Filed pursuant to Rule 424(b)(3)
File No. 333-238283
PROSPECTUS
United
States 12 Month Oil Fund, LP®*
258,900,000
Shares
*Principal
U.S. Listing Exchange: NYSE Arca, Inc.
The United States
12 Month Oil Fund, LP (“USL”) is an exchange traded fund organized as a limited partnership that issues shares that trade
on the NYSE Arca stock exchange (“NYSE Arca”). USL’s investment objective is to track a benchmark of short-term oil
futures contracts. USL pays its general partner, United States Commodity Funds LLC (“USCF”), a limited liability company,
a management fee and incurs operating costs. USCF and USL are located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California
94596. The telephone number for both USCF and USL 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 $33.67 (the net asset value as of February 28, 2022), the investment would have to generate
0.858% return or $0.289, rounded to $0.29.
USL is an exchange
traded fund. This means that most investors who decide to buy or sell shares of USL 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 “USL” 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 USL’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 USL’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 USL’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 USL,
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
oil futures contracts in which USL 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 crude oil and the oil futures contracts that serve
as USL’s investment benchmark. INVESTING IN USL INVOLVES RISKS SIMILAR
TO THOSE INVOLVED WITH AN INVESTMENT DIRECTLY IN THE OIL MARKETS, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS.
Investing in USL also involves the correlation risk described below and other significant risks. Recent volatility in the oil markets
demonstrates that these risks are real. You should consider carefully the risks described below before making an investment decision.
See “Risk Factors Involved with an Investment in USL”
beginning on page 7.
The offering
of USL’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 USL are available or practicable. USL 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.
USL 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, 2022.
COMMODITY
FUTURES TRADING COMMISSION
RISK
DISCLOSURE STATEMENT
YOU
SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE
AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET
ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT
YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER,
COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE
DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 6 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY
TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 41.
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 7.
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 USL and its shares, it does not contain or summarize
all of the information about USL 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 USL” beginning on page 7, before
making an investment decision about the shares. For a glossary of defined terms, see Appendix A.
USL
United States
12 Month Oil Fund, LP (“USL”), 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”). USL 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.
USL’s
Investment Objective and Strategy
The investment
objective of USL is for the daily changes in percentage terms of its per share net asset value (“NAV”) to reflect the daily
changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes
in the average of the prices of specified short-term futures contracts on light, sweet crude oil called the “Benchmark Oil Futures
Contracts,” plus interest earned on USL’s collateral holdings, less USL’s expenses.
USL seeks to
achieve its investment objective by investing so that the average daily percentage change in USL’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 prices of the Benchmark Oil
Futures Contracts over the same period.
What
Are the “Benchmark Oil Futures Contracts”? |
|
The
Benchmark Oil Futures Contracts are the futures contracts on light, sweet crude oil as traded on the New York Mercantile Exchange
(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 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. |
|
USL seeks to
achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating
oil, gasoline, natural gas, and other petroleum-based fuels 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, “Oil Futures Contracts”) and to a lesser extent,
in order to comply with regulatory requirements or in view of market conditions, other oil-related investments such as cash-settled options
on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and non-exchange traded (“over-the-counter” or
“OTC”) transactions that are based on the price of oil, other petroleum-based fuels, Oil Futures Contracts and indices based
on the foregoing (collectively, “Other Oil-Related Investments”). Market conditions that USCF currently anticipates could
cause USL to invest in Other Oil-Related Investments include those allowing USL to obtain greater liquidity or to execute transactions
with more favorable pricing. (For convenience and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments,
collectively are referred to as “Oil Interests” in this prospectus.
In addition,
USCF believes that market arbitrage opportunities will cause daily changes in USL’s share price on the NYSE Arca on a percentage
basis to closely track daily changes in USL’s per share NAV on a percentage basis. USCF further believes that the daily changes
in the average prices of the Benchmark Oil Futures Contracts have historically closely tracked the daily changes in prices of light,
sweet crude oil. USCF believes that the net effect of these relationships will be that the daily changes in the price of USL’s
shares on the NYSE Arca on a percentage basis will closely track the daily changes in the spot price of a barrel of light, sweet crude
oil on a percentage basis, less USL’s expenses.
Investors should
be aware that USL’s investment objective is not for its
NAV or market price of shares to equal, in dollar terms, the spot price of light, sweet crude oil or any particular futures contract
based on light, sweet crude oil, nor is USL’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 USL’s shares during the past
year relative to a hypothetical direct investment in crude oil and, in the future, it is likely that the relationship between the market
price of USL’s shares and changes in the spot prices of light, sweet crude oil will continue to be so impacted by contango and
backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning and storing
crude oil, which could be substantial.)
Principal
Investment Risks of an Investment in USL
An investment
in USL 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 7.
Investment
Risk
Investors may
choose to use USL as a means of investing indirectly in crude oil. INVESTING IN USL INVOLVES RISKS SIMILAR TO THOSE INVOLVED WITH AN
INVESTMENT DIRECTLY IN THE OIL MARKETS, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS. Investing in USL also involves
the correlation risk described below and other significant risks. You should consider carefully the risks described below before making
an investment decision. An investment in USL includes the following investment risks:
| · | The
NAV of USL’s shares relates directly to the value of the Benchmark Oil Futures Contracts
and other assets held by USL and fluctuations in the prices of these assets could materially
adversely affect an investment in USL’s shares. Past performance is not necessarily
indicative of future results; all or substantially all of an investment in USL could be lost. |
| · | The
demand for crude oil correlates closely with general economic growth rates. |
| · | Other
factors that may affect the demand for crude oil and therefore its price, include technological
improvements in energy efficiency; seasonal weather patterns, which affect the demand for
crude oil associated with heating and cooling; increased competitiveness of alternative energy
sources that have so far generally not been competitive with oil without the benefit of government
subsidies or mandates; and changes in technology or consumer preferences that alter fuel
choices, such as toward alternative fueled or electric transportation and broad-based changes
in personal income levels. |
| · | Crude
oil prices also vary depending on a number of factors affecting supply and demand of crude
oil, including geopolitical risk associated with wars, terrorist attacks and tensions between
countries, including sanctions imposed as a result of the foregoing that can adversely affect
oil and other energy trade flows by limiting or disrupting trade between countries or regions. |
| · | The
supply of and demand for crude oil may also be impacted by changes in interest rates, inflation,
and other local or regional market conditions, as well as by the development of alternative
energy sources. |
| · | Price
volatility may possibly cause the total loss of your investment. |
| · | Russia’s
invasion of Ukraine, and sanctions brought by the United States and other countries against
Russia, have caused disruptions in many business sectors and have resulted in significant
market disruptions and increased volatility in the price of certain commodities, including
oil and natural gas. |
| · | Historical
performance of USL and the Benchmark Oil Futures Contracts is not indicative of future performance. |
| · | COVID-19
and other infectious disease outbreaks could negatively affect the valuation and performance
of USL’s investments. |
Correlation
Risk
As further described
below, an investment in USL includes the following correlation risks:
| · | An
investment in USL may provide little or no diversification benefits. Thus, in a declining
market, USL may have no gains to offset losses from other investments, and an investor may
suffer losses on an investment in USL while incurring losses with respect to other asset
classes. |
| · | The
market price at which investors buy or sell shares may be significantly less or more than
NAV. |
| · | Daily
percentage changes in USL’s NAV may not correlate with daily percentage changes in
the average of the prices of the Benchmark Oil Futures Contracts. |
| · | An
investment in USL is not a proxy for investing in the oil markets, and the daily percentage
changes in the prices of the Benchmark Oil Futures Contracts, or the NAV of USL, may not
correlate with daily percentage changes in the spot price of light, sweet crude oil. |
| · | Daily
percentage changes in the price of the Benchmark Oil Futures Contracts may not correlate
with daily percentage changes in the spot price of crude oil. |
| · | Natural
forces in the crude oil futures market known as “backwardation” and “contango”
may increase USL’s tracking error and/or negatively impact total return. |
| · | Accountability
levels, position limits, and daily price fluctuation limits set by the exchanges have the
potential to cause tracking error, by limiting USL’s investments, including its ability
to fully invest in the Benchmark Futures Contracts, which could cause the average of the
prices of shares to substantially vary from the price of the Benchmark Oil Futures Contracts. |
| · | Risk
mitigation measures that could be imposed by USL’s futures commission merchants (“FCMs”)
have the potential to cause tracking error by limiting USL’s investments, including
its ability to fully invest in the Benchmark Oil Futures Contracts and other Futures Contracts,
which could cause the price of USL’s shares to substantially vary from the price of
the Benchmark Oil Futures Contracts. |
To the extent
that investors use USL as a means of indirectly investing in crude oil, there is the risk that the daily changes in the price of USL’s
shares on the NYSE Arca on a percentage basis will not closely track the daily changes in the spot price of light, sweet crude oil on
a percentage basis. This could happen if the price of shares traded on the NYSE Arca does not correlate closely with the value of USL’s
NAV; the changes in USL’s NAV do not correlate closely with the changes in the average prices of the Benchmark Oil Futures Contracts,
or the changes in the average prices of the Benchmark Oil Futures Contracts do not closely correlate with the changes in the cash or
spot price of crude oil. This is a risk because if these correlations do not exist, then investors may not be able to use USL as a cost-effective
way to indirectly invest in crude oil or as a hedge against the risk of loss in crude oil-related transactions.
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 crude oil 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 crude oil 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 crude oil 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 total 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 oil market could limit USL’s ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contracts.
In such a circumstance, USL could, if it determined it appropriate to do so in light of market conditions and regulatory requirements,
invest in other Oil Futures Contracts and/or Other Oil-Related Investments.
Tax
Risk
USL 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. An investment in USL includes the following tax
risks:
| · | An
investor’s tax liability may exceed the amount of distributions, if any, on its shares. |
| · | An
investor’s allocable share of taxable income or loss may differ from its economic income
or loss on its shares. |
| · | Items
of income, gain, deduction, loss and credit with respect to shares could be reallocated,
and USL 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 USL in allocating
those items, with potential adverse consequences for an investor. |
| · | USL
could be treated as a corporation for U.S. federal income tax purposes, which may substantially
reduce the value of the shares. |
| · | USL
is organized and operated as a limited partnership in accordance with the provisions of the
LP Agreement and applicable state law, and therefore, USL has a more complex tax treatment
than traditional mutual funds. |
| · | If
USL is required to withhold tax with respect to any Non-U.S. shareholders, the cost of such
withholding may be borne by all shareholders. |
| · | The
impact of U.S. tax reform on USL is uncertain. |
Over-the-Counter
(“OTC”) Contract Risk
USL may also
invest in Other Oil-Related Investments, many of which are negotiated or “OTC” contracts that are not as liquid as Oil Futures
Contracts and expose USL to credit risk that its counterparty may not be able to satisfy its obligations to USL. An investment in USL
includes the following OTC contract risks:
| · | USL
will be subject to credit risk with respect to counterparties to OTC contracts entered into
by USL or held by special purpose or structured vehicles. |
| · | Valuing
OTC derivatives may be less certain than actively traded financial instruments. |
Other
Risks
USL pays fees
and expenses that are incurred regardless of whether it is profitable.
Unlike mutual
funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute
such income and gains to their investors, USL generally does not distribute cash to shareholders. You should not invest in USL if you
will need cash distributions from USL to pay taxes on your share of income and gains of USL, if any, or for any other reason.
You will have
no rights to participate in the management of USL and will have to rely on the duties and judgment of USCF to manage USL.
USL is subject
to actual and potential inherent conflicts involving USCF, various commodity futures brokers and “Authorized Participants,”
the institutional firms that directly purchase and redeem shares in baskets of 50,000 shares. USCF’s officers, directors and employees
do not devote their time exclusively to USL. USCF’s persons are directors, officers or employees of other entities that may compete
with USL for their services, including other commodity pools (funds) that USCF manages. USCF could have a conflict between its responsibilities
to USL and to those other entities. As a result of these and other relationships, parties involved with USL have a financial incentive
to act in a manner other than in the best interests of USL and the shareholders.
In addition,
an investment in USL includes the following other risks:
| · | USL
is not leveraged, but it could become leveraged if it had insufficient assets to completely meet its margin
or collateral requirements relating to its investments. |
| · | USL
may temporarily limit the offering of Creation Baskets. |
| · | Certain
of USL’s investments could be illiquid, which could cause large losses to investors
at any time or from time to time. |
| · | USL
is not actively managed and its investment objective is to track the Benchmark Oil Futures
Contracts so that the average daily percentage change in USL’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 Oil Futures Contracts over the same period. |
| · | USL
may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s
ability to sell shares. |
| · | The
NYSE Arca may halt trading in USL’s shares, which would adversely impact an investor’s
ability to sell shares. |
| · | The
liquidity of USL’s shares may also be affected by the withdrawal from participation
of Authorized Participants, which could adversely affect the market price of the shares. |
| · | Shareholders
that are not Authorized Participants may only purchase or sell their shares in secondary
trading markets, and the conditions associated with trading in secondary markets may adversely
affect investors’ investment in the shares. |
| · | The
lack of an active trading market for USL’s shares may result in losses on an investor’s
investment in USL at the time the investor sells the shares. |
| · | Limited
partners and shareholders do not participate in the management of USL and do not control
USCF, so they do not have any influence over basic matters that affect USL. |
| · | Limited
partners may have limited liability in certain circumstances, including potentially having
liability for the return of wrongful distributions. |
| · | USCF’s
LLC Agreement provides limited authority to the Non-Management Directors, and any Director
of USCF may be removed by USCF’s parent company, which is wholly owned by The Marygold
Companies, Inc., formerly Concierge Technologies, Inc., a controlled public company where
the majority of shares are owned by Nicholas D. Gerber along with certain of his other family
members and certain other shareholders. |
| · | There
is a risk that USL will not earn trading gains sufficient to compensate for the fees and
expenses that it must pay and as such USL may not earn any profit. |
| · | USL
is subject to extensive regulatory reporting and compliance. |
| · | Regulatory
changes or actions, including the implementation of new legislation, is impossible to predict
but may significantly and adversely affect USL. |
| · | USL
is not a registered investment company so shareholders do not have the protections of the
1940 Act. |
| · | Trading
in international markets could expose USL to credit and regulatory risk. |
| · | USL
and USCF may have conflicts of interest, which may permit them to favor their own interests
to the detriment of shareholders. |
| · | USL
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. |
| · | USL
does not expect to make cash distributions. |
| · | An
unanticipated number of Redemption Basket requests during a short period of time could have
an adverse effect on USL’s NAV. |
| · | An
unanticipated number of Creation Basket requests during a short period of time could result
in a shortage of shares. |
| · | USL
may determine that, to allow it to reinvest the proceeds from sales of its Creation Baskets
in currently permitted assets in a manner that meets its investment objective, it may limit
its offers of Creation Baskets. |
| · | In a rising rate environment, USL may not be able to fully invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss. |
| · | USL
may potentially lose money on its holdings of money market funds. |
| · | The
failure or bankruptcy of a clearing broker or USL’s Custodian could result in a substantial
loss of USL’s assets and could impair USL in its ability to execute trades. |
| · | The
failure or bankruptcy of USL’s Custodian could result in a substantial loss of USL’s
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. |
| · | Due
to the increased use of technologies, intentional and unintentional cyber-attacks pose operational
and information security risks. |
| · | USL’s
investment returns could be negatively affected by climate change and greenhouse gas restrictions. |
| · | USCF
is the subject of class action, derivative, and other litigation. In light of the
inherent uncertainties involved in litigation matters, an adverse outcome in this litigation
could materially adversely affect USCF’s financial condition. |
USL’s
Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold shares of USL. You should note that you may pay brokerage
commissions on purchases and sales of USL’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 67.
Annual
Fund Operating Expenses (expenses that you pay each year as a
percentage of the value of your investment)(1)
Management Fees | |
| 0.60 | %(2) |
Distribution Fees | |
| NONE | |
Other Fund Expenses | |
| 0.30 | % |
Total Annual Fund Operating Expenses | |
| 0.90 | % |
| (1) | Based
on amounts for the year ended December 31, 2021. The individual expense amounts in dollar
terms are shown in the table below. As used in this table, (i) Professional Expenses include
expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and
Officer Expenses include amounts paid to independent directors and for officers’ liability
insurance. |
| (2) | USL
is contractually obligated to pay USCF a management fee, which is paid monthly, equal to
0.60% per annum of average daily net assets. |
Management Fees | |
$ | 1,074,705 | |
Professional Expenses | |
$ | 288,152 | |
Registration Fees | |
$ | 151,475 | |
Brokerage Commissions | |
$ | 26,177 | |
Licensing Fees | |
$ | 26,868 | |
Independent Director and Officer Expenses | |
$ | 46,172 | |
| |
| | |
These amounts are based on
USL’s average total net assets, which are the sum of daily total net assets of USL divided by the number of calendar days in the
year. For the year ended December 31, 2021, USL’s average total net assets were $179,117,563.
RISK
FACTORS INVOLVED WITH AN INVESTMENT IN USL
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 USL’s financial statements and
the related notes, that are incorporated by reference. See “Incorporation By Reference of Certain Information,” page 71.
USL’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 light, sweet crude oil, as measured by the daily percentage changes in the average of the prices of the Benchmark Oil Futures Contracts,
plus interest earned on USL’s collateral holdings, less USL’s expenses. The Benchmark Oil Futures Contracts are the futures
contracts on light, sweet crude oil 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.
USL seeks to achieve its investment objective by investing so that the average daily percentage change in USL’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 prices of the
Benchmark Oil Futures Contracts over the same period. USL’s investment strategy is designed to provide investors with a cost-effective
way to invest indirectly in crude oil and to hedge against movements in the spot price of light, sweet crude oil.
An investment
in USL involves investment risk similar to a direct investment in Oil Futures Contracts and Other Oil-Related Investments, but it is
not a proxy for investing in the oil markets. Investing in USL also involves correlation risk, or the risk that investors purchasing
shares to hedge against movements in the price of crude oil will have an efficient hedge only if the price they pay for their shares
closely correlates with the price of crude oil. In addition to investment risk and correlation risk, an investment in USL involves tax
risks, OTC risks, and other risks.
Investment
Risk
The
NAV of USL’s shares relates directly to the value of the Benchmark Oil Futures Contracts and other assets held by USL and fluctuations
in the prices of these assets could materially adversely affect an investment in USL’s shares. Past performance is not necessarily
indicative of future results; all or substantially all of an investment in USL could be lost.
The net assets
of USL consist primarily of investments in Oil Futures Contracts and, to a lesser extent, in Other Oil-Related Investments. The NAV of
USL’s shares relates directly to the value of these assets (less liabilities, including accrued but unpaid expenses), which in
turn relates to the price of light, sweet crude oil in the marketplace. Crude oil prices depend on local, regional and global events
or conditions that affect supply and demand for oil.
Economic
conditions impacting crude oil. The demand for crude oil correlates closely with general
economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct
adverse impact on crude oil demand and therefore may have an adverse impact on crude oil prices. Other factors that affect general economic
conditions in the world or in a major region, such as changes in population growth rates, periods of civil unrest, military conflicts,
war (such as the current war between Russia and Ukraine), pandemics (e.g. COVID-19), government austerity programs, or currency exchange
rate fluctuations, can also impact the demand for crude oil. Sovereign debt downgrades, defaults, inability to access debt markets due
to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the
European Union, and other events or conditions (e.g. pandemics, such as COVID-19), that impair the functioning of financial markets and
institutions also may adversely impact the demand for crude oil.
Other
crude oil demand-related factors. Other factors that may affect the demand for crude
oil and therefore its price, include technological improvements in energy efficiency; seasonal weather patterns, which affect the demand
for crude oil associated with heating and cooling; increased competitiveness of alternative energy sources that have so far generally
not been competitive with oil without the benefit of government subsidies or mandates; and changes in technology or consumer preferences
that alter fuel choices, such as toward alternative fueled or electric transportation and broad-based changes in personal income levels.
Other
crude oil supply-related factors. Crude oil prices also vary depending on a number
of factors affecting supply, including geopolitical risk associated with wars (such as the current war between Russia and Ukraine), terrorist
attacks and tensions between countries, including sanctions imposed as a result of the foregoing that can adversely affect oil and other
energy trade flows by limiting or disrupting trade between countries or regions. For example, increased supply from the development of
new oil supply sources and technologies to enhance recovery from existing sources tends to reduce crude oil prices to the extent such
supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical manufacturing
capacity may impact the supply of crude oil. World oil supply levels can also be affected by factors that reduce available supplies,
such as adherence by member countries to the Organization of the Petroleum Exporting Countries (“OPEC”) production quotas
and the occurrence of geopolitical risk associated with wars, terrorist attacks and tensions between countries, including sanctions imposed
as a result of the foregoing that can adversely affect oil and other energy trade flows by limiting or disrupting trade between countries
or regions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that
may disrupt supplies.
Technological
change can also alter the relative costs for companies in the petroleum industry to find, produce, and refine oil and to manufacture
petrochemicals, which in turn may affect the supply of and demand for oil.
Other
factors impacting the crude oil market. The supply of and demand for crude oil may
also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by the development
of alternative energy sources.
Price
volatility may possibly cause the total loss of your investment.
Futures contracts
have a high degree of price variability and are subject to occasional rapid and substantial changes. Consequently, you could lose all
or substantially all of your investment in USL.
Significant
market volatility has recently occurred in the light, sweet crude oil markets and the oil futures markets. Such volatility is attributable
in part to the COVID-19 pandemic, related supply chain disruptions, war, including the war between Russia and Ukraine, and continuing
disputes among oil-producing countries. These and other events could cause continuing or increased volatility in the future, which may
affect the value, pricing and liquidity of some investments or other assets, including those held by or invested in by USL and the impact
of which could limit USL’s ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract.
In such a circumstance, USL could, if it determined it appropriate to do so in light of market conditions and regulatory requirements,
invest in other Oil Futures Contracts and/or Other Oil-Related Investments.
Russia’s
invasion of Ukraine, and sanctions brought by the United States and other countries against Russia and others, have caused disruptions in
many business sectors, resulting in significant market disruptions that may lead to increased volatility in the price of certain commodities,
including oil and natural gas, as well as volatility in USL’s NAV or share price.
On February
24, 2022, Russia launched a large-scale invasion of Ukraine. The extent and duration of the military action, and resulting sanctions,
and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse
effect on the region.
The United States
and other countries and certain international organizations have imposed broad-ranging economic sanctions on Russia and certain Russian
individuals, banking entities and corporations as a response to Russia’s invasion of Ukraine. On March 8, 2022, the United States
announced that it would ban imports of oil, natural gas and coal from Russia. Among other things, the extent and duration of the military
action, the responses of countries and political bodies to Russia’s actions, including sanctions, future market or supply disruptions,
and Ukraine’s military response and the potential for wider conflict may increase financial market volatility generally, have severe
adverse effects on regional and global economic markets, and cause volatility in the markets for commodities including the price of energy,
including energy futures, and the NAV or share price of USL.
A resolution to the war in Ukraine also could impact the markets for certain commodities, such as oil and natural gas, and may have collateral
impacts, including increased volatility, and cause disruptions to availability of certain commodities, commodity and futures prices and
the supply chain globally. The longer-term impact on commodities and futures prices, including the spot price of oil and the price of
the Benchmark Oil Futures Contracts is difficult to predict and depends on a number of factors that may have a negative impact on USL
in the future.
Historical
performance of USL and the Benchmark Oil Futures Contracts is not indicative of future performance.
Past performance
of USL or the Benchmark Oil Futures Contracts is not necessarily indicative of future results. Therefore, past performance of USL or
the Benchmark Oil Futures Contracts should not be relied upon in deciding whether to buy shares of USL.
COVID-19
and other infectious disease outbreaks could negatively affect the valuation and performance of USL’s investments.
An outbreak of
infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and spread
globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. COVID-19 has resulted in numerous deaths,
travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays
in healthcare service preparation and delivery, prolonged quarantines and the imposition of both local and more widespread “work
from home” measures, cancellations, loss of employment, supply chain disruptions, and lower consumer and institutional demand for
goods and services, as well as general concern and uncertainty. The ongoing spread of COVID-19 has had, and may continue to have, a material
adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and
market sentiment are impacted by the outbreak and government and other measures seeking to contain its spread. The impact of COVID-19,
and other infectious disease outbreaks that may arise in the future, could adversely affect individual issuers and capital markets in
ways that cannot necessarily be foreseen. In addition, actions taken by government and quasi-governmental authorities and regulators
throughout the world in response to the COVID-19 outbreak, including significant fiscal and monetary policy changes, may affect the value,
volatility, pricing and liquidity of some investments or other assets, including those held by or invested in by USL. 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 USL and, on the global economy, cannot be determined with certainty.
Correlation
Risk
An
investment in USL may provide little or no diversification benefits. Thus, in a declining market, USL may have no gains to offset losses
from other investments, and an investor may suffer losses on an investment in USL while incurring losses with respect to other asset
classes.
Investors purchasing
shares to hedge against movements in the price of crude oil will have an efficient hedge only if the price investors pay for their shares
closely correlates with the price of crude oil. Investing in USL’s shares for hedging purposes includes the following risks:
| · | The
market price at which the investor buys or sells shares may be significantly less or more
than the NAV. |
| · | Daily
percentage changes in NAV may not closely correlate with daily percentage changes in the
average of the prices of the Benchmark Oil Futures Contracts. |
| · | Daily
percentage changes in the average of the prices of the Benchmark Oil Futures Contracts may
not closely correlate with daily percentage changes in the price of light, sweet crude oil. |
Historically,
Oil Futures Contracts and Other Oil-Related Investments have generally been non-correlated to the performance of other asset classes
such as stocks and bonds. Non-correlation means that there is a low statistically valid relationship between the performance of futures
and other commodity interest transactions, on the one hand, and stocks or bonds, on the other hand.
However, there
can be no assurance that such non-correlation will continue during future periods. If, contrary to historic patterns, USL’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 USL’s shares. In such a case, USL may have no gains to offset losses from other investments, and investors may
suffer losses on their investment in USL at the same time they incur losses with respect to other investments.
Variables such
as drought, floods, weather, military conflicts, pandemics (such as COVID-19), embargoes, tariffs and other political events may have
a larger impact on crude oil prices and crude oil-linked instruments, including Oil Futures Contracts and Other Oil-Related Investments,
than on traditional securities. These additional variables may create additional investment risks that subject USL’s investments
to greater volatility than investments in traditional securities.
Non-correlation
should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. There is
no historical evidence that the spot price of crude oil and prices of other financial assets, such as stocks and bonds, are negatively
correlated. In the absence of negative correlation, USL cannot be expected to be automatically profitable during unfavorable periods
for the stock market, or vice versa.
The
market price at which investors buy or sell shares may be significantly less or more than NAV.
USL’s NAV
per share will change throughout the day as fluctuations occur in the market value of USL’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 USL by Authorized Participants in Redemption Baskets. Generally, price differences may relate
to supply and demand forces at work in the secondary trading market for shares that are closely related to, but not identical to, the
same forces influencing the prices of crude oil and the Benchmark Oil Futures Contracts at any point in time. USCF expects that exploitation
of certain arbitrage opportunities by Authorized Participants and their clients will tend to cause the public trading price to track
NAV per share closely over time, but there can be no assurance of that. For example, a shortage of USL’s shares in the market and
other factors could cause USL’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 USL 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 USL 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.
The NAV of USL’s
shares may also be influenced by non-concurrent trading hours between the NYSE Arca and the various futures exchanges on which crude
oil 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 crude oil trades may not necessarily coincide during all of this time. As a result, during periods when the NYSE Arca is open
and the futures exchanges on which sweet, light crude oil is traded are closed, trading spreads and the resulting premium or discount
on the shares may widen and, therefore, increase the difference between the price of the shares and the NAV of the shares.
Daily
percentage changes in USL’s NAV may not correlate with daily percentage changes in the average of the prices of the Benchmark Oil
Futures Contracts.
It is possible
that the daily percentage changes in USL’s NAV per share may not closely correlate to daily percentage changes in the average of
the prices of the Benchmark Oil Futures Contracts. Non-correlation may be attributable to disruptions in the market for light, sweet
crude oil, the imposition of position or accountability limits by regulators or exchanges, or other extraordinary circumstances. As USL
approaches or reaches position limits with respect to the Benchmark Oil Futures Contracts and other Oil Futures Contracts or in view
of market conditions, USL may begin investing in Other Oil-Related Investments. In addition, USL is not able to replicate exactly the
changes in the average prices of the Benchmark Oil Futures Contracts because the total return generated by USL is reduced by expenses
and transaction costs, including those incurred in connection with USL’s trading activities, and increased by interest income from
USL’s holdings of Treasuries (defined below). Tracking the Benchmark Oil Futures Contracts requires trading of USL’s portfolio
with a view to tracking the Benchmark Oil Futures Contracts over time and is dependent upon the skills of USCF and its trading principals,
among other factors.
An
investment in USL is not a proxy for investing in the oil markets, and the daily percentage changes in the prices of the Benchmark Oil
Futures Contracts, or the NAV of USL, may not correlate with daily percentage changes in the spot price of light, sweet crude oil.
An investment
in USL is not a proxy for investing in the oil markets. To the extent that investors use USL as a means of indirectly investing in crude
oil, there is the risk that the daily changes in the price of USL’s shares on the NYSE Arca, on a percentage basis, will not closely
track the daily changes in the spot price of light, sweet crude oil on a percentage basis. This could happen if the price of shares traded
on the NYSE Arca does not correlate closely with the value of USL’s NAV; the changes in USL’s NAV do not correlate closely
with the changes in the prices of the Benchmark Oil Futures Contracts; or the changes in the prices of the Benchmark Oil Futures Contracts
do not closely correlate with the changes in the cash or spot price of crude oil. This is a risk because if these correlations do not
exist, then investors may not be able to use USL as a cost-effective way to indirectly invest in crude oil or as a hedge against the
risk of loss in crude oil-related transactions. The degree of correlation among USL’s share price, the prices of the Benchmark
Oil Futures Contracts, and the spot price of crude oil depends upon circumstances such as variations in the speculative oil market, supply
of and demand for Oil Futures Contracts (including the Benchmark Oil Futures Contracts) and Other Oil-Related Investments, and technical
influences on trading oil futures contracts. Investors who are not experienced in investing in oil futures contracts or the factors that
influence that market or speculative trading in the crude oil 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 USL shares than such other investors with such experience and resources.
Daily
percentage changes in the price of the Benchmark Oil Futures Contracts may not correlate with daily percentage changes in the spot price
of crude oil.
The correlation
between changes in prices of the Benchmark Oil Futures Contracts and the spot price of crude oil may at times be only approximate. The
degree of imperfection of correlation depends upon circumstances such as variations in the speculative oil market, supply of and demand
for Oil Futures Contracts (including the Benchmark Oil Futures Contracts) and Other Oil-Related Investments, and technical influences
in oil futures trading.
Natural
forces in the crude oil futures market known as “backwardation” and “contango” may increase USL’s tracking
error and/or negatively impact total return.
The design of
USL’s Benchmark Oil Futures Contracts consists of the near month contract to expire and the 11 following months, which are changed
to the next month contract to expire and the 11 following months during one day each month. In the event of a crude oil futures market
where near month contracts trade at a higher price than next month to expire contracts, a situation described as “backwardation”
in the futures market, then absent the impact of the overall movement in light, sweet crude oil prices the value of the benchmark contract
would tend to rise as it approaches expiration. Conversely, in the event of a crude oil futures market where near month contracts trade
at a lower price than next month contracts, a situation described as “contango” in the futures market, then absent the impact
of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. When
compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may cause
the total return of USL’s per share NAV to vary significantly. Moreover, absent the impact of rising or falling oil prices, a prolonged
period of contango could have a significant negative impact on USL’s per share NAV and total return and investors could lose part
or all of their investment.
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 in the
crude oil futures markets in April 2020 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. This resulted in a negative
price for the May 2020 futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange.
See “Additional
Information About USL, 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
USL’s investments, including its ability to fully invest in the Benchmark Futures Contracts, which could cause the average of the
prices of shares to substantially vary from the price of the Benchmark Oil 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 USL is not) may hold, own or control. These levels and position limits apply to the futures contracts that USL
invests in to meet its investment objective. In addition to accountability levels and position limits, the NYMEX and ICE Futures may
also set daily price limits on futures contracts. The daily price fluctuation limit establishes the maximum amount that the price of
a futures contract may vary either up or down from the previous day’s settlement price. Once the daily price fluctuation limit
has been reached in a particular futures contract, no trades may be made at a price beyond that limit.
The accountability
levels for the Benchmark Oil Futures Contracts and other Oil Futures Contracts traded on U.S.-based futures exchanges, such as the NYMEX,
are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s
positions. The current accountability level for investments for any one-month in the Benchmark Oil Futures Contracts is 10,000 contracts.
In addition, the NYMEX imposes an accountability level for all months of 20,000 net futures contracts for light, sweet crude oil. In
addition, the ICE Futures maintains the same accountability levels, position limits and monitoring authority for its light, sweet crude
oil contract as the NYMEX. If USL and the Related Public Funds exceed these accountability levels for investments in the futures contracts
for light, sweet crude oil, 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 USL and the Related
Public Funds. If deemed necessary by the NYMEX and/or ICE Futures, USL could be ordered to reduce its net oil futures contracts back
to the accountability level.
Position limits
differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may
hold and cannot be exceeded without express CFTC authority to do so. In addition to accountability levels imposed by NYMEX 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 USL will run up against such position limits because USL’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 a final rule that amends the existing federal position limits regime set forth in Part 150 of the CFTC’s
regulations as well as the framework for exchange-set position limits and exemptions (such final rule, the “Position Limit Rule”).
The Position Limit Rule establishes federal position limits for 25 core referenced futures contracts (comprised of agricultural, energy
and metals futures contracts), futures and options linked to the core referenced futures contracts, and swaps that are economically equivalent
to the core referenced futures contracts.
The Benchmark
Oil Futures Contracts will be subject to position limits under the Position Limits Rule, and USL’s trading does not qualify for
an exemption therefrom. Accordingly, the Position Limits Rule could negatively impact the ability of USL to meet its investment objective
by inhibiting USCF’s ability to effectively invest the proceeds from sales of Creation Baskets of USL in particular amounts and
types of its permitted investments.
All of these
limits may potentially cause a tracking error between the price of USL’s shares and the average of the prices of the Benchmark
Oil Futures Contracts. This may in turn prevent investors from being able to effectively use USL as a way to hedge against crude oil-related
losses or as a way to indirectly invest in crude oil.
Risk
mitigation measures that could be imposed by USL’s futures commission merchants (“FCMs”) have the potential to cause
tracking error by limiting USL’s investments, including its ability to fully invest in the Benchmark Oil Futures Contracts and
other Futures Contracts, which could cause the price of USL’s shares to substantially vary from the price of the Benchmark Oil
Futures Contracts.
USL’s FCMs
have discretion to impose limits on the positions that USL may hold in the Benchmark Futures Contracts. To date, USL’s FCMs have
not imposed any such limits. However, were USL’s FCMs to impose limits, USL’s ability to have a substantial portion of its
assets invested in the Benchmark Oil Futures Contracts and other Futures Contracts could be severely limited, which could lead USL to
invest in other Futures Contracts or, potentially, Other Oil-Related Investments. USL could also have to more frequently rebalance and
adjust the types of holdings in its portfolio than is currently the case. This could inhibit USL 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 USL’s FCMs could limit USL’s
ability to invest the proceeds of the purchases of Creation Baskets in Benchmark Oil Futures Contracts and other Futures Contracts. If
this were the case, USL may invest in other permitted investments, including Other Oil-Related Investments, and may hold larger amounts
of Treasuries, cash and cash equivalents, which could impair USL’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 USL’s taxable income, without regard to whether they receive distributions or the amount of any distributions.
Therefore, the tax liability of an investor with respect to its shares may exceed the amount of cash or value of property (if any) distributed
with respect to such shares.
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 USL in making allocations for tax purposes and other factors, an investor’s allocable
share of USL’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 USL 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 USL in allocating
those items, with potential adverse consequences for an investor.
The U.S. federal
income tax rules pertaining to partnerships are complex and their application to large, publicly traded partnerships such as USL is in
many respects uncertain. USL applies certain assumptions and conventions in an attempt to comply with the intent of the applicable rules
and to report taxable income, gains, deductions, losses and credits in a manner that properly reflects shareholders’ economic gains
and losses. It is possible that the IRS could successfully challenge the application by USL of these assumptions and conventions as not
fully complying with all aspects of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury Regulations,
which would require USL to reallocate items of income, gain, deduction, loss or credit in a manner that adversely affects investors.
USL may be liable
for U.S. federal income tax on any “imputed understatement” resulting from an adjustment as a result of an IRS audit. The
amount of the imputed understatement generally includes increases in allocations of items of income or gain to any investor and decreases
in allocations of items of deduction, loss, or credit to any investor without any offset for corresponding reductions in allocations
of items of income or gain to any investor or increases in allocations of items of deduction, loss, or credit to any investor. If USL
is required to pay any U.S. federal income taxes on any imputed understatement, the resulting tax liability would reduce the net assets
of USL and would likely have an adverse impact on the value of the shares. Under certain circumstances, USL may be eligible to make an
election to cause the investors to take into account the amount of any imputed understatement, including any associated interest and
penalties. The ability of a publicly traded partnership such as USL to make this election is uncertain. If the election is made, USL
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.
USL
could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of the shares.
USL has received
an opinion of counsel that, under current U.S. federal income tax laws, USL 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 USL’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) USL is organized and operated in accordance with its governing agreements
and applicable law and (iii) USL does not elect to be taxed as a corporation for U.S. federal income tax purposes. Although USCF anticipates
that USL has satisfied and will continue to satisfy the “qualifying income” requirement for all taxable years, that result
cannot be assured. USL 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 U.S. federal income tax purposes. If the IRS were to successfully assert that USL is taxable as a corporation
for U.S. federal income tax purposes in any taxable year, rather than passing through its income, gains, losses and deductions proportionately
to shareholders, USL would be subject to U.S. federal income 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, if USL were taxable as a corporation for U.S. federal
income tax purposes, any distributions made with respect to the USL shares would be taxable to shareholders as dividend income to the
extent of USL’s current and accumulated earnings and profits. Taxation of USL as a corporation could materially reduce the after-tax
return on an investment in shares and could substantially reduce the value of the shares.
USL
is organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law, and
therefore, USL has a more complex tax treatment than traditional mutual funds.
USL 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 USL on its income. Instead, USL 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 USL.
This must be
reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from USL during the taxable
year. A shareholder, therefore, may be allocated income or gain by USL but receive no cash distribution with which to pay the tax liability
resulting from the allocation, or may receive a distribution that is insufficient to pay such liability.
In addition
to U.S. federal income taxes, shareholders may be subject to other taxes, such as state and local income taxes, unincorporated business
taxes, business franchise taxes and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which
USL 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 USL. It is each shareholder’s responsibility
to file the appropriate U.S. federal, state, local and foreign tax returns.
If
USL 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, USL 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, USL 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 U.S. tax reform on USL is uncertain.
Legislative or
other actions relating to taxes could have a negative effect on USL or our investors. The rules dealing with U.S. federal income taxation
are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The Biden
Administration has proposed significant changes to the existing U.S. tax rules, and there are a number of proposals in Congress that
would similarly modify the existing U.S. tax rules. The likelihood of any such legislation being enacted is uncertain, and we cannot
predict with certainty how any changes in the tax laws might affect USL, our investors or our investments. Investors are urged to consult
with their tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential
effect on an investment in our shares.
OTC
Contract Risk
USL
will be subject to credit risk with respect to counterparties to OTC contracts entered into by USL or held by special purpose or structured
vehicles.
USL 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 USL, in which case USL 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, USL may experience significant delays in
obtaining any recovery in a bankruptcy or other reorganization proceeding. USL may obtain only limited recovery or may obtain no recovery
in such circumstances.
Valuing
OTC derivatives may be less certain than actively traded financial instruments.
In general, valuing
OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts and securities
or cleared swaps because, for OTC derivatives, the price and terms on which such OTC derivatives are entered into or can be terminated
are individually negotiated, and those prices and terms may not reflect the best price or terms available from other sources. In addition,
while market makers and dealers generally quote indicative prices or terms for entering into or terminating OTC contracts, they typically
are not contractually obligated to do so, particularly if they are not a party to the transaction. As a result, it may be difficult to
obtain an independent value for an outstanding OTC derivatives transaction.
Other
Risks
USL
is not leveraged, but it could become leveraged if it had insufficient assets to completely meet its margin or collateral
requirements relating to its investments.
USL has not leveraged,
and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments accordingly. Consistent with the
foregoing, USL’s announced investment intentions, and any changes thereto, will take into account the need for USL 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, USL becoming leveraged. If market conditions require it, USL may implement risk reduction procedures, which may
include changes to USL’s investments, and such changes may occur on short notice if they occur other than during a roll or rebalance
period.
Although USL
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 USL 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 USL were to hold assets that have a value of
less than zero.
USCF endeavors
to have the value of USL’s Treasuries, cash and cash equivalents, whether held by USL or posted as margin or other collateral,
at all times approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments.
Although permitted to do so under its LP Agreement, USL 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, USL’s
investment decisions will take into account the need for USL 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, USL becoming leveraged, including by
its holding of assets that have a high probability of having a value of less than zero.
USL
may temporarily limit the offering of Creation Baskets.
USL 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. USL 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 USL and USL 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 USL’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.
Futures positions
cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small
volume of buy and sell orders in a market. A market disruption, such as a war or a foreign government taking political actions that disrupt
the market for its currency, its crude oil production or exports, or another major export, can also make it difficult to liquidate a
position. Because both Oil Futures Contracts and Other Oil-Related Investments may be illiquid, USL’s Oil Interests may be more
difficult to liquidate at favorable prices in periods of illiquid markets and losses may be incurred during the period in which positions
are being liquidated. The large size of the positions that USL 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 USL’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.
USL
is not actively managed and its investment objective is to track the Benchmark Oil Futures Contracts so that the average daily percentage
change in USL’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 Oil Futures Contracts over the same period.
USL is not actively
managed by conventional methods. Accordingly, if USL’s investments in Oil Interests are declining in value, in the ordinary course,
USL 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 Oil Futures Contracts and other permitted investments (i) in connection with the monthly
change in the Benchmark Oil Futures Contracts or when USL otherwise determines it would be appropriate to do so, e.g., due to regulatory
requirements or risk mitigation measures, or (ii) to avoid USL becoming leveraged, and it reinvests the proceeds in new Oil Futures Contracts
or Other Oil-Related Investments to the extent possible. USCF will seek to cause the NAV of USL’s shares to track the Benchmark
Oil Futures Contracts during periods in which its price is flat or declining as well as when the price is rising.
USL
may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s ability to sell shares.
USL’s
shares are listed for trading on the NYSE Arca under the market symbol “USL.” NYSE Arca may suspend USL’s shares from
trading on the exchange with or without prior notice to USL, upon failure of USL 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 USL’s shares will continue to be met or will
remain unchanged. If USL 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 USL’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 USL’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, USL through Creation Baskets or Redemption Baskets respectively.
All other investors that desire to purchase or sell shares must do so through the NYSE Arca or in other markets, if any, in which the
shares may be traded. Shares may trade at a premium or discount relative to NAV per share.
The
lack of an active trading market for USL’s shares may result in losses on an investor’s investment in USL at the time the
investor sells the shares.
Although USL’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 USL and do not control USCF, so they do not have any influence over
basic matters that affect USL.
The limited
partners and shareholders take no part in the management or control, and have a minimal voice in USL’s operations or business.
Limited partners and shareholders must therefore rely upon the duties and judgment of USCF to manage USL’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 USL’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 USL’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 USL’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 USL’s shares. However, a limited partner
may be required to repay to USL any amounts wrongfully returned or distributed to it under some circumstances. Under Delaware law, USL
may not make a distribution to limited partners if the distribution causes USL’s liabilities (other than liabilities to partners
on account of their partnership interests and nonrecourse liabilities) to exceed the fair value of USL’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.
USCF’s
LLC Agreement provides limited authority to the Non-Management Directors, and any Director of USCF may be removed by USCF’s parent
company, which is wholly owned by The Marygold Companies, Inc., formerly Concierge Technologies, Inc., a controlled public company where
the majority of shares are owned by Nicholas D. Gerber along with certain of his other family members and certain other shareholders.
USCF’s
Board of Directors currently consists of four Management Directors, who are also executive officers or employees of USCF, and three Non-Management
Directors, who are considered independent for purposes of applicable NYSE Arca and SEC rules. Under USCF’s LLC Agreement, the Non-Management
Directors have only such authority as the Management Directors expressly confer upon them, which means that the Non-Management Directors
may have less authority to control the actions of the Management Directors than is typically the case with the independent members of
a company’s Board of Directors. In addition, any Director may be removed by written consent of USCF Investments, Inc. (“USCF
Investments”), formerly Wainwright Holdings, Inc., which is the sole member of USCF. The sole shareholder of USCF Investments
is The Marygold Companies, Inc., formerly Concierge Technologies, Inc. (“Marygold”), a company publicly traded under
the ticker symbol “MGLD.” Mr. Nicholas D. Gerber, along with certain of his family members and certain other shareholders,
owns the majority of the shares in Marygold, which is the sole shareholder of USCF Investments, the sole member of USCF. Accordingly,
although USCF is governed by the USCF Board of Directors, which consists of both Management Directors and Non-Management Directors, pursuant
to the LLC Agreement, it is possible for Mr. Gerber to exercise his indirect control of USCF Investments to effect the removal of any
Director (including the Non-Management Directors which comprise the Audit Committee) and to replace that Director with another Director.
Having control in one person could have a negative impact on USCF and USL, including their regulatory obligations.
There
is a risk that USL will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such USL may
not earn any profit.
USL pays brokerage
charges of approximately 0.01% of average total net assets based on brokerage fees of $3.50 per buy or sell, management fees of 0.60%
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 USL’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 USL’s activities are profitable. Accordingly, USL must earn trading gains
sufficient to compensate for these fees and expenses before it can earn any profit.
USL
is subject to extensive regulatory reporting and compliance.
USL is subject
to a comprehensive scheme of regulation under the federal commodities and securities laws. USL 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 USL’s
shares are publicly traded, USL 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. USL’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.
USL is responsible
for establishing and maintaining adequate internal control over financial reporting. USL’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
USL.
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 USL is impossible to predict, but it could be substantial and adverse.
USL
is not a registered investment company so shareholders do not have the protections of the 1940 Act.
USL 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 USL to credit and regulatory risk.
USL invests primarily
in Oil Futures Contracts, a significant portion of which are traded on United States exchanges, including the NYMEX. However, a portion
of USL’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, USL 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.
USL
and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders.
USL 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 USL and also are directors, officers or employees of other
entities that may compete with USL for their services. They could have a conflict between their responsibilities to USL and to those
other entities. As a result of these and other relationships, parties involved with USL have a financial incentive to act in a manner
other than in the best interests of USL 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 USL and the Related Public Funds. USCF may have a conflict to the extent that its trading decisions
for USL 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, USL purchased oil futures contracts, this decision could impact USL’s ability to purchase
additional oil 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 other Related Public Funds to track their benchmark futures contract(s).
USL may also
be subject to certain conflicts with respect to its FCMs, including, but not limited to, conflicts that result from the FCM receiving
greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third-party accounts traded
through the FCMs. In addition, USCF’s principals, officers, directors or employees may trade futures and related contracts for
their own account. A conflict of interest may exist if their trades are in the same markets and at the same time as USL trades using
the clearing broker to be used by USL. 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 USL.
USL
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.
USL may terminate
at any time, regardless of whether USL 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 USL or third parties
or otherwise that would lead USL to determine that it could no longer foreseeably meet its investment objective or that USL’s aggregate
net assets in relation to its operating expenses or its margin or collateral requirements make the continued operation of USL unreasonable
or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution, withdrawal, or removal of USCF as the general partner of
USL, could cause USL 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 USL. USL’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.
USL
does not expect to make cash distributions.
USL has not
previously made any cash distributions and intends to reinvest any realized gains in additional Oil Interests rather than distributing
cash to limited partners or other 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, USL generally does not expect to distribute cash to limited partners. An investor should not invest in USL if the
investor will need cash distributions from USL to pay taxes on its share of income and gains of USL, if any, or for any other reason.
Nonetheless, although USL does not intend to make cash distributions, the income earned from its investments held directly or posted
as margin may reach levels that merit distribution, e.g., at levels
where such income is not necessary to support its underlying investments in Oil Interests and investors adversely react to being taxed
on such income without receiving distributions that could be used to pay such tax. If this income becomes significant then cash distributions
may be made.
An
unanticipated number of Redemption Basket requests during a short period of time could have an adverse effect on USL’s NAV.
If a substantial
number of requests for redemption of Redemption Baskets are received by USL during a relatively short period of time, USL may not be
able to satisfy the requests from USL’s assets not committed to trading. As a consequence, it could be necessary to liquidate positions
in USL’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 USL during a relatively short period of time that substantially differ from past creation volumes, due to market volatility
or otherwise, including, for example, volatility that occurred during the COVID-19 pandemic and disputes among oil-producing countries
regarding limits on the production of crude oil. Among other things, such conditions could result in circumstances where, because of
high demand for its shares, USL may not have sufficient shares available for sale to satisfy demand and 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 USL 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
USL 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 USL by Authorized Participants in Redemption
Baskets. The foregoing could also create significant deviations from USL’s investment objective. Any potential impact to the market
for shares of USL 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.
USL
may determine that, to allow it to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a manner
that meets its investment objective, it may limit its offers of Creation Baskets.
USL may determine
to 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 USL to obtain greater liquidity or to
execute transactions with more favorable pricing); and (3) risk mitigation measures taken by USL’s current and other FCMs that
limit USL and other market participants from investing in particular crude oil futures contracts, USL’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 Basket requests during a short
period of time could result in a shortage of shares, could also occur as a result of USL determining to limit the offering of creation
baskets.”
In
a rising rate environment, USL may not be able to fully invest at prevailing rates until any current investments in Treasury Bills
mature in order to avoid selling those investments at a loss.
When interest
rates rise, the value of fixed income securities typically falls. In a rising interest rate environment, USL may not be able to fully
invest at prevailing rates until any current investments in Treasury Bills mature in order to avoid selling those investments at a loss.
Interest rate risk is generally lower for shorter term investments and higher for longer term
investments. The risk to USL of rising interest rates may be greater in the future due to the end of a long period of
historically low rates and the effect of potential monetary policy initiatives and resulting market reaction to those initiatives. When
interest rates fall, USL may be required to reinvest the proceeds from the sale, redemption or early prepayment of a Treasury Bill or
money market security at a lower interest rate.
USL
may potentially lose money on its holdings of money market funds.
USL invests
in government money market funds. Although such government money market funds seek to preserve the value of an investment at $1.00 per
share, there is no guarantee that they will be able to do so and USL 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.
USL 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 USL’s Custodian could result in a substantial loss of USL’s assets and could
impair USL 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, USL or its investors.
In particular,
in the event of an FCM’s or clearing house’s bankruptcy, USL 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 USL may not recover any assets at all. USL 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, USL
would be afforded the protections granted to customers of an FCM, and participants to transactions cleared through a clearing house,
under the United States Bankruptcy Code and applicable CFTC regulations. Such provisions generally provide for a pro rata distribution
to customers of customer property held by the bankrupt FCM or an Exchange’s clearing house if the customer property held by the
FCM or the Exchange’s clearing house is insufficient to satisfy all customer claims.
Bankruptcy of
a clearing FCM can be caused by, among other things, the default of one of the FCM’s customers. In this event, the Exchange’s
clearing house is permitted to use the entire amount of margin posted by USL (as well as margin posted by other customers of the FCM)
to cover the amounts owed by the bankrupt FCM. Consequently, USL 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 USL could sustain losses upon the failure or bankruptcy of its FCM, the majority of USL’s assets are held in Treasuries, cash
and/or cash equivalents with USL’s Custodian and would not be impacted by the bankruptcy of an FCM.
The
failure or bankruptcy of USL’s Custodian could result in a substantial loss of USL’s assets.
The majority
of USL’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 USL’s assets held by that Custodian, which, at any given time, would likely comprise a substantial
portion of USL’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 USL’s intellectual property or technology, including the use of its business methods, trademarks
and trading program software, without permission. USCF has a patent for USL’s business method and has registered its trademarks.
USL does not currently have any proprietary software. However, if it obtains proprietary software in the future, any unauthorized use
of USL’s proprietary software and other technology could also adversely affect its competitive advantage. USL 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 USL, 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, USL 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 USL, a natural catastrophe, an industrial accident, failure of USL’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 USL’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 USL 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 USL’s electronic data processing, transmission, storage, and retrieval
systems, or impact the availability, integrity, or confidentiality of our data. In addition, a service provider that has experienced
a cyber-security incident may divert resources normally devoted to servicing USL to addressing the incident, which would be likely to
have an adverse effect on USL’s operations. Cyber-attacks may also cause disruptions to the futures exchanges and clearinghouses
through which USL invests in futures contracts, which could result in disruptions to USL’s ability to pursue its investment objective,
resulting in financial losses to USL and its shareholders.
In addition,
substantial costs may be incurred in order to prevent any cyber incidents in the future. USL and its shareholders could be negatively
impacted as a result. While USCF and the Related Public Funds, including USL, have established business continuity plans, there are inherent
limitations in such plans, including the possibility that certain risks have not been identified or that new risks will emerge before
countervailing measures can be implemented. Furthermore, USL cannot control cybersecurity plans and systems of its service providers,
market makers or Authorized Participants.
USL’s
investment returns could be negatively affected by climate change and greenhouse gas restrictions.
Driven by concern
over the risks of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce
greenhouse gas emissions or production and use of oil and gas. These include adoption of cap and trade regimes, carbon taxes, trade tariffs,
minimum renewable usage requirements, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable
energy. Political and other actors and their agents increasingly seek to advance climate change objectives indirectly, such as by seeking
to reduce the availability of or increase the cost for, financial and investment in the oil and gas sector and taking actions intended
to promote changes in business strategy for oil and gas companies. Many governments are also providing tax advantages and other subsidies
to support transitioning to alternative energy sources or mandating the use of specific fuels other than oil or natural gas. Depending
on how policies are formulated and applied, they could have the potential to negatively affect USL’s investment returns and make
oil and natural gas products more expensive or less competitive.
USCF
is the subject of class action, derivative, and other litigation. In light of the inherent uncertainties involved in litigation matters, an adverse
outcome in this litigation could materially adversely affect USCF’s financial condition.
USCF and USCF’s
directors and certain of its officers are currently subject to litigation. Estimating an amount or range of possible losses
resulting from litigation proceedings to USCF is inherently difficult and requires an extensive degree of judgment, particularly where
the matters involve indeterminate claims for monetary damages and are subject to appeal. In addition, because most legal proceedings
are resolved over extended periods of time, potential losses are subject to change due to, among other things, new developments, changes
in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties’ settlement posture and their evaluation
of the strength or weakness of their case against USCF. For these reasons, we are currently unable to predict the ultimate timing or
outcome of, or reasonably estimate the possible losses or a range of possible losses resulting therefrom. In light of the inherent uncertainties
involved in such matters, an adverse outcome in this litigation could materially adversely affect USCF’s financial condition, results
of operations or cash flows in any particular reporting period. In addition, litigation could result in substantial costs and divert
USCF’s management’s attention and resources from conducting USCF’s operations, including the management of USL and the other Related
Public Funds.
ADDITIONAL
INFORMATION ABOUT USL, ITS INVESTMENT OBJECTIVE AND INVESTMENTS
USL 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 USL to USCF. USL maintains its main business office at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596.
The net assets
of USL consist primarily of investments in Oil 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 Oil-Related Investments. Market conditions that
USCF currently anticipates could cause USL to invest in Other Oil-Related Investments include those allowing USL to obtain greater liquidity
or to execute transactions with more favorable pricing.
USL invests
substantially the entire amount of its assets in Oil 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 USL are available on USL’s website at www.uscfinvestments.com.
USL invests
in Oil 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 Oil Interests. In pursuing this objective, the primary focus of USCF, is the investment
in Oil Futures Contracts and the management of USL’s investments in Treasuries, cash and/or cash equivalents for margining purposes
and as collateral.
USL seeks to
invest in a combination of Oil 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 Oil Futures Contracts, also measured in percentage terms. As a specific benchmark, USCF endeavors
to place USL’s trades in Oil Interests and otherwise manage USL’s investments so that “A” will be within plus/
minus ten percent (10%) of “B”, where:
| · | A
is the average daily percentage change in USL’s per share NAV for any period of 30
successive valuation days, i.e.,
any NYSE Arca trading day as of
which USL calculates its per share NAV; and |
| · | B
is the average daily percentage change in the average of the prices of the Benchmark Oil
Futures Contracts over the same period. |
USCF believes
that market arbitrage opportunities will cause the daily changes in USL’s share price on the NYSE Arca on a percentage basis to
closely track the daily changes in USL’s per share NAV. USCF further believes that the daily changes in USL’s NAV in percentage
terms will closely track the daily changes in percentage terms in the average of the prices of the Benchmark Oil Futures Contracts, less
USL’s expenses.
The following
two graphs demonstrate the correlation between the changes in USL’s NAV and the changes in the Benchmark Oil Futures Contracts.
The first graph exhibits the daily changes in the last 30 valuation days ended December 31, 2021. The second graph measures monthly changes
since December 31, 2016 through December 31, 2021.
*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 prices of the Benchmark Oil Futures Contracts regardless
of whether these prices go up or go down. USL’s “neutral” investment strategy is designed to permit investors generally
to purchase and sell USL’s shares for the purpose of investing indirectly in crude oil in a cost-effective manner, and/or to permit
participants in the oil or other industries to hedge the risk of losses in their crude oil-related transactions. Accordingly, depending
on the investment objective of an individual investor, the risks generally associated with investing in crude oil and/or the risks involved
in hedging may exist. In addition, an investment in USL involves the risk that the daily changes in the price of USL’s shares,
in percentage terms, will not accurately track the daily changes in the average prices of the Benchmark Oil Futures Contracts, in percentage
terms, and that daily changes in the Benchmark Oil Futures Contracts, in percentage terms, will not closely correlate with daily changes
in the spot prices of light, sweet crude oil, in percentage terms.
An alternative
tracking measurement of the return performance of USL versus the return of its Benchmark Oil Futures Contracts can be calculated by comparing
the actual average of the prices of its return of USL, measured by changes in its per share NAV, versus the expected changes in its per
share NAV under the assumption that USL’s returns had been exactly the same as the daily changes in its Benchmark Oil Futures Contracts.
For the year
ended December 31, 2021, the actual total return of USL as measured by changes in its per share NAV was 61.40%. This is based on an initial
per share NAV of $17.23 as of December 31, 2020 and an ending per share NAV as of December 31, 2021 of $27.81. During this time period,
USL made no distributions to its shareholders. However, if USL’s daily changes in its per share NAV had instead exactly tracked
the changes in the daily total return of the Benchmark Oil Futures Contracts, USL would have had an estimated per share NAV of $28.05
as of December 31, 2021, for a total return over the relevant time period of 62.80%. The difference between the actual per share NAV
total return of USL of 61.40% and the expected total return based on the Benchmark Oil Futures Contracts of 62.80% was a difference over
the time period of (1.40)% which is to say that USL’s actual total return underperformed its benchmark by that percentage. USL
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 USL to track slightly lower or higher than daily changes in the price of the Benchmark
Oil Futures Contracts.
By comparison,
for the year ended December 31, 2020, the actual total return of USL as measured by changes in its per share NAV was (24.92)%. This was
based on an initial per share NAV of $22.95 as of December 31, 2019 and an ending per share NAV as of December 31, 2020 of $17.23. During
this time period, USL made no distributions to its shareholders. However, if USL’s daily changes in its per share NAV had instead
exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contracts, USL would have had an estimated per share
NAV of $17.31 as of December 31, 2020, for a total return over the relevant time period of (24.58)%. The difference between the actual
per share NAV total return of USL of (24.92)% and the expected total return based on the Benchmark Oil Futures Contracts of (24.58)%
was a difference over the time period of (0.34)%, which is to say that USL’s actual total return underperformed its benchmark by
that percentage. USL incurred 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, tended to cause daily changes in the per share NAV of USL to track slightly lower or higher than daily changes in the price
of the Benchmark Oil 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 crude oil for immediate delivery, is $50 per barrel, and the value of a position in the near month futures contract
is also $50. Over time, the price of crude oil 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 barrels of crude oil, 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 USL’s shares during the past year
relative to a hypothetical direct investment in crude oil. In the future, it is likely that the relationship between the market price
of USL’s shares and changes in the spot prices of light, sweet crude oil will continue to be impacted by contango and backwardation.
It is important to note that this comparison ignores the potential costs associated with physically owning and storing crude oil, which
could be substantial.
If the futures
market is in backwardation, e.g., when the price of the near month futures contract is higher than the price of the next month futures
contract, the investor would buy a next month futures contract for a lower price than the current near month futures contract. Assuming
the price of the next month futures contract was $49 per barrel, or 2% cheaper than the $50 near month futures contract, then, hypothetically,
and assuming no other changes (e.g., to either prevailing crude oil prices or the price relationship between the spot price, the near
month contract and the next month contract, and, ignoring the impact of commission costs and the income earned on cash and/or cash equivalents),
the value of the $49 next month futures contract would rise to $50 as it approaches expiration. In this example, the value of an investment
in the next month futures contract would tend to outperform the spot price of crude oil. As a result, it would be possible for the new
near month futures contract to rise 12% while the spot price of crude oil may have risen a lower amount, e.g., only 10%. Similarly, the
spot price of crude oil could have fallen 10% while the value of an investment in the futures contract might have fallen another amount,
e.g., only 8%. Over time, if backwardation remained constant, this difference between the spot price and the futures contract price would
continue to increase.
If the futures
market is in contango, an investor would be buying a next month futures contract for a higher price than the current near month futures
contract. Again, assuming the near month futures contract is $50 per barrel, the price of the next month futures contract might be $51
per barrel, or 2% more expensive than the front month futures contract. Hypothetically, and assuming no other changes, the value of the
$51 next month futures contract would fall to $50 as it approaches expiration. In this example, the value of an investment in the second
month would tend to underperform the spot price of crude oil. As a result, it would be possible for the new near month futures contract
to rise only 10% while the spot price of crude oil may have risen a higher amount, e.g., 12%. Similarly, the spot price of crude oil
could have fallen 10% while the value of an investment in the second month futures contract might have fallen another amount, e.g., 12%.
Over time, if contango remained constant, this difference between the spot price and the futures contract price would continue to increase.
The chart below
compares the daily price of the near month crude oil futures contract to the price of 13th
month crude oil 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 crude oil futures contract from the dollar price of the near
month crude oil 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 crude oil market spent time in both backwardation and contango during the
last ten years.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An investment
in a portfolio that owned only the near month crude oil 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 crude oil futures contracts. Generally speaking, when
the crude oil futures market is in backwardation, a portfolio of only the near month crude oil futures contract may tend to have a higher
total return than a portfolio of 12 months’ of the crude oil futures contract. Conversely, if the crude oil futures market was
in contango, the portfolio containing only 12 months’ of crude oil futures contracts may tend to outperform the portfolio holding
only the near month crude oil futures contract.
Historically,
the crude oil futures markets have experienced periods of contango and backwardation. In March 2020, contango dramatically increased
and reached historic levels during the economic crisis arising from the COVID-19 pandemic and disputes among oil producing nations regarding
limits on oil production levels. This level of contango was due to significant market volatility that occurred in crude oil markets as
well as oil futures markets. Crude oil prices collapsed in the wake of the COVID-19 demand shock, which reduced global petroleum consumption,
and the price war launched by Saudi Arabia at the beginning of March 2020 in response to Russia’s unwillingness to participate
in extending previously agreed upon supply cuts. An estimated twenty million barrels a day of crude demand evaporated as a result of
quarantines and massive drops in industrial and manufacturing activity. In addition, the United States, OPEC, Russia, and other oil producers
around the world agreed to a historic 9.7 million barrel per day cut to crude supply. The supply cut along with the partial reopening
of economies during the third quarter of 2020 reduced some of the unprecedented volatility oil markets experienced in the spring of 2020.
Likewise, contango returned to moderate levels in May 2020. During the twelve months ended December 31, 2021, the crude oil futures market
was primarily in a state of backwardation as measured by the difference between the front month and the second month contract.
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. 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 less by
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 total 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.
Periods of contango
or backwardation do not materially impact USL’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 Oil Futures Contracts since the impact of backwardation
and contango tend to equally impact the daily percentage changes in price of both USL’s shares and the Benchmark Oil 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. Contango may persist for the foreseeable future, potentially at extreme levels at
times, as a result of the ongoing uncertainty in the wake of the COVID-19 crisis.
In managing USL’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 Oil Interests, such as the Benchmark Oil 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
Oil Futures Contracts purchased depend on various factors, including a judgment by USCF as to the appropriate diversification of USL’s
investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of particular contracts.
In addition, USL may make use of a mixture of standard sized futures contracts as well as the smaller sized “mini” contracts.
While USCF has made significant investments in NYMEX Oil Futures Contracts, for various reasons, including the ability to enter into
the precise amount of exposure to the crude oil market, position limits or other regulatory requirements limiting USL’s holdings,
and market conditions, it may invest in Futures Contracts traded on other exchanges or invest in Other Oil-Related Investments. To the
extent that USL invests in Other Oil-Related Investments, it would prioritize investments in contracts and instruments that are economically
equivalent to the Benchmark Oil 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
market (or commonly referred to as the “OTC market”). If USL 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 Oil-Related Investments, a substantial portion
of USL’s assets could be invested in accordance with such priority in Other Oil-Related Investments that are intended to replicate
the return on the Benchmark Oil Futures Contracts. As USL’s assets reach higher levels, it is more likely to exceed position limits,
accountability levels or other regulatory limits and, as a result, it is more likely that it will invest in accordance with such priority
in Other Oil-Related Investments at such higher levels. In addition, market conditions that USCF currently anticipates could cause USL
to invest in Other Oil-Related Investments include those allowing USL to obtain greater liquidity or to execute transactions with more
favorable pricing. See “Risk Factors Involved With an Investment
in USL” for a discussion of the potential impact of the regulation on USL’s ability to invest in OTC transactions
and cleared swaps.
USCF may not
be able to fully invest USL’s assets in the Benchmark Oil Futures Contracts having an aggregate notional amount exactly equal to
USL’s NAV. For example, as standardized contracts, the Futures Contracts are for a specified amount of a particular commodity,
and USL’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, USL may be better able to achieve the exact amount of exposure to changes in price of
the Benchmark Oil Futures Contracts through the use of Other Oil-Related Investments, such as OTC contracts that have better correlation
with changes in price of the Benchmark Oil Futures Contracts.
USL anticipates
that to the extent it invests in Oil Futures Contracts other than contracts on light, sweet crude oil (such as futures contracts for
diesel-heating oil, natural gas, and other petroleum-based fuels) and Other Oil-Related Investments, it will enter into various non-exchange-traded
derivative contracts to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against
the current Benchmark Oil Futures Contracts.
USCF does not
anticipate letting USL’s Oil Futures Contracts expire and taking delivery of the underlying commodity. Instead, USCF will close
existing positions, e.g., when it changes the Benchmark Oil Futures Contracts or Other Oil-Related Investments or it otherwise determines
it would be appropriate to do so and reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related Investments. Positions
may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.
The Benchmark
Oil 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 “rolls” USL’s positions by closing, or selling,
USL’s Oil Interests and reinvests the proceeds from closing these positions in new Oil Interests.
The anticipated
dates on which the Benchmark Oil Futures Contracts are changed and USL’s Oil Interests are “rolled” will be posted
on USL’s website at www.uscfinvestments.com, and are subject to change without notice.
By remaining
invested as fully as possible in Oil Futures Contracts or Other Oil-Related Investments, USCF believes that daily the changes in percentage
terms in USL’s per share NAV will continue to closely track the daily changes in percentage terms in the average of the prices
of the Benchmark Oil 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 USL. Additionally, Oil Futures Contracts traded on the NYMEX have closely tracked
the spot price of light, sweet crude oil. Based on these expected interrelationships, USCF believes that the changes in the price of
USL’s shares traded on the NYSE Arca, on a percentage basis, have closely tracked on a daily basis and will continue to closely
track the changes in the spot price of light, sweet crude oil, on a percentage basis.
What
are the Trading Policies of USL?
Investment
Objective
USL’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 light,
sweet crude oil, as measured by the daily percentage changes in the average of the prices of the Benchmark Oil Futures Contracts, plus
interest earned on USL’s collateral holdings, less USL’s expenses. The Benchmark Oil Futures Contracts are the futures contracts
on light, sweet crude oil 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. USL seeks
to achieve its investment objective by investing so that the average daily percentage change in USL’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
Oil Futures Contracts over the same period. USL’s investment strategy is designed to provide investors with a cost-effective way
to invest indirectly in crude oil and to hedge against movements in the spot price of light, sweet crude oil.
Liquidity
USL invests
only in Oil Futures Contracts and Other Oil-Related Investments that, in the opinion of USCF, are traded in sufficient volume to permit
the ready taking and liquidation of positions in these financial interests and in Other Oil-Related Investments that, in the opinion
of USCF, may be readily liquidated with the original counterparty or through a third party assuming the position of USL.
Spot
Commodities
While the Oil
Futures Contracts traded can be physically settled, USL does not intend to take or make physical delivery. USL may from time to time
trade in Other Oil-Related Investments, including contracts based on the spot price of crude oil.
Leverage
USCF endeavors
to have the value of USL’s Treasuries, cash and cash equivalents, whether held by USL or posted as margin or other collateral,
at all times approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-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 USL’s assets, it is not prohibited from doing so under the LP
Agreement.
Although permitted
to do so under its LP Agreement, USL has not and does not intend to leverage its assets and makes its investments accordingly. Consistent
with this, USL’s investments will take into account the need for USL 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, USL 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 USL unless USL is required to borrow money in the event of physical delivery, if USL trades in cash commodities, or for short-term
needs created by unexpected redemptions.
OTC
Derivatives (Including Spreads and Straddles)
In addition
to Oil Futures Contracts, there are also a number of listed options on the Oil Futures Contracts on the principal futures exchanges.
These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the crude oil market. Consequently,
USL may purchase options on crude Oil Futures Contracts on these exchanges in pursuing its investment objective.
In addition
to the Oil Futures Contracts and options on the Oil Futures Contracts, there also exists an active non-exchange-traded market in derivatives
tied to crude oil. These derivatives transactions (also known as OTC contracts) are usually entered into between two parties in private
contracts. Unlike most of the exchange-traded Oil Futures Contracts or exchange-traded options on the Oil Futures Contracts, each party
to such contract bears the credit risk of the other party, i.e., the risk that the other party may not be able to perform its obligations
under its contract. To reduce the credit risk that arises in connection with such contracts, USL 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.
USL 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 USL, the OTC component is the purchase
or sale of one or more baskets of USL’s shares. These EFRP transactions may expose USL 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.
USL 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 Oil Futures Contracts. USL 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, 2021, USL limited its derivatives activities to Oil Futures Contracts and EFRP transactions.
Pyramiding
USL 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 USL
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
USCF manages
USL which is a commodity pool that issues shares traded on the NYSE Arca. The chart below shows, as of February 28, 2022, the number
of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding shares for
USL.
# of Authorized Participants | | |
Baskets Purchased | | |
Baskets Redeemed | | |
Outstanding Shares | |
| 9 | | |
| 929 | | |
| 878 | | |
| 85,550,000 | |
| | | |
| | | |
| | | |
| | |
Since the commencement
of the offering of USL shares to the public on December 6, 2007 to February 28, 2022, the simple average daily change in the Benchmark
Oil Futures Contracts was 0.013%, while the simple average daily change in the per share NAV of USL over the same time period was 0.011%.
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 Benchmark Oil Futures Contracts, the average error in daily tracking by the per share NAV was (0.088)%, meaning that
over this time period USL’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
The table below
shows the relationship between the trading prices of the shares and the daily NAV of USL, since inception through February 28, 2022.
The first row shows the average amount of the variation between USL’s closing market price and NAV, computed on a daily basis since
inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception,
on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts typically occur because trading in the
shares continues on the NYSE 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.
| |
USL | |
Average Difference | |
$ | 0.02 | |
Max Premium % | |
| 18.45 | % |
Max Discount % | |
| (9.72 | )% |
| |
| | |
For more information on the performance
of USL, see the Performance Tables below.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
COMPOSITE
PERFORMANCE DATA FOR USL
Name of Pool: United States 12 Month
Oil Fund, LP
Type of Pool: Public, Exchange-Listed
Commodity Pool
Inception of Trading: December 6,
2007
Aggregate Subscriptions (from inception
through February 28, 2022): $980,163,269
Total Net Assets as of February 28,
2022: $149,833,321.66
NAV per Share as of February 28,
2022: $33.67
Worst Monthly Percentage Draw-down:
March 2020 (32.37)%
Worst Peak-to-Valley Draw-down: June
2008 - April 2020 (87.34)%
*PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
| |
Rates of Return* | |
Month | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
January | |
| (3.43 | )% | |
| 5.94 | % | |
| 15.43 | % | |
| (11.72 | )% | |
| 5.57 | % | |
| 13.70 | % |
February | |
| 0.20 | % | |
| (4.48 | )% | |
| 6.90 | % | |
| (11.25 | )% | |
| 16.27 | % | |
| 6.48 | % |
March | |
| (6.13 | )% | |
| 6.34 | % | |
| 2.41 | % | |
| (32.37 | )% | |
| (1.23 | )% | |
| | |
April | |
| (3.02 | )% | |
| 6.14 | % | |
| 5.33 | % | |
| (12.50 | )% | |
| 7.04 | % | |
| | |
May | |
| (3.01 | )% | |
| (0.46 | )% | |
| (14.92 | )% | |
| 29.04 | % | |
| 4.47 | % | |
| | |
June | |
| (3.62 | )% | |
| 6.02 | % | |
| 8.03 | % | |
| 7.06 | % | |
| 9.63 | % | |
| | |
July | |
| 6.31 | % | |
| (2.76 | )% | |
| 0.87 | % | |
| 4.49 | % | |
| 1.91 | % | |
| | |
August | |
| (2.63 | )% | |
| 3.36 | % | |
| (7.19 | )% | |
| 4.82 | % | |
| (4.48 | )% | |
| | |
September | |
| 5.35 | % | |
| 6.43 | % | |
| (1.22 | )% | |
| (6.15 | )% | |
| 8.70 | % | |
| | |
October | |
| 4.10 | % | |
| (8.36 | )% | |
| 1.74 | % | |
| (10.19 | )% | |
| 7.12 | % | |
| | |
November | |
| 4.62 | % | |
| (21.63 | )% | |
| 2.15 | % | |
| 19.90 | % | |
| (15.23 | )% | |
| | |
December | |
| 5.57 | % | |
| (8.57 | )% | |
| 9.55 | % | |
| 5.90 | % | |
| 13.00 | % | |
| | |
Annual Rate of Return | |
| 3.24 | % | |
| (15.34 | )% | |
| 28.79 | % | |
| (24.92 | )% | |
| 61.41 | %** | |
| 21.07 | %** |
| * | 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, 2022. |
Draw-down: Losses
experienced over a specified period. Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.
Worst Monthly
Percentage Draw-down: The largest single month loss sustained during the most recent five calendar years and year-to-date.
Worst Peak-to-Valley
Draw-down: The largest percentage decline in the NAV per share over the history of USL. This need not be a continuous decline, but can
be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down
represents the greatest cumulative percentage decline in month-end per share NAV is not equaled or exceeded by a subsequent month-end
per share NAV.
USL’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 is a wholly-owned subsidiary of USCF
Investments, which is an intermediate holding company that owns USCF and another advisor of exchange traded funds. USCF Investments
is a wholly owned subsidiary of Marygold (publicly traded under the ticker MGLD), a publicly traded holding company that owns various
financial and non-financial businesses. Mr. Nicholas Gerber (discussed below), along with certain family members and certain other shareholders,
owns the majority of the shares in Marygold. USCF Investments is a holding company that currently holds both USCF, as well as USCF Advisers
LLC, an investment adviser registered under the Investment Advisers Act of 1940, as amended (“USCF Advisers”). USCF Advisers
serves as the investment adviser for the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (“SDCI”), the USCF Midstream
Energy Income Fund (“UMI”), and the USCF Gold Strategy Plus Income Fund (“GLDX”), each of which is a series of
the USCF ETF Trust. USCF Advisers was also the investment adviser for the USCF Commodity Strategy Fund (the “Mutual Fund”),
a series of the USCF Mutual Funds Trust, until March 2019, when the Mutual Fund liquidated all of its assets and distributed cash pro
rata to all remaining shareholders. It was also the investment adviser for two series of the USCF ETF Trust that liquidated all of their
assets and distributed cash pro rata to all remaining shareholders: the USCF SummerHaven 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 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 NFA and registered as
a CPO with the CFTC on December 1, 2005 and as a swaps firm on August 8, 2013.
USCF serves
as the general partner of USL. 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 Gasoline Fund, LP (“UGA”), the United States 12 Month Natural
Gas Fund, LP (“UNL”) and the United States Brent Oil Fund, LP (“BNO”).
USCF is also
the sponsor of the United States Commodity Index Fund (“USCI”) and the United States Copper Index Fund (“CPER”),
each a series of the United States Commodity Index Funds Trust (“USCIFT”).
USO, UNG, UGA,
UNL, USL, BNO, 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”).
For more information about each of the Related Public Funds, investors in USL may call 1-800-920-0259 or visit www.uscfinvestments.com
or the website of the SEC at www.sec.gov.
USCF is required
to evaluate the credit risk of USL to the FCMs, oversee the purchase and sale of USL’s shares by certain authorized participants
(“Authorized Participants”), review daily positions and margin requirements of USL and manage USL’s investments. USCF
also pays the fees of ALPS Distributors, Inc., which serves as the marketing agent for USL (the “Marketing Agent”), and The
Bank of New York Mellon (“BNY Mellon”), which serves as the administrator (the “Administrator”) and the custodian
(the “Custodian”), and provides accounting and transfer agent services for, USL since April 1, 2020. In no event my 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 proceedings of this offering.
The limited
partners take no part in the management or control, and have a minimal voice in USL’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 USL’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 USL’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 USL. 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 USL’s website at www.uscfinvestments.com.
The Board has determined that each member of the audit committee meets the financial literacy requirements of the NYSE Arca and the audit
committee charter. The Board has further determined that each of Messrs. Ellis and Fobes have accounting or related financial management
expertise, as required by the NYSE Arca, such that each of them is considered an “Audit Committee Financial Expert” as such
term is defined in Item 407(d)(5) of Regulation S-K.
USL has no executive
officers. Pursuant to the terms of the LP Agreement, USL’s affairs are managed by USCF.
The following
are individual Principals, as that term is defined in CFTC Rule 3.1, for USCF: John P. Love, Stuart P. Crumbaugh, Daphne G. Frydman,
Nicholas D. Gerber, Melinda D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Scott Schoenberger, Gordon L. Ellis, Malcolm
R. Fobes III, Ray W. Allen, Kevin A. Baum and USCF Investments, Inc., formerly Wainwright Holdings, Inc. The individuals who are
Principals due to their positions are John P. Love, Stuart P. Crumbaugh, Daphne G. Frydman, Nicholas D. Gerber, Andrew F Ngim, Robert
L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes III, Ray W. Allen and Kevin A. Baum. In addition, USCF Investments is
a Principal because it is the sole member of USCF. None of the Principals owns or has any other beneficial interest in USL. Ray W. Allen
makes trading and investment decisions for USL. Ray W. Allen and Andrew F Ngim execute trades on behalf of USL. In addition, Nicholas
D. Gerber, John P. Love, Robert L. Nguyen, Ray W. Allen, Kevin A. Baum, Kathryn Rooney, Maya Lowry, and Ryan Katz are registered with
the CFTC as Associated Persons of USCF and are NFA Associate Members. John P. Love, Kevin A. Baum and Ray W. Allen are also registered
with the CFTC as Swaps Associated Persons.
Ray
W. Allen, 65, Portfolio Manager of USCF since January 2008. Mr. Allen was the
portfolio manager of: (1) UGA from February 2008 until March 2010, and then portfolio manager since May 2015, (2) UHN
from April 2008 until March 2010, and then portfolio manager since May 2015, (3) UNL from November 2009 until
March 2010, and then portfolio manager since May 2015. In addition, he has been the portfolio manager of: (1) DNO since
September 2009, (2) USO and USL since March 2010, (3) BNO since June 2010, (4) UNG since May 2015,
(4) United States 3x Oil Fund and United States 3x Short Oil Fund from July 2017 to December 2019, and (5) the
USCF Commodity Strategy Fund, a series of USCF Mutual Funds Trust, from October 2017 to March 2019. Mr. Allen also has served as
the portfolio manager of the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund, a series of the USCF ETF Trust, since May 2018.
Mr. Allen has been a principal of USCF listed with the CFTC and NFA since March 2009 and has been registered as an associated
person of USCF since July 2015 and from March 2008 to November 2012. Additionally, Mr. Allen has been approved as
an NFA swaps associated person of USCF since July 2015. As of February 2017, he also is an associated person and swap associated
person of USCF Advisers, LLC (“USCF Advisers”). USCF Advisers, an affiliate of USCF, is an investment adviser registered
under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and
swap firm. Mr. Allen earned a B.A. in Economics from the University of California at Berkeley and holds an NFA Series 3 registration.
Kevin
A. Baum, 51, has served as the Chief Investment Officer of USCF since September 1,
2016 and as a Portfolio Manager of USCF from March 2016 to April 2017. Prior to joining USCF, Mr. Baum temporarily retired from
December 2015 to March 2016. Mr. Baum served as the Vice President and Senior Portfolio Manager for Invesco, an investment
manager that manages a family of exchange-traded funds, from October 2014 through December 2015. Mr. Baum was temporarily
retired from May 2012 through September 2014. From May 1993 to April 2012, Mr. Baum worked as the Senior Portfolio
Manager, Head of Commodities for OppenheimerFunds, Inc., a global asset manager. Mr. Baum has been approved as an NFA principal
and associated person of USCF since April 2016, as well as a swap associated person of USCF from April 2016 through March 2020 and
since November 2020. As of February 2017, he also is an associated person of USCF Advisers, and a swap associated person of USCF
Advisers from February 2017 to March 2020 and since June 2021. Mr. Baum served as a branch manager of USCF Advisers from February 2017
through March 2022. Additionally, effective as of June 2021, he is a principal of USCF Advisers. USCF Advisers, an affiliate of
USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as
a commodity pool operator, NFA member and swap firm. Mr. Baum is a CFA Charterholder, CAIA Charterholder, earned a B.B.A. in Finance
from Texas Tech University and holds an NFA Series 3 registration.
Stuart
P. Crumbaugh, 58, Chief Financial Officer, Secretary and Treasurer of USCF since May 2015
and also the Chief Financial Officer of The Marygold Companies, Inc., formerly Concierge Technologies, Inc. (“Marygold”),
the parent of USCF Investments, Inc. (“USCF Investments”) (formerly Wainwright Holdings, Inc. since December 2017. He is also the Treasurer and a member of the Board of Directors of Marygold & Co., a subsidiary of Marygold,
since November 2019. In addition, Mr. Crumbaugh has served as a director of USCF Investments, the parent and sole member of USCF,
since December 2016. Mr. Crumbaugh has been a principal of USCF listed with the CFTC and NFA since July 1, 2015 and, as
of January 2017, he is a principal of USCF Advisers. USCF Advisers, an affiliate of USCF, is an investment adviser registered under
the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm.
Since June 2015, Mr. Crumbaugh has been the Treasurer and Secretary of USCF Advisers. He has served as a Management Trustee,
Chief Financial Officer and Treasurer of (1) USCF ETF Trust since May 2015 and (2) USCF Mutual Funds Trust since
October 2016. Mr. Crumbaugh joined USCF as the Assistant Chief Financial Officer on April 6, 2015. Prior to joining USCF,
Mr. Crumbaugh was the Vice President Finance and Chief Financial Officer of Sikka Software Corporation, a software service healthcare
company providing optimization software and data solutions from April 2014 to April 6, 2015. Mr. Crumbaugh served as a
consultant providing technical accounting, IPO readiness and M&A consulting services to various early stage companies with the Connor
Group, a technical accounting consulting firm, for the periods of January 2014 through March 2014; October 2012 through
November 2012; and January 2011 through February 2011. From December 2012 through December 2013, Mr. Crumbaugh
was Vice President, Corporate Controller and Treasurer of Auction.com, LLC, a residential and commercial real estate online auction company.
From March 2011 through September 2012, Mr. Crumbaugh was Chief Financial Officer of IP Infusion Inc., a technology
company providing network routing and switching software enabling software-defined networking solutions for major mobile carriers and
network infrastructure providers. Mr. Crumbaugh earned a B.A. in Accounting and Business Administration from Michigan State University
in 1987 and is a Certified Public Accountant – Michigan (inactive).
Daphne
G. Frydman, 47, General Counsel of USCF and USCF Advisers, LLC since May 2018, and Director
of Compliance of USCF since April 2022. She is also the Chief Legal Officer of USCF ETF Trust since May 2018 and Secretary of the same
since December 2021. Ms. Frydman served as Deputy General Counsel of USCF and USCF Advisers, LLC from May 2016 through May 2018. From
September 2001 through April 2016, Ms. Frydman was an attorney in private practice at the law firm Sutherland Asbill & Brennan LLP.
Ms. Frydman’s application to be a principal of USCF was submitted to the National Futures Association on April 1, 2022 and remains
pending. Ms. Frydman earned her JD from the Northwestern University Pritzker School of Law and a B.A. in College of Letters and Spanish
from Wesleyan University.
Nicholas
D. Gerber, 59, Vice President since May 15, 2015 and Management Director since June 2005.
Mr. Gerber served as President and Chief Executive Officer of USCF from June 2005 through May 15, 2015 and Chairman of
the Board of Directors of USCF from June 2005 through October 2019. Mr. Gerber co-founded USCF in 2005 and prior to that,
he co-founded Ameristock Corporation in March 1995, a California-based investment adviser registered under the Investment Advisers
Act of 1940 from March 1995 until January 2013. Since January 26, 2015, Mr. Gerber also has served as the Chief Executive
Officer, President, and Chairman of the Board of Directors of Marygold, which is a company publicly traded under the ticker symbol “MGLD.”
Marygold is the sole shareholder of USCF Investments. He is also the CEO and a member of the Board of Directors of Marygold &
Co., a subsidiary of Marygold, since November 2019. Mr. Gerber also is the President and a director of USCF Investments, a position
he has held since March of 2004. From August 1995 to January 2013, Mr. Gerber served as Portfolio Manager of Ameristock
Mutual Fund, Inc. On January 11, 2013, the Ameristock Mutual Fund, Inc. merged with and into the Drexel Hamilton Centre
American Equity Fund, a series of Drexel Hamilton Mutual Funds. Drexel Hamilton Mutual Funds is not affiliated with Ameristock Corporation,
the Ameristock Mutual Fund, Inc. or USCF. Mr. Gerber also has served USCF Advisers on the Board of Managers from June 2013
to present, as the President from June 2013 through June 18, 2015, and as Vice President from June 18, 2015 to present.
USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, since February 2017,
is registered as a commodity pool operator, NFA member and swap firm. He also has served as Chairman of the Boards of Trustees of USCF
ETF Trust since 2014 and USCF Mutual Funds Trust since October 2016, respectively, (USCF ETF Trust and together with USCF Mutual
Funds Trust are referred to as the “Trusts”) and each of the Trusts are investment companies registered under the Investment
Company Act of 1940, as amended. In addition, Mr. Gerber served as the President and Chief Executive Officer of USCF ETF Trust from
June 2014 until December 2015. Mr. Gerber has been a principal of USCF listed with the CFTC and NFA since November 2005,
an NFA associate member and associated person of USCF since December 2005. Additionally, effective as of January 2017, he is
a principal of USCF Advisers and, effective as of February 2017, he is an associated person and swap associated person of USCF Advisers.
Mr. Gerber earned an MBA degree in finance from the University of San Francisco, a B.A. from Skidmore College and holds an NFA Series 3
registration.
John
P. Love, 50, President
and Chief Executive Officer of USCF since May 15, 2015, Management Director of USCF since October 2016 and Chairman of the
Board of Directors of USCF since October 2019. Mr. Love also is a director of USCF Investments, a position he has held since December
2016. Mr. Love previously served as a Senior Portfolio Manager for the Related Public Funds from March 2010 through May 15,
2015. Prior to that, while still at USCF, he was a Portfolio Manager beginning with the launch of USO in April 2006. Mr. Love
was the portfolio manager of USO from April 2006 until March 2010 and the portfolio manager for USL from December 2007
until March 2010. Mr. Love has been the portfolio manager of UNG since April 2007, and the portfolio manager of UGA, UHN,
and UNL since March 2010. Mr. Love has served as on the Board of Managers of USCF Advisers since November 2016 and as
its President since June 18, 2015. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment
Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. He also acted as
co-portfolio manager of the Stock Split Index Fund, a series of the USCF ETF Trust for the period from September 2014 to December 2015,
when he was promoted to the position of President and Chief Executive Officer of the USCF ETF Trust. Since October 2016 to present,
he also has served as the President and Chief Executive of the USCF Mutual Funds Trust. Mr. Love has been a principal of USCF listed
with the CFTC and NFA since January 17, 2006. Mr. Love has been registered as an associated person of USCF since February 2015
and from December 1, 2005 to April 16, 2009. Additionally, Mr. Love has been approved as an NFA swaps associated person
since February 2015. Mr. Love is a principal of USCF Advisers LLC as of January 2017. Additionally, effective as of February 2017,
he is an associated person and swap associated person of USCF Advisers. Mr. Love earned a B.A. from the University of Southern California,
holds an NFA Series 3 and FINRA Series 7 registrations and is a CFA Charterholder.
Andrew
F Ngim, 61, co-founded USCF in 2005 and has served as a Management Director since May 2005
and, since August 15, 2016, has served as the Chief Operating Officer of USCF. Mr. Ngim has served as the portfolio manager for USCI
and CPER since January 2013 and for the United States Agricultural Index Fund from January 2013 to September 2018. Mr. Ngim also served
as USCF’s Treasurer from June 2005 to February 2012. In addition, he has been on the Board of Managers and has served as the Assistant
Secretary and Assistant Treasurer of USCF Advisers since its inception in June 2013 and Chief Operating Officer of USCF Advisers since
March 2021. Prior to and concurrent with his services to USCF and USCF Advisers, from January 1999 to January 2013, Mr. Ngim served as
a Managing Director for Ameristock Corporation, a California-based investment adviser, which he co-founded in March 1995, and was Co-Portfolio
Manager of Ameristock Mutual Fund, Inc. from January 2000 to January 2013. Mr. Ngim also served as portfolio manager of (a) the following
series of the USCF ETF Trust: (1) the Stock Split Index Fund from September 2014 to October 2017, (2) the USCF Restaurant Leaders Fund
from November 2016 to October 2017, (3) USCF SummerHaven SHPEI Index Fund from December 2017 to October 2020, (4) USCF SummerHaven SHPEN
Index Fund from December 2017 to April 2020, and (b) a series of USCF Mutual Funds Trust, the USCF Commodity Strategy Fund, from March
2017 to March 2019. Mr. Ngim also serves as the portfolio manager for the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund, a
series of the USCF ETF Trust, from May 2018 to present. Mr. Ngim serves as a Management Trustee of: (1) the USCF ETF Trust from August
2014 to the present and (2) the USCF Mutual Funds Trust from October 2016 to present. Mr. Ngim has been a principal of USCF listed with
the CFTC and NFA since November 2005 and a principal of USCF Advisers LLC since January 2017. USCF Advisers, an affiliate of USCF, is
an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool
operator, NFA member and swap firm. Mr. Ngim earned his B.A. from the University of California at Berkeley.
Robert
L. Nguyen, 62, Management Director and principal since July 2015. Mr. Nguyen served on the
Board of USCF Investments from December 2014 to December 2016. Mr. Nguyen co-founded USCF in 2005 and served as a Management Director
until March 2012. Mr. Nguyen was an Investment Manager with Ribera Investment Management, an investment adviser registered under the
Investment Advisers Act of 1940, from January 2013 to March 2015. Prior to and concurrent with his services to USCF, from January 2000
to January 2013, Mr. Nguyen served as a Managing Principal for Ameristock Corporation, a California-based investment adviser registered
under the Investment Advisers Act of 1940, which he co-founded in March 1995. Mr. Nguyen was a principal of USCF listed with the CFTC
and NFA from November 2005 through March 2012 and an associated person of USCF listed with the CFTC and NFA from November 2007 through
March 2012. Mr. Nguyen has been a principal of USCF listed with the CFTC and NFA since July 2015 and an associated person of USCF listed
with the CFTC and NFA since December 2015. As of February 2017, he also is an associated person of USCF Advisers. USCF Advisers, an affiliate
of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a
commodity pool operator, NFA member and swap firm. Mr. Nguyen earned his B.S. from California State University at Sacramento, and holds
NFA Series 3 and FINRA Series 7 registrations.
Gordon
L. Ellis, 75, Independent Director of USCF since September 2005. Previously, Mr. Ellis was
a founder of International Absorbents, Inc., Director and Chairman since July 1985 and July 1988, respectively, and Chief Executive Officer
and President since November 1996. He also served as Chairman of Absorption Corp., a wholly-owned subsidiary of International Absorbents,
Inc., which is a leading developer and producer of environmentally friendly pet care and industrial products, from May July 1985 until
July 2010 when it was sold to Kinderhook Industries, a private investment banking firm and remained as a director until March 2013 when
Absorption Corp was sold again to J. Rettenmaier & Söhne Group, a German manufacturing firm. Concurrent with that, he founded
and has served as Chairman from November 2010 to present of Lupaka Gold Corp., a firm that acquires, explores and developed mining properties
and is currently driving an arbitration suit against the Republic of Peru. He also serves as a director of Goldhaven Resources, a firm
that acquires, explores and develops mining properties in Canada and Chile, from August 2020 to present. Mr. Ellis has his Chartered
Directors designation from The Director’s College (a joint venture of McMaster University and The Conference Board of Canada).
He has been a principal of USCF listed with the CFTC and NFA since November 2005. Mr. Ellis is a professional engineer, retired, and
earned an MBA in international finance.
Malcolm
R. Fobes III, 57, Independent Director of USCF and Chairman of USCF’s audit committee
since September 2005. He founded and is the Chairman and Chief Executive Officer of Berkshire Capital Holdings, Inc., a California-based
investment adviser registered under the Investment Advisers Act of 1940 that has been sponsoring and providing portfolio management services
to mutual funds since June 1997. Mr. Fobes serves as Chairman and President of The Berkshire Funds, a mutual fund investment company
registered under the Investment Company Act of 1940. Since 1997, Mr. Fobes has also served as portfolio manager of the Berkshire Focus
Fund, a mutual fund registered under the Investment Company Act of 1940, which concentrates its investments in the electronic technology
industry. He was also contributing editor of Start a Successful Mutual Fund: The Step-by-Step Reference Guide to Make It Happen (JV Books,
1995). Mr. Fobes has been a principal of USCF listed with the CFTC and NFA since November 2005. He earned a B.S. in finance with a minor
in economics from San Jose State University in California.
Peter
M. Robinson, 64, Independent Director of USCF since September 2005. Mr. Robinson has been
a Research Fellow since 1993 with the Hoover Institution, a public policy think tank located on the campus of Stanford University. He
authored three books and has been published in the New York Times, Red Herring, and Forbes ASAP and is the editor of Can Congress Be
Fixed?: Five Essays on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson has been a principal of USCF listed with the
CFTC and NFA since December 2005. He earned an MBA from the Stanford University Graduate School of Business, graduated from Oxford University
in 1982 after studying politics, philosophy, and economics and graduated summa cum laude from Dartmouth College in 1979.
USL’s
Service Providers
Custodian,
Registrar, Transfer Agent and Administrator
In its capacity
as the Custodian for USL, The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) holds USL’s Treasuries,
cash and/or cash equivalents pursuant to a custodial agreement. BNY Mellon is also the registrar and transfer agent for the shares. In
addition, in its capacity as Administrator for USL, BNY Mellon performs certain administrative and accounting services for USL and prepares
certain SEC, NFA and CFTC reports on behalf of USL.
As compensation
for the services that BNY Mellon provides to USL in the foregoing capacities, and the services BNY Mellon provides to the Related Public
Funds, BNY Mellon receives certain out of pocket costs, transaction fees, and asset based fees, which are accrued daily and paid monthly
by USCF.
BNY Mellon is
authorized to conduct a commercial banking business in accordance with the provisions of New York State Banking Law, and is subject to
regulation, supervision, and examination by the New York State Department of Financial Services and the Board of Governors of the Federal
Reserve System.
Marketing
Agent
USL 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 USL 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 USL’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 USL 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 USL’s FCM, effective October 10, 2013. This agreement requires RBC Capital to
provide services to USL, as of October 10, 2013, in connection with the purchase and sale of Oil Futures Contracts and Other Oil-Related
Investments that may be purchased or sold by or through RBC Capital for USL’s account. For the period October 10, 2013 and after,
USL pays RBC Capital commissions for executing and clearing trades on behalf of USL.
RBC Capital’s
primary address is 30 Hudson Street, 27th Floor, Jersey City, NJ 07302. Effective October 10, 2013, RBC Capital became the futures clearing
broker for USL. 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.
Various regulators
are conducting inquiries regarding potential violations of antitrust law by a number of banks and other entities, including RBC Capital,
regarding foreign exchange trading. Beginning in 2015, putative class actions were brought against RBC Capital and/or Royal Bank of Canada,
RBC Capital’s indirect parent, in the U.S. and Canada. These actions were each brought against multiple foreign exchange dealers
and allege, among other things, collusive behavior in global foreign exchange trading. In August 2018, the U.S. District Court entered
a final order approving RBC’s settlement with class plaintiffs. In November 2018, certain institutional plaintiffs who had previously
opted-out of participating in the settlement filed their own lawsuit in U.S. District Court. In May 2020, the U.S. District Court dismissed
RBC Capital from the opt-out action, but granted the plaintiffs’ motion to amend the complaint. The Canadian class actions remain
pending and RBC Capital has reached a settlement for an immaterial amount with respect to an action brought by a class of indirect purchasers.
RBC Capital is awaiting the court’s final approval of the settlement. Based on the facts currently known, it is not possible at
this time for management to predict the ultimate outcome of these collective matters or the timing of their ultimate resolution.
On April 13,
2015, RBC Capital’s affiliate, Royal Bank of Canada Trust Company (Bahamas) Limited (RBC Bahamas), was charged in France with complicity
in tax fraud. RBC Bahamas believes that its actions did not violate French law and contested the charge in the French court. The trial
of this matter has concluded and a verdict was delivered on January 12, 2017, acquitting the company and the other defendants and on
June 29, 2018, the French appellate court affirmed the acquittals. 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, 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. antitrust laws and common law principles of unjust enrichment in the setting of LIBOR after
the Intercontinental Exchange took over administration of the benchmark interest rate from the British Bankers’ Association in
2014 (the “ICE LIBOR action”). On March 26, 2020, the defendants’ motion to dismiss the ICE LIBOR action was granted.
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 to predict the ultimate outcome of these
proceedings or the timing of their resolution.
Please see RBC
Capital’s Form BD, which is available on the FINRA BrokerCheck program, for more details.
RBC Capital
will act only as clearing broker for USL and as such will be paid commissions for executing and clearing trades on behalf of USL. 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 USL.
RBC Capital
is not affiliated with USL or USCF. Therefore, neither USCF nor USL believes that there are any conflicts of interest with RBC Capital
or its trading principals arising from its acting as USL’s FCM.
RCG
Division of Marex Spectron
On May 28, 2020,
USL entered into a Commodity Futures Customer Agreement with RCG Division of Marex Spectron (“RCG”) to serve as a FCM for
USL. This agreement requires RCG to provide services to USL in connection with the purchase and sale of Oil Futures Contracts and Other
Oil-Related Investments that may be purchased or sold by or through RCG for USL’s account. Under this agreement, USL pays RCG commissions
for executing and clearing trades on behalf of USL.
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 USL and as such will be paid commissions for executing and clearing trades on behalf of USL. 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 USL.
RCG is not affiliated
with USL or USCF. Therefore, neither USCF nor USL believes that there are any conflicts of interest with RCG or its trading principals
arising from its acting as USL’s FCM.
E
D & F Man Capital Markets Inc.
On June 5, 2020,
USL entered into a Customer Agreement E D & F Man Capital Markets Inc. (“MCM”) to serve as an FCM for USL. This agreement
requires MCM to provide services to USL in connection with the purchase and sale of Oil Futures Contracts and other Oil-Related Investments
that may be purchased or sold by or through MCM for USL’s account. Under this agreement, USL pays MCM commissions for executing
and clearing trades on behalf of USL.
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. On June 30, 2021, an order was entered
ruling against the plaintiffs an in favor of MCM. Judgment was entered in favor of MCM in the amount of $1,762,266.56, plus prejudgment
interest and attorneys’ fees and costs. On September 29, 2021, an order was entered in which MCM was awarded $1,402,234.32 in attorneys’
fees and costs.
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. On September 23, 2021, the claimants and MCM settled the matter.
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 USL and as such will be paid commissions for executing and clearing trades on behalf of USL. 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 USL.
MCM is not affiliated
with USL or USCF. Therefore, neither USCF nor USL believes that there are any conflicts of interest with MCM or its trading principals
arising from its acting as USL’s FCM.
Macquarie
Futures USA LLC
On December 3,
2020, USL engaged Macquarie Futures USA LLC (“MFUSA”) to serve as an additional FCM. The Customer Agreement between USL and
MFUSA requires MFUSA to provide services to USL in connection with the purchase and sale of futures contracts for oil and Other Oil-Related
Investments that may be purchased or sold by or through MFUSA for USL’s account. Under this agreement, USL pays MFUSA commissions
for executing and clearing trades on behalf of USL.
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 USL and as such will be paid commissions for executing and clearing trades on behalf of USL. 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 USL.
MFUSA is not
affiliated with USL or USCF. Therefore, neither USCF nor USL believes that there are any conflicts of interest with MFUSA or its trading
principals arising from its acting as USL’s FCM.
Commodity
Trading Advisor
Currently, USCF
does not employ commodity trading advisors for the trading of USL 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 employs commodity
trading advisors for USL, it will choose each advisor based on arm’s-length negotiations and will consider the advisor’s
experience, fees and reputation.
USL’s
Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold shares of USL. You should note that you may pay brokerage
commissions on purchases and sales of USL’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 67.
Annual
Fund Operating Expenses (expenses that you pay each year as a
percentage of the value of your investment)(1)
Management Fees | |
| 0.60 | %(2) |
Distribution Fees | |
| NONE | |
Other Fund Expenses | |
| 0.30 | % |
Total Annual Fund Operating Expenses | |
| 0.90 | % |
| (1) | Based
on amounts for the year ended December 31, 2021. The individual expense amounts in dollar
terms are shown in the table below. As used in this table, (i) Professional Expenses include
expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and
Officer Expenses include amounts paid to independent directors and for officers’ liability
insurance. |
| (2) | USL
is contractually obligated to pay USCF a management fee, which is paid monthly, equal to
0.60% per annum of average daily net assets. |
Management Fees | |
$ | 7,074,705 | |
Professional Expenses | |
$ | 288,152 | |
Registration Fees | |
$ | 151,475 | |
Brokerage Commissions | |
$ | 26,177 | |
Licensing Fees | |
$ | 26,868 | |
Independent Director and Officer Expenses | |
$ | 46,172 | |
| |
| | |
These amounts are based on
USL’s average total net assets, which are the sum of daily total net assets of USL divided by the number of calendar days in the
year. For the year ended December 31, 2021, USL’s average total net assets were $179,117,563.
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 $33.67 per share which equals the NAV per share on February 28, 2022, is assumed. In order
for a hypothetical investment in shares to break even over the next 12 months, assuming a selling price of $33.67, the investment would
have to generate 0.858% return or $0.289, rounded to $0.29.
This breakeven
analysis refers to the redemption of baskets by Authorized Participants and is not related to any gains an individual investor would
have to achieve in order to break even. The breakeven analysis is an approximation only. As used in this table, (i) Professional Expenses
include expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and Officer Expenses include amounts paid
to independent directors and for officers’ liability insurance.
Assumed initial selling price per share(1) | |
$ | 33.67 | |
Management Fees (0.600%)(2) | |
$ | 0.202 | |
Creation Basket Fee (0.010%)(3) | |
$ | (0.003 | ) |
Estimated Brokerage Fee 0.015%(4) | |
$ | 0.005 | |
Interest Income (0.035%)(5) | |
$ | (0.012 | ) |
Registration Fee 0.085%(6) | |
$ | 0.029 | |
NYMEX Licensing Fee 0.015%(7) | |
$ | 0.005 | |
Independent Director and Officer Expenses (0.026%)(8) | |
$ | 0.009 | |
Professional Expenses 0.161%(9) | |
$ | 0.054 | |
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(9) | |
$ | 0.289 | |
Percentage of initial selling price per share(9) | |
| 0.858 | % |
| (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 $33.67 per share, which
is based on the NAV per share for USL at the close of trading on February 28, 2022. Investors
should note that, because USL’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) | USL
is contractually obligated to pay USCF a management fee of 0.600% per annum on its average
total net assets. “Average total net assets” are the sum of the daily total net
assets of USL (the NAV of USL calculated as set forth in “Calculating Per Share NAV”
beginning on page 63) 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 6 for a discussion of net assets of USL. |
| (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 USL 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 USL’s assets, including its Treasuries holdings. |
| (6) | USL pays fees to
the SEC and FINRA to register its shares for sale. This amount is based on actual registration
fees for USL calculated on an annualized basis. This fee may vary in the future. |
| (7) | The
NYMEX Licensing Fee is 0.015% on aggregate net assets of the Related Public Funds, except
BNO, USCI, and CPER. For more information see “USL’s Fees and Expenses.” |
| (8) | 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 USL as of
December 31, 2021, which were $179,117,563, were aggregated with the average total net assets
of the Related Public Funds as of December 31, 2021, that the aggregate fees paid to the
independent directors for the year ended December 31, 2021 was $1,082,000, and that the allocable
portion of the fees borne by USL based on the proportion of its average total net assets
when aggregated with the average total net assets of the Related Public Funds equals $46,172. |
| (9) | Professional
Expenses include expenses for legal, audit, tax accounting and printing. USL’s costs
attributable to Professional Expenses for the year ended December 31, 2021 is $288,152. The
number in the break-even table assumes USL had $179,117,563 in average total net assets during
the calendar year ended December 31, 2021. |
Conflicts
of Interest
There are present
and potential future conflicts of interest in USL’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 USL’s and the Related Public Funds’ ability to achieve their investment objectives.
USL and USCF
may have inherent conflicts to the extent USCF attempts to maintain USL’s asset size in order to preserve its fee income and this
may not always be consistent with USL’s objective of having the value of its share’s NAV track changes in the average price
of the Benchmark Oil Futures Contracts.
USCF’s
officers, directors and employees, do not devote their time exclusively to USL. These persons are directors, officers or employees of
other entities which may compete with USL for their services, including the other Related Public Funds. They could have a conflict between
their responsibilities to USL 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
USL 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 USL or any of the Related Public Funds.
USCF has sole
current authority to manage the investments and operations of USL, 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 USL’s basic investment policy, dissolution of USL, or the sale
or distribution of USL’s assets.
USCF serves
as general partner to USL and general partner or sponsor to the other Related Public Funds. USCF may have a conflict to the extent that
its trading decisions for USL 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, USL purchased oil futures contracts, this decision could impact USL’s
ability to purchase additional oil 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 Related Public Funds, if the need for indemnification arises. This
potential indemnification will cause USCF’s assets to decrease. If USCF’s other sources of income are not sufficient to compensate
for the indemnification, then USCF may terminate and you could lose your investment.
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, including the LP Agreement, which can be found on USL’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 USL 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 USL.
Ownership
or Beneficial Interest in USL
As of February
28, 2022, neither USCF nor any of the directors or executive officers of USCF own any shares of USL. In addition, as of such date, USL
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, USL’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 USL 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 USL believes that USCF has violated
its fiduciary duty to the limited partners, he may seek legal relief individually or on behalf of USL 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 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 USL nor any officer, director, stockholder, partner, employee
or agent of a general partner (a “Protected Person”) shall be liable to any partner or USL 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 USL 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 USL 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.
USL shall, to
the fullest extent permitted by law, but only out of USL assets, indemnify and hold harmless a general partner and each officer, director,
stockholder, partner, employee or agent thereof (including persons who serve at USL’s request as directors, officers or trustees
of another organization in which USL 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 USL, and except that no Covered Person shall be indemnified against any liability to USL 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 USL 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 USL 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 USL. 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 USL. 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
USL 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 USL 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 USL’s obligations arising under any agreement to which USL 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 USL’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 USL 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 USL 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 USL 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 USL, USL has been
informed that the SEC and the various state administrators believe that such indemnification is against public policy as expressed in
the 1933 Act and the North American Securities Administrators Association, Inc. (“NASAA”) commodity pool guidelines and is
therefore unenforceable.
Books
and Records
USL keeps its
books of record and account at the office of USCF 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 USL’s satisfaction that such person is a limited partner upon reasonable advance notice at all reasonable times
during the usual business hours of USL.
USL keeps a copy
of USL’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, USL 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 USL’s audited financial statements and
other information about USL. 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, NYSE Arca and the CFTC, but has entered into an agreement with the
Administrator to prepare these reports as required by the SEC, CFTC and the NYSE Arca on USL’s behalf.
The financial
statements of USL 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 USL to shareholders upon request. USL 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 USL’s website at www.uscfinvestments.com,
USL, 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 its 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.
USL will provide
information to its shareholders to the extent required by applicable SEC, CFTC, and NYSE Arca requirements. An issuer, such as USL, of
exchange-traded securities may not always readily know the identities of the investors who own those securities. USL will post the same
information that would otherwise be provided in USL’s reports to limited partners described above including its monthly account
statements, which will include, without limitation, USL’s NAV, on USL’s website www.uscfinvestments.com.
Fiscal
Year
The fiscal year
of USL is the calendar year. USCF may select an alternate fiscal year.
Governing
Law; Consent to Delaware Jurisdiction
The rights of
USCF, USL, DTC (as registered owner of USL’s global certificate for shares) and the shareholders, are governed by the laws of the
State of Delaware. USCF, USL 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 USL.
Legal
Matters
Litigation
and Claims
From time to
time, USL may be involved in legal proceedings arising primarily from the ordinary course of its business. USL is not currently party
to any material legal proceedings. In addition, USCF, as the general partner of USL 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.
Optimum
Strategies Action
On
April 6, 2022, USO and USCF were named as defendants in an action filed by Optimum Strategies Fund I, LP, a purported investor
in call option contracts on USO (the “Optimum Strategies Action”). The action is pending in the U.S. District Court for the
District of Connecticut at Civil Action No. 3:22-cv-00511.
The
Optimum Strategies Action asserts claims under the Securities Exchange Act of 1934, as amended (the “1934 Act”), Rule 10b-5
thereunder, and the Connecticut Uniform Securities Act. It purports to challenge statements in registration statements that became effective
in February 2020, March 2020, and on April 20, 2020, as well as public statements between February 2020 and May 2020, in connection with
certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19
global pandemic and the Saudi Arabia-Russia oil price war. The complaint seeks damages, interest, costs, attorney’s fees, and equitable
relief.
USCF
and USO intend to vigorously contest such claims.
Settlement
of SEC and CFTC Investigations
On
November 8, 2021, USCF and USO announced a resolution with each of the SEC and the CFTC relating to matters set forth in certain Wells
Notices issued by the staffs of each of the SEC and CFTC as more fully described below. On August 17, 2020, USCF, USO, and John Love
received a “Wells Notice” from the staff of the SEC (the “SEC Wells Notice”). The SEC Wells Notice stated that
the SEC staff made a preliminary determination to recommend that the SEC file an enforcement action against USCF, USO, and Mr. Love alleging
violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, as amended (the “1933 Act”), and Section 10(b)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder.
Subsequently,
on August 19, 2020, USCF, USO, and Mr. Love received a Wells Notice from the staff of the CFTC (the “CFTC Wells Notice”).
The CFTC Wells Notice stated that the CFTC staff made a preliminary determination to recommend that the CFTC file an enforcement action
against USCF, USO, and Mr. Love alleging violations of Sections 4o(1)(A) and (B) and 6(c)(1) of the Commodity Exchange Act of 1936, as
amended (the “CEA”), 7 U.S.C. §§ 6o(1)(A) and (B) and 9(1) (2018), and CFTC Regulations 4.26, 4.41, and 180.1(a),
17 C.F.R. §§ 4.26, 4.41, 180.1(a) (2019).
On
November 8, 2021, acting pursuant to an offer of settlement submitted by USCF and USO, the SEC issued an order instituting cease-and-desist
proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 8A of the 1933 Act, directing USCF and USO to
cease and desist from committing or causing any violations of Section 17(a)(3) of the 1933 Act, 15 U.S.C. § 77q(a)(3) (the “SEC
Order”). In the SEC Order, the SEC made findings that, from April 24, 2020 to May 21, 2020, USCF and USO violated Section 17(a)(3)
of 1933 Act, which provides that it is “unlawful for any person in the offer or sale of any securities to engage in any transaction,
practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.” USCF and USO consented
to entry of the SEC Order without admitting or denying the findings contained therein, except as to jurisdiction.
Separately,
on November 8, 2021, acting pursuant to an offer of settlement submitted by USCF, the CFTC issued an order instituting cease-and-desist
proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 6(c) and (d) of the CEA, directing USCF to cease
and desist from committing or causing any violations of Section 4o(1)(B) of the CEA, 7 U.S.C. § 6o(1) (B), and CFTC Regulation 4.41(a)(2),
17 C.F.R. § 4.41(a)(2) (the “CFTC Order”). In the CFTC Order, the CFTC made findings that, from on or about April 22,
2020 to June 12, 2020, USCF violated Section 4o(1)(B) of the CEA and CFTC Regulation 4.41(a)(2), which make it unlawful for any commodity
pool operator (“CPO”) to engage in “any transaction, practice, or course of business which operates as a fraud or deceit
upon any client or participant or prospective client or participant” and prohibit a CPO from advertising in a manner which “operates
as a fraud or deceit upon any client or participant or prospective client or participant,” respectively. USCF consented to entry
of the CFTC Order without admitting or denying the findings contained therein, except as to jurisdiction.
Pursuant to
the SEC Order and the CFTC Order, in addition to the command to cease and desist from committing or causing any violations of Section
17(a)(3) of the 1933 Act, Section 4o(1)(B) of the CEA, and CFTC Regulation 4.14(a)(2), civil monetary penalties totaling two million
five hundred thousand dollars ($2,500,000) in the aggregate were required to be paid to the SEC and CFTC, of which one million two hundred
fifty thousand dollars ($1,250,000) was paid by USCF to each of the SEC and the CFTC, respectively, pursuant to the offsets permitted
under the orders.
In
re: United States Oil Fund, LP Securities Litigation
On June 19,
2020, USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder
Robert Lucas (the “Lucas Class Action”). The Court thereafter consolidated the Lucas Class Action with two related putative
class actions filed on July 31, 2020 and August 13, 2020, and appointed a lead plaintiff. The consolidated class action is pending in
the U.S. District Court for the Southern District of New York under the caption In
re: United States Oil Fund, LP Securities Litigation, Civil Action No. 1:20-cv-04740.
On November
30, 2020, the lead plaintiff filed an amended complaint (the “Amended Lucas Class Complaint”). The Amended Lucas Class Complaint
asserts claims under the 1933 Act, the 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 have moved for their dismissal.
Wang
Class Action
On July 10,
2020, purported shareholder Momo Wang filed a putative class action complaint, individually and on behalf of others similarly situated,
against defendants USO, USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F. Ngim, Robert L. Nguyen, Peter M. Robinson,
Gordon L. Ellis, Malcolm R. Fobes, III, ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc.,
Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch
Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas
Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC, in the U.S. District Court for the Northern District of California as
Civil Action No. 3:20-cv-4596 (the “Wang Class Action”).
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.
The Court consolidated
the Cantrell and AML Actions under the caption In re United States Oil Fund,
LP Derivative Litigation, Civil Action No. 1:20-cv-06974 and appointed co-lead counsel. All proceedings in In
re United States Oil Fund, LP Derivative Litigation are stayed pending disposition of the motion(s) to dismiss in In
re: United States Oil Fund, LP Securities Litigation.
USCF, USO, and
the other defendants intend to vigorously contest the claims in In re United
States Oil Fund, LP Derivative Litigation.
Legal
Opinion
Eversheds Sutherland
(US) LLP is counsel to and advises USL 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 USL as of December 31, 2021
and December 31, 2020, including the schedule of investments as of December 31, 2021 and 2020, and the related statements of operations,
changes in partners’ capital and cash flows for the years ended December 31, 2021, 2020 and 2019, that appear in the annual report
on Form 10-K that is incorporated by reference. The financial statements of USL in the Form 10-K were included herein in reliance upon
the report of Spicer Jeffries LLP dated February 25, 2022, given on its authority of such firm as experts in accounting and auditing.
Material
U.S. Federal Income Tax Considerations
The following
discussion summarizes the material U.S. federal income tax consequences of the purchase, ownership and disposition of shares in USL,
and the U.S. federal income tax treatment of USL, as of the date hereof. Except where noted otherwise, it deals only with shares held
by beneficial owners 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 U.S. 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 and 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.
Investors considering
the purchase, ownership or disposition of shares should consult their own tax advisors concerning the U.S. federal income tax consequences
in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
As used herein,
a “U.S. shareholder” of a share means a beneficial owner of a share that is a U.S. person. A “U.S. person,” for
U.S. federal income tax purposes, is (i) an individual citizen or resident of the United States, (ii) a corporation or partnership (including
an entity or arrangement treated as a partnership for U.S. federal income tax purposes) created or organized in or under the laws of
the United States or any political subdivision thereof (including the District of Columbia), (iii) an estate the income of which is subject
to U.S. 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. 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. A partnership, or a partner of a partnership, holding our shares should
consult his, her or its own tax advisor regarding the tax consequences of investing in our shares.
USCF, on behalf
of USL, has received the opinion of Eversheds Sutherland (US) LLP, counsel to USL, that the material U.S. federal income tax consequences
to USL 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 USL 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 USL.
If challenged by the IRS, USL’s tax positions might not be sustained by the courts. No ruling has been requested from the IRS with
respect to any matter affecting USL or prospective investors.
INVESTORS CONSIDERING THE PURCHASE
OF SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
AND THE CONSEQUENCES OF U.S. FEDERAL ESTATE OR GIFT TAX LAWS, STATE, LOCAL AND FOREIGN LAWS, AND TAX TREATIES.
Tax
Status of USL
USL 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 or arrangement treated as a partnership that is deemed to be a “publicly traded partnership” is generally taxable
as a corporation for U.S. 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” (the “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 gain from such commodities and futures, forwards and options with respect to commodities. USL and USCF have represented the following
to Eversheds Sutherland (US) LLP:
| · | At
least 90% of USL’s gross income for each taxable year will constitute “qualifying
income” within the meaning of Code section 7704 (as described above); |
| · | USL
is organized and operated in accordance with its governing agreements and applicable law; |
| · | USL
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 USL will be classified as a partnership for U.S. federal
income tax purposes and that it is not taxable as a corporation for such purposes. USL’s taxation as a partnership rather than
a corporation will require USCF to conduct USL’s business activities in such a manner that it satisfies the qualifying income exception
on a continuing basis. No assurance can be given that USL’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 USL’s ongoing compliance with these
requirements and will have no obligation to advise USL or USL’s shareholders in the event of any subsequent change in the facts,
representations or applicable law relied upon in reaching its opinion.
If USL 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, USL would be taxable as a corporation for U.S. federal income tax purposes and would
be obligated to pay U.S. federal income tax on its income at regular corporate rates. In that event, shareholders would not report their
share of USL’s income or loss on their returns. In addition, distributions to shareholders would be treated as dividends to the
extent of USL’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 USL’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 USL were to be taxable
as a corporation, it would likely have a material adverse effect on the economic return from an investment in USL and on the value of
the shares.
The remainder
of this summary assumes that USL is classified as a partnership for federal income tax purposes and not taxable as a corporation.
U.S.
Shareholders
Tax
Consequences of Ownership of Shares
Taxation
of USL’s Income. No U.S. federal income tax is paid by USL on its income. Instead, USL
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 USL. For example, shareholders must take into account their share of ordinary
income realized by USL from accruals of interest on Treasuries and other investments, and their share of gain from Oil Interests. These
items must be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from USL
during the taxable year. Consequently, a shareholder may be allocated income or gain by USL 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 USL 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 USL 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 USL’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 USL, allocations of USL income pursuant to the LP Agreement should be considered as having substantial
economic effect or as being in accordance with a shareholder’s interest in USL.
In general, USL
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 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 USL
for U.S. 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 USL, 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. federal 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 USL.
USL 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 USL for U.S. federal income tax purposes. The Code and existing Treasury Regulations
do not expressly permit adoption of these conventions although the monthly allocation convention described above is consistent with methods
permitted under the applicable Treasury Regulations, as well as the legislative history for the provisions that require allocations to
appropriately reflect changes in ownership interests. It is possible that the IRS could successfully challenge USL’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 U.S. federal income
tax purposes than its proportionate share of the economic income or loss realized by USL 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. USL 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 USL’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, USL will use certain simplifying conventions
and assumptions. 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 U.S. federal income tax purposes, USL 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 USL 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 USL for their
fair market value on the last business day of the taxable year. A shareholder’s distributive share of USL’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 USL’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 USL’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 USL, including but not limited to those described below.
A shareholder’s
deduction of its allocable share of any loss of USL 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
USL 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
USL 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 US trade or business and includible income for the year. As discussed below, although the matter is not free from doubt,
USL believes that the activities directly conducted by USL will not result in USL 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 USL
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, USL does not anticipate that it will
be treated as engaged in a trade or business. As a result, USL 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 USL 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 USL 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 USL 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 USL’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 USL and (3) its ability to utilize its distributive
share of any losses of USL on its tax return. A shareholder’s initial tax basis of its shares will equal its cost for the shares
plus its share of USL’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 USL 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 USL 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 USL’s taxable income and gain and (b) any
additional contributions by the shareholder to USL and (2) decreased (but not below zero) by (a) its allocable share of USL’s tax
deductions and losses and (b) any distributions by USL to the shareholder. For this purpose, an increase in a shareholder’s share
of USL’s liabilities will be treated as a contribution of cash by the shareholder to USL and a decrease in that share will be treated
as a distribution of cash by USL 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 USL Distributions. If USL 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 USL 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 in 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 USL 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 USL 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 USL.
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 USL. 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 USL. 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. Shareholders desiring to avoid these
and other possible consequences of a deemed disposition of their shares are urged to seek advice from their tax advisors.
Other
Tax Matters
Information
Reporting. USL reports 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 U.S. federal income
tax purposes. On the basis of such ruling, except as otherwise provided herein, we treat the following persons as partners for U.S. 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. USL 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 USL 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.
Partnership
Audit Procedures. The IRS may audit the federal income tax returns filed by USL. 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.
USL may be liable
for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment due to 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 USL
is required to pay additional U.S. federal income arising from an imputed understatement, the resulting tax liability would reduce the
net assets of USL and would likely have an adverse impact on the value of the shares. Under certain circumstances, USL 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 USL to make this election is uncertain. If the election is made, USL
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 USL to designate
one person as the “partnership representative” who has sole authority to defend against an audit with the IRS, challenge
any adjustment in a court of law, and settle any audit or other proceeding. The LP Agreement appoints USCF as the partnership representative
of USL.
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 U.S. 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 USL 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.
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 USL is a qualified publicly traded partnership
is made on an annual basis. USL 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 United States and the recipient’s country of residence. In contrast, ECI is generally subject to U.S. tax on a net
basis at graduated rates upon the filing of a U.S. tax return.
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 the conduct of a U.S. trade or business during a taxable year will also be considered to be engaged
in the conduct of a U.S. trade or business during that year. Classifying an activity by a partnership as an investment or an operating
business is a factual determination. Under certain safe harbors in the Code, an investment fund whose activities consist of trading in
stocks, securities, or commodities for its own account generally will not be considered to be engaged in a U.S. trade or business unless
it is a dealer in such stocks, securities, or commodities. This safe harbor applies to investments in commodities only if the commodities
are of a kind customarily dealt on an organized commodity exchange and if the transaction is of a kind customarily consummated at such
place. Although the matter is not free from doubt, USL believes that the activities directly conducted by USL will not result in USL
being engaged in the conduct of a trade or business within in the United States. However, there can be no assurance that the IRS would
not successfully assert that USL’s activities constitute a U.S. trade or business.
In the event
that USL’s activities were considered to constitute a U.S. trade or business, USL would be required to withhold at the highest
rate specified in section 1 of the Code on allocations of income to individual and 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 USL 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, USL 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 USL, generally, and accordingly, by all
shareholders.
If USL 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 USL or its allocable share of USL 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 United States and provides USL 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 USL’s
interest income qualifies as “portfolio interest.” In order for USL 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 USL 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 USL 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 USL’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
USL 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 USL 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 USL 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.
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 Department to report certain required information with respect to accounts held by certain specified
U.S. persons (or held by foreign entities that have certain specified U.S. persons as substantial owners) or (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 the Code would also require withholding on the payments of the gross proceeds from the sale of any property
that could produce U.S.-source interest or dividends, the U.S. Treasury Department has indicated in subsequent proposed Treasury Regulations
its intent to eliminate this requirement. The information required to be reported includes the identity and taxpayer identification number
of each account holder that is a specified U.S. person and transaction activity within the holder’s account. In addition, subject
to certain exceptions, this legislation also imposes a 30% withholding tax on payments to foreign entities that are not FFIs unless the
foreign entity certifies that it does not have a greater than 10% U.S. owner that is a specified U.S. person or provides the withholding
agent with identifying information on each greater than 10% U.S. owner that is a specified U.S. person. Depending on the status of a
beneficial owner and the status of the intermediaries through which they hold their shares, beneficial owners could be subject to this
30% withholding tax with respect to distributions on their shares. Under certain circumstances, a beneficial owner might be eligible
for refunds or credits of such taxes.
Other
Tax Considerations
In addition
to U.S. federal income taxes, shareholders may be subject to other taxes, such as foreign (non-U.S.) income taxes, state and local income
taxes, unincorporated business taxes, business franchise taxes, gift and estate, inheritance or intangible taxes that may be imposed
by the various jurisdictions in which USL 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 USL. 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 USL. 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 USL 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 USL, including the role that an investment in USL 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 USL, must
be satisfied that its investment in the limited partnership interests in USL is prudent for the plan, that the investments of the plan
are properly diversified and that an investment in USL complies with the terms of the plan.
USL
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 USL 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,
USL 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 USL 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 USL 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 USL 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 USL 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 USL (and any continued investment in USL), or the operation and administration of USL, 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 USL is not to be construed as a representation by USL, 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 USL 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 USL 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 us as follows: It is a limited purpose trust company organized under the
laws of the State of New York and is a member of the Federal Reserve System, a “clearing corporation” within the meaning
of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities for DTC Participants and facilitates the clearance and settlement of transactions between DTC Participants
through electronic book-entry changes in accounts of DTC Participants.
Transfer
of 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 USL’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 USL’s LP Agreement and is eligible to purchase USL’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 will be imposed on the seller of shares or, if a purchase of shares is made through an exchange, the form may be obtained
directly through USL. 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 USL’s limited partners if that investor’s
ownership would subject USL to the risk of cancellation or forfeiture of any of USL’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 USL’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 USL 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. USL 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
USL’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 USL in secondary market transactions through brokers. Shares trade on the NYSE Arca under the ticker symbol “USL.”
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 USL’s shares is a best efforts offering. USL 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 USL, a marketing fee of 0.06% on
USL’s assets up to the first $3 billion; and 0.04% on USL’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 USL calculated shortly after the close of the core
trading session on the NYSE Arca on that day divided by the number of issued and outstanding shares. 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 USL (each such agreement, an “Authorized Participant Agreement”),
such Authorized Participant becomes part of the group of parties eligible to purchase baskets from, and put baskets for redemption to,
USL. 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, 2022, USL had the following Authorized Participants: Citadel Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Company,
JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company, Inc., RBC Capital Markets, LLC, SG
Americas Securities LLC, and Virtu Americas LLC.
Because new
shares can be created and issued on an ongoing basis, at any point during the life of USL, 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 USL, 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 USL for their purchases of
Creation Baskets.
Calculating
Per Share NAV
USL’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 USL 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 Oil Futures Contracts
traded on the NYMEX, but calculates or determines the value of all other USL investments (including Oil Futures Contracts not traded
on the NYMEX, Other Oil-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, USL 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 USL 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 USL 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 USL as a base and updating that value throughout the trading day to reflect changes
in the most recently reported trade price for the active light, sweet crude Oil Futures Contracts on the NYMEX. The prices reported for
those Oil 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 Oil Futures Contracts, the last
sale price for those contracts 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 USL’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 USL’s shares are traded on the NYSE Arca,
but real-time NYMEX trading prices for Oil 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 Oil Futures Contracts from the NYMEX’s immediately preceding
trading session. In addition, other Oil Futures Contracts, Other Oil-Related Investments and Treasuries held by USL will be valued by
the Administrator. 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 USL shares on the NYSE Arca. Investors and market professionals are able throughout
the trading day to compare the market price of USL and the indicative fund value. If the market price of USL shares diverges significantly
from the indicative fund value, market professionals will have an incentive to execute arbitrage trades. For example, if USL appears
to be trading at a discount compared to the indicative fund value, a market professional could buy USL shares on the NYSE Arca and sell
short Oil Futures Contracts. Such arbitrage trades can tighten the tracking between the market price of USL and the indicative fund value
and thus can be beneficial to all market participants.
USL reserves
the right to adjust the share price of USL 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 USL or the proportionate
voting rights of shareholders or limited partners.
Creation
and Redemption of Shares
USL 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 USL or the distribution by USL 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 as of 4:00 p.m. New York time on the day the order to create or redeem baskets is properly received.
Authorized Participants
are the only persons that may place orders to create and redeem baskets. Authorized Participants must be (1) registered broker-dealers
or other securities market participants, such as banks and other financial institutions, that are not required to register as broker-dealers
to engage in securities transactions as described below, and (2) DTC Participants. To become an Authorized Participant, a person must
enter into an Authorized Participant Agreement with USCF on behalf of USL (each such agreement, an “Authorized Participant Agreement”).
The Authorized Participant Agreement provides the procedures for the creation and redemption of baskets and for the delivery of the Treasuries
and any cash required for such creations and redemptions. The Authorized Participant Agreement and the related procedures attached thereto
may be amended by USCF, without the consent of any limited partner or shareholder or Authorized Participant. Authorized Participants
pay a transaction fee of $350 to USL 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 USL
in exchange for baskets receive no fees, commissions or other form of compensation or inducement of any kind from either USL or USCF,
and no such person will have any obligation or responsibility to USCF or USL to effect any sale or resale of shares.
Certain Authorized
Participants are expected to be capable of participating directly in the physical crude oil market and the crude oil futures market.
In some cases, Authorized Participants or their affiliates may from time to time buy or sell crude oil or Oil Interests and may profit
in these instances. USCF believes that the size and operation of the crude oil market make it unlikely that an Authorized Participant’s
direct activities in the crude oil or securities markets will significantly affect the price of crude oil, Oil 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 USL 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
New York Stock Exchange 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 non-refundable
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 USL 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 USL’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 USL (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 USL’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 USL 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. USL’s 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 USL 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 USL, 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 USL,
as described below. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant must also
have wired to USL’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 USL’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 USL 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 USL’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 USL 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 USL (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 USL 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, USL’s DTC account has been credited with
the baskets to be redeemed. If USL’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 USL 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 USL’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 USL’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
USL’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
USL for its expenses in connection with the creation and redemption of baskets, an Authorized Participant is required to pay a transaction
fee to USL of $350 per order to create or redeem baskets, regardless of the number of baskets in such order. An order may include multiple
baskets. The transaction fee may be reduced, increased or otherwise changed by USCF. USCF shall notify DTC of any change in the transaction
fee and will not implement any increase in the fee for the redemption of baskets until thirty (30) days after the date of the notice.
Tax
Responsibility
Authorized Participants
are responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value added tax or similar tax or governmental charge
applicable to the creation or redemption of baskets, regardless of whether or not such tax or charge is imposed directly on the Authorized
Participant, and agree to indemnify USCF and USL 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, USL
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 USL or the distribution by USL 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 per share NAV of USL at the time the Authorized
Participant purchased the Creation Baskets and the per share NAV at the time of the offer of the shares to the public, the supply of
and demand for shares at the time of sale, and the liquidity of the Oil Futures Contract market and the market for Other Oil-Related
Investments. The prices of shares offered by Authorized Participants are expected to fall between USL’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 USL in exchange for baskets receive no fees, commissions or other forms of compensation or inducement of any kind
from either USL or USCF, and no such person has any obligation or responsibility to USCF or USL 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 NAV per share. The amount of the discount or premium in the trading price relative to the NAV per share 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 Oil Futures Contracts market and the market for Other Oil-Related Investments.
In addition, while USL’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 Oil-Related Investments may be reduced after the close of the NYMEX at 2:30 p.m. New York
time, USL’s NAV is calculated based on the settlement price of the Benchmark Oil Futures Contracts at 2:30 p.m. Eastern Time and
the closing of the share price of USL on the NYSE Arca takes into account changes in the price of Benchmark Oil 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
USL to transfer the proceeds from the sale of Creation Baskets to the Custodian or other custodian for trading activities. USCF will
invest USL’s assets in Oil Interests and investments in Treasuries, cash and/or cash equivalents. When USL purchases an Oil Futures
Contract and certain exchange-traded Other Oil-Related Investments, USL is required to deposit typically 5% to 30% with the selling FCM
on behalf of the exchange a portion of the value of the contract or other interest as security to ensure payment for the obligation under
Oil Interests at maturity. This deposit is known as initial margin. Counterparties in transactions in OTC contracts will generally impose
similar collateral requirements on USL. 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 USL’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 USL 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 Oil 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 the Oil 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
USL’s assets will be posted as margin or collateral at any given time. The Treasuries, cash and cash equivalents held by USL will
constitute reserves that will be available to meet ongoing margin and collateral requirements. All interest income will be used for USL’s
benefit. USCF invests the balance of USL’s assets not invested in Oil Interests or held in margin as reserves to be available for
changes in margin. All interest income is used for USL’s benefit.
The assets of
USL posted as margin for Oil Futures Contracts are held in segregated accounts pursuant to the CEA and CFTC regulations.
If USL enters
into a swap agreement, USL must post both collateral and independent amounts to its swap counterparty(ies). The amount of collateral
USL posts changes according to the amounts owed by USL to its counterparty on a given swap transaction, while independent amounts are
fixed amounts posted by USL 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 USL 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
USL uses the
following promotional or sales material:
| · | USL’s
website, www.uscfinvestments.com;
www.uscfinvestments.com
and |
| · | USL
fact sheet found on USL’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 UNITED STATES 12 MONTH OIL FUND (U.S. Reg. No. 3600671) for “Investment services in the field of oil futures
contracts and other oil-related investments,” in use since December 6, 2007, and 12 USL UNITED STATES 12 MONTH OIL FUND, LP (and
12 and Flame Design) (U.S. Reg. 4440927) for “Financial investment services in the field of oil futures contracts, cash-settled
options on oil futures contracts, forward contracts for oil over-the-counter transactions based on the price of oil, 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 USL a registration statement on Form S-3 with the SEC under the 1933 Act. This prospectus does not contain all of the information
set forth in the registration statement (including the exhibits to the registration statement), parts of which have been omitted in accordance
with the rules and regulations of the SEC. For further information about USL or the shares, please refer to the registration statement,
which you may access online at www.sec.gov. Information about
USL and the shares can also be obtained from USL’s website, http://www.uscfinvestments.com.
USL’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. USL is subject to the informational requirements
of the Exchange Act and USCF and USL will each, on behalf of USL, file certain reports and other information with the SEC under the Exchange
Act. USCF will file an updated prospectus annually for USL 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, USL’s operations, USCF’s plans and references to USL’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 USL” 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, USL’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. Any reports filed with the SEC
subsequent to the date of this prospectus and before the date that any offering of any securities by means of this prospectus and any
accompanying prospectus supplement is terminated will automatically update and, where applicable, supersede any information contained
in this prospectus or incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus until
all of the securities offered by this prospectus and any accompanying prospectus supplement have been sold or we otherwise terminate
the offering of these securities; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K
or other information “furnished” to the SEC which is not deemed filed is not incorporated by reference in this prospectus
and any accompanying prospectus supplement.
| · | Annual
Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February
25, 2022. |
Any statement
contained in a document incorporated by reference in this prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in any other filed documents that also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We will provide
to each person to whom a prospectus is delivered, including any beneficial owner, a copy of these filings at no cost, upon written or
oral request at the following address or telephone number:
United States
12 Month Oil Fund, LP
Attention: Katie Rooney
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, California 94596
(510) 522-9600
We make our
electronic filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to these reports available on our website free of charge as soon as practicable after we file or furnish them with the
SEC. The information contained on our website does not constitute a part of this prospectus, and our website address supplied above is
intended to be an inactive textual reference only and not an active hyperlink to our website.
Privacy
Policy
USL 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 USL.
USL and USCF
do not disclose nonpublic personal information except as required by law or as described in their Privacy Policy. In general, USL 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.
USL 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 USL 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 directly purchases or redeems Creation Baskets or Redemption Baskets,
respectively, from or to USL.
Authorized
Participant Agreement: An agreement with USCF on behalf of USL 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
Oil 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 light, sweet crude oil traded on the NYMEX except during the last
two weeks of the current month when the near month contract is sold and replaced by the futures contract for the thirteenth month following
the current month.
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.
CPER:
United States Copper Index Fund.
Creation
Basket: A block of 50,000 shares used by USL to issue shares.
Creation
Basket Deposit: The total deposit required to create each basket.
Custodian:
The Bank of New York Mellon.
DNO:
United States Short Oil Fund, LP.
DCM:
Designated contract market.
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, formerly the National Association of Securities Dealers.
Futures
Contracts: Futures contracts for light, sweet crude oil, and other types of crude oil, diesel-heating
oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges.
ICE
Futures: 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: The 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 effective as of December
15, 2017.
Management
Directors: The four management directors that are on USCF’s board of directors.
Margin:
The amount of equity required for an investment in futures contracts.
Marketing
Agent: ALPS Distributors, Inc.
Marygold:
The Marygold Companies, Inc., formerly Concierge Technologies Inc., a company publicly traded under the ticker symbol “MGLD.”
NAV:
Net asset value of USL.
NFA:
National Futures Association.
NYMEX:
The New York Mercantile Exchange, the primary exchange on which futures contracts are traded
in the U.S. USL expects to invest primarily in futures contracts, and particularly in futures contracts traded on the NYMEX. USL expressly
disclaims any association with the NYMEX or endorsement of USL by the NYMEX and acknowledges that “NYMEX” and “New
York Mercantile Exchange” are registered trademarks of the MYMEX.
NYSE
Arca: NYSE Arca, Inc.
Oil
Futures Contracts: Futures contracts for crude oil, diesel-heating oil, gasoline, natural gas,
and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges.
Oil
Interests: Oil Futures Contracts and Other Oil-Related Investments.
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.
OPEC:
Organization of Petroleum Exporting Countries
Other
Oil-Related Investments: Other crude oil related investments such as cash-settled options on
Oil Futures Contracts, forward contracts for crude oil, and OTC transactions that are based on the price of crude oil, other petroleum-based
fuels, Oil Futures Contracts 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 Rules: Regulatory limits imposed by the CFTC on speculative positions in certain physical
commodity futures and option contracts and swaps that are economically equivalent to such contracts in the agriculture, energy and metals
markets and rules addressing the circumstances under which market participants would be required to aggregate their positions with other
persons under common ownership or control.
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 USL 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 Oil Fund, LP (“USL”); United States 12 Month
Natural Gas Fund, LP (“UNL”); United States Brent Oil Fund, LP (“BNO”); 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:
Holders of shares.
Shares:
Common shares representing fractional undivided beneficial interests in USL.
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. Some swap transactions
are cleared through central counterparties. These transactions, known as cleared swaps, involve two counterparties first agreeing to
the terms of a swap transaction, then submitting the transaction to a clearing house that acts as the central counterparty. Swap transactions
that are not cleared through central counterparties are called “uncleared” or “over-the-counter” (“OTC”)
swaps.
Tracking
Error: Possibility that the daily NAV of USL will not track the price of light, sweet crude
oil.
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 Commodity Pool
Operator, who controls the investments and other decisions of USL.
USCF Investments: USCF Investments,
Inc., formerly Wainwright Holdings, Inc.
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 USL calculates its NAV.
You:
The owner or holder of shares.
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