general,
valuing OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts
and securities or cleared swaps because the price and terms on which such OTC derivatives are entered into or can be terminated
are individually negotiated, and those prices and terms may not reflect the best price or terms available from other sources.
In addition, while market makers and dealers generally quote indicative prices or terms for entering into or terminating OTC contracts,
they typically are not contractually obligated to do so, particularly if they are not a party to the transaction. As a result,
it may be difficult to obtain an independent value for an outstanding OTC derivatives transaction.
Other Risks
UNL
is not leveraged.
UNL has
not leveraged, and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments accordingly.
Consistent with the foregoing, UNL’s announced investment intentions, and any changes thereto, will take into account the
need for UNL 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, UNL becoming leveraged. If market conditions require it, these risk
reduction procedures, including changes to UNL’s investments, may occur on short notice if they occur other than during
a roll or rebalance period.
UNL
may temporarily limit the offering of Creation Baskets.
UNL 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.
UNL 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 UNL
and UNL 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.
Certain
of UNL’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.
Futures
positions cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there
is a relatively small volume of buy and sell orders in a market. A market disruption, such as a foreign government taking political
actions that disrupt the market for its currency, its natural gas production or exports, or another major export, can also make
it difficult to liquidate a position. Because both Futures Contracts and Other Natural-Gas Related Investments may be illiquid,
UNL’s Natural Gas 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 UNL 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 UNL’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.
UNL
is not actively managed and its investment objective is to track the Benchmark Futures Contracts so that the average daily percentage
change in UNL’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 Futures Contracts over the same period.
UNL is
not actively managed by conventional methods. Accordingly, if UNL’s investments in Natural Gas Interests are declining in
value, in the ordinary course, UNL 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 its positions in Futures Contracts and other permitted investments
(i) in connection with the monthly change in the Benchmark Futures Contracts or when UNL otherwise determines it would be appropriate
to do so, e.g., due to regulatory requirements or risk mitigation measures, or to avoid UNL becoming leveraged, and it reinvests
the proceeds in new Futures Contracts or Other Natural Gas-Related Investments to the extent possible. USCF will seek to cause
the NAV of UNL’s shares to track the Benchmark Futures Contracts during periods in which its price is flat or declining
as well as when the price is rising.
UNL’s
ability to invest in the Benchmark Futures Contracts 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 UNL with respect to its investment in
Futures Contracts, mitigation measures taken by market participants, generally, including UNL, with respect to UNL acquiring additional
Futures Contracts, or UNL selling additional shares.
UNL
may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s ability to sell shares.
UNL’s
shares are listed for trading on the NYSE Arca under the market symbol “UNL.” NYSE Arca may suspend UNL’s shares
from trading on the exchange with or without prior notice to UNL, upon failure of UNL 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 UNL’s shares
will continue to be met or will remain unchanged. If UNL 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 UNL’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.
The
liquidity of UNL’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, UNL through Creation Baskets or Redemption Baskets.
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 to NAV per share.
The
lack of an active trading market for UNL’s shares may result in losses on an investor’s investment in UNL at the time
the investor sells the shares.
Although
UNL’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.
Limited
partners and shareholders do not participate in the management of UNL and do not control USCF, so they do not have any influence
over basic matters that affect UNL.
The limited
partners and shareholders take no part in the management or control, and have a minimal voice in UNL’s operations or business.
Limited partners and shareholders must therefore rely upon the duties and judgment of USCF to manage UNL’s affairs. Limited
partners and shareholders have no right to elect USCF on an annual or any other continuing basis. If USCF voluntarily withdraws,
however, the holders of a majority of UNL’s outstanding shares (excluding for purposes of such determination shares owned,
if any, by the withdrawing general partner and its affiliates) may elect its successor. USCF may not be removed as general partner
except upon approval by the affirmative vote of the holders of at least 66 2/3 percent of UNL’s outstanding shares (excluding
shares, if any, owned by USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
UNL
could become leveraged if it had insufficient assets to completely meet its margin or collateral requirements relating to its
investments.
Although
UNL 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 UNL 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 UNL were to hold assets that
have a value of less than zero.
USCF
endeavors to have the value of UNL’s Treasuries, cash and cash equivalents, whether held by UNL or posted as margin or other
collateral, at all times approximate the aggregate market value of its obligations under its Futures Contracts and Other Natural
Gas-Related Investments. Although permitted to do so under its Limited Partnership Agreement, UNL 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, UNL’s investment decisions will take into account the need for UNL 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, UNL becoming leveraged, including by its holding of assets that have a high probability
of having a value of less than zero.
Limited
partners and shareholders do not participate in the management of UNL and do not control USCF, so they do not have any influence
over basic matters that affect UNL.
The limited
partners and shareholders take no part in the management or control, and have a minimal voice in UNL’s operations or business.
Limited partners and shareholders must therefore rely upon the duties and judgment of USCF to manage UNL’s affairs. Limited
partners and shareholders have no right to elect USCF on an annual or any other continuing basis. If USCF voluntarily withdraws,
however, the holders of a majority of UNL’s outstanding shares (excluding for purposes of such determination shares owned,
if any, by the withdrawing general partner and its affiliates) may elect its successor. USCF may not be removed as general partner
except upon approval by the affirmative vote of the holders of at least 66 2/3 percent of UNL’s outstanding shares (excluding
shares, if any, owned by USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
Limited
partners may have limited liability in certain circumstances, including potentially having liability for the return of wrongful
distributions.
Under
Delaware law, a limited partner might be held liable for UNL’s obligations as if it were a general partner if the limited
partner participates in the control of the partnership’s business and the persons who transact business with the partnership
think the limited partner is the general partner.
A limited
partner will not be liable for assessments in addition to its initial capital investment in any of UNL’s shares. However,
a limited partner may be required to repay to UNL any amounts wrongfully returned or distributed to it under some circumstances.
Under Delaware law, UNL may not make a distribution to limited partners if the distribution causes UNL’s liabilities (other
than liabilities to partners on account of their partnership interests and nonrecourse liabilities) to exceed the fair value of
UNL’s assets. Delaware law provides that a limited partner who receives such a distribution and knew at the time of the
distribution that the distribution violated the law will be liable to the limited partnership for the amount of the distribution
for three years from the date of the distribution.
The
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 Concierge Technologies, Inc., a controlled public company where the majority of shares
are owned by Nicholas D. Gerber along with certain other family members and certain other shareholders.
USCF’s
Board of Directors (the “Board”) currently consists of four Management Directors, each of whom are also executive
officers or employees of USCF, and three Non-Management Directors, each of whom are considered independent for purposes of applicable
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 Wainwright Holdings, Inc. (“Wainwright”), which is the
sole member of USCF. The sole shareholder of Wainwright is Concierge Technologies, Inc., a company publicly traded under the ticker
symbol “CNCG” (“Concierge”). Mr. Nicholas D. Gerber along with certain family members and certain other
shareholders, owns the majority of the shares in Concierge, which is the sole shareholder of Wainwright, the sole member of USCF.
Accordingly, although USCF is governed by the Board, which consists of both Management Directors and Non-Management Directors,
pursuant to the LLC Agreement, it is possible for Mr. Gerber to exercise his indirect control of Wainwright to effect the removal
of any Director (including the Non-Management Directors which comprise the Audit Committee) and to replace that Director with
another Director. Having control in one person could have a negative impact on USCF and UNL, including their regulatory obligations.
There
is a risk that UNL will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such
UNL may not earn any profit.
UNL pays
brokerage charges of approximately 0.03% of average total net assets based on brokerage fees of $3.50 per buy or sell, management
fees of 0.75% 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 LP Agreement and under agreements entered into by USCF on UNL’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.
These
fees and expenses must be paid in all cases regardless of whether UNL’s activities are profitable. Accordingly, UNL must
earn trading gains sufficient to compensate for these fees and expenses before it can earn any profit.
UNL
is subject to extensive regulatory reporting and compliance.
UNL is
subject to a comprehensive scheme of regulation under the federal commodities and securities laws. UNL 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
UNL’s shares are publicly traded, UNL 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. UNL’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.
UNL is
responsible for establishing and maintaining adequate internal control over financial reporting. UNL’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 UNL.
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 energy markets and the need to regulate the derivatives markets in general. The effect of any future regulatory
change on UNL is impossible to predict, but it could be substantial and adverse.
UNL
is not a registered investment company so shareholders do not have the protections of the 1940 Act.
UNL 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 UNL to credit and regulatory risk.
UNL invests
primarily in Futures Contracts, a significant portion of which are traded on United States exchanges, including the NYMEX. However,
a portion of UNL’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,
UNL 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.
UNL
and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders.
UNL 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 UNL and also are directors, officers or
employees of other entities that may compete with UNL for their services. They could have a conflict between their responsibilities
to UNL and to those other entities. As a result of these and other relationships, parties involved with UNL have a financial incentive
to act in a manner other than in the best interests of UNL 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.
USCF
serves as the general partner or sponsor to each of UNL and the Related Public Funds. USCF may have a conflict to the extent that
its trading decisions for UNL may be influenced by the effect they would have on the other funds it manages. By way of example,
if, as a result of reaching position limits imposed by the NYMEX, UNL purchased natural gas futures contracts, this decision could
impact UNL’s ability to purchase additional natural gas futures contracts if the number of contracts held by funds managed
by USCF reached the maximum allowed by the NYMEX. Similar situations could adversely affect the ability of any fund to track its
Benchmark Futures Contracts.
UNL may
also be subject to certain conflicts with respect to its FCMs, including, but not limited to, conflicts that result from receiving
greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third-party accounts
traded through the 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 UNL trades using the clearing broker to be used by UNL. 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 UNL.
UNL
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.
UNL may
terminate at any time, regardless of whether UNL has incurred losses, subject to the terms of the LP Agreement. In particular,
unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures
taken by UNL or third parties or otherwise that would lead UNL to determine that it could no longer foreseeably meet its business
objective or that UNL’s aggregate net assets in relation to its operating expenses or its margin or collateral requirements
make the continued operation of UNL unreasonable or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution,
withdrawal or removal of USCF as the general partner of UNL could cause UNL to terminate unless a majority interest of the limited
partners within 90 days of the event elects to continue the partnership and appoints a successor general partner, or the affirmative
vote of a majority in interest of the limited partners subject to certain conditions. However, no level of losses will require
USCF to terminate UNL. UNL’s termination would cause the liquidation and potential loss of an investor’s investment.
Termination could also negatively affect the overall maturity and timing of an investor’s investment portfolio.
UNL
does not expect to make cash distributions.
UNL has
not previously made any cash distributions and intends to reinvest any realized gains in additional Natural Gas 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, UNL generally does not expect to distribute cash to limited partners. An investor should not invest
in UNL if the investor will need cash distributions from UNL to pay taxes on its share of income and gains of UNL, if any, or
for any other reason. Nonetheless, although UNL 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 Natural Gas 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 UNL’s NAV.
If a
substantial number of requests for redemption of Redemption Baskets are received by UNL during a relatively short period of time,
UNL may not be able to satisfy the requests from UNL’s assets not committed to trading. As a consequence, it could be necessary
to liquidate positions in UNL’s trading positions before the time that the trading strategies would otherwise dictate liquidation.
An
unanticipated number of Creation Basket requests during a short period of time could result in a shortage of shares.
While
USCF makes every effort to predict and maintain an adequate amount of shares outstanding, if a substantial number of requests
for Creation Baskets are received by UNL during a relatively short period of time that substantially differs from past creation
volumes, due to market volatility or otherwise, it could result in circumstances where, because of high demand for its shares,
UNL may not have sufficient shares available for sale to satisfy demand. Authorized Participants may, therefore, be unable to
purchase additional Creation Baskets.
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 UNL 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 UNL 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 UNL by Authorized Participants in Redemption Baskets. The foregoing could also create significant deviations from
UNL’s investment objective. Any potential impact to the market in shares of UNL 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.
UNL
may limit the offering of Creation Baskets if it determines that it cannot reasonably reinvest the proceeds in a manner that meets
its investment objective and satisfy regulatory requirements and risk mitigation measures.
UNL may
determine that UNL will 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 UNL to obtain greater liquidity or to execute transactions with more favorable pricing); and (3) risk mitigation measures
taken by UNL’s current and other FCMs that limit UNL and other market participants from investing in particular natural
gas futures contracts, UNL’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.
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, An unanticipated number of creation requests during a short period of time could result in a shortage
of shares could also occur as a result of UNL determining to limit the offering of creation baskets.
UNL
may potentially lose money on its holdings of money market funds.
The SEC
adopted amendments to Rule 2a-7 under the 1940 Act which became effective in 2016, to reform money market funds (“MMFs”).
While the rule applies only to MMFs, it may indirectly affect institutional investors such as UNL. A portion of UNL’s assets
that are not used for margin or collateral in the Futures Contracts currently are invested in government MMFs. UNL does not hold
any non-government MMFs and does not anticipate investing in any non-government MMFs. However, if UNL invests in other types of
MMFs besides government MMFs in the future, UNL could be negatively impacted by investing in an MMF that does not maintain a stable
$1.00 NAV or that has the potential to impose redemption fees and gates (temporary suspension of redemptions).
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 UNL 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. UNL 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 UNL’s Custodian could result in a substantial loss of UNL’s assets and
could impair UNL 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, UNL or its investors.
In particular,
in the event of an FCM’s or clearing house’s bankruptcy, UNL 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 UNL may not recover any assets at
all. UNL 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, UNL 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 FCMs or an exchange’s clearing house
if the customer property held by the FCMs or the exchange’s clearing house is insufficient to satisfy all customer claims.
Bankruptcy
of a clearing FCMs 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 UNL (as well as margin posted by other customers of the
FCM) to cover the amounts owed by the bankrupt FCM. Consequently, UNL 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 UNL could sustain losses upon the failure or bankruptcy of its FCM, the majority of UNL’s assets are held in Treasuries,
cash and/or cash equivalents with UNL’s Custodian and would not be impacted by the bankruptcy of an FCM.
The
failure or bankruptcy of UNL’s Custodian could result in a substantial loss of UNL’s assets.
The majority
of UNL’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 UNL’s assets held by that Custodian, which, at any given time, would likely comprise
a substantial portion of UNL’s total assets.
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 UNL’s intellectual property or technology, including the use of its business methods,
trademarks and trading program software, without permission. USCF has a patent for UNL’s business method and has registered
its trademarks. UNL does not currently have any proprietary software. However, if it obtains proprietary software in the future,
any unauthorized use of UNL’s proprietary software and other technology could also adversely affect its competitive advantage.
UNL 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 UNL, 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, UNL 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 UNL, a natural catastrophe, an industrial accident, failure of UNL’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 UNL’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 UNL 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 UNL’s electronic
data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our
data.
In addition,
substantial costs may be incurred in order to prevent any cyber incidents in the future. UNL and its shareholders could be negatively
impacted as a result. While USCF and the Related Public Funds, including UNL, have established business continuity plans, there
are inherent limitations in such plans.
General Risk
Factors
Changes
to U.S. tariff and import/export regulations could have a negative effect on UNL.
There has been
ongoing discussion and commentary regarding significant changes that have been and could be made to U.S. trade policies, treaties
and tariffs. The new U.S. presidential administration and U.S. Congress is in the process of revisiting and, and in some cases,
reversing changes made by the prior U.S. presidential administration and there is uncertainty about the future relationship between
the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception
that any of them could occur, could have a material adverse effect on global economic conditions and the stability of global financial
markets, and could significantly reduce global trade and, in particular, trade between the impacted nations and the United States.
Any of these factors could depress economic activity and negatively impact UNL.
There
is uncertainty surrounding potential legal, regulatory and policy changes by the new presidential administration in the United
States that may directly affect financial institutions and the global economy.
As a
result of the United States presidential election, which occurred on November 3, 2020 and subsequent senate runoff elections,
there has been a change in control of the executive and legislative branches of the U.S. government. Changes in federal policy,
including tax policies, and at regulatory agencies occur over time through policy and personnel changes following elections, which
lead to changes involving the level of oversight and regulation of the energy sector, climate change, and the financial services
industry, as well as changes in tax rates. The nature, timing and economic and political effects of potential changes to the current
legal and regulatory framework affecting the energy sector and financial institutions remain highly uncertain. Uncertainty surrounding
future changes may adversely affect UNL and its investments.
ADDITIONAL
INFORMATION ABOUT UNL, ITS INVESTMENT OBJECTIVE AND INVESTMENTS
UNL is
a Delaware limited partnership organized on June 27, 2007. It operates pursuant to the terms of the Third Amended and Restated
Agreement of Limited Partnership dated as of December 15, 2017, (as amended from time to time, the “LP Agreement”),
which grants full management control of UNL to USCF. UNL maintains its main business office at 1850 Mt. Diablo Boulevard, Suite
640, Walnut Creek, California 94596.
The net
assets of UNL consist primarily of investments in 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 Natural Gas-Related Investments.
Market conditions that USCF currently anticipates could cause UNL to invest in Other Natural Gas-Related Investments include those
allowing UNL to obtain greater liquidity or to execute transactions with more favorable pricing.
UNL invests
substantially the entire amount of its assets in 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 UNL are available on UNL’s
website at www.uscfinvestments.com.
UNL invests
in Natural Gas 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 Natural Gas Interests. In pursuing this objective, the primary
focus of USCF is the investment in Futures Contracts and the management of UNL’s investments in Treasuries, cash and/or
cash equivalents for margining purposes and as collateral.
UNL seeks
to invest in a combination of Natural Gas Interests such that the daily changes in its NAV, measured in percentage terms, will
closely track the daily changes in the price of the Benchmark Futures Contracts, also measured in percentage terms. As a specific
benchmark, USCF endeavors to place UNL’s trades in Natural Gas Interests and otherwise manage UNL’s investments so
that “A” will be within plus/minus ten percent (10%) of “B”, where:
|
·
|
A
is the average daily percentage change in UNL’s per share NAV for any period of
30 successive valuation days, i.e., any NYSE Arca trading day as of which UNL
calculates its per share NAV; and
|
|
·
|
B
is the average daily percentage change in the average of the prices of the Benchmark
Futures Contracts over the same period.
|
USCF
believes that market arbitrage opportunities will cause the daily changes in UNL’s share price on the NYSE Arca to closely
track the daily changes in UNL’s per share NAV. USCF further believes that the daily changes in UNL’s NAV in percentage
terms will closely track the daily changes in percentage terms in the average of the prices of the Benchmark Futures Contracts,
less UNL’s expenses.
The
following two charts demonstrate the correlation between the changes in UNL’s NAV and the changes in the Benchmark Futures Contracts.
The first chart exhibits the daily changes in the last 30 valuation days ended December 31, 2020. The second chart measures
monthly changes since December 31, 2015 through December 31, 2020.
*PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
USCF
employs a “neutral” investment strategy in order to track changes in the average of the prices of the Benchmark Futures
Contracts regardless of whether the price goes up or goes down. UNL’s “neutral” investment strategy is designed
to permit investors generally to purchase and sell UNL’s shares for the purpose of investing indirectly in natural gas in
a cost-effective manner, and/or to permit participants in the natural gas or other industries to hedge the risk of losses in their
natural gas-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally
associated with investing in natural gas and/or the risks involved in hedging may exist. In addition, an investment in UNL involves
the risk that the daily changes in the average of the prices of UNL’s shares, in percentage terms, will not accurately track
the daily changes in the average prices of the Benchmark Futures Contracts, in percentage terms, and that daily changes in the
Benchmark Futures Contracts, in percentage terms, will not closely correlate with daily changes in the spot prices of natural
gas, in percentage terms.
An alternative
tracking measurement of the return performance of UNL versus the return of the Benchmark Futures Contracts can be calculated by
comparing the actual return of UNL, measured by changes in its per share NAV, versus the expected changes in its per share NAV
under the assumption that UNL’s returns had been exactly the same as the daily changes in its Benchmark Futures Contracts.
For the
year ended December 31, 2020, the actual total return of UNL as measured by changes in its per share NAV was (8.19)%. This is
based on an initial per share NAV of $8.43 as of December 31, 2019 and an ending per share NAV as of December 31, 2020 of $7.74.
During this time period, UNL made no distributions to its shareholders. However, if UNL’s daily changes in its per share
NAV had instead exactly tracked the changes in the daily total return of the Benchmark Futures Contract, UNL would have had an
estimated per share NAV of $7.75 as of December 31, 2020, for a total return over the relevant time period of (8.07)%. The difference
between the actual per share NAV total return of UNL of (8.19)% and the expected total return based on the Benchmark Futures Contracts
of (8.07)% was an error over the time period of (0.12)%, which is to say that UNL’s actual total return underperformed its
benchmark by that percentage. UNL 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 UNL to track slightly lower or higher
than daily changes in the price of the Benchmark Futures Contracts.
Impact of Contango and
Backwardation on Total Returns
Several
factors determine the total return from investing in futures contracts. One factor arises from “rolling” futures contracts
that will expire at the end of the current month (the “near” or “front” month contract) forward each month
prior to expiration. For a strategy that entails holding the near month contract, the price relationship between that futures
contract and the next month futures contract will impact returns. For example, if the price of the near month futures contract
is higher than the next futures month contract (a situation referred to as “backwardation”), then absent any other
change, the price of a next month futures contract tends to rise in value as it becomes the near month futures contract and approaches
expiration. Conversely, if the price of a near month futures contract is lower than the next month futures contract (a situation
referred to as “contango”), then absent any other change, the price of a next month futures contract tends to decline
in value as it becomes the near month futures contract and approaches expiration.
As an
example, assume that the price of natural gas for immediate delivery, is $3 per MMBtu, and the value of a position in the near
month futures contract is also $3. Over time, the price of natural gas will fluctuate based on a number of market factors, including
demand for oil relative to supply. The value of the near month futures contract will likewise fluctuate in reaction to a number
of market factors. If an investor seeks to maintain a position in a near month futures contract and not take delivery of physical
MMBtu of natural gas, the investor must sell the current near month futures contract as it approaches expiration and invest in
the next month futures contract. In order to continue holding a position in the current near month futures contract, this “roll”
forward of the futures contract must be executed every month.
Contango
and backwardation are natural market forces that have impacted the total return on an investment in UNL’s shares during
the past year relative to a hypothetical direct investment in natural gas. In the future, it is likely that the relationship between
the market price of UNL’s shares and changes in the spot prices of natural gas will continue to be impacted by contango
and backwardation. It is important to note that this comparison ignores the potential costs associated with physically owning
and storing natural gas, which could be substantial.
If the
futures market is in backwardation, e.g., when the price of the near month futures contract is higher than the price of
the next month futures contract, the investor would buy a next month futures contract for a lower price than the current near
month futures contract. Assuming the price of the next month futures contract was $2.94 per MMBtu, or 2% cheaper than the $3 near
month futures contract, then, hypothetically, and assuming no other changes (e.g., to either prevailing natural gas prices or
the price relationship between the spot price, the near month contract and the next month contract, and, ignoring the impact of
commission costs and the income earned on cash and/or cash equivalents), the value of the $2.94 next month futures contract would
rise to $3 as it approaches expiration. In this example, the value of an investment in the next month futures contract would tend
to outperform the spot price of natural gas. As a result, it would be possible for the new near month futures contract to rise
12% while the spot price of natural gas may have risen a lower amount, e.g., only 10%. Similarly, the spot price of natural gas
could have fallen 10% while the value of an investment in the futures contract might have fallen another amount, e.g., only 8%.
Over time, if backwardation remained constant, this difference between the spot price and the futures contract price would continue
to increase.
If the
futures market is in contango, an investor would be buying a next month futures contract for a higher price than the current near
month futures contract. Again, assuming the near month futures contract is $3 per MMBtu, the price of the next month futures contract
might be $3.06 per MMBtu, or 2% more expensive than the front month futures contract. Hypothetically, and assuming no other changes,
the value of the $3.06 next month futures contract would fall to $3 as it approaches expiration. In this example, the value of
an investment in the second month would tend to underperform the spot price of natural gas. As a result, it would be possible
for the new near month futures contract to rise only 10% while the spot price of natural gas may have risen a higher amount, e.g.,
12%. Similarly, the spot price of natural gas could have fallen 10% while the value of an investment in the second month futures
contract might have fallen another amount, e.g., 12%. Over time, if contango remained constant, this difference between the spot
price and the futures contract price would continue to increase.
The chart
below compares the daily price of the near month natural gas futures contract to the price of 13th month natural gas futures contract
(i.e., a contract one year forward) over the last 10 years. When the price of the near month futures contract is higher than the
price of the 13th month futures contract, the market would be described as being in backwardation. When the price of the near
month futures contract is lower than the 13th month futures contract, the market would be described as being in contango. Although
the price of the near month futures contract and the price of the 13th month futures contract tend to move together, it can be
seen that at times the near month futures contract prices are higher than the 13th month futures contract prices (backwardation)
and, at other times, the near month futures contract prices are lower than the 13th month futures contract prices (contango).
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An alternative
way to view the same data is to subtract the dollar price of the 13th month natural gas futures contract from the dollar price
of the near month natural gas futures contract, as shown in the chart below. When the difference is positive, the market is in
backwardation. When the difference is negative, the market is in contango. The natural gas market spent time in both backwardation
and contango during the last ten years. The chart below shows the results from subtracting the average dollar price of the near
12-month contracts from the near month price for the 10-year period between December 31, 2010 and December 31, 2020. Investors
will note that the natural gas market spent time in both backwardation and contango.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An investment
in a portfolio that owned only the near month natural gas futures contract would likely produce a different result than an investment
in a portfolio that owned an equal number of each of the near 12 months’ of natural gas futures contracts. Generally speaking,
when the natural gas futures market is in backwardation, a portfolio of only the near month natural gas futures contract may tend
to have a higher total return than a portfolio of 12 months’ of the natural gas futures contract. Conversely, if the natural
gas futures market was in contango, the portfolio containing only 12 months’ of natural gas futures contracts may tend to
outperform the portfolio holding only the near month natural gas futures contract.
Historically,
the natural gas futures markets have experienced periods of contango and backwardation. Because natural gas demand is seasonal,
it is possible for the price of natural gas futures contracts for delivery within one or two months to rapidly move from backwardation
into contango and back again within the relatively short period of time of less than one year. However, the natural gas market
has primarily been in a state of contango since late 2014.
Periods
of contango or backwardation do not materially impact UNL’s investment objective of having the daily percentage changes
in its per share NAV track the daily percentage changes in the average of the prices of the Benchmark Futures Contracts since
the impact of backwardation and contango tend to equally impact the daily percentage changes in price of both UNL’s shares
and the Benchmark Futures Contracts. It is impossible to predict with any degree of certainty whether backwardation or contango
will occur in the future. It is likely that both conditions will occur during different periods and, because of the seasonal nature
of natural gas demand, both may occur within a single year’s time.
In managing
UNL’s assets USCF does not use a technical trading system that issues buy and sell orders. USCF employs a quantitative methodology
whereby each time a Creation Basket is sold, USCF purchases Natural Gas Interests, such as the Benchmark Futures Contracts, that
have an aggregate market value that approximates the amount of Treasuries and/or cash received from the sale of the Creation Basket.
The specific
Futures Contracts purchased depend on various factors, including a judgment by USCF as to the appropriate diversification of UNL’s
investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of particular contracts.
While USCF has made significant investments in NYMEX Futures Contracts, for various reasons, including the ability to enter into
the precise amount of exposure to the natural gas market, position limits or other regulatory requirements limiting UNL’s
holdings, and market conditions, it may invest in Futures Contracts traded on other exchanges or invest in Other Natural Gas-Related
Investments. To the extent that UNL invests in Other Natural Gas-Related Investments, it would prioritize investments in contracts
and instruments that are economically equivalent to the Benchmark Futures Contracts, including cleared swaps that satisfy such
criteria, and then, to a lesser extent, it would invest in other types of cleared swaps and other contracts, instruments and non-cleared
swaps, such as swaps in the over-the-counter (or commonly referred to as the OTC market). If UNL is required by law or regulation,
or by one of its regulators, including a futures exchange, to reduce its position in the Futures Contracts to the applicable position
limit or to a specified accountability level or if market conditions dictate it would be more appropriate to invest in Other Natural
Gas-Related Investments, a substantial portion of UNL’s assets could be invested in accordance with such priority in Other
Natural Gas-Related Investments that are intended to replicate the return on the Benchmark Futures Contracts. As UNL’s assets
reach higher levels, it is more likely to exceed position limits, accountability levels or other regulatory limits and, as a result,
it is more likely that it will invest in accordance with such priority in Other Natural Gas-Related Investments at such higher
levels. In addition, market conditions that USCF currently anticipates could cause UNL to invest in Other Natural Gas-Related
Investments include those allowing UNL to obtain greater liquidity or to execute transactions with more favorable pricing. See
“Risk Factors Involved with an Investment in UNL” for a discussion of the potential impact of regulation on
UNL’s ability to invest in OTC transactions and cleared swaps.
USCF
may not be able to fully invest UNL’s assets in the Benchmark Futures Contracts having an aggregate notional amount exactly
equal to UNL’s NAV. For example, as standardized contracts, the Futures Contracts are for a specified amount of a particular
commodity, and UNL’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the
amounts of those contracts. As a result, in such circumstances, UNL may be better able to achieve the exact amount of exposure
to changes in price of the Benchmark Futures Contracts through the use of Other Natural Gas-Related Investments, such as OTC contracts
that have better correlation with changes in price of the Benchmark Futures Contracts.
UNL anticipates
that to the extent it invests in Futures Contracts other than contracts on natural gas (such as futures contracts for light, sweet
crude oil, diesel-heating oil and other petroleum-based fuels) and Other Natural Gas-Related Investments, it will enter into various
non-exchange-traded derivative contracts to hedge the short-term price movements of such Natural Gas Interests against the current
Benchmark Futures Contracts.
USCF
does not anticipate letting UNL’s Futures Contracts expire and taking delivery of the underlying commodity. Instead, USCF
will close existing positions, e.g., when it changes the Benchmark Futures Contracts or Other Natural Gas-Related Investments
or it otherwise determines it would be appropriate to do so and reinvests the proceeds in new Natural Gas Interests. Positions
may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.
The Benchmark
Futures Contracts are changed from the near month contract to expire and the 11 following months to the next month contract to
expire and the 11 following months during one day each month. On that day, USCF anticipates it will “roll” UNL’s
positions by closing, or selling, its natural gas interests and reinvests the proceeds from closing these positions in new natural
gas interests.
The anticipated
dates that the monthly roll period will commence are posted on UNL’s website at www.uscfinvestments.com, and are
subject to change without notice.
By remaining
invested as fully as possible in Natural Gas Interests, USCF believes that the daily changes in percentage terms in UNL’s
per share NAV will continue to closely track the daily changes in percentage terms in the average of the prices of the Benchmark
Futures Contracts. USCF believes that certain arbitrage opportunities result in the price of the shares traded on the NYSE Arca
closely tracking the per share NAV of UNL. Additionally, Futures Contracts traded on the NYMEX have closely tracked the spot price
of natural gas. Based on these expected interrelationships, USCF believes that the daily changes in the price of UNL’s shares
traded on the NYSE Arca, on a percentage basis, have closely tracked and will continue to closely track on a daily basis, the
changes in the spot price of natural gas on a percentage basis.
What are the Trading
Policies of UNL?
Investment Objective
The investment
objective of UNL is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”)
to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured
by the daily changes in the average of the prices of specified short-term futures contracts on natural gas called the “Benchmark
Futures Contracts,” plus interest earned on UNL’s collateral holdings, less UNL’s expenses. The Benchmark Futures
Contracts are the futures contracts on natural gas as traded on the NYMEX that is the near month contract to expire, and the contracts
for the following 11 months, for a total of 12 consecutive months’ contracts, except when the near month contract is within
two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire and
the contracts for the following 11 consecutive months. When calculating the daily movement of the average price of the 12 contracts,
each contract month is equally weighted.
UNL seeks
to achieve its investment objective by investing so that that the average daily percentage change in UNL’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 Futures Contracts over the same period.
Liquidity
UNL invests
only in Futures Contracts and Other Natural Gas-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 Other Natural Gas-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 UNL.
Spot Commodities
While
the Futures Contracts can be physically settled, UNL does not intend to take or make physical delivery. UNL may from time to time
trade in Other Natural Gas-Related Investments, including contracts based on the spot price of natural gas.
Leverage
USCF
endeavors to have the value of UNL’s Treasuries, cash and cash equivalents, whether held by UNL or posted as margin or other collateral,
at all times approximate the aggregate market value of its obligations under its Futures Contracts and Other Natural Gas-Related
Investments. Commodity pools’ trading positions in futures contracts or other related investments are typically required
to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other commodity
interest’s) entire market value. While USCF has not and does not intend to leverage UNL’s assets, it is not prohibited from
doing so under the LP Agreement.
Although
permitted to do so under the LP Agreement, UNL has not and does not intend to leverage its assets and makes its investments accordingly.
Consistent with this, UNL’s investment decisions will take into account the need for UNL 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, UNL becoming leveraged, including by its holding of assets that have a high probability of causing the net asset value
of the fund to be less than zero.
Borrowings
Borrowings
are not used by UNL, unless UNL is required to borrow money in the event of physical delivery, if UNL trades in cash commodities,
or for short-term needs created by unexpected redemptions.
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 natural gas market.
Consequently, UNL may purchase options on natural gas Futures Contracts on these exchanges in pursuing its investment objective.
In addition
to the Futures Contracts and options on the Futures Contracts, there also exists an active non-exchange-traded market in derivatives
tied to natural gas. 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 the Futures Contracts,
each party to such contract bears the credit risk of the other party, i.e., the risk that the other party may not be able to perform
its obligations under its contract. To reduce the credit risk that arises in connection with such contracts, UNL will generally
enter into an agreement with each counterparty based on the Master Agreement published by the International Swaps and Derivatives
Association, Inc. (“ISDA”) that provides for the netting of its overall exposure to its counterparty.
USCF
assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an OTC contract pursuant
to guidelines approved by the Board.
UNL 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 UNL,
the OTC component is the purchase or sale of one or more baskets of UNL’s shares. These EFRP transactions may expose UNL 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.
UNL 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 Futures Contracts. UNL 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 year ended December 31, 2020 and through February 28, 2021, UNL limited its OTC activities to EFRP transactions.
Pyramiding
UNL has
not employed and will not employ the technique, commonly known as pyramiding, in which the speculator uses unrealized profits
on existing positions as variation margin for the purchase or sale of additional positions in the same or another commodity interest.
Prior Performance of
UNL
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
USCF
manages UNL which is a commodity pool that issues shares traded on the NYSE Arca. The chart below shows, as of February 28, 2021,
the number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding
shares for UNL.
# of Authorized
Participants
|
|
|
Baskets
Redeemed
|
|
|
Baskets
Purchased
|
|
|
Outstanding
Shares
|
|
|
9
|
|
|
|
98
|
|
|
|
101
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
the commencement of the offering of UNL shares to the public on November 18, 2009 to February 28, 2021, the simple average daily
change in the average price of its Benchmark Futures Contracts was (0.048)%, while the simple average daily change in the per
share NAV of UNL over the same time period was (0.049)%. The average daily difference was (0.001)% (or (0.1) basis points, where
1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the Benchmark Futures Contracts,
the average error in daily tracking by the per share NAV was 0.021%, meaning that over this time period UNL’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 UNL, since inception through February
28, 2021. The first row shows the average amount of the variation between UNL’s closing market price and NAV, computed on
a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and
discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts
typically occur because trading in the shares continues on the NYSE Arca until 4:00 p.m. New York time while regular trading in
the Benchmark Futures Contracts on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant Benchmark Futures
Contracts, for purposes of determining its end of day NAV, can be determined at that time.
|
|
UNL
|
|
Average Difference
|
|
$
|
0.004
|
|
Max Premium %
|
|
|
6.153
|
|
Max Discount %
|
|
|
(6.523
|
)
|
|
|
|
|
|
For more information on the
performance of UNL, see the Performance Tables below.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
COMPOSITE
PERFORMANCE DATA FOR UNL
Name of Commodity Pool: United
States 12 Month Natural Gas Fund, LP
Type of Commodity Pool: Exchange
traded security
Inception of Trading: November
18, 2009
Aggregate Subscriptions (from
inception through February 28, 2021): $145,089,018
Total Net Assets as of February
28, 2021: $7,953,580.99
NAV per Share as of February
28, 2021: $8.37
Worst Monthly Percentage Draw-down:
February 2016 (16.37)%
Worst Peak-to-Valley Draw-down:
December 2009–February 2020 (86.76)%
|
|
Rates of Return*
|
|
Month
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
January
|
|
|
(1.95
|
)%
|
|
|
(8.94
|
)%
|
|
|
4.32
|
%
|
|
|
4.68
|
%
|
|
|
(9.02
|
)%
|
|
|
2.33
|
%
|
February
|
|
|
(16.37
|
)%
|
|
|
(8.22
|
)%
|
|
|
(5.59
|
)%
|
|
|
1.30
|
%
|
|
|
(7.17
|
)%
|
|
|
5.68
|
%
|
March
|
|
|
9.66
|
%
|
|
|
8.45
|
%
|
|
|
1.86
|
%
|
|
|
(3.49
|
)%
|
|
|
7.163
|
%
|
|
|
|
|
April
|
|
|
9.61
|
%
|
|
|
1.78
|
%
|
|
|
(1.94
|
)%
|
|
|
(4.00
|
)%
|
|
|
13.24
|
%
|
|
|
|
|
May
|
|
|
(0.63
|
)%
|
|
|
(5.81
|
)%
|
|
|
4.72
|
%
|
|
|
(4.37
|
)%
|
|
|
(8.91
|
)%
|
|
|
|
|
June
|
|
|
11.76
|
%
|
|
|
(1.86
|
)%
|
|
|
(0.52
|
)%
|
|
|
(5.50
|
)%
|
|
|
(4.07
|
)%
|
|
|
|
|
July
|
|
|
(0.75
|
)%
|
|
|
(4.59
|
)%
|
|
|
(2.95
|
)%
|
|
|
(1.98
|
)%
|
|
|
2.78
|
%
|
|
|
|
|
August
|
|
|
(2.65
|
)%
|
|
|
5.13
|
%
|
|
|
2.50
|
%
|
|
|
(2.35
|
)%
|
|
|
14.56
|
%
|
|
|
|
|
September
|
|
|
(1.36
|
)%
|
|
|
0.40
|
%
|
|
|
0.11
|
%
|
|
|
1.38
|
%
|
|
|
(3.60
|
)%
|
|
|
|
|
October
|
|
|
1.78
|
%
|
|
|
(3.90
|
)%
|
|
|
2.96
|
%
|
|
|
3.17
|
%
|
|
|
7.70
|
%
|
|
|
|
|
November
|
|
|
3.88
|
%
|
|
|
0.62
|
%
|
|
|
17.37
|
%
|
|
|
(8.77
|
)%
|
|
|
(11.05
|
)%
|
|
|
|
|
December
|
|
|
9.61
|
%
|
|
|
(4.34
|
)%
|
|
|
(10.16
|
)%
|
|
|
1.32
|
%
|
|
|
(5.73
|
)%
|
|
|
|
|
Annual Rate of Return
|
|
|
20.88
|
%
|
|
|
(21.19
|
)%
|
|
|
10.80
|
%
|
|
|
(17.84
|
)%
|
|
|
(8.19
|
)%
|
|
|
8.14
|
%**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
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
February 28, 2021.
|
Draw-down:
Losses experienced by UNL over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect
intra-month figures.
Worst
Monthly Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.
Worst
Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share over the history of UNL. This need not be a continuous
decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns.
Worst Peak-to-Valley Draw-down represents the greatest cumulative percentage decline in month-end per share NAV is not equaled
or exceeded by a subsequent month-end per share NAV.
UNL’S Operations
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
Wainwright, which is an intermediate holding company that owns USCF and another advisor of exchange traded funds. Wainwright is
a wholly owned subsidiary of Concierge (publicly traded under the ticker CNCG), 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 Concierge. Wainwright 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”), 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 SHPEI Index Fund (“BUY”), until October 2020, and the USCF SummerHaven
SHPEN Index Fund (“BUYN”), until May 2020. USCF ETF Trust and USCF Mutual Funds Trust are registered under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Board of Trustees for the USCF ETF Trust and USCF Mutual Funds
Trust consist of different independent trustees than those independent directors who serve on the Board of Directors of USCF.
USCF is a member of the National Futures Association (the “NFA”) and registered as a commodity pool operator (“CPO”)
with the Commodity Futures Trading Commission (the “CFTC”) on December 1, 2005 and as a swaps firm on August 8, 2013.
USCF
serves as the general partner of UNL. USCF is also the general partner of the United States Oil Fund, LP (“USO”),
the United States Natural Gas Fund, LP (“UNG”), the United States 12 Month Oil Fund, LP (“USL”) and the
United States Gasoline Fund, LP (“UGA”), and United States Brent Oil Fund, LP (“BNO”).
USCF
is also the sponsor of the United States Commodity Index Fund (“USCI”), the United States Copper Index Fund (“CPER”),
and the USCF Crescent Crypto Index Fund (“XBET”), each a series of the United States Commodity Index Funds Trust (“USCIFT”).
A registration statement that had been previously filed for XBET was withdrawn on June 25, 2020.
In addition,
USCF is the sponsor of the USCF Funds Trust, a Delaware statutory trust, and each of its series, the United States 3x Oil Fund
(“USOU”) and the United States 3x Short Oil Fund (“USOD”), which listed their shares on the NYSE Arca
on July 20, 2017 under the ticker symbols “USOU” and “USOD”, respectively. Each of USOU and USOD liquidated
all of its assets and distributed cash pro rata to all remaining shareholders in December 2019.
UNL,
UNG, UGA, BNO, USL, USO, USCI and CPER 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 “Exchange
Act”) and, if registered under the 1940 Act, a Related Public Fund also must comply with the reporting requirements under
the 1940 Act. For more information about each of the Related Public Funds, investors in UNL may call 1-800-920-0259 or visit www.uscfinvestments.com
or the SEC website at www.sec.gov.
USCF
is required to evaluate the credit risk of UNL to the FCMs, oversee the purchase and sale of UNL’s shares by certain authorized
participants (“Authorized Participants”), review daily positions and margin requirements of UNL and manage UNL’s
investments. USCF also pays the fees of ALPS Distributors, Inc., which serves as the marketing agent for UNL (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 UNL. 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 limited
partners take no part in the management or control, and have a minimal voice in UNL’s operations or business. Limited partners
have no right to elect USCF on an annual or any other continuing basis. If USCF voluntarily withdraws, however, the holders of
a majority of UNL’s outstanding shares (excluding for purposes of such determination shares owned, if any, by the withdrawing
general partner and its affiliates) may elect its successor. USCF may not be removed as general partner except upon approval by
the affirmative vote of the holders of at least 66 2/3 percent of UNL’s outstanding shares (excluding shares, if any, owned
by USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
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 UNL. 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 UNL’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 Finance
Expert” as such term is defined in Item 407(d)(5) of Regulation S-K.
UNL has
no executive officers. Pursuant to the terms of the LP Agreement, UNL’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, 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, Carolyn M. Yu and Wainwright Holdings, Inc. The individuals who are Principals due to
their positions are 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, Ray W. Allen, Kevin A. Baum and Carolyn M. Yu. In addition, Wainwright is a Principal because
it is the sole member of USCF. None of the Principals owns or has any other beneficial interest in UNL. Ray W. Allen and Kevin
Sheehan make trading and investment decisions for UNL. Ray W. Allen, Andrew F Ngim and Kevin Sheehan execute trades on behalf
of UNL. In addition, Nicholas D. Gerber, John P. Love, Robert L. Nguyen, Ray W. Allen, Kevin A. Baum, Kevin Sheehan, 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, Kevin Sheehan and Ray W. Allen are also registered with the CFTC as Swaps Associated Persons.
Ray
W. Allen, 64, 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) USOU and USOD 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,
50, 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, and, as of January 2017, a branch manager of USCF. As of February 2017, he also is an associated
person and branch manager 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, 57, Chief Financial Officer, Secretary and Treasurer of USCF since May 2015 and also the Chief Financial
Officer of Concierge, the parent of Wainwright Holdings, Inc. (“Wainwright”)
since December 2017. He is also the Treasurer and a member of the Board of Directors of Marygold & Co., a subsidiary of Concierge,
since November 2019. In addition, Mr. Crumbaugh has served as a director of Wainwright, 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).
Nicholas D. Gerber,
58, 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 Concierge, which is a company publicly traded
under the ticker symbol “CNCG.” Concierge is the sole shareholder of Wainwright. He is also the CEO and a member of the Board
of Directors of Marygold & Co., a subsidiary of Concierge, since November 2019. Mr. Gerber also is the President and a director of
Wainwright, 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 and
a Branch Manager of USCF since May 2009. 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 branch manager of USCF Advisers. Mr. Gerber was previously a swap associated
person of USCF Advisers, from February 2017 through March 2020. 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, 49, 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 Wainwright, 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. Mr. Love has also been registered as a branch manager of USCF since
March 2016. 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, swap associated
person, and branch manager 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,
60, 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, 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.
Robert
L. Nguyen, 61, Management Director and principal since July 2015. Mr. Nguyen served on the Board of Wainwright 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.
Carolyn
M. Yu, 62, Chief Compliance Officer of USCF since February 2013. In addition, she served USCF as the General Counsel from
May 2015 through April 2018 and the Assistant General Counsel from August 2011 through April 2015. Ms. Yu also served as the General
Counsel of Concierge, the parent of Wainwright from November 2017 through December 2018. Ms. Yu has served as (1) Chief Compliance
Officer of USCF Advisers and USCF ETF Trust since May 2015 and of USCF Mutual Funds Trust since October 2016, (2) Chief AML Officer
of USCF ETF Trust since May 2015 and of USCF Mutual Funds Trust since October 2016, and (3) Chief Legal Officer of USCF Advisers
and USCF ETF Trust from May 2015 through April 2018 and of USCF Mutual Funds Trust from October 2016 through April 2018. Prior
to May 2015, Ms. Yu was the Assistant Chief Compliance Officer and AML Officer of the USCF ETF Trust. Since August 2013, in the
case of USCF, and January 2017, in the case of USCF Advisers LLC, Ms. Yu has been a principal listed with the CFTC and NFA. USCF
Advisers LLC, 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. Ms. Yu earned her JD from Golden Gate University
School of Law and a B.S. in business administration from San Francisco State University.
Gordon
L. Ellis, 74, 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 develops gold mining properties and is currently driving an arbitration suit against the Republic of Peru. He has also served
as a director of Goldhaven Resources, a firm that acquires, explores and develops copper mining properties in 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 and earned an MBA in international finance.
Malcolm
R. Fobes III, 56, 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,
63, 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.
UNL’s Service Providers
Custodian, Registrar, Transfer
Agent, and Administrator
In its
capacity as the Custodian for UNL, The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) holds
UNL’s Treasuries, cash and/or cash equivalents pursuant to a custodial agreement. In addition, in its capacity as Administrator
for UNL, BNY Mellon performs certain administrative and accounting services for UNL and prepares certain SEC, NFA and CFTC reports
on behalf of UNL.
As compensation
for the services that BNY Mellon provides to UNL 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 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.
Marketing Agent
UNL 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.
ALPS
Distributors’ principal business address is 1290 Broadway, Suite 1000, Denver, CO 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 UNL 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 UNL’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 UNL or the Related Public Funds.
Futures Commission Merchants
RBC Capital
Markets, LLC
On October
8, 2013, USCF entered into a Futures and Cleared Derivatives Transactions Customer Account Agreement with RBC Capital Markets,
LLC (“RBC Capital” or “RBC”) to serve as UNL’s FCM, effective October 10, 2013. This agreement requires
RBC Capital to provide services to UNL, as of October 10, 2013, in connection with the purchase and sale of Futures Contracts
and Other Natural Gas-Related Investments that may be purchased or sold by or through RBC Capital for UNL’s account. For
the period October 10, 2013 and after, UNL pays RBC Capital commissions for executing and clearing trades on behalf of UNL.
RBC Capital’s
primary address is 3 World Financial Center, 200 Vesey St., New York, NY 10281. Effective October 10, 2013, RBC Capital became
the futures clearing broker for UNL. 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.
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 RBCCM for the above activity, as well as related charges. The order required that RBCCM 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.
On June
18, 2015, in connection with the Municipalities Continuing Disclosure Cooperation initiative of the SEC, the SEC commenced and
settled an administrative proceeding against RBC Capital for willful violations of Sections 17(a)(2) of the 1933 Act after the
firm self-reported instances in which it conducted inadequate due diligence in certain municipal securities offerings and as a
result, failed to form a reasonable basis for believing the truthfulness of certain material representations in official statements
issued in connection with those offerings. RBC Capital paid a fine of $500,000.
RBC Capital
and certain affiliates were named as defendants in a lawsuit relating to their role in transactions involving investments made
by a number of Wisconsin school districts in certain collateralized debt obligations. These transactions were also the subject
of a regulatory investigation, which was resolved in 2011. RBC Capital reached a final settlement with all parties in the civil
litigation, and the civil action against RBC Capital was dismissed with prejudice on December 6, 2016.
Beginning in
2015, putative class actions were brought against RBC Capital and/or Royal Bank of Canada in the U.S., Canada and Israel. These
actions were each brought against multiple foreign exchange dealers and allege, among other things, collusive behavior in foreign
exchange trading. Various regulators are also conducting inquiries regarding potential violations of law by a number of banks
and other entities, including RBC Capital, regarding foreign exchange trading. In August 2018, the U.S. District Court entered
a final order approving RBC Capital’s pending settlement with class plaintiffs. Certain institutional plaintiffs opted out
of participating in the settlement and have brought their own claims. In May 2020, the U.S. District Court dismissed RBC Capital
from the opt-out action, but granted the plaintiffs’ motion to amend the complaint. The Canadian class actions, one
other U.S. action that is purportedly brought on behalf of different classes of plaintiffs, and an action filed in Israel 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. Based on the facts currently
known, it is not possible at this time for us to predict the ultimate outcome of these investigations or proceedings or the timing
of their resolution.
On July
31, 2015, RBC Capital was added as a new defendant in a pending putative class action initially filed in November 2013 in the
United States District Court for the Southern District of New York. The action is brought against multiple foreign exchange dealers
and alleges collusive behavior, among other allegations, in foreign exchange trading. Based on the facts currently known, the
ultimate resolution of these collective matters is not expected to have a material adverse effect on RBC.
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. The acquittals are being appealed.
Various
regulators and competition and enforcement authorities around the world, including in Canada, the United Kingdom, and the U.S.,
are conducting investigations related to certain past submissions made by panel banks in connection with the setting of the U.S.
dollar London interbank offered rate (“LIBOR”). These investigations focus on allegations of collusion between the
banks that were on the panel to make submissions for certain LIBOR rates. Royal Bank of Canada, RBC Capital’s indirect parent,
is a member of certain LIBOR panels, including the U.S. dollar LIBOR panel, and has in the past been the subject of regulatory
requests for information. In addition, Royal Bank of Canada and other U.S. dollar panel banks have been named as defendants in
private lawsuits filed in the U.S. with respect to the setting of 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. The complaints in those private lawsuits
assert claims against us and other panel banks under various U.S. laws, including U.S. antitrust laws, the CEA, and state law.
On February 28, 2018, the motion by the plaintiffs in the class action lawsuits to have the class certified was denied in relation
to Royal Bank of Canada. As such, unless that ruling is reversed on appeal, Royal Bank of Canada is no longer a defendant in any
pending class action. Royal Bank of Canada is still a party to the various individual LIBOR actions.
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. anti-trust 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. On April 24, 2020, the plaintiffs filed a notice of appeal. In August 2020, RBC Capital settled an individual LIBOR
action brought by the City of Philadelphia. Based on the facts currently known, it is not possible at this time for us to predict
the ultimate outcome of these investigations or proceedings or the timing of their resolution.
Thornburg
Mortgage Inc. (“TMST”) and RBC Capital were parties to a master repurchase agreement executed in September 2003 whereby
TMST financed its purchase of residential mortgage-backed securities. Upon TMST’s default during the financial crisis, RBC
Capital valued TMST’s collateral at allegedly deflated prices. After TMST’s bankruptcy filing, TMST’s trustee
brought suit against RBC Capital in 2011 for breach of contract. In 2015, TMST was awarded more than $45 million in damages. RBC
Capital has appealed. The appeals court set a briefing schedule and simultaneously ordered the parties to participate in a mediation.
The parties subsequently reached an agreement to settle the matter; a motion to approve the settlement was filed with the bankruptcy
court on January 10, 2016 and granted on February 27, 2017. On October 14, 2014, the Delaware Court of Chancery (the “Court
of Chancery”) in a class action brought by former shareholders of Rural/Metro Corporation, held RBC Capital liable for aiding
and abetting a breach of fiduciary duty by three Rural/Metro directors, but did not make an additional award for attorney’s
fees. A final judgment was entered on February 19, 2015 in the amount of US$93 million plus post judgment interest. RBC Capital
appealed the Court of Chancery’s determination of liability and quantum of damages, and the plaintiffs cross-appealed the
ruling on additional attorneys’ fees. On November 30, 2015, the Delaware Supreme Court affirmed the Court of Chancery with
respect to both the appeal and cross-appeal. RBC Capital is cooperating with an investigation by the SEC relating to this matter.
In particular, the SEC contended that RBC Capital caused materially false and misleading information to be included in the proxy
statement that Rural filed to solicit shareholder approval for the sale in violation of section 14(A) of the Exchange Act and
Rule 14A-9 thereunder. On August 31, 2016, RBC Capital was ordered by the SEC to cease and desist and paid $500,000 in disgorgement,
plus interest of $77,759 and a civil penalty of $2 million.
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 UNL and as such will be paid commissions for executing and clearing trades on behalf of UNL.
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 UNL.
RBC Capital
is not affiliated with UNL or USCF. Therefore, neither USCF nor UNL believes that there are any conflicts of interest with RBC
Capital or its trading principals arising from its acting as UNL’s FCM.
RCG Division of Marex Spectron
On May
28, 2020, UNL entered into a Commodity Futures Customer Agreement with RCG Division of Marex Spectron (“RCG”) to serve
as an FCM for UNL. This agreement requires RCG to provide services to UNL in connection with the purchase and sale of Futures
Contracts and Other Natural Gas-Related Investments that may be purchased or sold by or through RCG for UNL’s account. Under
this agreement, UNL pays RCG commissions for executing and clearing trades on behalf of UNL.
RCG’s
primary address is 360 Madison Avenue, 3rd Floor, New York, NY 10017. RCG is registered in the United States with
FINRA as a broker-dealer and with the CFTC as an FCM. RCG is a member of various U.S. futures and securities exchanges.
RCG is
a large broker dealer subject to many different complex legal and regulatory requirements. Other than as set forth below, as
a result, certain of RCG’s regulators may from time to time conduct investigations, initiate enforcement proceedings
and/or enter into settlements with RCG with respect to issues raised in various investigations. RCG complies fully with its regulators
in all investigations which may be conducted and in all settlements it may reach. As of the date hereof, RCG has no material litigation
to disclose as that term is defined under the CEA and the regulations promulgated thereunder.
On September 23, 2020, without
admitting or denying the CFTC’s findings or conclusions, RCG settled a CFTC administrative action arising out of RCG’s
failure to include regulatory capital deductions in its capital computation in connection with an agreement to guarantee a revolving
line of credit for an affiliated company. The CFTC alleged that, from June 2015 until June 2019, RCG failed to include a regulatory
capital deduction in its capital computation equal to the amounts drawn under the credit facility by its United Kingdom affiliate.
In connection with the settlement, RCG paid a civil monetary penalty of $250,000.
RCG will
act only as clearing broker for UNL and as such will be paid commissions for executing and clearing trades on behalf of UNL. RCG
has not passed upon the adequacy or accuracy of this disclosure document. RCG will not act in any supervisory capacity with respect
to USCF or participate in the management of USCF or UNL.
RCG is
not affiliated with UNL or USCF. Therefore, neither USCF nor UNL believes that there are any conflicts of interest with RCG or
its trading principals arising from its acting as UNL’s FCM.
E D & F Man Capital
Markets Inc.
On June
5, 2020, UNL entered into a Customer Agreement E D & F Man Capital Markets Inc. (“MCM”) to serve as an FCM for
UNL. This agreement requires MCM to provide services to UNL in connection with the purchase and sale of Futures Contracts and
Other Natural Gas-Related Investments that may be purchased or sold by or through MCM for UNL’s account. Under this agreement,
UNL pays MCM commissions for executing and clearing trades on behalf of UNL.
MCM’s
primary address is 140 East 45th Street, 10th Floor, New York, NY 10017. MCM is registered in the United States with FINRA as
a broker-dealer and with the CFTC as an FCM. MCM is a member of various U.S. futures and securities exchanges.
MCM is
a large broker dealer subject to many different complex legal and regulatory requirements. As a result, certain of MCM’s
regulators may from time to time conduct investigations, initiate enforcement proceedings and/or enter into settlements with MCM
with respect to issues raised in various investigations. MCM complies fully with its regulators in all investigations which may
be conducted and in all settlements it may reach. Other than as indicated below, there have been no material civil, administrative,
or criminal proceedings pending, on appeal, or concluded against MCM or its principals in the past five (5) years.
United
States District Court for the Southern District of New York, Civil Action No. 19-CV-8217. In a private litigation, plaintiffs
allege, among other things, that MCM made certain fraudulent misrepresentations to them that they relied upon in connection with
a futures account carried by MCM in its capacity as an FCM. The plaintiffs allege claims of common law fraud, negligence, breach
of fiduciary duty, breach of contract, breach of the duty of good faith and fair dealing and misrepresentation/omission.
JAMS
Arbitration. In a JAMS arbitration, claimants seek monetary damages relating to trading losses in claimants’ futures trading
accounts carried by MCM. JAMS is a private alternative dispute resolution provider that handles mediations and arbitrations in
the United States and other jurisdictions. The MCM accounts at issue were traded pursuant to a power of attorney granted by the
claimants to a registered commodity trading advisor. The claimants seek compensatory damages, punitive damages, disgorgement of
commissions and margin interest, and forgiveness of margin debt plus interest, costs and attorneys’ fees.
FINRA
Arbitration. In a FINRA arbitration, claimants seek monetary damages relating to trading losses in claimants’ equity trading
account carried by MCM. The account was a portfolio margin account and the claimants allege losses relating to the risk parameters
and margin applied to the account. The claimants seek compensatory damages plus interest, costs and attorneys’ fees.
MCM will
act only as clearing broker for UNL and as such will be paid commissions for executing and clearing trades on behalf of UNL. MCM
has not passed upon the adequacy or accuracy of this disclosure document. MCM will not act in any supervisory capacity with respect
to USCF or participate in the management of USCF or UNL.
MCM is
not affiliated with UNL or USCF. Therefore, neither USCF nor UNL believes that there are any conflicts of interest with MCM or
its trading principals arising from its acting as UNL’s FCM.
Macquarie Futures USA LLC
On December
3, 2020, UNL engaged Macquarie Futures USA LLC (“MFUSA”) to serve as an additional FCM. The Customer Agreement between
UNL and MFUSA requires MFUSA to provide services to UNL in connection with the purchase and sale of futures contracts for natural
gas and Other Natural Gas-Related Investments that may be purchased or sold by or through MFUSA for UNL’s account. Under
this agreement, UNL pays MFUSA commissions for executing and clearing trades on behalf of UNL.
MFUSA’s
primary address is 125 West 55th Street, New York, NY 10019. MFUSA is registered in the United States with the
CFTC as an FCM providing futures execution and clearing services covering futures exchanges globally. MFUSA is a member of various
U.S. futures and securities exchanges.
MFUSA
is a large broker dealer subject to many different complex legal and regulatory requirements. As a result, certain of MFUSA’s
regulators may from time to time conduct investigations, initiate enforcement proceedings and/or enter into settlements with MFUSA
with respect to issues raised in various investigations. MFUSA complies fully with its regulators in all investigations which
may be conducted and in all settlements it may reach. As of the date hereof, MFUSA has no material litigation to disclose as that
term is defined under the CEA and the regulations promulgated thereunder.
MFUSA
will act only as clearing broker for UNL and as such will be paid commissions for executing and clearing trades on behalf of UNL.
MFUSA has not passed upon the adequacy or accuracy of this disclosure document. MFUSA will not act in any supervisory capacity
with respect to USCF or participate in the management of USCF or UNL.
MFUSA
is not affiliated with UNL or USCF. Therefore, neither USCF nor UNL believes that there are any conflicts of interest with MFUSA
or its trading principals arising from its acting as UNL’s FCM.
Commodity Trading Advisor
Currently,
USCF does not employ commodity trading advisors for the trading of UNL contracts. USCF currently does, however, employ SummerHaven
Investment Management, LLC as a commodity trading advisor for USCF’s own account and for USCI and CPER. If, in the future,
USCF does employ commodity trading advisors for UNL, it will choose each advisor based on arm’s-length negotiations and
will consider the advisor’s experience, fees and reputation.
UNL’s Fees and Expenses
This table
describes the fees and expenses that you may pay if you buy and hold shares of UNL. You should note that you may pay brokerage
commissions on purchases and sales of UNL’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 66.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees(1)
|
|
|
0.75
|
%
|
Other Expenses(1)
|
|
|
1.41
|
%
|
Expense Waiver(2)
|
|
|
(1.26
|
)%
|
Net Expenses Excluding Management Fees
|
|
|
0.15
|
%
|
Total Annual Fund Operating Expenses After Fee Waiver
|
|
|
0.90
|
%
|
|
|
|
|
|
(1)
|
Based
on amounts for the year ended December 31, 2020, which is incorporated by reference into
this prospectus. See “Incorporation By Reference of Certain Information,”
page 69. 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
|
|
$
|
35,924
|
|
Professional Expenses
|
|
$
|
62,653
|
|
Brokerage commissions
|
|
$
|
1,633
|
|
Independent Director and Officer Expenses
|
|
$
|
2,711
|
|
License fees
|
|
$
|
718
|
|
|
|
|
|
|
These amounts are based
on UNL’s average total net assets, which are the sum of daily total net assets of UNL divided by the number of calendar
days in the year. For the year ended December 31, 2020, UNL’s average total net assets were $4,790,202.
|
(2)
|
USCF
has voluntarily agreed to pay certain expenses typically borne by UNL. USCF has no obligation
to continue such payment. If this agreement were terminated, the Annual Fund Operating
Expenses could increase, which would negatively impact your total return from an investment
in UNL.
|
Breakeven
Analysis
The breakeven
analysis below indicates the approximate dollar returns and percentage required for the redemption value of a hypothetical initial investment
in a single share to equal the amount invested twelve months after the investment was made. For purposes of this breakeven analysis,
we have assumed an initial selling price of $8.37 per share which equals the NAV per share on February 28, 2021. In order for a hypothetical
investment in shares to break even over the next 12 months, assuming a selling price of $8.37, the investment would have to generate
a 0.454% return or $0.038, rounded to $0.04. The amount for this breakeven analysis takes into account a fee waiver,
which USCF may terminate at any time in its discretion.
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.
Assumed initial selling price per share(1)
|
|
$
|
8.37
|
|
Management Fee (0.750%)(2)
|
|
$
|
0.063
|
|
Creation Basket Fee (0.01%)(3)
|
|
$
|
(0.001
|
)
|
Estimated Brokerage Fee 0.03%(4)
|
|
$
|
0.003
|
|
Interest Income 0.443%(5)
|
|
$
|
(0.037
|
)
|
New York Mercantile Exchange Licensing Fee 0.015%(6)
|
|
$
|
0.001
|
|
Independent Director and Officer Expenses (0.057%)(7)
|
|
$
|
0.005
|
|
Professional Expenses 1.308%(8)
|
|
$
|
0.109
|
|
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
|
|
$
|
0.143
|
|
Percentage of initial selling price per share
|
|
|
1.708
|
%
|
Expense Waiver (1.26)%(9)
|
|
$
|
(0.105
|
)
|
Amount of trading income (loss) required for the redemption value at the end
of one year to equal the initial selling price of the unit (inclusive of credit)
|
|
$
|
0.038
|
|
Percentage of initial selling price per unit (inclusive of credit)
|
|
|
0.454
|
%
|
|
|
|
|
|
(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 $8.37 per
share, which is based on the NAV per share for UNL at the close of trading on February
28, 2021. Investors should note that, because UNL’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)
|
UNL
is contractually obligated to pay USCF a management fee of 0.750% per annum on its average
total net assets. “Average total net assets” are the sum of the daily total
net assets of UNL (the NAV of UNL calculated as set forth in “Calculating Per Share
NAV” beginning on page 62) 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 3 for a discussion of net assets
of UNL.
|
|
(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 UNL calculated on an annualized basis
and includes an estimated half-turn commission of $3.50. A half-turn commission is the
commissions liability related to FCM transaction fees for futures contracts on a half-turn
basis.
|
|
(5)
|
Interest
earned on UNL’s assets, including its Treasuries holdings.
|
|
(6)
|
The
NYMEX Licensing Fee is 0.015% of the aggregate net assets of UNL and the Related Public
Funds (except for BNO, USCI, and CPER). For more information see “UNL’s Fees
and Expenses.”
|
|
(7)
|
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 UNL as
of December 31, 2020, which were $4,790,202, were aggregated with the average total net
assets of the Related Public Funds as of December 31, 2020, that the aggregate fees paid
to the independent directors for the year ended December 31, 2020 was $585,896 and that
the allocable portion of the fees borne by UNL based on the proportion of its average
total net assets when aggregated with the average total net assets of the Related Public
Funds equals $2,711.
|
|
(8)
|
Professional
Expenses include expenses for legal, audit, tax accounting and printing. UNL estimates
the costs attributable to Professional Expenses for the year ended December 31, 2020
is $62,653. The number in the break-even table assumes UNL had $4,790,202 in average
total net assets during the calendar year ended December 31, 2020.
|
|
(9)
|
USCF
has voluntarily agreed to pay certain expenses typically borne by UNL.
|
Conflicts of Interest
There
are present and potential future conflicts of interest in UNL’s structure and operation you should consider before you purchase
shares. USCF will use this notice of conflicts as a defense against any claim or other proceeding made. If USCF is not able to
resolve these conflicts of interest adequately, it may impact UNL and the Related Public Funds’ ability to achieve their
investment objectives.
UNL and
USCF may have inherent conflicts to the extent USCF attempts to maintain UNL’s asset size in order to preserve its fee income
and this may not always be consistent with UNL’s objective of having the value of its share’s NAV track changes in
the average price of the Benchmark Futures Contracts.
USCF’s
officers, directors and employees, do not devote their time exclusively to UNL. These persons are directors, officers or employees
of other entities which may compete with UNL for their services, including the Related Public Funds. They could have a conflict
between their responsibilities to UNL and to those other entities.
USCF has
adopted policies that prohibit their principals, officers, directors and employees from trading futures and related contracts
in which either UNL or any of the Related Public Funds invests. These policies are intended to prevent conflicts of interest occurring
where USCF, or their principals, officers, directors or employees could give preferential treatment to their own accounts or trade
their own accounts ahead of or against UNL or any of the Related Public Funds.
USCF has
sole current authority to manage the investments and operations of UNL, and this may allow it to act in a way that furthers its
own interests which may create a conflict with your best interests. Limited partners have limited voting control, which will limit
their ability to influence matters such as amendment of the LP Agreement, change in UNL’s basic investment policy, dissolution
of UNL, or the sale or distribution of UNL’s assets.
USCF
serves as the general partner to UNL and general partner or sponsor to the Related Public Funds. USCF may have a conflict to the
extent that its trading decisions for UNL may be influenced by the effect they would have on the other funds it manages. By way
of example, if, as a result of reaching position limits imposed by the NYMEX, UNL purchased gasoline futures contracts, this decision
could impact UNL’s ability to purchase additional gasoline futures contracts, if the number of contracts held by funds managed
by USCF reached the maximum allowed by the NYMEX. Similar situations could adversely affect the ability of any fund to track its
benchmark futures contract.
In addition,
USCF is required to indemnify the officers and directors of the other 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.
Whenever
a conflict of interest exists or arises between USCF on the one hand, and the partnership or any limited partner, on the other
hand, any resolution or course of action by USCF in respect of such conflict of interest shall be permitted and deemed approved
by all partners and shall not constitute a breach of the LP Agreement or of any agreement contemplated hereby or of a duty stated
or implied by law or equity, if the resolution or course of action is, or by operation of the LP Agreement is deemed to be, fair
and reasonable to the partnership. If a dispute arises, under the LP Agreement it will be resolved either through negotiations
with USCF or by courts located in the State of Delaware.
Under
the LP Agreement, any resolution is deemed to be fair and reasonable to the partnership if the resolution is:
|
·
|
approved
by the audit committee, although no party is obligated to seek approval and USCF may
adopt a resolution or course of action that has not received approval;
|
|
·
|
on
terms no less favorable to the limited partners than those generally being provided to
or available from unrelated third parties; or
|
|
·
|
fair
to the limited partners, taking into account the totality of the relationships of the
parties involved including other transactions that may be particularly favorable or advantageous
to the limited partners.
|
The previous
risk factors and conflicts of interest are complete as of the date of this prospectus; however, additional risks and conflicts
may occur which are not presently foreseen by USCF. You may not construe this prospectus as legal or tax advice. Before making
an investment in this fund, you should read this entire prospectus, which can be found on UNL’s website at www.uscfinvestments.com.
You should also consult with your personal legal, tax, and other professional advisors.
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 UNL
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 UNL.
Ownership or Beneficial
Interest in UNL
As of
February 28, 2021, neither USCF nor any of the directors or executive officers of USCF own any shares of UNL. In addition, as
of such date, UNL is not aware of any 5% holder of its shares.
USCF’s Responsibilities
and Remedies
Pursuant
to the DRULPA (“Delaware Revised Uniform Limited Partnership Act”), parties may contractually modify or even eliminate
fiduciary duties in a limited partnership agreement to the limited partnership itself, or to another partner or person otherwise
bound by the limited partnership agreement. Parties may not, however, eliminate the implied covenant of good faith and fair dealing.
Where parties unambiguously provide for fiduciary duties in a limited partnership agreement, those expressed duties become the
standard that courts will use to determine whether such duties were breached. For this reason, UNL’s limited partnership
agreement does not explicitly provide for any fiduciary duties so that common law fiduciary duty principles will apply to measure
USCF’s conduct.
A prospective
investor should be aware that USCF has a responsibility to limited partners of UNL to exercise good faith and fairness in all
dealings. The fiduciary responsibility of USCF to limited partners is a developing and changing area of the law and limited partners
who have questions concerning the duties of USCF should consult with their counsel. In the event that a limited partner of UNL
believes that USCF has violated its fiduciary duty to the limited partners, he may seek legal relief individually or on behalf
of UNL under applicable laws, including under DRULPA and under commodities laws, to recover damages from or require an accounting
by USCF. Limited partners may also have the right, subject to applicable procedural and jurisdictional 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. Limited partners who have suffered losses in connection with the purchase or sale of the shares may be
able to recover such losses from USCF where the losses result from a violation by USCF of the federal securities laws. State securities
laws may also provide certain remedies to limited partners.
Limited
partners should be aware that performance by USCF of its fiduciary duty to is measured by the terms of the LP Agreement as well
as applicable law. Limited partners are afforded certain rights to institute reparations proceedings under the CEA for violations
of the CEA or of any rule, regulation or order of the CFTC by USCF.
Liability and Indemnification
Under
the LP Agreement, neither a general partner nor any employee or other agent of UNL nor any officer, director, stockholder, partner,
employee or agent of a general partner (a “Protected Person”) shall be liable to any partner or UNL for any mistake
of judgment or for any action or inaction taken, nor for any losses due to any mistake of judgment or to any action or inaction
or to the negligence, dishonesty or bad faith of any officer, director, stockholder, partner, employee, agent of UNL or any officer,
director, stockholder, partner, employee or agent of such general partner, provided that such officer, director, stockholder,
partner, employee, or agent of the partner or officer, director, stockholder, partner, employee or agent of such general partner
was selected, engaged or retained by such general partner with reasonable care, except with respect to any matter as to which
such general partner shall have been finally adjudicated in any action, suit or other proceeding not to have acted in good faith
in the reasonable belief that such Protected Person’s action was in the best interests of UNL and except that no Protected
Person shall be relieved of any liability to which such Protected Person would otherwise be subject by reason of willful misfeasance,
gross negligence or reckless disregard of the duties involved in the conduct of the Protected Person’s office.
UNL shall,
to the fullest extent permitted by law, but only out of UNL assets, indemnify and hold harmless a general partner and each officer,
director, stockholder, partner, employee or agent thereof (including persons who serve at UNL’s request as directors, officers
or trustees of another organization in which UNL has an interest as a shareholder, creditor or otherwise) and their respective
Legal Representatives and successors (hereinafter referred to as a “Covered Person”) against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees
reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceedings,
whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter,
by reason of an alleged act or omission as a general partner or director or officer thereof, or by reason of its being or having
been such a general partner, director or officer, except with respect to any matter as to which such Covered Person shall have
been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief
that such Covered Person’s action was in the best interest of UNL, and except that no Covered Person shall be indemnified
against any liability to UNL or limited partners to which such Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s
office. Expenses, including counsel fees so incurred by any such Covered Person, may be paid from time to time by UNL in advance
of the final disposition of any such action, suit or proceeding on the condition that the amounts so paid shall be repaid to UNL
if it is ultimately determined that the indemnification of such expenses is not authorized hereunder.
Meetings
Meetings
of limited partners may be called by USCF and may be called by it upon the written request of limited partners holding at least
20% of the outstanding shares of UNL. USCF shall deposit written notice to all limited partners 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. USCF may also call a meeting upon not less than 20 and not more than 60 days prior notice.
Each
limited partner appoints USCF and each of its authorized officers as its attorney-in-fact with full power and authority in its
name, place and stead to execute, swear to, acknowledge, deliver, file and record all ballots, consents, approval waivers, certificates
and other instruments necessary or appropriate, in the sole discretion of USCF, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by the partner of UNL. However, when the LP Agreement
establishes a percentage of the limited partners required to take any action, USCF may exercise such power of attorney made only
after the necessary vote, consent or approval of the limited partners.
Termination Events
UNL will
dissolve at any time upon the happening of any of the following events:
|
·
|
The
bankruptcy, dissolution, withdrawal, or removal of USCF, unless a majority in interest
of the limited partners within 90 days after such event elects to continue UNL and appoints
a successor general partner; or
|
|
·
|
The
affirmative vote of a majority in interest of the limited partners, provided that prior
to or concurrently with such vote, there shall have been established procedures for the
assumption of UNL’s obligations arising under any agreement to which UNL is a party
and which is still in force immediately prior to such vote regarding termination, and
there shall have been an irrevocable appointment of an agent who shall be empowered to
give and receive notices, reports and payments under such agreements, and hold and exercise
such other powers as are necessary to permit all other parties to such agreements to
deal with such agent as if the agent were the sole owner of UNL’s interest, which
procedures are agreed to in writing by each of the other parties to such agreements.
|
Provisions
of Law
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 UNL 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 UNL 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.
Those
conditions require that no indemnification of USCF or any underwriter for UNL 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 membership 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 UNL, UNL has been informed that 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.
Books and Records
UNL keeps
its 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 at its office located at 50 Post Office Square, Boston, Massachusetts, 02110, 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 UNL’s satisfaction that such person is a limited partner upon reasonable advance notice
at all reasonable times during the usual business hours of UNL.
UNL keeps
a copy of UNL’s LP Agreement on file in its office which is available for inspection on reasonable advance notice at all
reasonable times during its usual business hours by any limited partner.
Statements, Filings, and
Reports
At the
end of each fiscal year, UNL 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 UNL’s audited financial statements
and other information about UNL. 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 UNL’s behalf.
The financial
statements of UNL 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 UNL to shareholders upon request. UNL 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.
Reports to Limited Partners
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 UNL’s website at www.uscfinvestments.com,
UNL, pursuant to the LP Agreement, will provide the following reports to limited partners in the manner prescribed below:
Annual
Reports. Within 90 days after the end of each fiscal year, USCF shall cause to be delivered to each limited partner who was
a limited partner at any time during the fiscal year, an annual report containing the following:
|
(i)
|
financial
statements of the partnership, including, without limitation, a balance sheet as of the
end of the partnership’s fiscal year and statements of income, partners’
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 partnership during the period covered by
the report, and
|
|
(iii)
|
a
report of any material transactions between the partnership and USCF or any of its affiliates,
including fees or compensation paid by the partnership 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 to each limited
partner who was a limited partner at any time during the quarter then ended, 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 partnership during the period covered by the report. The report
shall also contain a description of any material event regarding the business of the partnership during the period covered by
the report.
Monthly
Reports. Within 30 days after the end of each month, USCF shall cause to be posted on UNL’s website and upon request,
to be delivered to each limited partner who was a limited partner at any time during the month then ended, 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 partnership, USCF, commodity trading
advisor (if any), FCMs, or the principals thereof that previously have not been disclosed in this prospectus or any amendment
thereto, other account statements or annual reports.
UNL will
provide information to its shareholders to the extent required by applicable SEC, CFTC, and NYSE Arca requirements. An issuer,
such as UNL, of exchange-traded securities may not always readily know the identities of the investors who own those securities.
UNL will post the same information that would otherwise be provided in UNL’s reports to limited partners described above
including its monthly account statements, which will include, without limitation, UNL’s NAV, on UNL’s website www.uscfinvestments.com.
Fiscal Year
The fiscal
year of UNL is the calendar year. USCF may select an alternate fiscal year.
Governing Law; Consent
to Delaware Jurisdiction
The rights
of USCF, UNL, DTC (as registered owner of UNL’s global certificate for shares) and the shareholders, are governed by the
laws of the State of Delaware. USCF, UNL and DTC and, by accepting shares, each DTC Participant and each shareholder, consent
to the 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 or UNL.
Legal Matters
Litigation and Claims
From time to
time, UNL may be involved in legal proceedings arising primarily from the ordinary course of its business. UNL is not currently
party to any material legal proceedings. In addition, USCF, as the general partner of UNL and 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.
SEC and CFTC
Wells Notices
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 relates to USO’s disclosures in late April and early May regarding constraints imposed on USO’s ability to
invest in Oil Futures Contracts. The SEC Wells Notice states that the SEC staff has 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 1933 Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in each case with respect to its disclosures
and USO’s actions.
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 states that the CFTC staff has 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 CEA, 7 U.S.C. §§
6o(1)(A), (B), 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),
in each case with respect to its disclosures and USO’s actions.
A Wells Notice
is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. USCF, USO, and Mr.
Love maintain that USO’s disclosures and their actions were appropriate. They intend to vigorously contest the allegations
made by the SEC staff in the SEC Wells Notice and the CFTC staff in the CFTC Wells Notice.
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 Exchange 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 move 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”).
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 Exchange
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.
On September
9, 2020, the Court entered an order consolidating 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 appointing 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
Eversheds
Sutherland (US) LLP is counsel to and advises UNL 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 USCF 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 UNL as of December
31, 2020 and December 31, 2019, including the schedule of investments as of December 31, 2020 and 2019, and the related statements
of operations, changes in partners’ capital and cash flows for the years ended December 31, 2020, 2019 and 2018, that appear
in the annual report on Form 10-K that is incorporated by reference. The financial statements of UNL in the Form 10-K were included
herein in reliance upon the report of Spicer Jeffries LLP dated March 5, 2021, given on its authority of such firm as experts
in accounting and auditing.
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
UNL, and the U.S. federal income tax treatment of UNL, as of the date hereof. This discussion is applicable to a beneficial owner
of shares who purchases shares in the offering to which this prospectus relates, including a beneficial owner who purchases shares
from an Authorized Participant. Except where noted otherwise, it deals only with shares held as capital assets and does not deal
with special situations, such as those of dealers in securities 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 federal income tax purposes, traders in securities or commodities that elect to use a mark-to-market
method of accounting, 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 , as amended, and regulations (“Treasury Regulations”), rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result
in U.S. federal income tax consequences different from those discussed below.
Persons
considering the purchase, ownership or disposition of shares should consult their own tax advisors concerning the United States
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” of a share means a beneficial owner of a share that is a U.S. person. A “U.S. person,”
for United States federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its source or (iv) a trust (X) that is subject to the
supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30)
of the Code or (Y) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States
person. A “non-U.S. shareholder” is a holder that is not a U.S. shareholder and a “non-U.S. person” is
an individual or entity that is not a U.S. person. If a partnership holds our shares, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our
shares, you should consult your own tax advisor regarding the tax consequences.
USCF
on behalf of UNL, has received the opinion of Eversheds Sutherland (US) LLP, counsel to UNL, that the material U.S. federal income
tax consequences to UNL and to U.S. shareholders and non-U.S. shareholders will be as described below. In rendering its opinion,
Eversheds Sutherland (US) LLP has relied on the facts described in this prospectus as well as certain factual representations
made by UNL 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 tax positions taken by UNL. If challenged by the IRS, UNL’s tax positions might not be sustained by the courts.
No ruling has been requested from the IRS with respect to any matter affecting UNL or prospective investors.
EACH PROSPECTIVE
INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO HOW U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN UNL APPLY
TO YOU AND AS TO HOW THE APPLICABLE STATE, LOCAL OR FOREIGN TAXES APPLY TO YOU.
Tax Status of UNL
UNL is
organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law.
Under the Code, an entity classified as a partnership that is deemed to be a “publicly traded partnership” is generally
taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded
partnership whose gross income for each taxable year of its existence consists of at least 90% “qualifying income”
(“qualifying income exception”). For this purpose, section 7704 defines “qualifying income” as including,
in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital
assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which
is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities,
“qualifying income” includes income and gains from such commodities and futures, forwards and options with respect
to commodities. UNL and USCF have represented the following to Eversheds Sutherland (US) LLP:
|
·
|
At
least 90% of UNL’s gross income for each taxable year will constitute “qualifying
income” within the meaning of Code section 7704 (as described above);
|
|
·
|
UNL
is organized and operated in accordance with its governing agreements and applicable
law;
|
|
·
|
UNL
has not elected, and will not elect, to be classified as a corporation for U.S. federal
income tax purposes.
|
Based
in part on these representations, Eversheds Sutherland (US) LLP is of the opinion that UNL will be classified as a partnership
for federal income tax purposes and that it is not taxable as a corporation for such purposes. UNL’s taxation as a partnership
rather than a corporation will require USCF to conduct UNL’s business activities in such a manner that it satisfies the
qualifying income exception on a continuing basis. No assurance can be given that UNL’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
UNL’s ongoing compliance with these requirements and will have no obligation to advise UNL or UNL’s shareholders in
the event of any subsequent change in the facts, representations or applicable law relied upon in reaching its opinion.
If UNL
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, UNL would be taxable as a corporation for federal income tax purposes
and would pay federal income tax on its income at regular corporate rates. In that event, shareholders would not report their
share of UNL’s income or loss on their returns.
In addition,
distributions to shareholders would be treated as dividends to the extent of UNL’s current and accumulated earnings and
profits. Subject to holding period and other requirements, any such dividend would be a qualifying dividend subject to U.S. federal
income tax at the lower maximum tax rates applicable to long-term capital gains. To the extent a distribution exceeded UNL’s
earnings and profits, the distribution would be treated as a return of capital to the extent of a shareholder’s basis in
its shares, and thereafter as gain from the sale of shares. Accordingly, if UNL were to be taxable as a corporation, it would
likely have a material adverse effect on the economic return from an investment in UNL and on the value of the shares.
The remainder
of this summary assumes that UNL is classified as a partnership for federal income tax purposes and that it is not taxable as
a corporation.
U.S. Shareholders
Tax Consequences of Ownership
of Shares
Taxation
of UNL’s Income. No U.S. federal income tax is paid by UNL on its income. Instead, UNL 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 the income, gain,
loss, deduction and credit of UNL. For example, shareholders must take into account their share of ordinary income realized by
UNL from accruals of interest on Treasuries and other investments, and their share of gain from Natural Gas Interests. These items
must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from UNL
during the taxable year. Consequently, a shareholder may be allocated income or gain by UNL but receive no cash distribution with
which to pay its tax liability resulting from the 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 UNL realizes net income and/or gain
that a U.S. shareholder will be required to pay taxes on its allocable share of such income or gain from sources other than UNL
distributions. In addition, 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 net income from interest, dividends, annuities, royalties, and 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.
Allocations
of UNL’s Profit and Loss. 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 UNL, allocations of UNL income pursuant
to the Partnership Agreement should be considered as having substantial economic effect or as being in accordance with a shareholder’s
interest in UNL.
In general,
UNL applies a monthly closing-of-the-books convention in determining allocations of economic profit or loss to shareholders. Income,
gain, loss and deduction are determined on a monthly “mark-to-market” basis, taking into account our accrued income
and deductions and realized and unrealized gains and losses for the month. Items of taxable income, deduction, gain, loss and
credit recognized by UNL for federal income tax purposes for any taxable year are allocated among holders in a manner that equitably
reflects the allocation of economic profit or loss.
Under the monthly
allocation convention used by UNL, the 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 he is deemed to hold it 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. income tax returns in a manner that is consistent with the monthly allocation convention
as described above and with the IRS Schedule K-1 or any successor form provided to shareholders by UNL.
In addition,
for any month in which a Creation Basket is issued or a Redemption Basket is redeemed, UNL generally will credit or debit the
“book” capital accounts of its existing shareholders with any unrealized gain or loss on UNL’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
tax basis and fair market value of the assets of UNL 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 UNL’s assets existing at the time of a contribution or redemption
for book and tax purposes.
UNL applies
certain conventions in determining and allocating items for tax purposes in order to reduce the complexity and costs of administration.
USCF believes that application of these conventions is consistent with the intent of the partnership provisions of the Code and
the applicable Treasury Regulations, and that the resulting allocations will have substantial economic effect or otherwise should
be respected as being in accordance with shareholders’ interests in UNL for 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 UNL’s allocations methods on the ground that they do not satisfy the technical requirements off 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 method were respected. USCF is authorized to revise our allocation method to conform to any method permitted
under future Treasury Regulations.
The assumptions
and conventions used in making tax allocations may cause a shareholder to be allocated more or less income or loss for federal
income tax purposes than its proportionate share of the economic income or loss realized by UNL 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.
Section
754 Election. UNL has made the election permitted by section 754 of the Code, which election is irrevocable without the consent
of the Service. The effect of this election is that, in connection with secondary market sales, we adjust the purchaser’s
proportionate share of the tax basis of our assets to fair market value, as reflected in the price paid for the shares, as if
the purchaser had directly acquired an interest in our assets. The section 754 election is intended to eliminate disparities between
a partner’s basis in its partnership interest and its share of the 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 tax bases
of UNL’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 basis adjustments in a cost-effective manner, UNL will use certain simplifying
conventions and assumptions. In particular, all transfers of shares in UNL 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 basis adjustments
to be made, which could adversely affect some shareholders.
Mark
to Market of Certain Exchange-Traded Contracts. For federal income tax purposes, UNL 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 UNL at the end of each taxable year, including for example Futures Contracts and options
on Futures Contracts traded on a U.S. exchange or board of trade or certain foreign exchanges, are treated as if they were sold
by UNL for their fair market value on the last business day of the taxable year. A shareholder’s distributive share of UNL’s
net gain or loss with respect to each section 1256 contract generally is 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 40 percent thereof, without regard to the actual
holding period (“60-40 treatment”).
Many
of UNL’s Futures Contracts and some of their other commodity interests will qualify as “section 1256 contracts”
under the Code. Gain or loss recognized through disposition, termination or marking-to-market of UNL’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 most 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 you by UNL, including but not limited to those described below.
A shareholder’s
deduction of its allocable share of any loss of UNL is limited to the lesser of (1) the 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 our activities. In general, the amount at risk will be your invested capital plus your share
of any recourse debt of UNL for which you are liable. Losses in excess of the lesser of tax basis or the amount at risk must be
deferred until years in which UNL generates additional taxable income against which to offset such carryover losses or until additional
capital is placed at risk.
Noncorporate
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 noncorporate
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.
For taxable
years beginning before January 1, 2026, otherwise deductible expenses incurred by noncorporate 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 management fees we pay to USCF and other expenses we incur 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 is effectively connected with a U.S. trade or business and includible income for the year. As discussed below, although
the matter is not free from doubt, UNL believes that the activities directly conducted by UNL will not result in UNL 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 UNL 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’ outside basis in their partnership interests by their allocable shares,
and is carried forward to future years. Such carry forward 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 carry forward amounts, such amounts increase the partner’s basis in its partnership interest immediately before
the transfer. Although it is not free from doubt, UNL does not anticipate that it will be treated as engaged in a trade or business.
As a result, UNL 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 UNL shares.
Noncorporate
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 UNL 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 we allocate losses or expenses to you that must be deferred or are disallowed as a result of these or other limitations
in the Code, 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 UNL for a particular taxable year,
and in the same year be allocated a share of a capital loss that you cannot deduct currently because you have insufficient capital
gains against which to offset the loss. 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 professional tax advisors regarding
the effect of limitations under the Code on your ability to deduct your allocable share of UNL’s losses and expenses.
Tax Basis of Shares
A shareholder’s
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 UNL and (3) its ability to utilize
its distributive share of any losses of UNL on its tax return. A shareholder’s initial tax basis of its shares will equal
its cost for the shares plus its share of UNL’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
UNL as to which the shareholder or an affiliate is the creditor (a “partner nonrecourse liability”) and (ii) a pro
rata share of any nonrecourse liabilities of UNL that are not partner nonrecourse liabilities as to any shareholder.
A shareholder’s
tax basis in its shares generally will be (1) increased by (a) its allocable share of UNL’s taxable income and gain and
(b) any additional contributions by the shareholder to UNL and (2) decreased (but not below zero) by (a) its allocable share of
UNL’s tax deductions and losses and (b) any distributions by UNL to the shareholder. For this purpose, an increase in a
shareholder’s share of UNL’s liabilities will be treated as a contribution of cash by the shareholder to UNL and a
decrease in that share will be treated as a distribution of cash by UNL to the shareholder. Pursuant to certain IRS rulings, a
shareholder will be required to maintain a single, “unified” 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 UNL Distributions. If UNL makes non-liquidating distributions to shareholders, such distributions generally will not be
taxable to the shareholders for federal income tax purposes except to the extent that the sum of (i) the amount of cash and (ii)
the fair market value of marketable securities distributed exceeds the shareholder’s adjusted basis of its interest in UNL
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.
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 or the fair market value of other
property received plus its share of any UNL 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 not able 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 UNL 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 UNL.
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 UNL. 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 UNL. However, the short-term capital gain on section 1256 contracts resulting from 60-40 treatment, described above, should
not be subject to this rule.
If some
or all of your shares are lent by your broker or other agent to a third party — for example, for use by the third party
in covering a short sale — you may be considered as having made a taxable disposition of the loaned shares, in which case
—
|
·
|
you
may recognize taxable gain or loss to the same extent as if you had sold the shares for
cash;
|
|
·
|
any
of UNL’s income, gain, loss or deduction allocable to those shares during the period
of the loan will not be reportable by you for tax purposes; and
|
|
·
|
any
distributions you receive with respect to the shares will be fully taxable, most likely
as ordinary income.
|
Shareholders
desiring to avoid these and other possible consequences of a deemed disposition of their shares should consider modifying any
applicable brokerage account agreements to prohibit the lending of their shares.
Other Tax Matters
Information
Reporting. We report tax information to the beneficial owners of shares. 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 federal income tax purposes. On the basis of
such ruling, except as otherwise provided herein, we treat the following persons as partners for federal income tax purposes:
(1) assignees of shares who are pending admission as limited partners, and (2) shareholders whose shares are held in street name
or by another nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the
ownership of their shares. UNL will furnish shareholders each year with tax information on IRS Schedule K-1 (Form 1065), which
will be used by the shareholders in completing their tax returns.
Persons
who hold an interest in UNL 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 us. Penalties may apply for failure to report required information.
Additional
3.8% Tax on Net 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 net income from interest, dividends, annuities, royalties, and 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.
Partnership
Audit Procedures. The IRS may audit the federal income tax returns filed by UNL. Partnerships are generally treated as separate
entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS, and tax settlement proceedings.
The tax treatment of partnership items of income, gain, loss and deduction are determined at the partnership level in a unified
partnership proceeding rather than in separate proceedings with the shareholders.
UNL may
be liable for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment as a result
of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gains
to any investor and decreases in allocations of items of deduction, loss, or credit to any shareholder without any offset for
any corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of
deduction, loss, or credit to any investor. If UNL is required to pay any U.S. federal income taxes on any imputed understatement,
the resulting tax liability would reduce the net assets of UNL and would likely have an adverse impact on the value of the shares.
Under certain circumstances, UNL may be eligible to make an election to cause the investors to take into account the amount of
any imputed understatement, including any interest and penalties. The ability of a publicly traded partnership such as UNL to
make this election is uncertain. If the election is made, UNL 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. The Code generally requires UNL to designate one person as the “partnership
representative” who has sole authority to conduct an audit with the IRS, challenge any adjustment in a court of law, and
settle any audit or other proceeding. The LP Agreement appoints USCF as the partnership representative of UNL.
Tax
Shelter Disclosure Rules. In certain circumstances the Code and Treasury Regulations require that the IRS be notified of taxable
transactions through a disclosure statement attached to a taxpayer’s United States federal income tax return. These disclosure
rules may apply to transactions irrespective of whether they are structured to achieve particular tax benefits. They could require
disclosure by UNL or shareholders if a shareholder incurs a loss in excess 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 a basis equal to the amount of cash
paid by the taxpayer for such asset), they apply to a loss recognized with respect to interests in a pass-through entity, such
as the shares, even if the taxpayer’s basis in such interests is equal to the amount of cash it paid. In addition, under
recently enacted legislation, significant penalties may be imposed in connection with a failure to comply with these reporting
requirements. Investors should consult their own tax advisors concerning the application of these reporting requirements to
their specific situation.
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 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 UNL were to regularly carry on (directly or indirectly) a trade or business that is unrelated with respect
to an exempt organization shareholder, then in computing its UBTI, the shareholder must include its share of (1) UNL’s gross
income from the unrelated trade or business, whether or not distributed, and (2) UNL’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 basis of the property for the year. UNL currently does not anticipate that it will borrow
money to acquire investments; however, UNL 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 UNL may have UBTI.
The federal
tax rate applicable to an exempt organization shareholder on its UBTI generally will be either the corporate or trust tax rate,
depending upon the shareholder’s form of organization. UNL may report to each such shareholder information as to the portion,
if any, of the shareholder’s income and gains from UNL for any year that will be treated as UBTI; the calculation of that
amount is complex, and there can be no assurance that UNL’s calculation of UBTI will be accepted by the Service. An exempt
organization shareholder will be required to make payments of estimated federal income tax with respect to its UBTI.
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 UNL is a qualified publicly traded partnership
is made on an annual basis. UNL 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. persons who derive U.S. source income or gain from investing or engaging in a U.S. business are taxable on 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 a treaty between the U.S. 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.
person has ECI as a result of an investment in a partnership, the ECI is subject to a withholding tax at a rate of 37% (39.6%
for taxable years beginning after December 31, 2025) individual shareholders and a rate of 21% for corporate shareholders.
Withholding
on Allocations and Distributions. The Code provides that a non-U.S. person who is a partner in a partnership that is engaged
in a U.S. trade or business during a taxable year will also be considered to be engaged in 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 a U.S. trade or business unless it is a dealer is such stocks, securities,
or commodities. This safe harbor applies to investments in commodities only if the commodities are of a kind customarily dealt
in 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, UNL believes that the activities directly conducted by UNL will not result in UNL being engaged
in a trade or business within in the United States. However, there can be no assurance that the IRS would not successfully assert
that UNL’s activities constitute a U.S. trade or business.
In the
event that UNL’s activities were considered to constitute a U.S. trade or business, UNL would be required to withhold at
the highest rate specified in Code section 1 (currently 37% (39.6% for taxable years beginning after December 31, 2026)) on allocations
of our income to individual non-U.S. Shareholders and 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 UNL 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, UNL 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 UNL, generally, and accordingly, by all shareholders.
If UNL
is not treated as engaged in 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 percent withholding tax (possibly subject to reduction by treaty), with respect to some or all
of its distributions from UNL or its allocable share of UNL income. Amounts withheld on behalf of a non-U.S. shareholder will
be treated as being distributed to such shareholder.
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 a trade or business in the U.S. and provides UNL 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 percent or more of the voting power of the issuer.
Most
of UNL’s interest income qualifies as “portfolio interest.” In order for UNL 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 UNL with a timely and properly completed and executed Form W-8BEN or W-8BEN-E (or other applicable
form). If a non-U.S. shareholder fails to provide a properly completed Form W-8BEN, W-8BEN-E, or other applicable form, USCF may
request that the non-U.S. shareholder provide, within 15 days after the request by USCF, a properly completed Form W-8BEN, W-8BEN-E,
or other applicable form. If a non-U.S. shareholder fails to comply with this request, the shares owned by such non-U.S. shareholder
will be subject to redemption.
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 UNL 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 UNL’s assets
would give rise to effectively connected income. Although the transferee of a partnership interest is generally required to withhold
10% of the proceeds from the sale of a partnership interest acquired from a non-U.S. partner if any portion of the gain would
be treated as effectively connected income, the IRS has issued a notice in which it has indicated that such withholding requirement
will not apply to transferees of publicly traded partnership interests until the IRS and Treasury issue regulations implementing
such provision. However, this does not relieve a non-U.S. shareholder from U.S. income tax on any gain treated as effectively
connected income.
Branch
Profits Tax on Corporate Non-U.S. Shareholders. In addition to the taxes noted above, any non-U.S. shareholders that are corporations
may also be subject to an additional tax, the branch profits tax, at a rate of 30 percent. The branch profits tax is imposed on
a non-U.S. corporation’s dividend equivalent amount, which generally consists of the corporation’s after-tax earnings
and profits that are effectively connected with the corporation’s U.S. trade or business but are not reinvested in a U.S.
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.”
Prospective
non-U.S. shareholders should consult their tax advisor with regard to these and other issues unique to non-U.S. shareholders.
Backup Withholding
UNL may
be required to withhold U.S. federal income tax (“backup withholding”) from all taxable distributions payable to:
(1) any shareholder who fails to furnish UNL with his, her or its correct taxpayer identification number or a certificate that
the shareholder is exempt from backup withholding, and (2) any shareholder with respect to whom the IRS notifies UNL that the
shareholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect.
Backup withholding is not an additional tax and may be returned or credited against a taxpayer’s regular federal income
tax liability if appropriate information is provided to the IRS.
Tax Agent
The beneficial
owners who are of a type, as identified by the nominee through whom their Shares are held, that do not ordinarily have U.S. federal
tax return filing requirements, collectively, Certain K-1 shareholders, have designated the General Partner as their tax agent,
or the Tax Agent, in dealing with the Partnership. In light of such designation and pursuant to Treasury Regulation section 1.6031(b)-1T(c),
as amended from time to time, the Partnership will provide to the Tax Agent Certain K-1 shareholders’ statements as such
term is defined under Treasury Regulation section 1.6031(b)-1T(a)(3), as amended from time to time.
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
(1) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S.
persons (or held by foreign entities that have U.S. persons as substantial owners) or (2) 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 existing U.S. Treasury regulations would also require withholding on 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 in subsequent proposed regulations, which state that taxpayers may rely on the proposed
regulations until final regulations are issued. The information required to be reported includes the identity and taxpayer identification
number of each account holder that is a 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 payments to foreign entities that are not financial
institutions unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding
agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a non-U.S. shareholder and
the status of the intermediaries through which they hold their shares, Non-U.S. shareholders could be subject to this 30% withholding
tax with respect to distributions on their shares and proceeds from the sale of their shares. Under certain circumstances, a non-U.S.
shareholder might be eligible for refunds or credits of such taxes.
Other Tax Considerations
In addition
to 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 UNL 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 UNL. 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
Many
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 UNL. 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 UNL
and the manner in which limited partnership interests should be purchased. USCF does not represent that the limited partnership
interests hereby offered are appropriate for plans or any particular plan.
Special Investment Considerations
Investments
by plans governed by ERISA are subject to ERISA’s fiduciary requirements, including the requirements of investment prudent
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 UNL, including the role that an investment in UNL 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 investment objectives. Each plan fiduciary, before
deciding to invest in UNL, must be satisfied that its investment in the limited partnership interests in UNL is prudent for the
plan, that the investments of the plan are properly diversified and that an investment in UNL complies with the terms of the plan.
UNL and Plan Assets
Regulations
issued under ERISA contains rules for determining when an investment by a plan in an equity interest of a limited partnership
will result in the underlying assets of the partnership being deemed “plan assets” for purposes of ERISA and Section
4975 of the Code. Those rules provide that assets of a limited partnership will not be deemed to be of a plan that purchases an
equity interest in the partnership if the equity interest purchased qualifies as a publicly-offered security. If the underlying
assets of a limited partnership are considered to be assets of any plan for purposes of ERISA or Section 4975 of the Code, the
operations of that partnership 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 Exchange
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 Exchange 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, (2) a requirement that no transfer or assignment be made without advance written
notice given to the entity that issued the security, and (3) any restriction on the substitution of an assignee as a limited partner
of a partnership, including a general partner consent requirement, provided that the economic benefits of ownership of the assignor
may be transferred or assigned without regard to such restriction or consent (other than compliance with any of the foregoing
restrictions).
USCF
believes that the conditions described above are satisfied with respect to the limited partnership interests. USCF believes that
the limited partnership interests therefore constitute publicly-offered securities, and the underlying assets of UNL 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,
UNL limited partnership interests 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 monies or other property of the plan;
|
|
·
|
have
any authority or responsibility to render investment advice with respect to any monies
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 an equity interest
is made or retained for the purpose of avoiding application of the fiduciary standards of ERISA, (2) the investment in an equity
interest constitutes an arrangement under which UNL is expected to engage in transactions that would otherwise be prohibited if
entered into directly by the plan purchasing the share, (3) the investing plan, by itself, has the authority or influence to cause
UNL 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 UNL to engage in such transactions with such person.
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 UNL and its custodial arrangement. Otherwise, if a separate qualifying custodial arrangement is not maintained,
an investment in the limited partnership interests 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 limited
partnership interests 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 above-described 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 operate 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 UNL (and any continued investment in UNL), or the operation and administration of
UNL, 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 UNL is not to be construed as a representation by 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 UNL 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 UNL OR TO A PARTICULAR INVESTOR.
Form of Shares
Registered
Form. Shares are issued in registered form in accordance with the LP 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 limited
partners and holders of the shares in certificated form in the registry (the “Register”). USCF recognizes transfers
of shares in certificated form only if done in accordance with the LP Agreement. The beneficial interests in such shares are held
in book-entry form through participants and/or accountholders in the Depository Trust Company (“DTC”).
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 UNL as follows: It is a limited purpose trust company organized under the laws of the State of New York
and is a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform
Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC holds securities for DTC Participants and facilitates the clearance and settlement of transactions between DTC Participants
through electronic book-entry changes in accounts of DTC Participants.
Transfer of
Shares
Transfers
of Shares Only Through DTC. The shares are only transferable through the book-entry system of DTC. Limited partners 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 us 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.
Transfer/Application
Requirements. All purchasers of UNL’s shares, and potentially any purchasers of shares in the future, who wish to
become limited partners or other record holders and receive cash distributions, if any, or have certain other rights, must deliver
an executed transfer application in which the purchaser or transferee must certify that, among other things, he, she or it agrees
to be bound by UNL’s LP Agreement and is eligible to purchase UNL’s securities. Each purchaser of shares offered by
this prospectus must execute a transfer application and certification. The obligation to provide the form of transfer application
is imposed on the seller of shares or, if a purchase of shares is made through an exchange, the form may be obtained directly
through UNL. Further, USCF may request each record holder to furnish certain information, including that record holder’s
nationality, citizenship or other related status. A record holder is a shareholder that is, or has applied to be, a limited partner.
An investor who is not a U.S. resident may not be eligible to become a record holder or one of UNL’s limited partners if
that investor’s ownership would subject UNL to the risk of cancellation or forfeiture of any of UNL’s assets under
any federal, state or local law or regulation. If the record holder fails to furnish the information or if USCF determines, on
the basis of the information furnished by the holder in response to the request, that such holder is not qualified to become one
of UNL’s limited partners, USCF may be substituted as a holder for the record holder, who will then be treated as a non-citizen
assignee, and UNL will have the right to redeem those securities held by the record holder.
A transferee’s
broker, agent or nominee may complete, execute and deliver a transfer application and certification. UNL may, at its discretion,
treat the nominee holder of a share as the absolute owner. In that case, the beneficial holder’s rights are limited solely
to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
A person
purchasing UNL’s existing shares, who does not execute a transfer application and certify that the purchaser is eligible
to purchase those securities acquires no rights in those securities other than the right to resell those securities. Whether or
not a transfer application is received or the consent of USCF obtained, our shares are securities and are transferable according
to the laws governing transfers of securities.
Any transfer
of shares will not be recorded by the transfer agent or recognized by USCF unless a completed transfer application is delivered
to USCF or the Administrator. When acquiring shares, the transferee of such shares that completes a transfer application will:
|
·
|
be
an assignee until admitted as a substituted limited partner upon the consent and sole
discretion of USCF and the recording of the assignment on the books and records of the
partnership;
|
|
·
|
automatically
request admission as a substituted limited partner;
|
|
·
|
agree
to be bound by the terms and conditions of, and execute, our LP Agreement;
|
|
·
|
represent
that such transferee has the capacity and authority to enter into our LP Agreement;
|
|
·
|
grant
powers of attorney to USCF and any liquidator of us; and
|
|
·
|
make
the consents and waivers contained in our LP Agreement.
|
An assignee
will become a limited partner in respect of the transferred shares upon the consent of USCF and the recordation of the name of
the assignee on our books and records. Such consent may be withheld in the sole discretion of USCF.
If consent
of USCF is withheld such transferee shall be an assignee. An assignee shall have an interest in the partnership equivalent to
that of a limited partner with respect to allocations and distributions, including, without limitation, liquidating distributions,
of the partnership. With respect to voting rights attributable to shares that are held by assignees, USCF shall be deemed to be
the limited partner with respect thereto and shall, in exercising the voting rights in respect of such shares on any matter, vote
such shares at the written direction of the assignee who is the record holder of such shares. If no such written direction is
received, such shares will not be voted. An assignee shall have no other rights of a limited partner.
Until
a share has been transferred on our books, we and the transfer agent may treat the record holder of the share as the absolute
owner for all purposes, except as otherwise required by law or stock exchange regulations.
What is the Plan of Distribution?
Buying and Selling Shares
Most
investors buy and sell shares of UNL in secondary market transactions through brokers. Shares trade on the NYSE Arca under the
ticker symbol “UNL”. 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. Investors are
encouraged to review the terms of their brokerage account for details on applicable charges.
Marketing Agent and
Authorized Participants
The offering
of UNL’s shares is a best efforts offering. UNL 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 they place to create or
redeem one or more Creation Baskets or Redemption Baskets. The Marketing Agent receives, for its services as marketing agent to
UNL, a marketing fee of 0.06% on UNL’s assets up to the first $3 billion; and 0.04% on UNL’s assets in excess of $3
billion, provided, however, that 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 is the total NAV of UNL calculated shortly after the close
of the core trading session on the NYSE Arca on such day divided by the number of issued and outstanding shares. 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 UNL (each such agreement, an “Authorized Participant
Agreement”), such an Authorized Participant becomes part of the group of parties eligible to purchase baskets from, and
put baskets for redemption to, UNL. 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
February 28, 2021, UNL had the following Authorized Participants: Citadel Securities LLC, Citigroup Global Markets, Inc., Credit
Suisse Securities USA LLC, JP Morgan Securities, Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. LLC,
RBC Capital Markets LLC, SG Americas Securities LLC and Virtu Financial BD LLC.
Because
new shares can be created and issued on an ongoing basis, at any point during the life of UNL, 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. For example, the
Initial Authorized Participant was a statutory underwriter with respect to its initial purchase of Creation Baskets. 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 UNL, 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.
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
may qualify the shares in states selected by USCF and intends that sales be made through broker-dealers who are 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 UNL
for their purchases of Creation Baskets.
Calculating Per
Share NAV
UNL’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 UNL 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 NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m. New York time)
for the Futures Contracts traded on the NYMEX, but calculates or determines the value of all other UNL investments (including
Futures Contracts not traded on the NYMEX, Other Natural Gas-Related Investments and Treasuries) 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, UNL 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 UNL 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 UNL 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 UNL as a base and updating that value throughout the
trading day to reflect changes in the most recently reported trade price for the active natural gas Futures Contracts on the NYMEX.
The prices reported for those Futures Contract months are adjusted based on the prior day’s spread differential between
settlement values for the relevant contract and the spot month contract. In the event that the spot month contract is also the
Benchmark Futures Contracts, the last sale price for that contract is not adjusted. 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 UNL’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 NYMEX are 9:00 a.m. New York time to 2:30 p.m. New York
time. This means that there is a gap in time at the beginning and the end of each day during which UNL’s shares are traded
on the NYSE Arca, but real-time NYMEX trading prices for Futures Contracts traded on the NYMEX are not available. During such
gaps in time, the indicative fund value will be calculated based on the end of day price of such Futures Contracts from the NYMEX’s
immediately preceding trading session. In addition, other Futures Contracts, Other Natural Gas-Related Investments and Treasuries
held by UNL 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.
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 UNL shares on the NYSE Arca. Investors and market professionals are
able throughout the trading day to compare the market price of UNL and the indicative fund value. If the market price of UNL shares
diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades.
For example, if UNL appears to be trading at a discount compared to the indicative fund value, a market professional could buy
UNL shares on the NYSE Arca and sell short Futures Contracts. Such arbitrage trades can tighten the tracking between the market
price of UNL and the indicative fund value and thus can be beneficial to all market participants.
UNL reserves
the right to adjust the Share price of UNL 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 net asset value per Share, but would have no effect on the net assets of UNL
or the proportionate voting rights of shareholders or limited partners.
Creation and Redemption
of Shares
UNL 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 UNL or the distribution by UNL of the amount of Treasuries and any 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 after 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 UNL. 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 UNL, without the consent of any limited partner or shareholder or Authorized Participant. Authorized
Participants pay a transaction fee of $350 to UNL 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 UNL in exchange for baskets receive no fees, commissions or other form of compensation or inducement of
any kind from either UNL or USCF, and no such person will have any obligation or responsibility to USCF or UNL to effect any sale
or resale of shares. Certain Authorized Participants are expected to be capable of participating directly in the physical natural
gas market and the natural gas futures market. In some cases, Authorized Participants or their affiliates may from time to time
buy natural gas or sell natural gas or Natural Gas Interests and may profit in these instances. USCF believes that the size and
operation of the natural gas market make it unlikely that an Authorized Participant’s direct activities in the natural gas
or securities markets will significantly affect the price of natural gas, Natural Gas Interests, or the price of the shares.
Each Authorized
Participant is required to be registered as a broker-dealer under the Exchange 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.
Under
the Authorized Participant Agreement, USCF, and UNL 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 LP Agreement and the form of Authorized Participant Agreement for more detail, each of which is incorporated
by reference into this prospectus.
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 any of the NYSE
Arca, the NYMEX or the NYSE is closed for regular trading. Purchase orders must be placed by 12:00 p.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, 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, 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 energy transaction (through itself or a designated acceptable broker) with UNL 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 types of contracts specified shall be
determined by USCF, in its sole discretion, to meet UNL’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 UNL (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 a
Treasury and proportions of Treasury 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 UNL’s account with the Custodian the required
amount of Treasuries and cash by the end of 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 UNL shall be borne solely by the Authorized Participant.
Because
orders to purchase baskets must be placed by 12:00 p.m., New York time, but the total payment required to create a basket during
the continuous offering period will not be determined until after 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. UNL’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.
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:
|
·
|
it
determines that the investment alternative available to UNL at that time will not enable
it to meet its investment objective;
|
|
·
|
it
determines that the purchase order or the Creation Basket Deposit is not in proper form;
|
|
·
|
it
believes that the purchase order or the Creation Basket Deposit would have adverse tax
consequences to UNL, the limited partners or its shareholders;
|
|
·
|
the
acceptance or receipt of the Creation Basket Deposit would, in the opinion of counsel
to USCF, be unlawful; or
|
|
·
|
circumstances
outside the control of USCF, Marketing Agent or Custodian make it, for all practical
purposes, not feasible to process creations of baskets.
|
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 12:00 p.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 UNL, as described below. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant
must also have wired to UNL’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
UNL’s account with the Custodian not later than 3:00 p.m. New York time on the second business day following the effective
date of the redemption order (“Redemption Distribution 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 energy transaction (through
itself or a designated acceptable broker) with UNL for the sale 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
UNL’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 UNL 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 UNL (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 maturity of a Treasury,
and the 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.
Delivery of Redemption
Distribution
The redemption
distribution due from UNL will be delivered to the Authorized Participant by 3:00 p.m. New York time on the second business day
following the redemption order date if, by 3:00 p.m. New York time on such second business day, UNL’s DTC account has been
credited with the baskets to be redeemed. If UNL’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 UNL 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 UNL’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 UNL’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 the NYMEX is closed other than customary weekend or holiday closings, or trading on the NYSE Arca or the
NYMEX 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 limited partners or shareholders. For example, USCF may determine that it is necessary to suspend redemptions
to allow for the orderly liquidation of UNL’s assets at an appropriate value to fund a redemption. If USCF has difficulty
liquidating its 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 will reject a redemption order if the order is not in proper form as described in the
Authorized Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful. 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
UNL for its expenses in connection with the creation and redemption of baskets, an Authorized Participant is required to pay a
transaction fee to UNL 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 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 UNL 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,
UNL 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 UNL or the distribution by UNL 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.
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 NAV of
UNL at the time the Authorized Participant purchased the Creation Baskets and the per share NAV of the shares at the time of the
offer of the shares to the public, the supply of and demand for shares at the time of sale, and the liquidity of the Futures Contract
market and the market for Other Natural Gas-Related Investments.
The prices
of shares offered by Authorized Participants are expected to fall between UNL’s per share NAV and the trading price of the
shares on the NYSE Arca at the time of sale. 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 UNL in exchange for baskets receive
no fees, commissions or other forms of compensation or inducement of any kind from either UNL or USCF, and no such person has
any obligation or responsibility to USCF or UNL 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, availability of Creation
Baskets, the liquidity of the Futures Contracts market and the market for Other Natural Gas-Related Investments. In addition,
while UNL’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 Futures Contracts and Other Natural Gas-Related Investments may be reduced after the close of the NYMEX at 2:30 p.m.
New York time. UNL’s NAV is calculated based on the settlement price of the Benchmark Futures Contracts at 2:30 p.m. New
York time and the closing share price of UNL on the NYSE takes in account changes in the price of the Benchmark 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.
Use of Proceeds
USCF
causes UNL to transfer the proceeds from the sale of Creation Baskets to the Custodian or other custodian for trading activities.
USCF will invest UNL’s assets in Natural Gas-Interests and investments in Treasuries, cash and/or cash equivalents. When
UNL purchases a Futures Contract and certain exchange-traded Other Natural Gas-Related Investments, UNL is required to deposit
typically 5% to 30% with the selling FCMs 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 Natural Gas Interests at maturity. This deposit is known as initial margin.
Counterparties in transactions in OTC contracts will generally impose similar collateral requirements on UNL. USCF will invest
the assets that remain after margin and collateral are posted in 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 on deposit with the
FCMs or other custodian;
|
|
|
|
|
·
|
used for other investments,
and
|
|
|
|
|
·
|
held in bank accounts to
pay current obligations and as reserves.
|
Approximately
5% to 30% of UNL’s assets have normally been committed to 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 UNL 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 Natural Gas 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 underlying commodity or index,
the ability of the counterparty to hedge its exposure under a Natural Gas 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 UNL’s assets will be posted as margin or collateral
at any given time. The Treasuries, cash and cash equivalents held by UNL will constitute reserves that will be available to meet
ongoing margin and collateral requirements. All interest income will be used for UNL’s benefit. USCF invests the balance
of UNL’s assets not invested in Natural Gas Interests or held in margin as reserves to be available for changes in margin.
All interest income is used for UNL’s benefit.
The assets
of UNL posted as margin for Futures Contracts are held in segregated accounts pursuant to the CEA and CFTC regulations.
If UNL
enters into a swap agreement, UNL must post both collateral and independent amounts to its swap counterparties. The amount of
collateral UNL posts changes according to the amounts owed by UNL to its counterparty on a given swap transaction, while independent
amounts are fixed amounts posted by UNL at the start of a swap transaction. Collateral and independent amounts posted to swap
counterparties will be held by a third-party custodian.
INFORMATION
YOU SHOULD KNOW
This
prospectus contains information you should consider when making an investment decision about the shares. You may rely on the information
contained in this prospectus. Neither UNL nor 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
UNL uses
the following promotional or sales material:
|
·
|
UNL’s
website, www.uscfinvestments.com; and
|
|
·
|
UNL
fact sheet found on UNL’s website.
|
The materials
described above are not a part of this prospectus or the registration statement of which this prospectus is a part and have been
submitted to the staff of the SEC for their review pursuant to Industry Guide 5.
This
section is provided here as a convenience to you.
INTELLECTUAL
PROPERTY
USCF
owns trademark registrations for the UNITED STATES 12 MONTH NATURAL GAS FUND (U.S. Reg. No. 3783071) for “Financial
investment services in the field of natural gas futures contracts, cash-settled options on natural gas futures contracts, forward
contracts for natural gas, over-the-counter transactions based on the price of natural gas, and indices based on the foregoing,”
in use since November 18, 2009, and UNL UNITED STATES 12 MONTH NATURAL GAS FUND, LP (and 12 and Flame Design) (U.S. Reg.
No. 4440925) for “Financial investment services in the field of natural gas futures contracts, cash-settled options
on natural gas futures contracts, forward contracts for natural gas, over-the-counter transactions based on the price of natural
gas, and indices based on the foregoing,” in use since September 30, 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
USCF
has filed on behalf of UNL a registration statement on Form S-1 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 UNL or the shares,
please refer to the registration statement, which you may access online at www.sec.gov. Information about UNL and the shares
can also be obtained from UNL’s website, http://www.uscfinvestments.com. UNL’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. UNL is subject to the informational requirements of the Exchange Act
and USCF and UNL will each, on behalf of UNL, file certain reports and other information with the SEC under the Exchange Act.
USCF will file an updated prospectus annually for UNL 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, UNL’s operations,
USCF’s plans and references to UNL’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 UNL’’ 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, UNL’s operations or the value of the shares.
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.
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, 2020, filed with the SEC on
March 5, 2021.
|
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 12 Month Natural Gas Fund, LP
Attention: Katie Rooney
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, California 94596
(510) 522-9600
Privacy Policy
UNL and
USCF may collect or have access to certain nonpublic personal information about current and former investors. Nonpublic 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 UNL.
UNL and
USCF do not disclose nonpublic personal information except as required by law or as described in their Privacy Policy. In general,
UNL and USCF restrict access to the nonpublic 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.
UNL and
USCF maintain safeguards that comply with federal and applicable state law to protect investors’ nonpublic 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 UNL and USCF share nonpublic 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.
APPENDIX
A
Glossary
of Defined Terms
In this
prospectus, each of the following terms has the meaning set forth after such term:
1933
Act: The Securities Act of 1933.
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 UNL.
Authorized
Participant Agreement: An agreement with USCF on behalf of UNL 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
Futures Contracts: The near month contract to expire and the contracts for the following eleven months for a total of 12 consecutive
months’ contracts on natural gas traded on the NYMEX, unless the near month contract is within two weeks of expiration,
in which case the Benchmark Futures Contracts is the next month contract to expire and the contracts for the following eleven
consecutive months.
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 any of the NYSE Arca, the NYMEX or the New York Stock Exchange 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.
Code:
Internal Revenue Code.
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.
Concierge:
Concierge Technologies Inc., a company publicly traded under the ticker symbol “CNCG.”
CPER:
United States Copper Index Fund.
Creation
Basket: A block of 50,000 shares used by UNL 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.
DTEF:
A derivatives transaction execution facility.
ECI:
Income that is effectively connected with the conduct of a U.S. trade or business.
ERISA:
Employee Retirement Income Security Act of 1974.
Exchange
Act: The Securities Exchange Act of 1934.
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 that an EFRP transaction can take place, the OTC side and futures components must be “substantially
similar” in terms of either value and 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.
Futures
Contracts: Futures contracts for natural gas that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges.
ICE
Futures: The ICE Futures Europe and ICE Futures U.S., together the leading electronic regulated futures and options exchange
for global energy markets.
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.
LLC
Agreement: Sixth Amended and Restated Limited Liability Company Agreement of USCF, dated as of May 15, 2015 (as amended from
time to time).
LP
Agreement: The Third Amended and Restated Agreement of Limited Partnership dated as of December 15, 2017.
Margin:
The amount of equity required for an investment in futures contracts.
Management
Directors: The four management directors that make up USCF’s board of directors.
Marketing
Agent: ALPS Distributors, Inc.
MMBTU:
10,000 million British thermal shares.
NAV:
Net asset value of UNL.
NFA:
National Futures Association.
New
York Mercantile Exchange (NYMEX): The primary exchange on which futures contracts are traded in the U.S. UNL expects to invest
primarily in futures contracts, and particularly in futures contracts traded on the NYMEX. UNL expressly disclaims any association
with the Exchange or endorsement of UNL by the Exchange and acknowledges that “NYMEX” and “New York Mercantile
Exchange” are registered trademarks of such Exchange.
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.
Natural
Gas Interests: Futures Contracts and Other Natural Gas-Related Investments.
Other
Natural Gas-Related Investments: Natural Gas-Related Investments other than Futures Contracts such as cash-settled options
on Futures Contracts, forward contracts for natural gas, cleared swap contracts and non-exchange traded (“OTC”) transactions
that are based on the price of natural gas, crude oil, and other petroleum-based fuels, as well as futures contracts for crude
oil, heating oil, gasoline, and other petroleum-based fuels and indices based on the foregoing.
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
Limit Rule: Regulatory limits imposed 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.
Prudential
Regulators: The CFTC, the SEC and the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency, collectively.
Redemption
Basket: A block of 50,000 shares used by UNL 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 12 Month Natural Gas Fund, LP (“UNL”); United States Brent Oil Fund, LP (“BNO”);
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 Copper Index Fund (“CPER”);
United States Commodity Index Fund (“USCI”).
SEC:
Securities and Exchange Commission.
SEF:
a swap execution facility.
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.
Shareholders:
Holder of Shares.
Shares:
Common shares representing fractional undivided beneficial interests in UNL.
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.
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. Swap transactions that are not cleared through
central counterparties are called “uncleared” or “OTC” swaps.
Tracking
Error: Possibility that the daily NAV of UNL will not track the price of natural gas.
Treasuries:
Obligations of the U.S. government with remaining maturities of 2 years or less.
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
USCI:
United States Commodity Index Fund.
USL:
United States 12 Month Oil Fund, LP.
USCF:
United States Commodity Funds LLC (the general partner), a Delaware limited liability company, which is registered as a CPO,
who controls the investments and other decisions of UNL.
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 UNL calculates its NAV.
Wainwright:
Wainwright Holdings, Inc.
You:
The owner or holder of shares.
United States 12 Month N... (AMEX:UNL)
Historical Stock Chart
From Jun 2024 to Jul 2024
United States 12 Month N... (AMEX:UNL)
Historical Stock Chart
From Jul 2023 to Jul 2024