S-1 1 d374124ds1.htm FORM S-1 REGISTRATION STATEMENT Form S-1 Registration Statement
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As filed with the Securities and Exchange Commission on June 29, 2012

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

UNITED STATES CURRENCY FUNDS TRUST

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   6770   80-0820001

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

United States Commodity Funds LLC

1320 Harbor Bay Parkway, Suite 145

Alameda, California 94502

510.522.9600

 

Nicholas D. Gerber

1320 Harbor Bay Parkway, Suite 145

Alameda, California 94502

510.522.9600

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

 

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent for Service)

Copy to:

W. Thomas Conner, Esq.

Reed Smith LLP

1301 K Street, N.W.

East Tower – Suite 1100

Washington, D.C. 20005-3317

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

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

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

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

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

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

 

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

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of

Securities to Be Registered

  Amount
to Be
Registered
 

Proposed

Maximum

Offering Price

Per Unit

 

Proposed

Maximum

Aggregate

Offering Price(1)

 

Amount of

Registration Fee

Units of U.S. Golden Currency Fund

  1,000   $25.00   $25,000   $2.87

 

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(d) under the Securities Act of 1933.

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


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

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS

US Golden Currency Fund

1,000 Units

The US Golden Currency Fund (“USGCF”) is a commodity pool that issues units representing fractional undivided beneficial interests (“units”) that trade on the NYSE Arca, Inc. USGCF is the sole current series of United States Currency Funds Trust, a Delaware statutory trust (the “Trust”). United States Commodity Funds, LLC is the Sponsor of the Trust (the “Sponsor”). Additional series may be created in the future.

The investment objective of USGCF (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price, in U.S. dollars, of a basket of futures contracts representing equally-weighted interests in five corresponding hard currencies (the “Futures Basket”). “Hard” currencies are those identified and selected by the Sponsor that have attributes such that the currency market would refer to them as “hard” (the “Benchmark Hard Currencies” or “Hard Currencies”), including the returns from short-term cash holdings in such currencies. USGCF’s investment objective has been designed for investors seeking to profit if the U.S. dollar falls relative to the Benchmark Hard Currencies. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor and are referred to as the “Benchmark Futures Contracts.”

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

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

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

USGCF is not a mutual fund registered under the Investment Company Act of 1940, as amended, and is not subject to regulation under such Act.

Some of the risks investing in USGCF include:

 

   

Investing in foreign currency interests subjects USGCF to the risks of foreign currency markets and political and economic environments unique to such foreign markets, which could result in fluctuations in the price of USGCF’s units.

 

   

If certain correlations do not exist, then investors may not be able to use USGCF as a cost-effective way to invest indirectly in the designated foreign currency markets or as a way to manage foreign currency-related exposures.

 

   

USGCF does not expect to make cash distributions.

 

   

USGCF and the Sponsor may have conflicts of interests, which permit them to favor their own interests to your detriment.

 

   

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

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

Investing in USGCF involves other significant risks. See “What are the Risk Factors Involved with an Investment in USGCF?” beginning on page 9.

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

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

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

 

     Per Unit      Per Basket  

Price of the Units in the first basket sold

   $ 25.00       $ 1,250,000.00   

The date of this prospectus is June 29, 2012


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COMMODITY FUTURES TRADING COMMISSION

RISK DISCLOSURE STATEMENT

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

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL AT PAGE 61 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 5.

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 9.

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

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


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US GOLDEN CURRENCY FUND

TABLE OF CONTENTS

 

Prospectus Summary

     1   

Overview of the Trust and USGCF

     1   

Principal Offices of USGCF and the Sponsor

     3   

USGCF’s Investments in Currency Interests

     3   

Principal Investment Risks of an Investment in USGCF

     4   

Financial Condition of USGCF

     4   

Defined Terms

     4   

Breakeven Analysis

     5   

The Offering

     6   

What are the Risk Factors Involved with an Investment in USGCF

     9   

Risks Associated with Investing Directly or Indirectly in Currency Interests

     9   

USGCF’s Operating Risks

     15   

Risk of Leverage and Volatility

     23   

Over-the-Counter Contract Risk

     23   

Risk of Trading in International Markets

     24   

Tax Risk

     25   

The Offering

     26   

What is USGCF?

     26   

Who is the Sponsor?

     27   

Contribution to USGCF and the Funds

     31   

Executive Compensation and Fees to the Sponsor

     31   

Director Compensation

     31   

Prior Performance of the Sponsor and Affiliates

     31   

Other Related Commodity Trading and Investment Management Experience

     46   

Who is the Trustee?

     46   

How Does USGCF Operate?

     47   

USGCC’s Investment Strategy

     50   

Why Does USGCF Purchase and Sell Futures Contracts?

     54   

What are Futures Contracts?

     55   

What Are Benchmark Futures Contracts?

     55   

What are Over-the-Counter Derivatives?

     57   

USGCF’s Investments in Treasuries, Cash and Cash Equivalents

     57   

What are the Trading Policies of USGCF?

     58   

Who are the Service Providers?

     58   

Fees to be Paid by USGCF

     61   

Form of Units

     61   

Transfer of Units

     62   

Inter-Series Limitation on Liability

     62   

Recognition of the Trust in Certain States

     63   

What is the Plan of Distribution?

     63   

What is the Flow of Units?

     65   

Calculating NAV

     66   

Creation and Redemption of Units

     67   

Secondary Market Transactions

     71   

Use of Proceeds

     71   

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

     72   

The Sponsor Has Conflicts of Interest

     75   

Security Ownership of Certain Beneficial Owners and Management

     76   

Interests of Named Experts and Counsel

     77   

Provisions of Federal and State Securities Law

     77   

Books and Records

     77   


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Statements, Filings and Reports to Unitholders

     77   

Fiscal Year

     78   

Governing Law, Consent to Delaware Jurisdiction

     78   

Legal Matters

     78   

Experts

     78   

Privacy Policy

     78   

U.S. Federal Income Tax Consequences

     78   

Investment By ERISA Accounts

     89   

Information Unitholders Should Know

     92   

Statement Regarding Forward Looking Statements

     92   

Where You Can Find More Information

     92   

Summary of Promotional and Sales Material

     93   

Intellectual Property

     93   

Appendix A

     A-1   

Appendix B

     B-1   

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


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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 movements in the currency markets, indexes or financial instruments that track such movements, USGCF’s operations, the Sponsor’s plans and references to USGCF’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 the Sponsor 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 the Sponsor’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 “What Are the Risk Factors Involved with an Investment in USGCF?” Consequently, all the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, USGCF’s operations or the value of its units.


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PROSPECTUS SUMMARY

This is only a summary of the prospectus and while it contains information about USGCF and its units, it does not contain or summarize all of the material information about USGCF and the units contained in this prospectus that is material and/or which may be important to you. You should read this entire prospectus, including “What are the Risk Factors Involved with an Investment in USGCF?” beginning on page  9, before making an investment decision about the units.

Overview of the Trust and USGCF

The US Golden Currency Fund (“USGCF”) is a commodity pool that issues units representing fractional undivided beneficial interests (“units”) that trade on the NYSE Arca, Inc. (the “NYSE Arca”). USGCF is the sole current series of the United States Commodity Funds Trust, a Delaware statutory trust formed on May 25, 2012 (the “Trust”). Additional series of the Trust that will be separate commodity pools may be created in the future. The Trust and USGCF operate pursuant to the Declaration of Trust and Trust Agreement (the “Trust Agreement”), dated May 25, 2012. Wilmington Trust National Association, a national banking association, is the Delaware trustee of the Trust. USGCF and the Trust are managed and controlled by United States Commodity Funds LLC (the “Sponsor” or “USCF”). The Sponsor is a limited liability company formed in Delaware on May 10, 2005, that is registered as a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).

The investment objective of USGCF (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price, in U.S. dollars, of a basket of futures contracts representing equally-weighted interests in five corresponding hard currencies (the “Futures Basket”). “Hard” currencies are those identified and selected by the Sponsor that have attributes such that the currency market would refer to them as “hard” (the “Benchmark Hard Currencies” or “Hard Currencies”), including the returns from short-term cash holdings in such currencies. The Sponsor believes that the currency markets refer to currencies as hard if: a) the currency is widely used and freely exchangeable, b) the currency is issued by a financially and economically strong country, and c) issued by a country which has historically suffered less from the effects of inflation compared to other countries. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The Futures Basket will consist of Benchmark Futures Contracts selected by the Sponsor to represent a 20% interest in each of the five Benchmark Hard Currencies, and will be re-balanced on a monthly basis. USGCF anticipates that Benchmark Futures Contracts will be listed on regulated futures exchanges in the United States or the United Kingdom. It is not the intent of USGCF to be operated in a fashion such that its NAV will equal, in US dollar terms, the spot price of any particular currency or any particular Benchmark Futures Contract. It is not the intent of USGCF to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe this is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of futures contracts.

The Benchmark Hard Currencies will be chosen annually from the twenty-five most actively traded global currencies (the “Eligible Global Currencies”), as measured by the triannual Bank of International Settlement (“BIS”) currency trading report, and further selected based on each of the following criteria:

 

   

The issuing country must have a credit rating of AAA- or better as rated by major credit rating firms. In the event less than eight Eligible Global Currency countries have a rating of AAA- or better, the issuing country must be rated in the top eight countries,

 

   

The currency’s prior three year ranking as to its performance versus inflation as measured primarily by the changes in the price of the currency compared to one ounce of gold (the “Inflation Tests”).

The Inflation Tests will consist of first measuring at the end of each year the prior three year change in the price of an ounce of gold as measured in each of the Eligible Global Currencies. The results will be ranked from those currencies that saw, in percentage terms, the smallest increase, or largest decrease, relative to the price of gold to those that saw the largest increase or smallest decrease in percentage terms. A second ranking will also be made of the Eligible Global Currencies ranking them from those that over the prior three years experienced the smallest cumulative amount of inflation (or greatest deflation), to those the experienced the largest amount of inflation (or smallest deflation), as reported by each country’s central bank or other reporting government entity. The five currencies with the smallest increase in price based on gold (or largest decrease), will become the five Benchmark Hard Currencies selected that year. However, any currency selected based on the price of gold ranking must also be among the ten Eligible Global Currencies with the smallest increase (or greatest decrease) in cumulative inflation over the same three year time period. If a currency selected based on the gold ranking is not also in the ten Eligible Global Currencies with the smallest cumulative inflation totals, it will not be included in the final selection and the Sponsor will instead select the next eligible currency.

 

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Since the US dollar is the base currency for USGCF, and thus USGCF cannot have any currency gains or losses from any holdings it has in US dollars, the US dollar will not be an Eligible Global Currency. In addition, any currency that does not have a fully free-floating exchange rate and is instead pegged to the US dollar, such as the Hong Kong Dollar or the Chinese Renminbi, will also not be an Eligible Global Currency. Furthermore, only currencies that are primarily issued and used by a single country may be an Eligible Global Currency. Finally, the Sponsor may remove a currency from the Eligible Global Currencies list if the Sponsor believes it has becomes difficult or impossible to freely trade due to capital controls or other similar market disruptions to its currency market.

The net assets of USGCF will consist primarily of investments in futures contracts for Hard Currencies that are traded on major exchanges in the US and United Kingdom (collectively, “Futures Contracts”) and other Hard-Currency-related investments such as cash-settled options on Futures Contracts, forward currency contracts for Hard Currencies, currency swap contracts, US or foreign currency bank accounts, US dollar or Hard Currency short-term money market instruments, or United States Treasury securities with remaining maturities of less than two years (“Treasuries” or “Treasury Securities”) (collectively, “Other Hard-Currency Related Investments”). For convenience and unless otherwise specified, Futures Contracts and Other Hard Currency-Related Investments are collectively referred to as “Currency Interests” in this prospectus. The Sponsor is authorized by USGCF in its sole judgment to employ, establish the terms of employment for, and terminate commodity trading advisors or futures commission merchants.

USGCF will invest in Currency Interests, to the fullest extent possible, without being leveraged or unable to satisfy its current or potential margin and/or collateral obligations with respect to its investments in Futures Contracts and Other Hard Currency-Related Investments. The primary focus of the Sponsor will be the investment in Futures Contracts and the management of USGCF’s investments in Treasuries, cash and cash equivalents for margining purposes and as collateral. USGCF will invest in Benchmark Futures Contracts to the fullest extent possible, turning next to investments in other Futures Contracts and finally to Other Hard Currency-Related Investments only if required to by applicable regulatory requirements or in light of prevailing market conditions. The types of regulatory requirements and market conditions that would cause USGCF to invest in this manner are described in “How Does USGCF Operate?” on page 47 of this prospectus.

In order for a hypothetical investment in units to break even over the next 12 months, assuming a selling price of $25.00 per unit, the investment would have to generate a 0.84% return, or $0.21 per unit. For more information, see “Breakeven Analysis.”

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

 

   

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

 

   

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

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

The Sponsor will employ a “neutral” investment strategy intended to track the changes in the price of the Benchmark Futures Contracts regardless of whether the price goes up or goes down. USGCF’s “neutral” investment strategy is designed to permit investors generally to purchase and sell USGCF’s units for the purpose of investing indirectly in Hard Currencies in a cost-effective manner, and/or to permit participants in the currency market to manage their potential Hard Currency-related exposures. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in foreign currency and/or the risks involved in hedging may exist. In addition, an investment in USGCF involves the risk that the changes in the price of USGCF’s units will not accurately track the changes in the Futures Basket and that changes in the Futures Basket will not closely correlate with changes in the spot prices of the underlying Hard Currencies. For example, USGCF also invests in Treasuries and holds cash and cash equivalents to be used to meet its current or potential margin or collateral requirements with respect to its investments in Futures Contracts and Other Hard Currency-Related Investments. USGCF does not expect there to be any meaningful correlation between the performance of USGCF’s investments in

 

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Treasuries/cash/cash equivalents and the changes in the price of Hard Currency. USGCF’s investment objective is to track the daily changes in the Futures Basket, not to have the market price of its units correlate directly with changes in the spot price of any specific Hard Currency relative to the U.S. dollar. Contango and backwardation may impact the total return on an investment in USGCF’s units relative to a hypothetical direct investment in any Hard Currency. See “What are the Risk Factors Involved with an Investment in USGCF?”

Each month, the basket will re-balance starting at the end of the day on the date two weeks prior to expiration of the near month contract for that month.

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

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

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

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

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

Principal Offices of USGCF and the Sponsor

The principal office of the Trust and USGCF is located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. The Sponsor’s principal office is also located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. The telephone number for each of the Trust, USGCF and the Sponsor is (510) 522-9600.

USGCF’s Investments in Currency Interests

A description of the principal types of Currency Interests in which USGCF may invest – Futures Contracts, forward contracts, over-the-counter contracts, cleared swap contracts and options on Futures Contracts may be found under the heading “The Currency Interests.”

 

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Principal Investment Risks of an Investment in USGCF

An investment in USGCF 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 9.

 

   

Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income to their investors, USGCF may not distribute dividends to Unitholders. You should not invest in USGCF if you will need cash distributions from USGCF to pay taxes on your share of income and gains of USGCF, if any, or for any other reason.

 

   

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

 

   

USGCF will invest primarily in Currency Interests that are traded or sold inside the United States. However, a portion of USGCF’s trades may take place in markets and on exchanges outside of the United States. Some non-US markets present risks because they are not subject to the same degree of regulation as their US counterparts. In some of these non-US markets, the performance on a contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes USGCF to credit risk.

 

   

Investors may choose to use USGCF as a means of investing indirectly in Hard Currencies, and there are risks involved in such investments. Currency investors are exposed to risks and hazards inherent in foreign investing including, but not limited to geopolitical factors, supply and demand for a currency, economic and market conditions, inflation, interest rates, and trade balances.

 

   

Investors may choose to use USGCF as a means of investing indirectly in Hard Currencies, and there is the risk that the daily changes in the price of USGCF’s units on the NYSE Arca will not closely track the daily changes in the value of the Futures Contracts comprising the basket, or the spot price of the Hard Currencies underlying the Futures Contracts. This could happen if the price of units traded on the NYSE Arca does not correlate closely with USGCF’s NAV. This is a risk because if these correlations are not sufficiently close, then investors may not be able to use USGCF as a cost-effective way to invest indirectly in Hard Currencies or as a method to manage Hard Currency-related exposures.

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

Financial Condition of USGCF

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

Defined Terms

For a glossary of defined terms, see Appendix A.

 

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Breakeven Analysis

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

 

Assumed initial selling price per unit

   $ 25.00   

Management Fee (0.60%)1

   $ 0.15   

Creation Basket Fee2

   $ (0.07

Estimated Brokerage Fee (0.06%)3

   $ 0.08   

Interest Income (0.01%)4

   $ (0.01

Independent Directors and Officers’ Fees5

   $ 0.01   

Fees and expenses associated with tax accounting and reporting6

   $ 0.06   

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

   $ 0.21   

Percentage of initial selling price per unit

     0.84

 

1 

USGCF is contractually obligated to pay the Sponsor a management fee based on the daily net assets and paid monthly of 0.60% per annum on average net assets.

2 

Authorized Purchasers are required to pay a Creation or Redemption Basket fee of $350 for each order they place to create or redeem one or more baskets. An order must be at least one basket, which are 50,000 units. This breakeven analysis assumes a hypothetical investment in a single unit so the Creation Basket fee is $0.01 ($350/50,000).

3 

Assuming that the price of a unit is $25.00, USGCF would receive $1,250,000 upon the sale of the initial Creation Basket (50,000 units multiplied by $25.00). Assuming that this entire amount is invested in Benchmark Futures Contracts and that there is no change in the settlement price of such contracts, USGCF would be required to purchase approximately 8 Benchmark Futures Contracts to support the Creation Basket ($1,250,000 divided by $156, the average value of the Benchmark Futures Basket as of April 30, 2012). As each Hard Currency’s futures contracts would need to be rolled forward as they approached expiration, there would be a total of 96 purchases and 96 sales of futures contracts during the year for a total of 192 transactions. Assuming further that futures commission merchants charge approximately $4.00 per currency futures contract for each purchase or sale, the annual futures commission merchant charge for USGCF would be approximately $768 (16 total basket transactions (8 purchases and 8 sales) multiplied by 12 times per year multiplied by $4.00). As a percentage of the total investment of $1,250,000 this annual commission expense would be approximately 0.06%.

4 

USGCF earns interest on funds it deposits with the futures commission merchant and the custodian and it estimates that the interest rate will be 0.10% based on the current interest rate on three-month Treasuries as of April 30, 2012. The actual rate may vary.

5 

The foregoing assumes that the assets of USGCF will be aggregated with those of the Related Public Funds, that the aggregate fees paid to independent directors for 2012 is $501,466, that the allocable portion of the fees borne by USGCF equals $0 and that USGCF has $30 million in assets

6 

The fees and expenses associated with tax accounting and reporting are paid by USGCF. For purposes of this breakeven analysis, the fees and expenses associated with tax accounting and reporting are estimated to be $75,000 and assumes USGCF has $30 million in assets.

 

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Fees and Expenses of the Fund

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

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

 

Management Fees

     0.60

Distribution Fees

     None   

Other Expenses

     0.25

Total Annual Fund Operating Expenses

     0.85

This fee table is based on USGCF having an assumed net asset value of $100 million.

THE OFFERING

Offering:

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

Use of Proceeds:

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

NYSE Arca Symbol:

“HARD”

 

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Creation and Redemption:

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

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

Inter-Series Limitation on Liability:

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

Registration, Clearance and Settlement:

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

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

Net Asset Value:

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

 

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Fund Expenses:

USGCF pays the Sponsor a management fee at an annual rate of 0.60% on its average net assets, paid on a monthly basis. USGCF is also responsible for other ongoing fees, costs and expenses of its operations, including:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

costs and expenses associated with investor relations and services;

 

   

the payment of any distributions related to redemption of units;

 

   

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

 

   

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

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

Termination Events:

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

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

Authorized Purchasers:

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

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

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 USGCF’s financial statements.

Risks Associated With Investing Directly or Indirectly in Currency Interests

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

When using the Benchmark Futures Contracts as a strategy to track the price of Hard Currencies relative to the US dollar, at best the correlation between changes in prices of such Currency Interests and the spot price of Hard Currencies can be only approximate. The degree of imperfection of correlation depends upon

 

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circumstances such as variations in the speculative currency market, supply of and demand for such Hard Currencies and technical influences in futures trading. If there is a weak correlation between the Currency Interests and the spot price of Hard Currencies relative to the US dollar, then the price of units may not accurately track the spot price of Hard Currencies and investors may not be able to effectively use USGCF as a way to hedge the risk of losses in their Hard-Currency-related transactions or as a way to indirectly invest in Hard Currencies.

Backwardation and contango may increase USGCF’s tracking error and/or negatively impact total return.

The design of USGCF’s Benchmark Futures Contracts is such that every month it begins by using the near month contract to expire until the near month contract is within two weeks of expiration, when, over a four-day period, it transitions to the next month contract to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close to expiration. In the event of a currency 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 Hard Currency prices the value of the Benchmark Futures Contract would tend to rise as it approaches expiration. As a result, the total return of the Benchmark Futures Contract would tend to track higher and USGCF’s NAV would tend to track higher. Conversely, in the event of a Hard Currency 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 Hard Currency prices the value of the Benchmark Futures Contract would tend to decline as it approaches expiration. As a result the total return of the Benchmark Futures Contract would tend to track lower and USGCF’s NAV would tend to track lower. When compared to total return of other price indices, such as the spot price of Hard Currencies, the impact of backwardation and contango may lead the total return of USGCF’s NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling Hard Currency prices relative to the US dollar, this could have a significant negative impact on USGCF’s NAV and total return.

The value of the units is intended to relate directly to the value of the Futures Basket comprised of interests in Hard Currencies. Fluctuations in the price of the Hard Currencies could materially and adversely affect the value of the Futures Contracts and Other Hard Currency-Related Investments in a basket, and therefore affect the value of the units.

The units are designed reflect the daily changes in percentage terms of the price, in US dollars, of the Futures Basket, plus accumulated interest, if any, less USGCF’s expenses. The value of Hard Currencies in US dollar terms has fluctuated widely over the past several years, and volatility has increased in recent months, possibly due, in part, to concern over the sovereign debt levels of certain countries and the impact of this debt on the value of such country’s currency. Fundamentally, the exchange rate between a Hard Currency and the US Dollar is a result of the supply of, and demand for, each Hard Currency. Several factors and conditions may affect the value of (and level of investor or government demand for) Hard Currencies, including, but not limited to economic, financial, social and political conditions in one or more of the Hard Currency countries (as well as the United States). These conditions include, for example, the overall growth and performance of the economies of Hard Currency countries, the trade and current account balance between Hard Currency countries and the United States, inflation and interest rate levels (and investors’ expectations regarding those rates), the performance of stock markets in Hard Currency countries and the United States, the stability of the governments and banking systems of Hard Currency countries and the United States, wars in which Hard Currency countries or the United States are directly or indirectly involved or that occur anywhere in the world, and/or major natural disasters.

In addition, exchange rates of most developed and major emerging economies, including the United States and Hard Currency countries, currently are “floating,” meaning that they are permitted to fluctuate in value relative to other currencies. However, governments of other nations, from time to time, do not allow their currencies to float freely in response to economic forces. Governments use a variety of techniques, such as intervention by their central bank (for example, by raising to lowering interest rates) or imposition of regulatory controls or taxes, to affect the exchange rates of their respective currencies. Governments may also issue or print new currency to replace an existing currency or alter the exchange rate or relative exchange characteristics by devaluation or revaluation of a currency. These types of government actions may increase or decrease the supply of a Hard Currency, which will affect the value of the currency relative to others, including the US dollar.

 

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Daily changes in USGCF’s NAV may not correlate to daily changes in the price of Futures Contracts or Other Hard Currency-Related Investments. If this were to occur, investors may not be able to effectively use USGCF as a way to hedge against exposure to Hard Currencies or as a way to indirectly invest in Hard Currencies.

The Sponsor endeavors to invest USGCF’s assets as fully as possible in short-term Futures Contracts and Other Hard Currency-Related Investments so that the daily changes in percentage terms of the NAV closely reflect the daily changes in percentage terms of the price, in U.S. dollars, of the Futures Basket. However, changes in USGCF’s NAV may not correlate with the changes in the price of the Futures Basket for several reasons as set forth below:

 

   

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

 

   

Short-term economic factors may impact supply and demand for Hard Currencies and may cause the changes in the market price of the Benchmark Futures Contracts to vary from the changes in USGCF’s NAV if a basket is comprised primarily of Futures Contracts that do not reflect such supply and demand and it is unable to replace such contracts with Futures Contracts that do not reflect such supply and demand.

 

   

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

 

   

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

 

   

As USGCF grows, there may be more or less correlation. For example, if USGCF only has enough investable cash to buy three Futures Contracts and it needs to buy four Futures Contracts to track the price of Hard Currencies, then the correlation will be lower, but if it buys 20,000 Futures Contracts and it needs to buy 20,001 Futures Contracts, then the correlation will be higher. At certain asset levels, USGCF may be limited in its ability to buy Futures Contracts if limits were imposed by the relevant exchanges.

 

   

USGCF may not be able to buy the exact number of Futures Contracts and Other Hard Currency-Related Investments to have a perfect correlation with the changes in value of the Futures Basket, if the purchase price of the Futures Contracts and Other Hard Currency-Related Investments required to be fully invested is higher than the proceeds received for the sale of a Creation Basket on the day the basket was sold. In such case, USGCF could not invest the entire proceeds from the purchase of the Creation Basket in Currency Interests, including Futures Contracts. For example, if USGCF received $2,000,000 upon the sale of a Creation Basket and the price of a Futures Contract for a Hard Currency is $99,000, then USGCF could only invest in 20 Futures Contracts with an aggregate value of $1,980,000). USGCF would be required to invest a percentage of the proceeds in cash, Treasuries or other liquid securities to be deposited

 

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as margin with the futures commission merchant through which the contracts were purchased. The remainder of the purchase price for the Creation Basket would remain invested in Treasuries, cash and/or cash equivalents or other liquid securities as determined by the Sponsor from time to time based on factors such as potential calls for margin or anticipated redemptions. If the trading market for Futures Contracts is suspended or closed, USGCF may not be able to purchase these investments at the last reported price.

If changes in USGCF’s NAV do not correlate with changes in the price of Benchmark Futures Contracts, then investing in USGCF may not be an effective way to protect against exposures to Hard Currencies or indirectly invest in Hard Currencies.

The Benchmark Futures Contracts may not correlate with the spot price of Hard Currencies versus the US dollar and this could cause changes in the price of the units to substantially vary from the changes in the spot price of Hard Currencies. If this were to occur, then investors may not be able to effectively use USGCF as a way to hedge against exposure to Hard Currency or as a way to indirectly invest in Hard Currencies.

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

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

The changing nature of the hedgers and speculators in the currency market influences whether futures prices are above or below the expected future spot price. In order to induce speculators to take the corresponding long side of the same futures contract, currency holders must generally be willing to sell futures contracts at prices that are below expected future spot prices. Conversely, if the predominant hedgers in the futures market are the purchasers of the currency who purchase futures contracts to hedge against a rise in prices, then speculators will only take the short side of the futures contract if the futures price is greater than the expected future spot price of a currency. Recent economic conditions have caused the demand for Hard Currencies in particular to fluctuate, as hedgers seek to protect themselves from exposures to certain currencies, and speculators seek to take advantage of the increase in demand for Hard Currencies, which some view as having a higher level of stability. This can have significant implications for USGCF when it is time to reinvest the proceeds from a maturing Futures Contract into a new Futures Contract.

The Trustee may withdraw Currency Interests from USGCF to pay expenses, reducing the amount of Currency Interests represented by each unit and potentially resulting in adverse tax consequences for Unitholders.

Each outstanding unit represents a fractional, undivided interest in the Currency Interests held by the Trust. Generally, the amount of interest earned by USGCF will exceed USGCF’s expenses; however, if it does not, Currency Interests will be withdrawn from USGCF to pay expenses. As long as the amount of interest earned does not exceed expenses, the amount of Currency Interests represented by each unit will gradually decline. This is true even if additional units are issued in exchange for additional deposits of Currency Interests into USGCF, as the amount of Currency Interests required to create units will proportionately reflect the amount of Currency Interests represented by the units outstanding at the time of creation. As long as USGCF’s expenses are greater than the amount of interest earned, the units will only maintain their original price if the price of the Currency Interests increases. There is no guarantee that interest earned by USGCF in the future will exceed USGCF’s expenses.

 

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Investors should be aware that a gradual decline in the amount of Currency Interests represented by the units may occur regardless of whether the trading price of the units rises or falls in response to changes in the price of Currency Interests. The estimated ordinary operating expenses of USGCF, which accrue daily, are described in “Investment Attributes of USGCF – USGCF Expenses.”

The payment of expenses by the Trust will result in a taxable event to Unitholders. To the extent USGCF’s expenses exceed interest paid to the Trust, a gain or loss may be recognized by Unitholders depending on the tax basis of the tendered Currency Interests. See “United States Federal Tax Consequences – Taxation of U.S. Shareholders.”

If USGCF incurs expenses in US dollars, USGCF would be required to sell Currency Interests to pay these expenses. The sale of Currency Interests to pay expenses in US Dollars at a time of low Hard Currency prices could adversely affect the value of the units.

The Trustee will sell Currency Interests held by USGCF to pay USGCF’s expenses, if any, incurred in US dollars, irrespective of then-current Hard Currency prices. The Trust is not actively managed and no attempt will be made to buy or sell Currency Interests to protect against or to take advantage of fluctuations in the price of the Hard Currencies. Consequently, if USGCF incurs expenses in US dollars, the Currency Interests may be sold at a time when the Hard Currency price is low relative to the US dollar, resulting in a negative effect on the value of the units.

USGCF may experience a loss if it is required to sell Treasuries or other short-term securities at a price lower than the price at which they were acquired.

The value of Treasuries or other short-term securities generally moves inversely with movements in interest rates. If USGCF is required to sell Treasuries or other short-term securities at a price lower than the price at which they were acquired, USGCF will experience a loss. This loss may adversely impact the price of the units and may decrease the correlation between the price of the units, and the value of the Futures Basket.

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

USGCF may not always be able to liquidate its positions in its investments at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption, such as a foreign government taking political actions that disrupt the market in its currency can also make it difficult to liquidate a position. Alternatively, limits imposed by futures exchanges or other regulatory organizations, such as accountability levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity with respect to some currencies. Unexpected market illiquidity may cause major losses to investors at any time or from time to time. In addition, USGCF has not and does not intend at this time to establish a credit facility, which would provide an additional source of liquidity and instead relies only on the Treasuries, cash and/or cash equivalents that it holds. The anticipated large value of the positions in Futures Contracts that the Sponsor will acquire or enter into for USGCF increases the risk of illiquidity. The Other Hard Currency-Related Investments that USGCF invests in, such as negotiated over-the-counter contracts, may have a greater likelihood of being illiquid since they are contracts between two parties that take into account not only market risk, but also the relative credit, tax, and settlement risks under such contracts. Such contracts also have limited transferability that results from such risks and the contract’s express limitations. Because both Futures Contracts and Other Hard Currency-Related Investments may be illiquid, USGCF’s Currency 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

Investing in USGCF for purposes of hedging or limiting exposure to Hard Currencies may be subject to several risks including the possibility of losing the benefit of favorable market movement.

Investors with exposures to Hard Currencies and other participants in foreign currency markets may use USGCF as a vehicle to hedge or manage the risk of losses in their foreign currency-related transactions. There are several risks in connection with using USGCF as a hedging device. While hedging can provide protection against an adverse movement in market prices, it can also preclude a hedger’s opportunity to benefit from a favorable market movement. In a hedging transaction, the hedger may be concerned that the hedged item will

 

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increase in price, but must recognize the risk that the price may instead decline and if this happens he will have lost his opportunity to profit from the change in price because the hedging transaction will result in a loss rather than a gain. Thus, the hedger foregoes the opportunity to profit from favorable price movements. In addition, if the hedge is not a perfect one, the hedger can lose on the hedging transaction and not realize an offsetting gain in the value of the underlying item being hedged.

As the baskets will be comprised primarily of Futures Contracts, at best, the correlation between changes in prices of Futures Contracts and spot prices of the Hard Currencies relative to the US dollar can be only approximate. The degree of imperfection of correlation depends upon circumstances discussed above such as: variations in speculative markets, demand for futures and for Hard Currency, technical influences in futures trading, and differences between anticipated currency costs being hedged and the instruments underlying the standard futures contracts available for trading. Even a well-conceived strategy to manage foreign currency exposure may be unsuccessful to some degree because of unexpected market behavior as well as the expenses associated with creating the exposure.

Even though Hard Currencies and the US dollar are traded around-the-clock, units will only trade during regular trading hours on NYSE Arca and on business days when it is open for trading, which could cause the value of units to not be reflective of the value of the Futures Basket.

The interbank market for Hard Currencies and the US dollar is a global, around-the-clock market. USGCF’s units are listed on the NYSE Arca and the units only trade during hours and on business days when the NYSE Arca is open. To the extent the NYSE Arca is closed while the markets for Hard Currencies and the US dollar remain open, significant price and exchange rate movements in Hard Currencies may take place in non-US markets that will not be reflected immediately in the value of Currency Interests and the price of units.

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

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

The regulation of derivative 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. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and otherwise, there is a possibility of future regulatory changes within the United States altering, perhaps to a material extent, the nature of an investment in USGCF or the ability of the Fund to continue to implement its investment strategy. In addition, various national governments outside the United States have expressed concern regarding the disruptive effects of speculative trading in the energy markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Fund is impossible to predict, but it could be substantial and adverse. For a more detailed discussion of the regulations to be imposed by the CFTC and the SEC and the potential impacts thereof on the Fund, please see “Regulation” in this prospectus.

The value of Currency Interests that comprise a basket, which are intended to reflect changes in value of the spot price of Hard Currencies relative to the U.S. Dollar, may not move in tandem, and increases in value of Currency Interests in relation to one Hard Currency may be offset by declines in another Hard Currency.

The units are designed to reflect the price of Hard Currencies, plus accumulated interest, if any, less USGCF’s expenses. Price movements of Currency Interests comprising the basket may not move in tandem with each other relative to the U.S. Dollar. At a time when the level, value or price of one or more of those Currency Interests increases, the level, value or price of one or more other Currency Interests may decline. Therefore, increases in the level, value or price of an interest in one Hard Currency may be moderated, or even wholly offset, by lesser increase or declines in the level, value or price of one or more other Hard Currencies, or Currency Interests that comprise a basket.

 

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Currency Interests may be highly concentrated in issuers of Hard Currencies in one or more geographic regions.

A basket may be comprised of Currency Interests in Hard Currencies concentrated in a particular geographic region (for example, Asia-Pacific), exposing USGCF to the risks of a particular region. For example, a financial crisis could erupt in a particular geographic region and leads to declines in Hard Currencies, stock markets, and other asset prices in that geographic area, threatening particular financial systems, disrupting economies and causing political instability. A financial crisis or other event impacting a particular geographic region could have a negative impact on the value of Currency Interests and consequently, the value of USGCF’s units.

USGCF’s Operating Risks

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

USGCF 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.

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

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

Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause a tracking error, which could cause the price of units to substantially vary from the value of the Futures Basket and prevent investors from being able to effectively use USGCF as a way to hedge [manage exposure?] against Hard Currencies or as a way to indirectly invest in Hard Currencies.

U.S. designated contract markets such as the CME, NYMEX, or ICE Futures US have established accountability levels and position limits on the maximum net long or net short futures contracts in currency interests that any person or group of persons under common trading control (other than as a hedge, which an investment by USGCF is not) may hold, own or control.

In addition to accountability levels and position limits, the regulated futures exchanges may also set daily price fluctuation limits on futures contracts. The daily price fluctuation limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price. Once the daily price fluctuation limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

All of these limits may potentially cause a tracking error between the price of the units and the value of a basket comprised of Currency Interests. This may in turn prevent investors from being able to effectively use USGCF as a way to hedge against Hard Currency exposures or as a way to indirectly invest in Hard Currencies.

USGCF does not intend to limit the size of its offering and is committed to utilizing substantially all of its proceeds to purchase Futures Contracts and Other Hard Currency-Related Investments. If USGCF encounters accountability levels, position limits, or price fluctuation limits for Futures Contracts on US regulated futures exchanges, it may then, if permitted under applicable regulatory requirements, purchase Futures Contracts and Other Hard Currency-Related Investments on other exchanges that trade Hard Currency futures such as ICE Futures Europe. The Futures Contracts available on these other futures exchanges may be comparable to the contracts on the US regulated futures exchanges, but they may have different underlying sizes, deliveries, and prices. In addition, certain of the Futures Contracts available on non-US regulated futures exchanges are subject to their own accountability levels and position limits. See “Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits.”

 

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

In managing and directing the day-to-day activities and affairs of USGCF, the Sponsor relies heavily on Messrs. Howard Mah and John Hyland. If Messrs. Mah or Hyland were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management of USGCF. Furthermore, Messrs. Mah and Hyland are currently involved in the management of the Related Public Funds. The Sponsor has also filed registration statements to register units of United States Sugar Fund (“USSF”), United States Gasoil Fund (“USGO”) and United States Natural Gas Double Inverse Fund (“UNGD”), and United States Asian Commodities Basket Fund (“UAC”), each as series of the United States Commodity Funds Trust I. Mr. Mah is also employed by Ameristock Corporation, a registered investment adviser that manages a public mutual fund. It is estimated that Mr. Mah will spend approximately 90% of his time on USGCF and Related Public Fund matters. Mr. Hyland will spend approximately 100% of his time on USGCF and Related Public Fund matters. To the extent that USCF establishes additional funds, even greater demands will be placed on Messrs. Mah and Hyland, as well as the other officers of USCF and its Board.

There are technical and fundamental risks inherent in the trading system the Sponsor employs.

USCF’s trading system is quantitative in nature and it is possible that USCF might make a mathematical error. In addition, it is also possible that a computer or software program may malfunction and cause an error in computation.

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

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

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

USGCF and the Sponsor may have inherent conflicts to the extent the Sponsor attempts to maintain USGCF’s asset size in order to preserve its fee income and this may not always be consistent with USGCF’s objective of having the daily changes in percentage terms of its NAV reflect the daily changes in percentage terms of the price, in U.S. Dollars, of an equally weighted basket of interests in five currencies USGCF’s Sponsor believes have attributes such that the currency market refers to them as “Hard” currencies including the returns from short-term cash holdings in such currencies, less USGCF’s expenses. The Sponsor’s officers, directors and employees do not devote their time exclusively to USGCF. These persons are directors, officers or employees of other entities that may compete with USGCF for their services. They could have a conflict between their responsibilities to USGCF and to those other entities.

In addition, the Sponsor’s principals, officers, directors or employees may trade futures and related contracts for their own account. A conflict of interest may exist if their trades are in the same markets and at the same time as USGCF trades using the clearing broker to be used by USGCF. 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 USGCF.

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

The Sponsor serves as the general partner to each of United States Natural Gas Fund, LP (“USNG”), United States Oil Fund, LP (“USOF”), United States 12 Month Oil Fund, LP (“US12OF”), United States Gasoline Fund, LP (“UGA”), United States Heating Oil Fund, LP (“USHO”), United States Short Oil Fund, LP (“USSO”), United States 12 Month Natural Gas Fund, LP (“US12NG”) and United States Brent Oil Fund, LP (“USBO”) and the sponsor for United States Commodity Index Fund (“USCI”), United States Metals Index Fund (“USMI”), United States Agriculture Index Fund (“USAG”), United States Copper Index Fund (“CPER”), USSF, USGO, UNGD, UAC and USGCF. The Sponsor may have a conflict to the extent that its trading decisions for USGCF may be influenced by the effect they would have on the other funds it manages. These trading decisions may be influenced since the Sponsor also serves as the general partner or

 

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sponsor for all of the funds and is required to meet all of the funds’ investment objectives as well as USGCF’s. If the Sponsor believes that a trading decision it made on behalf of USGCF might (i) impede its other funds from reaching their investment objectives, or (ii) improve the likelihood of meeting its other funds’ objectives, then the Sponsor may choose to change its trading decision for USGCF, which could either impede or improve the opportunity for USGCF to meet its investment objective. In addition, the Sponsor is required to indemnify the officers and directors of its other funds if the need for indemnification arises. This potential indemnification will cause the Sponsor’s assets to decrease. If USCF’s other sources of income are not sufficient to compensate for the indemnification, then the Sponsor may terminate and investors could lose their investment.

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

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

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

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

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

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

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

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

USGCF 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.

USGCF may terminate at any time, regardless of whether USGCF has incurred losses, subject to the terms of the Trust Agreement. For example, the dissolution or resignation of the Sponsor would cause USGCF to terminate unless, within 90 days of the event, Unitholders holding units representing at least 66 2/3% of the outstanding units of all the Funds, including USGCF, elect to continue the Trust and appoint a successor

 

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Sponsor. In addition, the Sponsor may terminate USGCF if it determines that USGCF’s aggregate net assets in relation to its operating expenses make the continued operation of USGCF unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate USGCF. USGCF’s termination would result in the liquidation of its assets and the distribution of the proceeds thereof, first to the creditors and then to the Unitholders in accordance with their positive book capital account balances, after giving effect to all contributions, distributions and allocations for all periods, and USGCF could incur losses in liquidating its assets in connection with a termination. Termination could also negatively affect the overall maturity and timing of your investment portfolio.

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

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

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

USGCF is a series of a Delaware statutory trust and not itself a separate legal entity. The Delaware Statutory Trust Act provides that if certain provisions are included in the formation and governing documents of a statutory trust organized in series and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records and are accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations, and expenses incurred by a particular series are enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted this inter-series limitation on liability or provided guidance as to what is required for compliance. The Sponsor intends to maintain separate and distinct records for USGCF and each series of the Trust and account for USGCF separately from any other Trust series, but it is possible a court could conclude that the methods used do not satisfy the Delaware Statutory Trust Act, which would potentially expose assets in one series to the liabilities of any other series of the Trust.

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

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

USGCF may not make cash distributions.

USGCF has not previously made any cash distributions and may elect to re-invest any realized gains in Currency Interests rather than distributing cash to Unitholders. Therefore, unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, USGCF may elect to not distribute cash to Unitholders. An investor should not invest in USGCF if it will need cash distributions from USGCF to pay taxes on its share of income and gains of USGCF, if any, or for any other reason. Although USGCF may elect to not 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 Currency 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.

 

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

USGCF pays management fees at an annual rate of 0.60% of its average net assets, estimated brokerage charges of approximately 0.06% (based on futures commission merchant fees of $4.00 per buy or sell), over-the-counter spreads and various other expenses of its ongoing operations (e.g., fees of the Trustee). These fees and expenses must be paid in all events, regardless of whether USGCF activities are profitable. Accordingly, USGCF must realize trading gains sufficient to cover these fees and expenses before it can earn any profit.

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

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

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

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

The NAV calculation of USGCF may be overstated or understated due to the valuation method employed when a settlement price is not available on the date of NAV calculation.

USGCF’s NAV includes, in part, any unrealized profits or losses on open swap agreements, futures or forward contracts. Under normal circumstances, the NAV will reflect the settlement price of open Futures Contracts on the date when the NAV is being calculated. However, if a Futures Contract traded on an exchange could not be liquidated on such day (due to the operation of daily limits or other rules of the exchange or otherwise), the settlement price on the most recent day on which the Futures Contract position could have been liquidated will be the basis for determining the market value of such position on such day. In these situations, there is a risk that the calculation of the NAV of USGCF on such day will not accurately reflect the realizable market value of the Futures Contracts or of its over-the-counter swap contracts since the value of such contracts is tied to the value of its Futures Contracts.

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

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

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

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

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

Since 2008, the financial markets have experienced very difficult financial conditions and volatility as well as significant adverse trends. The conditions in these markets have resulted in sporadic availability of corporate credit and liquidity and have led indirectly to the insolvency, closure or acquisition of a number of major financial institutions and have contributed to further consolidation within the financial services industry. In addition, the Administration and Congress have periodically been reaching impasses in passing a fiscal budget which could create long-term concerns regarding the credit of the United States and interest earned, as

 

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well as the United States Government’s ability to pay its obligations to holders of Treasuries. If low interest rates on Treasuries continues or if USGCF is not able to redeem its investments in Treasuries prior to maturity and the U.S. Government cannot pay its obligations, USGCF would be negatively impacted. In addition, USGCF might also be negatively impacted by its use of money market funds to the extent those funds might themselves be using Treasuries. Although the financial markets saw some signs of a recovery beginning in late 2010, economic growth in 2011 has been slow and the financial markets are still fragile and could fall into another recession. Another recession could adversely affect the financial condition and results of operations of USGCF’s service providers and Authorized Purchasers, which would impact the ability of the Sponsor to achieve USGCF’s investment objective.

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

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

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

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

The failure or bankruptcy of a clearing broker could result in a substantial loss of USGCF’s assets; the clearing broker could be subject to proceedings that impair its ability to execute USGCF’s trades.

Under CFTC regulations, a clearing broker maintains customers’ assets in a bulk segregated account. If a clearing broker fails to do so, or even if the customers’ funds are segregated by the clearing broker if the clearing broker is unable to satisfy a substantial deficit in a customer account, the clearing broker’s other customers may be subject to risk of a substantial loss of their funds in the event of that clearing broker’s bankruptcy. In that event, the clearing broker’s customers, such as USGCF, are entitled to recover, even in respect of property specifically traceable to them, only a proportional share of all property available for distribution to all of that clearing broker’s customers. The bankruptcy of a clearing broker could result in the complete loss of USGCF’s assets posted with the clearing broker; though the vast majority of USGCF’s assets are held in Treasuries, cash and/or cash equivalents with USGCF’s custodian and would not be impacted by the bankruptcy of a clearing broker. USGCF also may be subject to the risk of the failure of, or delay in performance by, any exchanges and markets and their clearing organizations, if any, on which commodity interest contracts are traded.

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

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

 

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

The failure or insolvency of USGCF’s custodian could result in a substantial loss of USGCF’s assets.

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

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

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

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

The Sponsor uses mathematical formulas built into a generally available spreadsheet program to decide whether it should buy or sell Currency Interests each day. Specifically, the Sponsor uses the spreadsheet to make mathematical calculations and to monitor positions in Currency Interests and Treasuries and correlations to the spot price of Hard Currencies. The Sponsor must accurately process the spreadsheets’ outputs and execute the transactions called for by the formulas. In addition, USGCF relies on the Sponsor to properly operate and maintain its computer and communications systems. Extraordinary transaction volume, hardware or software failure, power or telecommunications failure, a natural disaster or other catastrophe could cause the computer systems to operate at an unacceptably slow speed or even fail. Any significant degradation or failure of the systems that the Sponsor uses to gather and analyze information, enter orders, process data, monitor risk levels and otherwise engage in trading activities may result in substantial losses on transactions, liability to other parties, lost profit opportunities, damages to the Sponsor’s and USGCF’s reputations, increased operational expenses and diversion of technical resources. Any failure, inaccuracy or delay in implementing any of the formulas or systems and executing USGCF’s transactions could impair its ability to achieve USGCF’s investment objective. It could also result in decisions to undertake transactions based on inaccurate or incomplete information. This could cause substantial losses on transactions.

If the computer and communications systems are not upgraded, USGCF’s financial condition could be harmed.

The development of complex computer and communications systems and new technologies may render the existing computer and communications systems supporting USGCF’s trading activities obsolete. In addition, these computer and communications systems must be compatible with those of third parties, such as the systems of exchanges, clearing brokers and the executing brokers. As a result, if these third parties upgrade their systems, the Sponsor will need to make corresponding upgrades to continue effectively its trading activities. USGCF’s future success will depend on USGCF’s ability to respond to changing technologies on a timely and cost-effective basis.

 

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USGCF depends on the reliable performance of the computer and communications systems of third parties, such as brokers and futures exchanges, and may experience substantial losses on transactions if they fail.

USGCF depends on the proper and timely function of complex computer and communications systems maintained and operated by the futures exchanges, brokers and other data providers that the Sponsor uses to conduct trading activities. Failure or inadequate performance of any of these systems could adversely affect USCF’s ability to complete transactions, including its ability to close out positions, and result in lost profit opportunities and significant losses on commodity interest transactions. This could have a material adverse effect on revenues and materially reduce USGCF’s available capital. For example, unavailability of price quotations from third parties may make it difficult or impossible for the Sponsor to use its proprietary software that it relies upon to conduct its trading activities. Unavailability of records from brokerage firms may make it difficult or impossible for the Sponsor to accurately determine which transactions have been executed or the details, including price and time, of any transaction executed. This unavailability of information also may make it difficult or impossible for the Sponsor to reconcile its records of transactions with those of another party or to accomplish settlement of executed transactions.

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

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

Unitholders do not have the rights enjoyed by investors in certain other financial instruments.

As interests in a grantor trust, the units have none of the statutory rights normally associated with the ownership of units of a business corporation, including, for example the right to bring “oppression” or “derivative” actions. Apart from the rights afforded to them by federal and state securities laws, Unitholders have only those rights relative to the Trust, the Trust property and the units that are set forth in the Trust Agreement. In this connection, the Unitholders have limited voting and distribution rights. They do not have the right to elect trustees. See “Description of the Units” for a description of the limited rights of Unitholders.

The units may trade at a price which is at, above, or below the NAV per Share.

The NAV per unit fluctuates with changes in the market value of USGCF’s assets. The market price of units can be expected to fluctuate in accordance with changes in the NAV per unit, but also in response to market supply and demand for units. As a result, the units might trade at prices at, above or below the NAV per unit.

The Trust Agreement may be amended to the detriment of Unitholders without their consent.

The Sponsor and the Trustee may amend most provisions (other than those addressing core economic rights) of the Trust Agreement without the consent of any Unitholder. Such an amendment could impose or increase fees or charges borne by the Unitholders. Any amendment that increases fees or charges (other than taxes and other governmental charges, registration fees or other expenses), or that otherwise prejudices any substantial existing rights of Unitholders, will not become effective until 30 days after written notice is given to Unitholders.

 

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Risk of Leverage and Volatility

The Sponsor does not intend to leverage USGCF, but leverage is permitted under the Trust Agreement and investors could lose all or substantially all of their investment if USGCF’s trading positions suddenly turn unprofitable.

Commodity pools’ trading positions in futures contracts or other currency interests are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other currency interests’) entire market value. This feature permits currency pools to “leverage” their assets by purchasing or selling futures contracts (or other currency interests) with an aggregate value in excess of the currency pool’s assets. While this leverage can increase the pool’s profits, relatively small adverse movements in the price of the pool’s futures contracts can cause significant losses to the pool. The Sponsor does not intend to leverage USGCF’s assets and will seek to invest to the extent that the notional value of its holdings approximates 100% of the value of the collateral held by the fund. However, leverage is permitted under the terms of the Trust Agreement.

Substantial sales of Hard Currency by the official sector could adversely affect an investment in the units.

The official sector consists of central banks, other governmental agencies and multi-lateral institutions that buy, sell and hold Hard Currency as part of their reserve assets. The official sector holds a significant amount of Hard Currency that can be mobilized in the open market. In the event that future economic, political or social conditions or pressures require members of the official sector to sell their Hard Currency simultaneously or in an uncoordinated manner, the demand for Hard Currency might not be sufficient to accommodate the sudden increase in the supply of Hard Currency to the market. Consequently, the price of the Hard Currency could decline, which would adversely affect the value of USGCF’s Currency Interests and an investment in the units.

Over-The-Counter Contract Risk

Currently, over-the-counter transactions are subject to little, if any, regulation.

A portion of USGCF’s assets may be used to trade over-the-counter (“OTC”) Currency Interests, such as forward contracts, swaps or spot contracts. Currently, OTC contracts are typically traded on a principal-to-principal basis through dealer markets that are dominated by major money center and investment banks and other institutions and that prior to the passage of the Dodd-Frank Act had been largely unregulated by the CFTC. The markets for OTC contracts primarily rely upon the integrity of market participants in lieu of the additional regulation imposed by the CFTC on participants in the futures markets. While the Dodd-Frank Act and certain regulations adopted thereunder are intended to provide additional protections to participants in the OTC market, the current regulation of the OTC contracts could expose USGCF in certain circumstances to significant losses in the event of trading abuses or financial failure by participants. See “Regulation” for a discussion of how the OTC market will be subject to much more extensive CFTC oversight and regulation after the implementation of the Dodd-Frank Act.

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

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

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

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

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

 

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The Dodd-Frank Act requires the CFTC and SEC to establish “both initial and variation margin requirements on all swaps that are not cleared by a registered clearing organization” (i.e., uncleared swaps). In addition, the Dodd-Frank Act provides parties who post initial margin to a swap dealer or major swap participant with a statutory right to insist that such margin be held in a segregated account with an independent custodian. At this time, the CFTC has proposed a rule addressing this statutory right of certain market participants but has not implemented any rules on this issue and has not implemented any regulations regarding the margin requirements for uncleared swaps.

Risk of Trading in International Markets

Trading in international markets would expose USGCF to credit and regulatory risk.

Most of the Futures Contracts purchased by USGCF are on United States exchanges. However, a portion of USGCF’s trades may take place on markets and exchanges outside the United States, including those in Europe and certain Asian countries. Some non-US markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. The CFTC, NFA, and domestic exchanges have little, if any, regulatory authority over the activities of any foreign boards of trade or exchanges, including the execution, delivery and clearing of transactions, and have limited, if any, power to compel enforcement of the rules of a foreign board of trade or exchange or of any applicable non-US laws. Similarly, the rights of market participants, such as USGCF, in the event of the insolvency or bankruptcy of a non-US market or broker are also likely to be more limited than in the case of U.S. markets or brokers. As a result, in these markets, USGCF has less legal and regulatory protection than it does when it trades domestically.

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

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

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

Correlations in the movement of the currencies of different countries have traditionally not correlated strongly with the movements of other currencies. However, if correlations were to increase in the future, investors might receive less benefit from USGCF diversifying holdings among five different currencies at all times and may experience higher amounts of volatility in the future.

Historically the price movements of different currencies have not tended to move up or down together and thus have shown low correlation. As a result, the movement in value of a diversified basket of such currencies could display lower volatility than the average volatility of each of the individual currencies in the basket. However, if the correlations in the future were to be higher than they have been in the past, investors might receive little or no benefit from holding a basket of currencies as opposed to holding a single currency.

 

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Academic research has shown that frequently re-balancing a portfolio of securities or other holdings that have low correlation to each other can lead to a positive return for investors, even if the simple average price of the holdings does not increase over time, as long as the individual holdings display enough volatility. This is due to the fact that the re-balancing forces the portfolio to “buy low and sell high” each month so that even in an otherwise trendless market a positive total return can be experienced. However, if the correlation of the currencies to each other increases in the future, this effect may not be observed in the returns of the portfolio over time.

Tax Risk

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

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

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

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

Items of income, gain, deduction, loss and credit with respect to units could be reallocated if the Internal Revenue Service does not accept the assumptions and conventions applied by USGCF in allocating those items, with potential adverse consequences for an investor.

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

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

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

 

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PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN UNITS; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.

THE OFFERING

What is USGCF?

USGCF is a series of the Trust, a statutory trust organized under the laws of the State of Delaware on May 25, 2012. USGCF is currently the sole series of the Trust, although additional series may be offered in the future at the Sponsor’s discretion. USGCF maintains its main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. USGCF is a commodity pool. It operates pursuant to the terms of the Trust Agreement, which grants full management control to the Sponsor. In addition, in connection with the commencement of the offering of USGCF, the Sponsor will receive 40 Sponsor’s units in exchange for its initial capital contribution of $1,000.

USGCF, is a commodity pool which seeks to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price, in U.S. dollars, of a basket of futures contracts representing equally-weighted interests in five corresponding hard currencies (the “Futures Basket”). “Hard” currencies are those identified and selected by the Sponsor that have attributes such that the currency market would refer to them as “hard” (the “Benchmark Hard Currencies” or “Hard Currencies”), including the returns from short-term cash holdings in such currencies. The Sponsor believes that the currency markets refer to currencies as hard if: a) the currency is widely used and freely exchangeable, b) the currency is issued by a financially and economically strong country, and c) issued by a country which has historically suffered less from the effects of inflation compared to other countries. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The Futures Basket will consist of Benchmark Futures Contracts selected by the Sponsor to represent a 20% interest in each of the five Benchmark Hard Currencies, and will be re-balanced on a monthly basis. USGCF anticipates that Benchmark Futures Contracts will be listed on regulated futures exchanges in the United States or the United Kingdom. It is not the intent of USGCF to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe this is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of futures contracts.

The net assets of USGCF will consist primarily of investments in futures contracts for Hard Currencies that are traded on major exchanges in the US and United Kingdom (collectively, “Futures Contracts”) and other Hard-Currency-related investments such as cash-settled options on Futures Contracts, forward currency contracts for Hard Currencies, currency swap contracts, US or foreign currency bank accounts, US dollar or Hard Currency short-term money market instruments, or United States Treasury securities with remaining maturities of less than two years (“Treasuries” or “Treasury Securities”) (collectively, “Other Hard-Currency Related Investments”). For convenience and unless otherwise specified, Futures Contracts and Other Hard Currency-Related Investments are collectively referred to as “Currency Interests” in this prospectus.

The Benchmark Hard Currencies will be chosen annually from the twenty-five most actively traded global currencies (the “Eligible Global Currencies”), as measured by the triannual Bank of International Settlement (“BIS”) currency trading report, and further selected based on each of the following criteria:

 

   

The issuing country must have a credit rating of AAA- or better as rated by major credit rating firms. In the event less than eight Eligible Global Currency countries have a rating of AAA- or better, the issuing country must be rated in the top eight countries,

 

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The currency’s prior three year ranking as to its performance versus inflation as measured primarily by the changes in the price of the currency compared to one ounce of gold (the “Inflation Tests”).

The Inflation Tests will consist of first measuring at the end of each year the prior three year change in the price of an ounce of gold as measured in each of the Eligible Global Currencies. The results will be ranked from those currencies that saw, in percentage terms, the smallest increase, or largest decrease, relative to the price of gold to those that saw the largest increase or smallest decrease in percentage terms. A second ranking will also be made of the Eligible Global Currencies ranking them from those that over the prior three years experienced the smallest cumulative amount of inflation (or greatest deflation), to those the experienced the largest amount of inflation (or smallest deflation), as reported by each country’s central bank or other reporting government entity. The five currencies with the smallest increase in price based on gold (or largest decrease), will become the five Benchmark Hard Currencies selected that year. However, any currency selected based on the price of gold ranking must also be among the ten Eligible Global Currencies with the smallest increase (or greatest decrease) in cumulative inflation over the same three year time period. If a currency selected based on the gold ranking is not also in the ten Eligible Global Currencies with the smallest cumulative inflation totals, it will not be included in the final selection and the Sponsor will instead select the next eligible currency.

Since the US dollar is the base currency for USGCF, and thus USGCF cannot have any currency gains or losses from any holdings it has in US dollars, the US dollar will not be an Eligible Global Currency. In addition, any currency that does not have a fully free-floating exchange rate and is instead pegged to the US dollar, such as the Hong Kong Dollar or the Chinese Renminbi, will also not be an Eligible Global Currency. Furthermore, only currencies that are primarily issued and used by a single country may be an Eligible Global Currency. Finally, the Sponsor may remove a currency from the Eligible Global Currencies list if the Sponsor believes it has becomes difficult or impossible to freely trade due to capital controls or other similar market disruptions to its currency market.

Who is the Sponsor?

The Sponsor is United States Commodity Funds LLC, a single member limited liability company that was formed in the state of Delaware on May 10, 2005. Prior to June 13, 2008, the Sponsor was known as Victoria Bay Asset Management, LLC. It maintains its main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. The Sponsor is a wholly-owned subsidiary of Wainwright Holdings, Inc., a Delaware corporation (“Wainwright”). Mr. Nicholas Gerber (discussed below) controls Wainwright by virtue of his ownership of Wainwright’s shares. Wainwright is a holding company that previously owned an insurance company organized under Bermuda law, which has been liquidated, and a registered investment advisor firm named Ameristock Corporation, which has been distributed to the Wainwright shareholders. The Sponsor is a member of the NFA and is registered with the CFTC as of December 1, 2005. The Sponsor’s registration as a CPO with the NFA was approved on December 1, 2005.

See “Prior Performance of the Sponsor and Affiliates” on page 31.

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

 

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

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

Nicholas Gerber has been the President and CEO of the Sponsor since June 9, 2005 and a Management Director of the Sponsor since May 10, 2005. He maintains his main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005, as Branch Manager of the Sponsor since May 15, 2009, and registered with the CFTC as an Associated Person of the Sponsor on December 1, 2005. Mr. Gerber also served as Vice President/Chief Investment Officer of Lyon’s Gate Reinsurance Company, Ltd., a company formed to reinsure workmen’s compensation insurance, from June 2003 to December 2009. Mr. Gerber has an extensive background in securities portfolio management and in developing investment funds that make use of indexing and futures contracts. He is also the founder of Ameristock Corporation, a California-based investment adviser registered under the Investment Advisers Act of 1940, that has been sponsoring and providing portfolio management services to mutual funds since March 1995. Since August 1995, Mr. Gerber has been the portfolio manager of the Ameristock Mutual Fund, Inc. a mutual fund registered under the Investment Company Act of 1940, focused on large cap U.S. equities that, as of April 30, 2012, had $213,777,585 in assets. He has also been a Trustee for the Ameristock ETF Trust since June 2006, and served as a portfolio manager for the Ameristock/Ryan 1 Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds were liquidated. In these roles, Mr. Gerber has gained extensive experience in evaluating and retaining third-party service providers, including custodians, accountants, transfer agents, and distributors. Mr. Gerber has passed the Series 3 examination for associated persons. He holds an MBA in finance from the University of San Francisco and a BA from Skidmore College. Mr. Gerber is 49 years old.

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

Howard Mah has been a Management Director of the Sponsor since May 10, 2005, Secretary of the Sponsor since June 9, 2005, and Chief Financial Officer of the Sponsor since May 23, 2006 and Treasurer of the Sponsor since February 23, 2012. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005. In these roles, Mr. Mah is currently involved in the management of the Related Public Funds and will be involved with the management of USSF, UNGD, USGO UAC and USGCF if such funds commence operations. Mr. Mah also serves as the Sponsor’s Chief Compliance Officer. He received a Bachelor of Education from the University of Alberta, in 1986 and an MBA from the University of San Francisco in 1988. He served as Secretary and Chief Compliance Officer of the Ameristock ETF Trust from February 2007 until June 2008 when the trust was liquidated, Chief Compliance Officer of Ameristock Corporation since January 2001, a tax and finance consultant in private practice since January 1995, Secretary of Ameristock Mutual Fund since June 1995 and Ameristock Focused Value Fund from December 2000 to January 2005, Chief Compliance Officer of Ameristock Mutual Fund since August 2004 and the Co-Portfolio Manager of the Ameristock Focused Value Fund from December 2000 to January 2005. Mr. Mah is 47 years old.

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

Andrew F. Ngim has been a Management Director of the Sponsor since May 10, 2005 and Treasurer of the Sponsor from June 9, 2005 to February 23, 2012. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005. Mr. Ngim is currently involved in the management of the Related Public Funds and will be involved with the management of USSF, UNGD, USGO, UAC, and USGCF if such funds commence operations. He received a Bachelor of Arts from the University of California at Berkeley in 1983. Mr. Ngim has been Ameristock Corporation’s Managing Director since January 1999 and co-portfolio manager of Ameristock Corporation since January 2000, Trustee of the Ameristock ETF Trust since February 2007, and served as a portfolio manager for the Ameristock/Ryan 1 Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds were liquidated. Mr. Ngim is 51 years old.

 

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In concluding that Mr. Ngim should serve as Management Director of the Sponsor, the Sponsor considered his broad career in the financial services industry as well as experience as co-Portfolio Manager of the Ameristock Mutual Fund.

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

John P. Love has acted as a Portfolio Operations Manager for the Related Public Funds since January 2006 and, effective March 1, 2010, is the Senior Portfolio Manager for the Related Public Funds. He is expected to be Senior Portfolio Manager for, USSF, UNGD, USGO, UAC and USGCF, if such funds commence operations. Mr. Love is also employed by the Sponsor. He has been listed with the CFTC as a Principal of the Sponsor since January 17, 2006. Mr. Love also served as the operations manager of Ameristock Corporation from October 2002 to January 2007, where he was responsible for back office and marketing activities for the Ameristock Mutual Fund and Ameristock Focused Value Fund and for the firm in general. Mr. Love holds a Series 3 license and was registered with the CFTC as an Associated Person of the Sponsor from December 1, 2005 through April 16, 2009. Mr. Love has passed the Level I and Level II Chartered Financial Analyst examinations. He holds a BFA in cinema-television from the University of Southern California. Mr. Love is 40 years old.

John T. Hyland, CFA acts as a Portfolio Manager and as the Chief Investment Officer for the Sponsor. Mr. Hyland is employed by the Sponsor. He registered with the CFTC as an Associated Person of the Sponsor on December 1, 2005, and has been listed with the CFTC as a Principal of the Sponsor since January 17, 2006. Mr. Hyland became the Portfolio Manager for USOF, USNG, US12OF, UGA, USHO, USSO, US12NG, USBO, USCI, CPER and USAG and USMI in April 2006, April 2007, December 2007, February 2008, April 2008, September 2009, November 2009, June 2010, August 2010, November 2011, April 2012, and June 2012, respectively, and as Chief Investment Officer of the Sponsor since January 2008, acts in such capacity on behalf of the Related Public Funds. He will also be the Portfolio Manager for USSF, UNGD, USGO, UAC and USGCF upon the commencement of such funds’ operations. As part of his responsibilities for the Related Public Funds, Mr. Hyland handles day-to-day trading, helps set investment policies, and oversees the Related Public Funds’ activities with their futures commission brokers, custodian-administrator, and marketing agent. Mr. Hyland has an extensive background in portfolio management and research with both equity and fixed income securities, as well as in the development of new types of complex investment funds. In July 2001, Mr. Hyland founded Towerhouse Capital Management, LLC, a firm that provided portfolio management and new fund development expertise to non-US institutional investors through December 2009. Since January 2010, Towerhouse Capital Management has been inactive. Mr. Hyland was a Principal for Towerhouse in charge of portfolio research and product development regarding US and non-US real estate related securities. Mr. Hyland received his Chartered Financial Analyst (“CFA”) designation in 1994. Mr. Hyland is a member of the CFA Institute (formerly AIMR) and is a member and former president of the CFA Society of San Francisco. He is also a member of the National Association of Petroleum Investment Analysts, a not-for-profit organization of investment professionals focused on the oil industry. He is a graduate of the University of California, Berkeley. Mr. Hyland is 52 years old.

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

 

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The following individuals serve as independent directors of the Sponsor.

Peter M. Robinson has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since December 2005. Mr. Robinson has been employed as a Research Fellow with the Hoover Institution since 1993. The Hoover Institution is a public policy think tank located on the campus of Stanford University. Mr. Robinson graduated from Dartmouth College in 1979 and Oxford University in 1982. Mr. Robinson received an MBA from the Stanford University Graduate School of Business. Mr. Robinson has also written three books and has been published in the New York Times, Red Herring, and Forbes ASAP and he is the editor of Can Congress Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson is 54 years old.

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

Gordon L. Ellis has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since November 2005. Mr. Ellis has been Chairman of International Absorbents, Inc., a holding company of Absorption Corp., since July 1988, President and Chief Executive Officer since November 1996 and a Class I Director of the company since July 1985. Mr. Ellis is also a director of Absorption Corp., International Absorbents, Inc.’s wholly-owned subsidiary, which is engaged in developing, manufacturing and marketing a wide range of animal care and industrial absorbent products. Mr. Ellis is a director/trustee of Polymer Solutions, Inc., a former publicly-held company that sold all of its assets effective as of February 3, 2004 and is currently winding down its operations and liquidating following such sale. Polymer Solutions previously developed and manufactured paints, coatings, stains and primers for wood furniture manufacturers. Mr. Ellis is a professional engineer with an MBA in international finance. Mr. Ellis is 65 years old.

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

Malcolm R. Fobes III has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since November 2005. Mr. Fobes is the founder, Chairman and Chief Executive Officer of Berkshire Capital Holdings, Inc., a California-based investment adviser registered under the Investment Advisers Act of 1940, that has been sponsoring and providing portfolio management services to mutual funds since June 1997. Since June 1997, Mr. Fobes has been the Chairman and President of The Berkshire Funds, a mutual fund investment company registered under the Investment Company Act of 1940. Mr. Fobes also serves as portfolio manager of the Berkshire Focus Fund, a mutual fund registered under the Investment Company Act of 1940, which concentrates its investments in the electronic technology industry. From April 2000 to July 2006, Mr. Fobes also served as co-portfolio manager of The Wireless Fund, a mutual fund registered under the Investment Company Act of 1940, which concentrates its investments in companies engaged in the development, production, or distribution of wireless-related products or services. In these roles, Mr. Fobes has gained extensive experience in evaluating and retaining third-party service providers, including custodians, accountants, transfer agents, and distributors. Mr. Fobes was also contributing editor of Start a Successful Mutual Fund: The Step-by-Step Reference Guide to Make It Happen (JV Books, 1995). Mr. Fobes holds a B.S. degree in Finance and Economics from San Jose State University in California. Mr. Fobes is 47 years old.

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

 

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

Contributions to USGCF and the Funds

The Sponsor will contribute $1,000 to USGCF on July     , 2012, representing an initial contribution of capital to the pool. The Sponsor will receive 40 Sponsor’s units of USGCF in exchange for the capital contribution, representing a beneficial interest in the pool. The Sponsor may also purchase the initial Creation Basket from USGCF. See “What is the Plan of Distribution — Marketing Agent and Authorized Purchasers” for a description of the Sponsor’s ability to purchase one of the Creation Baskets of USGCF directly or from the initial Authorized Purchaser at the initial offering price of the units of USGCF and hold it for an indefinite period of time.

Executive Compensation and Fees to the Sponsor

USGCF does not directly compensate any of the executive officers noted above. The executive officers noted above are compensated by the Sponsor for the work they perform on behalf of USGCF and other entities controlled by the Sponsor. USGCF does not reimburse the Sponsor for, nor does it set the amount or form of any portion of, the compensation paid to the executive officers by the Sponsor. USGCF pays fees to the Sponsor pursuant to the Trust Agreement under which it is obligated to pay the Sponsor an annualized fee of 0.60% of its average net assets.

Director Compensation

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

 

Name

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

Management Directors

                    

Nicholas Gerber

   $ 0         NA         NA         NA       $ 0       $ 0       $ 0   

Andrew F. Ngim

   $ 0         NA         NA         NA       $ 0       $ 0       $ 0   

Howard Mah

   $ 0         NA         NA         NA       $ 0       $ 0       $ 0   

Independent Directors

                    

Peter M. Robinson

   $ 50,000         NA         NA         NA       $ 0       $ 0       $ 50,000   

Gordon L. Ellis

   $ 50,000         NA         NA         NA       $ 0       $ 0       $ 50,000   

Malcolm R. Fobes III(1)

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

 

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

Prior Performance of the Sponsor and Affiliates

The Sponsor is also currently the general partner of the Related Public Funds. Each of the Sponsor and the Related Public Funds is located in California. The Sponsor manages USGCF and the Related Public Funds. Each of the Related Public Funds is a commodity pool that issues units traded on the NYSE Arca. The chart below shows, as of April 30, 2012, the number of Authorized Purchasers, the total number of Creation

 

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Baskets and Redemption Baskets since inception and the number of outstanding units for each of the Related Public Funds.

 

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

USOF

     20         7,079         6,742         32,200,000   

USNG

     18         11,487         7,387         52,066,476   

US12OF

     11         121         96         3,550,000   

USHO

     12         10         9         300,000   

USSO

     13         19         10         550,000   

US12NG

     8         30         11         1,850,000   

USBO

     9         39         35         650,000   

USCI

     8         96         29         7,000,000   

UGA

     13         89         59         2,250,000   

CPER

     5         1         0         100,000   

USAG

     5         1         0         100,040   

The ability of each of the Related Public Funds to track its benchmark futures contract or index from inception to April 30, 2012, is presented below.

Since the commencement of the offering of USOF units to the public on April 10, 2006 to April 30, 2012, the simple average daily change in its benchmark oil futures contract was (0.008)%, while the simple average daily change in the NAV of USOF over the same time period was (0.006)%. The average daily difference was (0.002)% (or (0.2) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark oil futures contract, the average error in daily tracking by the NAV was 0.689%, meaning that over this time period USOF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

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Since the commencement of the offering of USNG units to the public on April 18, 2007 to April 30, 2012, the simple average daily change in its benchmark futures contract was (0.207)% while the simple average daily change in the NAV of USNG over the same time period was (2.070)%. The average daily difference was 0.001% (or 0.1 basis point, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (0.378)%, meaning that over this time period USNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USHO units to the public on April 9, 2008 to April 30, 2012, the simple average daily change in its benchmark futures contract was (0.005)%, while the simple average daily change in the NAV of USHO over the same time period was (0.007)%. The average daily difference was 0.002% (or 0.2 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (0.624)%, meaning that over this time period USHO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of US12OF units to the public on December 6, 2007 to April 30, 2012, the simple average daily change in the average price of its benchmark futures contracts was 0.019%, while the simple average daily change in the NAV of US12OF over the same time period was 0.018%. The average daily difference was (0.001)% (or (0.1) basis point, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was (0.500)%, meaning that over this time period US12OF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of UGA units to the public on February 26, 2008 to April 30, 2012, the simple average daily change in its benchmark futures contract was 0.045%, while the simple average daily change in the NAV of UGA over the same time period was 0.042%. The average daily difference was (0.002)% (or (0.2) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (0.598)%, meaning that over this time period UGA’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USSO units to the public on September 24, 2009 to April 30, 2012, the inverse of the simple average daily change in its benchmark futures contract was (0.036)%, while the simple average daily change in the NAV of USSO over the same time period was (0.040)%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the inverse of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (1.354)%, meaning that over this time period USSO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of US12NG units to the public on November 18, 2009 to April 30, 2012, the simple average daily change in the average price of its benchmark futures contracts was (0.160)%, while the simple average daily change in the NAV of US12NG over the same time period was (0.164)%. The average daily difference was 0.003% (or 0.3 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was (0.316)%, meaning that over this time period US12NG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

 

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Since the commencement of the offering of USBO units to the public on June 2, 2010 to April 30, 2012, the simple average daily change in its benchmark futures contract was 0.126%, while the simple average daily change in the NAV of USBO over the same time period was 0.122%. The average daily difference was (0.004)% (or (0.4) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (0.962)%, meaning that over this time period USBO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of USCI units to the public on August 10, 2010 to April 30, 2012, the simple average daily change in its benchmark futures contract was 0.056%, while the simple average daily change in the NAV of USCI over the same time period was 0.051%. The average daily difference was (0.005)% (or (0.5) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures, the average error in daily tracking by the NAV was (1.863)%, meaning that over this time period USCI’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Since the commencement of the offering of CPER units to the public on November 15, 2011 to April 30, 2012, the simple average daily change in its benchmark futures contract was 0.085%, while the simple average daily change in the NAV of CPER over the same time period was 0.079%. The average daily difference was (0.006)% (or (0.6) basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (1.499)%.

Since the commencement of the offering of USAG units to the public on April 13, 2012 to April 30, 2012, the simple average daily change in its benchmark futures contract was (0.129)%, while the simple average daily change in the NAV of USAG over the same time period was (0.139)%. The average daily difference was 0.010% or 0.01 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was (2.691)%.

The table below shows the relationship between the trading prices of the units of each of the Related Public Funds and the daily NAV of such fund, since inception through April 30, 2012. The first row shows the average amount of the variation between the Related Public Fund’s closing market price and NAV, computed on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and discounts to NAV since inception, on a percentage basis. Management of the Sponsor believes that maximum and minimum end of day premiums and discounts typically occur because trading in the units continues on the NYSE Arca until 4:00 p.m. New York time while regular trading in the benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures contract, for purposes of determining its end of day NAV, can be determined at that time. One known exception to this conclusion were the premiums on trading in USNG units that occurred between July 8, 2009 and September 28, 2009, when USNG suspended the issuance of Creation Baskets as a result of regulatory concern relating to the size of USNG’s positions in the natural gas futures and cleared swap markets, and there was continued demand for such units and other similar natural gas futures linked investments in the market.

 

    USOF     USNG     US12OF     UGA     USHO     USSO     US12NG     USBO     USCI     CPER     USAG  

Average Difference

  $ (0.00   $ 0.48      $ (0.04   $ 0.01      $ (0.00   $ 0.00      $ 0.01      $ (0.04   $ 0.05      $ (0.02   $ 0.02   

Max Premium %

    3.88     2.37     4.11     6.29     5.75     3.08     6.68     2.06     2.03     4.29     4.10

Max Discount %

    (4.51 )%      (2.42 )%      (9.72 )%      (4.50 )%      (3.85 )%      (3.41 )%      (6.52 )%      (3.13 )%      (1.34 )%      (4.32 )%      (0.08 )% 

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

 

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PERFORMANCE OF THE RELATED PUBLIC FUNDS

USOF:

COMPOSITE PERFORMANCE DATA FOR USOF

Name of Commodity Pool: United States Oil Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 10, 2006

Aggregate Subscriptions (from inception through April 30, 2012): $33,753,931,017

Total Net Assets as of April 30, 2012: $1,278,266,736

NAV per Unit as of April 30, 2012: $39.70

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007      2008      2009      2010      2011      2012  

January

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

February

     5.63      11.03      (6.55 )%       8.62      1.21      8.25

March

     4.61      0.63      7.23      4.61      8.78      (4.27 )% 

April

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

May

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

June

     9.06      9.90      4.16      0.47      (7.65 )%    

July

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

August

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

September

     12.11      (12.97 )%       0.25      8.97      (11.08 )%    

October

     16.98      (31.57 )%       8.43      0.89      17.32   

November

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

December

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

Annual Rate of Return

     46.15      (54.75 )%       14.14      (0.49 )%       (2.31 )%       4.28 %** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Through April 30, 2012.

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

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

 

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Worst Peak-to-Valley Draw-down: The largest percentage decline in the NAV per unit over the history of the fund. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest percentage decline from any month-end NAV per unit that occurs without such month-end NAV per unit being equaled or exceeded as a subsequent month-end. For example, if the NAV per unit declined by $1 in each of January and February, increased by $1 in March and declined again by $2 in April, a “peak-to-valley draw-down” analysis conducted as of the end of April would consider that “draw-down” to be still continuing and to be $3 in amount whereas if the NAV per unit had increased by $2 in March, the January-February draw-down would have ended as of the end of February at the $2 level.

USNG:

COMPOSITE PERFORMANCE DATA FOR USNG

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 18, 2007

Aggregate Subscriptions (from inception through April 30, 2012): $14,720,599,416

Total Net Assets as of April 30, 2012: $851,888,344

NAV per Unit as of April 30, 2012: $16.36

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008      2009      2010      2011      2012  

January

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

February

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

March

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

April

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

May

     (0.84 )%      6.53      10.37      8.19      (2.23 )%    

June

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

July

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

August

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

September

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

October

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

November

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

December

     0.75     (14.32 )%       13.91      4.53      (17.26 )%    

Annual Rate of Return

     (27.64 )%      (35.68 )%       (56.73 )%       (40.42 )%       (46.08 )%       (36.79 )%*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from April 17, 2007.
*** Through April 30, 2012.

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

 

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US12OF:

COMPOSITE PERFORMANCE DATA FOR US12OF

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: December 6, 2007

Aggregate Subscriptions (from inception through April 30, 2012): $390,436,623

Total Net Assets as of April 30, 2012: $163,705,597

NAV per Unit as of April 30, 2012: $46.11

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008      2009      2010      2011      2012  

January

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

February

     —          10.48      (4.34 )%       6.73      1.89      7.71

March

     —          (0.66 )%       9.22      4.16      7.30      (3.03 )% 

April

     —          11.87      (1.06 )%       6.37      5.94      0.65

May

     —          15.47      20.40      (15.00 )%       (8.91 )%    

June

     —          11.59      4.51      (1.00 )%       (6.43 )%    

July

     —          (11.39 )%       1.22      4.16      (0.43 )%    

August

     —          (6.35 )%       (2.85 )%       (5.92 )%       (8.42 )%    

September

     —          (13.12 )%       (0.92 )%       7.02      (11.50 )%    

October

     —          (29.59 )%       8.48      (0.05 )%       15.03   

November

     —          (16.17 )%       2.31      1.86      7.72   

December

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

Annual Rate of Return

     8.44     (42.39 )%       29.23      6.29      1.28      6.10 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from December 6, 2007.
*** Through April 30, 2012.

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

 

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UGA:

COMPOSITE PERFORMANCE DATA FOR UGA

Name of Commodity Pool: United States Gasoline Fund, LP

Type of Commodity Pool: Exchange traded security

Inception of Trading: February 26, 2008

Aggregate Subscriptions (from inception through April 30, 2012): $402,567,605

Total Net Assets as of April 30, 2012: $123,586,638

NAV per Unit as of April 30, 2012: $54.93

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009      2010      2011      2012  

January

     —          16.23      (7.47 )%       2.19      8.37

February

     (0.56 )%**      0.26      7.33      9.52      6.83

March

     (2.39 )%      2.59      5.42      7.16      1.59

April

     10.94     2.07      3.15      10.45      (3.45 )% 

May

     15.60     30.41      (15.54 )%       (9.21 )%    

June

     4.79     1.65      1.93      (0.99 )%    

July

     (12.79 )%      6.24      2.95      4.67   

August

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

September

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

October

     (38.48 )%      10.96      2.19      3.90   

November

     (21.35 )%      1.00      8.19      (2.05 )%    

December

     (15.72 )%      0.55      11.33      3.49   

Annual Rate of Return

     (59.58 )%      80.16      15.52      15.00      13.56 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from February 26, 2008.
*** Through April 30, 2012.

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

 

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Performance of USHO

COMPOSITE PERFORMANCE DATA FOR USHO

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 9, 2008

Aggregate Subscriptions (from inception through April 30, 2012): $33,857,235

Total Net Assets as of April 30, 2012: $10,739,775

NAV per Unit as of April 30, 2012: $35.80

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009      2010      2011      2012  

January

     —          0.05      (10.17 )%       7.58      4.73

February

     —          (11.34 )%       5.78      6.98      5.62

March

     —          6.73      6.42      5.45      (1.46 )% 

April

     2.84 %**      (3.85 )%       5.13      4.75      0.17

May

     15.93     23.13      (14.14 )%       (7.17 )%    

June

     5.91     4.55      (0.40 )%       (4.01 )%    

July

     (12.18 )%      0.39      2.48      4.68   

August

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

September

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

October

     (28.63 )%      7.60      (2.20 )%       10.10   

November

     (18.38 )%      0.19      2.97      (1.36 )%    

December

     (17.80 )%      2.23      8.75      (4.12 )%    

Annual Rate of Return

     (56.12 )%      25.52      8.28      9.96      9.18 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from April 9, 2008
*** Through April 30, 2012

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

 

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USSO:

COMPOSITE PERFORMANCE DATA FOR USSO

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: September 24, 2009

Aggregate Subscriptions (from inception through April 30, 2012): $64,694,346

Total Net Assets as of April 30, 2012: $18,698,904

NAV per Unit as of April 30, 2012: $34.00

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

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

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010     2011     2012  

January

     —          9.05     (0.64 )%      0.11

February

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

March

     —          (4.92 )%      (8.89 )%      3.88

April

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

May

     —          20.18     9.28  

June

     —          (1.42 )%      7.21  

July

     —          (4.17 )%      (0.30 )%   

August

     —          9.61     6.24  

September

     (2.90 )%**      (8.75 )%      10.71  

October

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

November

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

December

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

Annual Rate of Return

     (12.02 )%      (8.12 )%      (10.54 )%      (5.97 )%*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from September 24, 2009.
*** Through April 30, 2012.

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

 

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US12NG:

COMPOSITE PERFORMANCE DATA FOR US12NG

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: November 18, 2009

Aggregate Subscriptions (from inception through April 30, 2012): $104,813,516

Total Net Assets as of April 30, 2012: $30,278,686

NAV per Unit as of April 30, 2012: $16.37

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

Worst Peak-to-Valley Draw-down: December 2009 – April 2012 (69.56)%

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010     2011     2012  

January

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

February

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

March

     —          (15.47 )%      5.32     (11.85 )% 

April

     —          0.07     3.53     0.00

May

     —          3.11     (2.23 )%   

June

     —          1.27     (6.11 )%   

July

     —          (0.05 )%      (5.28 )%   

August

     —          (13.53 )%      (1.43 )%   

September

     —          (6.23 )%      (8.12 )%   

October

     —          (1.78 )%      (1.72 )%   

November

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

December

     7.56     4.88     (13.92 )%   

Annual Rate of Return

     7.54     (34.83 )%      (39.47 )%      (22.82 )%*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from November 18, 2009.
*** Through April 30, 2012.

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

 

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USBO:

COMPOSITE PERFORMANCE DATA FOR USBO

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

Type of Commodity Pool: Exchange traded security

Inception of Trading: June 2, 2010

Aggregate Subscriptions (from inception through April 30, 2012): $268,720,475

Total Net Assets as of April 30, 2012: $54,765,780

NAV per Unit as of April 30, 2012: $84.26

Worst Monthly Percentage Draw-down: September 2011 (9.85)%

Worst Peak-to-Valley Draw-down: April 2011 – September 2011 (17.27)%

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2010     2011     2012  

January

     —          6.61     3.64

February

     —          10.42     10.78

March

     —          4.92     0.84

April

     —          7.44     (2.36 )% 

May

     —          (7.17 )%   

June

     1.94 %**      (3.40 )%   

July

     3.83     3.94  

August

     (4.84 )%      (1.55 )%   

September

     9.79     (9.85 )%   

October

     0.61     8.51  

November

     3.00     1.90  

December

     10.09     (2.65 )%   

Annual Rate of Return

     26.16     18.17     13.04 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from June 2, 2010.
*** Through April 30, 2012.

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

 

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USCI:

COMPOSITE PERFORMANCE DATA FOR USCI

Name of Commodity Pool: United States Commodity Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: August 10, 2010

Aggregate Subscriptions (from inception through April 30, 2012): $629,853,686

Total Net Assets as of April 30, 2012: $426,462,624

NAV per Unit as of April 30, 2012: $60.92

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

Worst Peak-to-Valley Draw-down: April 2011 – September 2011 (18.43)%

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2010     2011     2012  

January

     —          4.01     4.45

February

     —          5.27     4.01

March

     —          (0.14 )%      (3.49 )% 

April

     —          1.89     (0.62 )% 

May

     —          (5.77 )%   

June

     —          (5.03 )%   

July

     —          3.52  

August

     (0.04 )%**      (0.33 )%   

September

     8.38     (11.69 )%   

October

     6.31     5.08  

November

     0.76     (1.16 )%   

December

     10.93     (3.72 )%   

Annual Rate of Return

     28.72     (9.17 )%      4.19 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from August 10, 2010.
*** Through April 30, 2012.

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

 

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CPER:

COMPOSITE PERFORMANCE DATA FOR CPER

Name of Commodity Pool: United States Copper Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: November 15, 2011

Aggregate Subscriptions (from inception through April 30, 2012): $2,500,000

Total Net Assets as of April 30, 2012: $2,696,402

NAV per Unit as of April 30, 2012: $26.96

Worst Monthly Percentage Draw-down: December 2011 (3.85)%

Worst Peak-to-Valley Draw-down: November 2011 – December 2011 (3.85)%

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Month

   2011     2012  

January

     —          10.13

February

     —          2.00

March

     —          (1.49 )% 

April

     —          (0.44 )% 

May

     —       

June

     —       

July

     —       

August

     —       

September

     —       

October

     —       

November

     1.80 %**   

December

     (3.85 )%   

Annual Rate of Return

     (2.12 )%      10.18 %*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from November 15, 2011.
*** Through April 30, 2012.

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

 

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USAG:

COMPOSITE PERFORMANCE DATA FOR USAG

Name of Commodity Pool: United States Agriculture Index Fund

Type of Commodity Pool: Exchange traded security

Inception of Trading: April 13, 2012

Aggregate Subscriptions (from inception through April 30, 2012): $2,500,000

Total Net Assets as of April 30, 2012: $2,459,257

NAV per Unit as of April 30, 2012: $24.58

Worst Monthly Percentage Draw-down: April 2012 (1.68)%

Worst Peak-to-Valley Draw-down: Not applicable

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

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Month

   2012  

January

  

February

  

March

  

April

     (1.68 )%** 

May

  

June

  

July

  

August

  

September

  

October

  

November

  

December

  

Annual Rate of Return

     (1.68 )%*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from April 13, 2012.
*** Through April 30, 2012.

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

 

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Other Related Commodity Trading and Investment Management Experience

Until December 31, 2009, Ameristock Corporation was an affiliate of the Sponsor. Ameristock Corporation is a California-based registered investment advisor registered under the Investment Advisors Act of 1940, as amended, that has been sponsoring and providing portfolio management services to mutual funds since 1995. Ameristock Corporation is the investment adviser to the Ameristock Mutual Fund, Inc., a mutual fund registered under the Investment Company Act of 1940 that focuses on large cap U.S. equities that had $213,777,585 in assets as of April 30, 2012. Ameristock Corporation was also the investment advisor to the Ameristock ETF Trust, an open-end management investment company registered under the 1940 Act that consisted of five separate investment portfolios, each of which sought investment results, before fees and expenses, that corresponded generally to the price and yield performance of a particular U.S. Treasury securities index owned and compiled by Ryan Holdings LLC and Ryan ALM, Inc. The Ameristock ETF Trust has liquidated each of its investment portfolios and has wound up its affairs.

Who is the Trustee?

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

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

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

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

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

 

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How Does USGCF Operate?

The net assets of USGCF will consist primarily of Currency Interests. USGCF will invest in Currency 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 Currency Interests. The primary focus of the Sponsor is the investment in Currency Interests and the management of USGCF’s investments in Treasuries, cash and/or cash equivalents for margining purposes and as collateral.

The investment objective of USGCF (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price, in U.S. dollars, of a basket of futures contracts representing equally-weighted interests in five corresponding hard currencies (the “Futures Basket”). “Hard” currencies are those identified and selected by the Sponsor that have attributes such that the currency market would refer to them as “hard” (the “Benchmark Hard Currencies” or “Hard Currencies”), including the returns from short-term cash holdings in such currencies. The Sponsor believes that the currency markets refer to currencies as hard if: a) the currency is widely used and freely exchangeable, b) the currency is issued by a financially and economically strong country, and c) issued by a country which has historically suffered less from the effects of inflation compared to other countries. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The Futures Basket will consist of Benchmark Futures Contracts selected by the Sponsor to represent a 20% interest in each of the five Benchmark Hard Currencies, and will be re-balanced on a monthly basis. USGCF anticipates that Benchmark Futures Contracts will be listed on regulated futures exchanges in the United States or the United Kingdom. It is not the intent of USGCF to be operated in a fashion such that its NAV will equal, in US dollar terms, the spot price of any particular currency or any particular Benchmark Futures Contract. It is not the intent of USGCF to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe this is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of futures contracts.

The Benchmark Hard Currencies will be chosen annually from the twenty-five most actively traded global currencies (the “Eligible Global Currencies”), as measured by the triannual Bank of International Settlement (“BIS”) currency trading report, and further selected based on each of the following criteria:

 

   

The issuing country must have a credit rating of AAA- or better as rated by major credit rating firms. In the event less than eight Eligible Global Currency countries have a rating of AAA- or better, the issuing country must be rated in the top eight countries,

 

   

The currency’s prior three year ranking as to its performance versus inflation as measured primarily by the changes in the price of the currency compared to one ounce of gold (the “Inflation Tests”).

The Inflation Tests will consist of first measuring at the end of each year the prior three year change in the price of an ounce of gold as measured in each of the Eligible Global Currencies. The results will be ranked from those currencies that saw, in percentage terms, the smallest increase, or largest decrease, relative to the price of gold to those that saw the largest increase or smallest decrease in percentage terms. A second ranking will also be made of the Eligible Global Currencies ranking them from those that over the prior three years experienced the smallest cumulative amount of inflation (or greatest deflation), to those the experienced the largest amount of inflation (or smallest deflation), as reported by each country’s central bank or other reporting government entity. The five currencies with the smallest increase in price based on gold (or largest decrease), will become the five Benchmark Hard Currencies selected that year. However, any currency selected based on the price of gold ranking must also be among the ten Eligible Global Currencies with the smallest increase (or greatest decrease) in cumulative inflation over the same three year time period. If a currency selected based on the gold ranking is not also in the ten Eligible Global Currencies with the smallest cumulative inflation totals, it will not be included in the final selection and the Sponsor will instead select the next eligible currency.

 

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Since the US dollar is the base currency for USGCF, and thus USGCF cannot have any currency gains or losses from any holdings it has in US dollars, the US dollar will not be an Eligible Global Currency. In addition, any currency that does not have a fully free-floating exchange rate and is instead pegged to the US dollar, such as the Hong Kong Dollar or the Chinese Renminbi, will also not be an Eligible Global Currency. Furthermore, only currencies that are primarily issued and used by a single country may be an Eligible Global Currency. Finally, the Sponsor may remove a currency from the Eligible Global Currencies list if the Sponsor believes it has becomes difficult or impossible to freely trade due to capital controls or other similar market disruptions to its currency market.

The net assets of USGCF will consist primarily of investments in futures contracts for Hard Currencies that are traded on major exchanges in the US and United Kingdom (collectively, “Futures Contracts”) and other Hard-Currency-related investments such as cash-settled options on Futures Contracts, forward currency contracts for Hard Currencies, currency swap contracts, US or foreign currency bank accounts, US dollar or Hard Currency short-term money market instruments, or United States Treasury securities with remaining maturities of less than two years (“Treasuries” or “Treasury Securities”) (collectively, “Other Hard-Currency Related Investments”). For convenience and unless otherwise specified, Futures Contracts and Other Hard Currency-Related Investments are collectively referred to as “Currency Interests” in this prospectus. The Sponsor is authorized by USGCF in its sole judgment to employ, establish the terms of employment for, and terminate commodity trading advisors or futures commission merchants.

USGCF will invest in Currency Interests, to the fullest extent possible, without being leveraged or unable to satisfy its current or potential margin and/or collateral obligations with respect to its investments in Futures Contracts and Other Hard Currency-Related Investments. The primary focus of the Sponsor will be the investment in Futures Contracts and the management of USGCF’s investments in Treasuries, cash and cash equivalents for margining purposes and as collateral. USGCF will invest in Benchmark Futures Contracts to the fullest extent possible, turning next to investments in other Futures Contracts and finally to Other Hard Currency-Related Investments only if required to by applicable regulatory requirements or in light of prevailing market conditions.

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

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

 

   

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

 

   

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

 

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

These relationships are illustrated in the following diagram:

LOGO

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

The Sponsor will employ a “neutral” investment strategy intended to track the changes in the price of the Benchmark Futures Contracts regardless of whether the price goes up or goes down. USGCF’s “neutral” investment strategy is designed to permit investors generally to purchase and sell USGCF’s units for the purpose of investing indirectly in Hard Currencies in a cost-effective manner, and/or to permit participants in the currency market to manage their potential Hard Currency-related exposures. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in foreign currency and/or the risks involved in hedging may exist. In addition, an investment in USGCF involves the risk that the changes in the price of USGCF’s units will not accurately track the changes in the Futures Basket and that changes in the Futures Basket will not closely correlate with changes in the spot prices of the underlying Hard Currencies. For example, USGCF also invests in Treasuries and holds cash and cash equivalents to be used to meet its current or potential margin or collateral requirements with respect to its investments in Futures Contracts and Other Hard Currency-Related Investments. USGCF does not expect there to be any meaningful correlation between the performance of USGCF’s investments in Treasuries/cash/cash equivalents and the changes in the price of Hard Currency. USGCF’s investment objective is to track the daily changes in the Futures Basket, not to have the market price of its units correlate directly with changes in the spot price of any specific Hard Currency relative to the U.S. dollar. Contango and backwardation may impact the total return on an investment in USGCF’s units relative to a hypothetical direct investment in any Hard Currency. See “What are the Risk Factors Involved with an Investment in USGCF?”

Each month, the basket will re-balance starting at the end of the day on the date two weeks prior to expiration of the near month contract for that month.

USGCF’s total portfolio composition is disclosed each business day that the NYSE Arca is open for trading, on USGCF’s website at www.usgoldencurrencyfund.com. The website disclosure of portfolio holdings is made daily and includes, as applicable, the name and value of each Futures Contract, the specific types and values of Other Hard Currency-Related Investments and characteristics of such Other Hard Currency-Related Investments, the name and value of each Treasury security and cash equivalent, and the amount of cash held in USGCF’s portfolio. USGCF’s website is publicly accessible at no charge.

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

 

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

USGCF’s Investment Strategy

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

As an example, assume that a Creation Basket is sold by USGCF, and that USGCF’s closing NAV per unit is $25.00. In that case, USGCF would receive $1,250,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per unit multiplied by 50,000 units, and ignoring the Creation Basket fee). If one were to assume further that the Sponsor wants to invest the entire proceeds from the Creation Basket in Benchmark Futures Contracts (i.e., $1,250,000) and that the average market value of each such Benchmark Futures Contract is $27,000, USGCF would be unable to buy an exact number of Benchmark Futures Contracts with an aggregate market value equal to $1,250,000. Instead, USGCF would be able to buy 46 Benchmark Futures Contracts with an aggregate market value of $1,242,000. Assuming a margin requirement equal to 10% of the value of the Benchmark Futures Contracts, USGCF would be required to deposit $124,200 in Treasuries and cash with the futures commission merchant through whom the Benchmark Futures Contracts were purchased. The remainder of the proceeds from the sale of the Creation Basket, would remain invested in cash, cash equivalents, and Treasuries as determined by the Sponsor from time to time based on factors such as potential calls for margin or anticipated redemptions.

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

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

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

What Are “Eligible Global Currencies”?

Every three years the Bank of International Settlement publishes a list of the most actively traded currencies. The twenty-five most actively traded securities are “Eligible Global Currencies”. The table below is the most recent list of the twenty-five most actively traded currencies.

 

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Table I

 

Currency

   Ranking
(2010)
 

US dollar

     1   

Euro

     2   

Japanese yen

     3   

British Pound sterling (GBP)

     4   

Australian dollar

     5   

Swiss franc

     6   

Canadian dollar

     7   

Hong Kong dollar

     8   

Swedish krona

     9   

New Zealand dollar

     10   

Korean won

     11   

Singapore dollar

     12   

Norwegian krone

     13   

Mexican peso

     14   

Indian rupee

     15   

Russian Rouble

     16   

Chinese renminbi

     17   

Polish zloty

     18   

Turkish new lira

     19   

South African rand

     20   

Brazilian real

     21   

Danish krone

     22   

New Taiwan dollar

     23   

Hungarian forint3

     24   

Malaysian ringgit

     25   

(source: BIS)

Which Countries Currently Have a Credit Rating of AAA- or Better?

Of the list of “Eligible Global Currencies”, the following ones are issued by countries which have credit ratings of AAA- (or its equivalent), or better from major credit rating agencies. The US dollar is not included in this list.

Table II

 

Country

  

Own Currency?

   Free
Floating
Currency

Australia

   Yes    Yes

Austria

   No, uses Euro    Yes

Canada

   Yes    Yes

China/Hong Kong

   Yes    No

Denmark

   Yes    Yes

Finland

   No, uses Euro    Yes

 

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France

   No, uses Euro    Yes

Germany

   No, uses Euro    Yes

Luxembourg

   No, uses Euro    Yes

Netherlands

   No, uses Euro    Yes

New Zealand

   Yes    Yes

Norway

   Yes    Yes

Singapore

   Yes    Yes

Sweden

   Yes    Yes

Switzerland

   Yes    Yes

UK

   Yes    Yes

Source: Bloomberg

Although many currencies issued by highly-rated and financially stable countries have outperformed the US dollar over the last ten years, investors are cautioned that within such long term positive results there have been periods where those currencies underperformed the US dollar. Table III below shows the same nine currencies as in Table IV. However, in Table III the annual total return of each currency’s futures contracts is compared versus the US dollar and gold. Every one of the nine currencies had several calendar years where it lost money versus the US dollar. In addition, even an equally weighted basket of all nine currencies lost money versus the US dollar in several of the calendar years.

Historical Returns of Eligible Global Currencies versus Gold, the United States Dollar, and Inflation

Table III

 

     Change Versus US Dollar     Change Versus Gold     Cumulative Domestic Inflation  

Currency

   2001-2011     2006-2011     2001-2011     2006-2011     2001-2011      2001-2006      2006-2011  

Australian Dollar

     6.06     -21.24     187.49     93.52     36.29         17.92         18.37   

Canadian Dollar

     76.05     29.37     265.67     117.39     21.62         11.25         10.37   

Danish Krone

     23.43     14.25     292.38     152.15     22.12         9.86         12.26   

GBP

     69.28     53.08     436.91     214.48     24.88         7.94         16.94   

New Zealand Dollar

     51.58     -0.96     208.44     126.73     30.75         12.58         18.17   

Norwegian Krone

     41.81     17.88     282.39     139.05     22.23         8.67         13.56   

Singapore Dollar

     13.73     -19.48     301.55     110.11     18.36         3.13         15.24   

Swedish Krona

     0.32     0.07     275.67     150.07     17.37         7.50         9.87   

Swiss Franc

     98.07     27.99     223.46     91.45     8.50         4.16         4.33   

U. S. Dollar

     NA        NA        469.44     147.68     26.08         13.24         12.84   

Source: Bloomberg

The Futures Basket will at all times be comprised of equally-weighted interests in five Benchmark Hard Currencies. The Sponsor believes that, when viewed in US dollar terms, the movements of many currencies have tended to exhibit a moderate to strong correlation with each other. As a result the Sponsor believes that in an environment of a strong, or rising, US dollar, the portfolio may not have gains in some Hard Currency holdings to offset losses in other Hard Currency holdings.

 

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Correlations of Returns of Major Currencies Over Time

Table IV

 

Monthly Total Return Correlations, 12/31/2001 - 12/31/2011

 
     AUD    CAD      DKK      GBP      NZD      NOK      SGD      SEK      CHF  

AUD

        0.729907         0.756466         0.618428         0.853891         0.704895         0.768867         0.768616         0.620915   

CAD

           0.520835         0.505998         0.609171         0.571428         0.523191         0.603351         0.394487   

DKK

              0.657835         0.707541         0.819317         0.763385         0.883933         0.844008   

GBP

                 0.581003         0.657246         0.515016         0.662011         0.542403   

NZD

                    0.604592         0.68584         0.715297         0.63412   

NOK

                       0.679019         0.869039         0.7008   

SGD

                          0.73066         0.746819   

SEK

                             0.740678   

CHF

                          

Source: Bloomberg

Academic studies have indicated that the differing levels of short-term interest rates offered in different countries have an impact on the movement of their currencies when measured against the US dollar. Furthermore, the difference in short-term interest rates is, along with the current spot price of the currencies in US dollars, a major component in the market pricing of currency futures contracts or currency forward arrangement.

Current Short-term Interest Rates of Selected Countries.

Yields on very short-term, government debt securities or other high quality investments very a great deal between countries. The differences reflect, in part, not only differences in the monetary policies of the various central banks but also the amount of inflation that each country is experiencing or is anticipating that it will experience. Short-term yields are important for currency investors as they both influence the current strength or weakness of each currency versus other currencies with higher or lower yields, but also because they directly impact the pricing of currency futures or forward contracts. Under the concept known as the “interest rate parity”, the Sponsor believes that the price of a currency future or forward for two currencies that expires in 90 days will be largely priced based on the combination of the current spot currency exchange rate between the two currencies as well as the yield on each currencies’ government or other high quality short-term debt instruments (and ignoring the potential impact of transaction costs and taxes).

The yields below are indicated of the current variation in short-term yields in these selected countries. Investors are cautioned that the merely having higher, or lower, nominal yields should not be taken as a predicator of either the near-term or longer term direction of currency exchange rates. Other factors, including current and future inflation rates, changes in the domestic and internal economies, as well as actions by monetary authorities such as central banks, will also influence the trend in currency pricing.

 

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Table V

 

      90 Day Yield
Government
Securities
As of
            , 2012
 

Australia

     4.11

New Zealand

     2.86

Norway

     2.32

Sweden

     2.14

Canada

     1.31

Great Britain

     0.99

Denmark

     0.67

Singapore

     0.40

Switzerland

     0.10

United States

     0.07

Source: Bloomberg

Why Does USGCF Purchase and Sell Futures Contracts?

The investment objective of USGCF (before fees and expenses) is to have the daily changes in percentage terms of its net asset value (“NAV”) reflect the daily changes in percentage terms of the price, in U.S. dollars, of the Futures Basket. “Hard” currencies are those identified and selected by the Sponsor that have attributes such that the currency market would refer to them as “hard” (the “Benchmark Hard Currencies” or “Hard Currencies”), including the returns from short-term cash holdings in such currencies. The Sponsor believes that the currency markets refer to currencies as hard if: a) the currency is widely used and freely exchangeable, b) the currency is issued by a financially and economically strong country, and c) issued by a country which has historically suffered less from the effects of inflation compared to other countries. The futures contracts designated for inclusion in the Futures Basket will be selected by the Sponsor, and are referred to as the “Benchmark Futures Contracts.” The Futures Basket will consist of Benchmark Futures Contracts selected by the Sponsor to represent a 20% interest in each of the five Benchmark Hard Currencies, and will be re-balanced on a monthly basis. It is not the intent of USGCF to be operated in a fashion such that its NAV will equal, in US dollar terms, the spot price of any particular currency or any particular Benchmark Futures Contract. It is not the intent of USGCF to be operated in a fashion such that its NAV will reflect the percentage change of the price of the Futures Basket as measured over a time period greater than one day. The Sponsor does not believe this is an achievable goal due to the potential impact of backwardation and contango on returns of any portfolio of futures contracts.

Other than investing in Futures Contracts and Other Hard Currency-Related Investments, USGCF only invests in assets to support these investments in Currency Interests. At any given time, most of USGCF’s investments are in Treasuries, cash and/or cash equivalents that serve as segregated assets supporting USGCF’s positions in Futures Contracts and Other Hard Currency-Related Investments. For example, the purchase of a Futures Contract with a stated value of $10 million would not require USGCF to pay or receive $10 million upon entering into the contract; rather, only a margin deposit, generally of 5% to 20% of the stated value of the Futures Contract, would be required. To secure its Futures Contract obligations, USGCF would deposit the required margin with the futures commission merchant and would separately hold, through its Custodian, Treasuries, cash and/or cash equivalents in an amount equal to the balance of the current market value of the contract, which at the contract’s inception would be $10 million minus the amount of the margin deposit, or $9.5 million (assuming a 5% margin).

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

 

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What are Futures Contracts?

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

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

What are the Benchmark Futures Contracts?

For each of the Benchmark Hard Currencies, the Sponsor has selected a particular Futures Contract traded on a regulated futures exchange as the Benchmark Futures Contract. In selecting the particular Futures Contract, the Sponsor will consider the amount of liquidity that the Futures Contract has historically displayed, and the suitability of the regulated futures exchange as an investment venue. The selection of the Benchmark Futures Contract would be made by the Sponsor at the same time as the selection of the Benchmark Hard Currencies.

A list of the current Benchmark Futures Contracts (which are equally weighted in the Futures Basket) is shown below in Table     .

Table VI Benchmark Futures Contracts in the Futures Basket

[To be added via pre-effective amendment to the Registration Statement]

Changes to the Benchmark Hard Currencies

In the first quarter of each calendar year, the Sponsor will determine the list of Eligible Global Currencies and reevaluate the selection of Hard Currencies based on the prior year’s data. Based upon the data, the Sponsor will update the list of Benchmark Hard Currencies. In making any such change, the Sponsor will file a disclosure informing investors of the proposed changes no less than 30 days prior to the first month in which the currency added will become part of the Benchmark Hard Currencies, or 30 days prior to the first month in which the currency or currencies deleted will no longer be part of the Benchmark Hard Currencies.

Changes to the Benchmark Futures Contracts

Under normal circumstances, the Sponsor anticipates that any changes in either the list of Benchmark Hard Currencies or the list of Benchmark Futures Contracts in the Futures Basket, would be made as part of the annual review process and disclosed to investors with no less than 30 days advanced notice of the change. Normal circumstances would be those circumstances in which changes are made by the Sponsor as part of the planned annual review and not changes in response to unexpected or sudden changes in market regulations, capital flow restrictions, or abnormal commodity market conditions. However, it is possible that a Futures Contract that is currently a Benchmark Futures Contract could, in the opinion of the Sponsor, no longer be suitable due to changes in the liquidity of the futures contract or due to changes in the rules regarding that particular Futures Contract on its Futures Exchange. In such cases the Sponsor would first attempt to select another Futures Contract based on the same commodity that trades on either the current Futures Exchange, or trades on another Futures Exchange, and immediately disclose that the new Futures Contract will become a Benchmark Futures Contract and the prior Benchmark Futures Contract for a particular Hard Currency will be deleted. In the event that the Sponsor determines that no other existing Futures Contract is a suitable replacement, than the Sponsor will make a disclosure indicating that a current Benchmark Futures Contract will no longer be included as part of the Futures Basket. In cases where a suitable Benchmark Futures

 

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Contract no longer exists, the Sponsor will also remove the underlying currency from the list of Benchmark Hard Currencies. Although the Sponsor would normally seek to provide at least 30 days notice of any such change, specific circumstances that cannot be anticipated at the present time could mean that the Sponsor would be unable to provide that amount of advanced notice. For example, position limits that limit the Sponsor’s ability to invest in the Benchmark Futures Contracts could be imposed by regulators with less than 30 days advanced notice to participants in the market.

Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits

Futures contracts include typical and significant characteristics. Most significantly, the CFTC and U.S. designated contract markets such as the NYMEX, CBOT, COMEX, CME, or ICE Futures US have established accountability levels and position limits on the maximum net long or net short futures contracts in certain contracts that any person or group of persons under common trading control (other than as a hedge, which is not applicable to the USGCF’s investments) may hold, own or control. The net position is the difference between an individual or firm’s open long contracts and open short contracts in any one commodity. In addition, most U.S.-based futures exchanges limit the daily price fluctuation for futures contracts. Some other non-US futures exchanges have not adopted such position limits or accountability levels.

The accountability levels for currency-related Futures Contracts and other futures contracts traded on U.S. regulated futures exchanges are not a fixed ceiling, but rather a threshold above which the exchange may exercise greater scrutiny and control over an investor’s positions. For example, the current accountability level for any one-month in the British pound/US dollar contract on the CME is 10,000 contracts. If USGCF and the Related Public Funds exceed these accountability levels for investments in the CME futures contracts for British pounds, the CME will monitor USGCF’s and the Related Public Fund’s exposure and ask for further information on their activities, including the total size of all positions, investment and trading strategy, and the extent of liquidity resources of USGCF and the Related Public Funds. If deemed necessary by the CME, it could also order USGCF to reduce its position back to the accountability level. If any of the regulated futures exchanges orders USGCF to reduce its position in a particular Futures Contract back to an accountability level that the exchange deems appropriate for USGCF, such a level may impact the mix of investments in Currency Interests made by USGCF.

Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. For most Hard Currencies, there are currently no position limits established by the futures exchanges. In addition to accountability levels and position limits that may apply at any time, the futures exchanges may impose position limits on contracts held in the last few days of trading in the near month contract to expire. It is unlikely that USGCF will run up against such position limits because USGCF’s investment strategy is to close out its positions and “roll” from the near month contract to expire to the next month contract during a four-day period beginning two weeks from expiration of the contract. Finally, many exchanges may impose a position limit on contracts for time periods other than immediately prior to expiration. As in the example above for British pounds and accountability limits, such position limits could impact USGCF’s ability to invest in certain Futures Contracts when daily net assets of USGCF rise above certain levels.

On October 18, 2011, the CFTC adopted new rules, which establish position limits and limit formulas for certain physical commodity futures, including Futures Contracts and options on Futures Contracts, executed pursuant to the rules of designated contract markets (i.e., certain regulated exchanges) and commodity swaps that are economically equivalent to such futures and options contracts. See “Regulation” in the statement of additional information for more details.

Price Volatility

Despite daily price limits, the price volatility of futures contracts generally has been historically greater than that for traditional securities such as stocks and bonds. Price volatility often is greater day-to-day as opposed to intra-day. Economic factors that may cause volatility in futures contracts include changes in interest rates; governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies; weather and climate conditions; changing supply and demand relationships; changes in balances of payments and trade; U.S. and international rates of inflation; currency devaluations and revaluations; U.S. and international political and economic events; and changes in philosophies and emotions of market participants. Because USGCF invests a significant portion of its assets in futures contracts, the assets of USGCF, and therefore the price of USGCF’s units, may be subject to greater volatility than traditional securities.

 

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Marking-to-Market Futures Positions

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

What are Over-the-Counter Derivatives?

In addition to futures contracts and options on futures contracts, derivative contracts that are tied to various currencies are entered into outside of public exchanges. These “over-the-counter” contracts are entered into between two parties in private contracts. Unlike most of the exchange-traded futures contracts or exchange-traded options on futures contracts, each party to such a contract bears the credit risk of the other party, i.e., the risk that the other party will not be able to perform its obligations under its contract.

Some derivatives contracts contain fairly standard terms and conditions and are available from a wide range of participants. Others have highly customized terms and conditions and are not as widely available. Many of these over-the-counter contracts are cash-settled forwards for the future delivery of currency that have terms similar to futures contracts. Others take the form of “swaps” in which a party pays a fixed price per unit and the other pays a variable price based on the average price of futures contracts for a specified period or the price on a specified date, with payments typically made between the parties on a net basis. For example, USGCF may enter into over-the-counter derivative contracts the value of which will track changes in the prices of the Hard Currencies underlying the Currency Interests, thereby enabling USGCF to track the Futures Basket without investing in Futures Contracts.

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

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

USGCF’s Investments in Treasury Securities, Cash and Cash Equivalents

USGCF seeks to have the aggregate “notional” amount of the Currency Interests it holds approximate at all times USGCF’s aggregate NAV. At any given time, however, most of USGCF’s investments will be in short-term Treasuries, cash and/or cash equivalents that support USGCF’s positions in Currency Interests. For example, the purchase of a futures contract with a stated or notional amount of $10 million would not require USGCF to pay $10 million upon entering into the contract; rather, only a margin deposit, generally of 5% – 30% of the notional amount, would be required. To secure its obligations under futures contracts, USGCF would deposit the required margin with the futures commission merchant and would separately hold its remaining assets through its Custodian in Treasuries, cash and/or cash equivalents. Such remaining assets may be used to meet future margin payments that USGCF is required to make on its futures contracts.

 

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

What are the Trading Policies of USGCF?

Options on Futures Contracts

In addition to Futures Contracts, there are also a number of options on Futures Contracts listed on the Futures Exchanges. These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the currencies market. USGCF may purchase and sell (write) options on Futures Contracts in pursuing its investment objective, except that it will not sell call options when it does not own the underlying Futures Contract. USGCF would make use of options on Futures Contracts if, in the opinion of the Sponsor, such an approach would cause USGCF to more closely track the basket or if it would lead to an overall lower cost of trading to achieve a given level of economic exposure to movements in Hard Currency prices.

Liquidity

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

Leverage

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

Borrowings

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

Pyramiding

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

Who are the Service Providers?

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

 

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BBH & Co.’s principal business address is 50 Milk Street, Boston, MA 02109-3661. BBH & Co. is a private bank founded in 1818, and is not a publicly held company nor is it insured by the Federal Deposit Insurance Corporation. BBH & Co. is authorized to conduct a commercial banking business in accordance with the provisions of Article IV of the New York State Banking Law, New York Banking Law §§160-181, and is subject to regulation, supervision, and examination by the New York State Banking Department. The Custodian is also licensed to conduct a commercial banking business by the Commonwealths of Massachusetts and Pennsylvania and is subject to supervision and examination by the banking supervisors of those states.

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

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

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

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

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

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

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

 

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

On August 8, 2008, UBS Securities and UBS Financial Services reached agreements with the SEC, the NYAG, the Massachusetts Securities Division and other state regulatory agencies represented by the North American Securities Administrators Association (“NASAA”) to restore liquidity to all remaining client’s holdings of auction rate securities by June 30, 2012. On October 2, 2008, UBS Securities and UBS Financial entered into a final consent agreement with the Massachusetts Securities Division settling all allegations in the Massachusetts Securities Division’s administrative proceeding against UBS Securities and UBS Financial with regards to the auction rate securities matter. On December 11, 2008, UBS Securities and UBS Financial executed an Assurance of Discontinuance in the auction rate securities settlement with the NYAG. On the same day, UBS Securities and UBS Financial finalized settlements with the SEC. UBS paid penalties of $75M to NYAG and an additional $75M to be apportioned among the participating NASAA states. In March 2010, UBS and NASAA agreed on final settlement terms, pursuant to which, UBS agreed to provide client liquidity up to an additional $200 million.

The Jerome F. Sheldon Trust, et al. v. UBS Securities LLC, et al. is one of a series of consolidated actions filed beginning in 2008 in the Superior Court of California, County of San Francisco relating to Solidus Networks, Inc., d/b/a Pay by Touch (“PBT”), for which UBS served as a placement agent in several offerings by PBT securities. Plaintiffs in the consolidated actions allege, among other things, that UBS and executives of PBT misrepresented the financial condition of PBT and failed to disclose certain legal difficulties of John Rogers (the initial founder and CEO of PBT) including alleged drug use. Plaintiffs’ complaint asserts that these alleged misrepresentations and omissions constituted fraud against certain investors in PBT and violated provisions of California securities law. Plaintiff claims $95 million in damages, plus interest and punitive damages. Trial is scheduled to begin the week of November 21, 2011.

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

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

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

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

 

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Fees to be Paid by USGCF

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

 

Service Provider

 

Compensation Paid by USGCF and the Sponsor

United States Commodity Funds LLC, Sponsor

  0.60% of average net assets annually.*

BBH & Co., Inc., Custodian and Administrator

 

Minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to USGCF and the Related Public Funds, as well

as a $20,000 annual fee for its transfer agency services. In addition, an asset-based

charge of (a) 0.06% for the first $500 million of USGCF and the Related Public

Funds’ combined assets, (b) 0.0465% for USGCF and the Related Public Funds’ combined assets greater than $500 million but less than $1 billion, and (c) 0.035%

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

ALPS Distributors, Inc., Marketing Agent

 

0.06% on average net assets up to $3 billion and 0.04% on average net assets in

excess of $3 billion.**

[ T.B.D. ]Futures Commission Merchant and Clearing Broker

  Approximately $4.00 per buy or sell; charges may vary.*

Wilmington Trust National Association, Trustee

  $3,000.*

 

* USGCF pays this compensation.
** The Sponsor pays this compensation.

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

Form of Units

Registered Form

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

Book Entry

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

 

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DTC

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

Transfer of Units

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

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

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

Inter-Series Limitation on Liability

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

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

 

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Recognition of the Trust in Certain States

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

What is the Plan of Distribution?

Buying and Selling Units

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

Marketing Agent and Authorized Purchasers

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

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

 

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

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

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

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

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

In addition, an Authorized Purchaser, other broker-dealer firm or its client will be deemed a statutory underwriter if it purchases a basket from USGCF, breaks the basket down into the constituent units and sells the units to its customers; or if it chooses to couple the creation of a supply of new units with an active selling effort involving solicitation of secondary market demand for the units. In contrast, Authorized Purchasers may engage in secondary market or other transactions in units that would not be deemed “underwriting.” For example, an Authorized Purchaser may act in the capacity of a broker or dealer with respect to units that were previously distributed by other Authorized Purchasers. A determination of whether a particular market participant is an underwriter must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that would lead to designation as an underwriter and subject them to the prospectus-delivery and liability provisions of the 1933 Act.

 

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Dealers who are neither Authorized Purchasers nor “underwriters” but are nonetheless participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with units that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(3) of the 1933 Act.

The Sponsor intends any broker-dealers selling units will be members of FINRA. Investors intending to create or redeem baskets through Authorized Purchasers 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 regulatory requirements under the state securities laws prior to such creation or redemption.

While the Authorized Purchasers may be indemnified by the Sponsor, they will not be entitled to receive a discount or commission from the Trust or the Sponsor for their purchases of Creation Baskets. The difference between the price paid by Authorized Purchasers for Creation Baskets and the price paid for units to such Authorized Purchasers by investors will be deemed underwriting compensation.

What Is the Flow of Units?

 

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Calculating NAV

USGCF’s 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 units.

The Administrator will calculate the NAV of USGCF once each NYSE Arca trading day. The NAV for a particular trading day will be released after 4:00 p.m. New York time and will be available at http://www.usgoldencurrencyfund.com. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time. The Administrator uses the closing prices on the relevant Futures Exchanges of the Futures Contracts (determined at the earlier of the close of such exchange or 2:30 p.m. New York time) for the contracts traded on the Futures Exchanges, but calculates or determines the value of all other USGCF investments 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 BBH & Co., Inc., USGCF and the Sponsor. “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 USGCF 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 USGCF for use by investors and market professionals, the NYSE Arca will calculate and disseminate throughout the core trading session on each trading day an updated indicative fund value. The indicative fund value will be calculated by using the prior day’s closing NAV per unit of USGCF as a base and updating that value throughout the trading day to reflect changes in the most recently reported price level of the Benchmark Futures Contracts as reported by Bloomberg, L.P. or another reporting service.

The indicative fund value unit basis disseminated during NYSE Arca core trading session hours should not be viewed as an actual real time update of the NAV, because NAV is calculated only once at the end of each trading day based upon the relevant end of day values of USGCF’s investments.

The indicative fund value will be disseminated on a per unit 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 Futures Exchanges vary, with some Futures Exchanges ending their trading hours before the close of the core trading session on NYSE Arca (for example, the normal trading hours of the NYMEX are 10:00 a.m. New York time to 2:30 p.m. New York time). When USGCF holds Futures Contracts from Futures Exchanges with different trading hours or business days than the NYSE Arca there will be a gap in time at the beginning and/or the end of each day during which USGCF’s units are traded on the NYSE Arca, but real-time Futures Exchange trading prices for Futures Contracts traded on such Futures Exchanges are not available. As a result, during those gaps there will be no update to the indicative fund value.

The NYSE Arca will disseminate the indicative fund value through the facilities of CTA/CQ High Speed Lines. In addition, the indicative fund value will be published on the NYSE Arca’s website and will be 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 USGCF units on the NYSE Arca. Investors and market professionals will be able throughout the trading day to compare the market price of USGCF and the indicative fund value. If the market price of USGCF units diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades. For example, if USGCF appears to be trading at a discount compared to the indicative fund value, a market professional could buy USGCF units on the NYSE Arca and sell short futures contracts. Such arbitrage trades can tighten the tracking between the market price of USGCF and the indicative fund value and thus can be beneficial to all market participants.

 

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In addition, other Futures Contracts, Other Hard Currency-Related Investments and Treasuries held by USGCF will be valued by the Administrator, using rates and points received from client-approved third party vendors (such as Reuters and WM Company) and advisor quotes. These investments will not be included in the indicative value. The indicative fund value is based on the prior day’s NAV and moves up and down solely according to changes in the Benchmark Futures Contracts’ value as reported on Bloomberg or another reporting service.

Creation and Redemption of Units

USGCF creates and redeems units 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 USGCF or the distribution by USGCF of the amount of Treasuries and/or cash equal to the combined NAV of the number of units 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 Purchasers are the only persons that may place orders to create and redeem baskets. Authorized Purchasers must be (1) either 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 Purchaser, a person must enter into an Authorized Purchaser Agreement with the Sponsor. The Authorized Purchaser Agreement provides the procedures for the creation and redemption of baskets and for the delivery of the Treasuries and/or cash required for such creations and redemptions. The Authorized Purchaser Agreement and the related procedures attached thereto may be amended by the Sponsor, without the consent of any Unitholder or Authorized Purchaser. Authorized Purchasers pay a transaction fee of $350 to the Sponsor for each order they place to create or redeem one or more baskets. Authorized Purchasers who make deposits with USGCF in exchange for baskets receive no fees, commissions or other form of compensation or inducement of any kind from either the Trust or the Sponsor, and no such person will have any obligation or responsibility to the Trust or the Sponsor to effect any sale or resale of units.

Certain Authorized Purchasers are expected to be capable of participating directly in the currency and the Currency Interest markets. Some Authorized Purchasers or their affiliates may from time to time buy or sell currencies or Currency Interests and may profit in these instances. The Sponsor believes that the size and operation of the commodities market make it unlikely that Authorized Purchasers’ direct activities in the commodities or securities markets will significantly affect the price of currencies, Hard Currency Interests, or USGCF’s units.

Each Authorized Purchaser will be required to be registered as a broker-dealer under the Exchange Act and a member in good standing with FINRA, or exempt from being or otherwise not required to be licensed as a broker-dealer or a member of FINRA, and will be qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Purchasers may also be regulated under federal and state banking laws and regulations. Each Authorized Purchaser 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 Purchaser Agreement, the Sponsor has agreed to indemnify the Authorized Purchasers against certain liabilities, including liabilities under the 1933 Act, and to contribute to the payments the Authorized Purchasers may be required to make in respect of those liabilities.

The following description of the procedures for the creation and redemption of baskets is only a summary and an investor should refer to the relevant provisions of the Trust Agreement and the form of Authorized Purchaser Agreement for more detail, each of which has been filed as an exhibit to the registration statement of which this prospectus is a part. See “Where You Can Find More Information” for information about where you can obtain the registration statement.

 

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Creation Procedures

On any business day, an Authorized Purchaser may place an order with the Marketing Agent to create one or more baskets. For purposes of processing purchase and redemption orders, a “business day” means any day other than a day when the NYSE Arca, the New York Stock Exchange, or any of the Futures Exchanges upon which a Benchmark Futures Contract is traded is closed for regular trading. Purchase orders must be placed by 10:30 a.m. New York time or the close of regular trading on the NYSE Arca, whichever is earlier. The day on which the Marketing Agent receives a valid purchase order is referred to as the purchase order date.

By placing a purchase order, an Authorized Purchaser agrees to deposit Treasuries, cash or a combination of Treasuries and cash with the Trust, as described below. Prior to the delivery of baskets for a purchase order, the Authorized Purchaser must also have wired to the Custodian the non-refundable transaction fee due for the purchase order. Authorized Purchasers may not withdraw a creation request.

The manner by which creations are made is dictated by the terms of the Authorized Purchaser Agreement. By placing a purchase order, an Authorized Purchaser agrees to (1) deposit Treasuries, cash, or a combination of Treasuries and cash with the Custodian of the Fund, and (2) if required by the Sponsor in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other over-the-counter transaction (through itself or a designated acceptable broker) with the Fund 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 Purchaser fails to consummate (1) and (2), the order shall be cancelled. The number and type of contracts specified shall be determined by the Sponsor, in its sole discretion, to meet USGCF’s investment objective and shall be purchased as a result of the Authorized Purchaser’s purchase of units.

Determination of Required Deposits

The total deposit required to create each basket (“Creation Basket Deposit”) is the amount of Treasuries and/or cash that is in the same proportion to the total assets of USGCF (net of estimated accrued but unpaid fees, expenses and other liabilities) on the purchase order date as the number of units to be created under the purchase order is in proportion to the total number of units outstanding on the purchase order date. The Sponsor determines, directly in its sole discretion or in consultation with the Administrator, the requirements for Treasuries and cash, including the remaining maturities of the Treasuries and proportions of Treasuries and cash that may be included in deposits to create baskets. The Marketing Agent will publish an estimate of the Creation Basket Deposit requirements at the beginning of each business day.

Delivery of Required Deposits

An Authorized Purchaser who places a purchase order is responsible for transferring to USGCF’s account with the Custodian the required amount of Treasury Securities and/or cash by 12:00 noon New York time on the third business day following the purchase order date. Upon receipt of the deposit amount, the Administrator will direct DTC to credit the number of baskets ordered to the Authorized Purchaser’s DTC account on the third 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 USGCF shall be borne by solely by the Authorized Purchaser.

Because orders to purchase baskets must be placed by 10:30 a.m., New York time, but the total payment required to create a basket during the continuous offering period will not be determined until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Purchasers 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. USGCF’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.

 

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Rejection of Purchase Orders

The Sponsor acting by itself or through the Marketing Agent shall have the absolute right, but shall have no obligation, to reject any purchase order or Creation Basket Deposit if the Sponsor determines that:

 

   

the purchase order or Creation Basket Deposit is not in proper form;

 

   

it would not be in the best interest of the Unitholders;

 

   

due to position limits or otherwise, investment alternatives that will enable USGCF to meet its investment objective are not available to USGCF at that time;

 

   

the acceptance of the purchase order or the Creation Basket Deposit would have adverse tax consequences to USGCF or its Unitholders;

 

   

the acceptance or receipt of which would, in the opinion of counsel to the Sponsor, be unlawful; or

 

   

circumstances outside the control of the Sponsor, the Marketing Agent or the Custodian make it, for all practical purposes, not feasible to process creations of Creation Baskets (including if the Sponsor determines that the investments available to USGCF at that time will not enable it to meet its investment objective).

None of the Sponsor, 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 Purchaser can redeem one or more baskets mirror the procedures for the creation of baskets. On any business day, an Authorized Purchaser may place an order with the Marketing Agent to redeem one or more baskets. Redemption orders must be placed by 10:30 a.m. New York time or the close of regular trading on the NYSE Arca, whichever is earlier. A redemption order so received will be effective on the date it is received in satisfactory form by the Marketing Agent. The redemption procedures allow Authorized Purchasers to redeem baskets and do not entitle an individual unitholder to redeem any units in an amount less than a Redemption Basket, or to redeem baskets other than through an Authorized Purchaser. By placing a redemption order, an Authorized Purchaser agrees to deliver the baskets to be redeemed through DTC’s book-entry system to USGCF not later than 12:00 noon New York time on the third business day following the effective date of the redemption order. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Purchaser must also have wired to the Sponsor’s account at the Custodian the non-refundable transaction fee due for the redemption order. An Authorized Purchaser may not withdraw a redemption order.

The manner by which redemptions are made is dictated by the terms of the Authorized Purchaser Agreement. By placing a redemption order, an Authorized Purchaser agrees to (1) deliver the Redemption Basket to be redeemed through DTC’s book-entry system to the Fund’s account with the Custodian no later than 3:00 p.m. New York time on the third business day following the effective date of the redemption order (“Redemption Order Date”), and (2) if required by the Sponsor in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other over-the-counter transaction (through itself or a designated acceptable broker) with the Fund for the purchase of a number and type of futures contracts at the closing settlement price for such contracts on the Redemption Order Date. If an Authorized Purchaser fails to consummate (1) and (2), the order shall be cancelled. The number and type of contracts specified shall be determined by the Sponsor, in its sole discretion, to meet USGCF’s investment objective and shall be sold as a result of the Authorized Purchaser’s sale of units.

Determination of Redemption Distribution

The redemption distribution from USGCF will consist of a transfer to the redeeming Authorized Purchaser of an amount of Treasuries and/or cash that is in the same proportion to the total assets of USGCF (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 units to be redeemed under the redemption order is in proportion to the total number of units outstanding on the date the order is received. The Sponsor, directly or in consultation with the Administrator, determines the requirements for Treasuries and cash, including the remaining maturities of the Treasuries and proportions of Treasuries and cash that may be included in distributions to redeem baskets. The Marketing Agent will publish an estimate of the redemption distribution per basket as of the beginning of each business day.

 

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Delivery of Redemption Distribution

The redemption distribution due from USGCF will be delivered to the Authorized Purchaser on the third business day following the redemption order date if, by 3:00 p.m., New York time on such third business day, USGCF’s DTC account has been credited with the baskets to be redeemed. If USGCF’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 USGCF receives the fee applicable to the extension of the redemption distribution date which the Sponsor may, from time to time, determine and the remaining baskets to be redeemed are credited to USGCF’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 the Sponsor, the Custodian will also be authorized to deliver the redemption distribution notwithstanding that the baskets to be redeemed are not credited to USGCF’s DTC account by 3:00 p.m., New York time on the third business day following the redemption order date if the Authorized Purchaser has collateralized its obligation to deliver the baskets through DTC’s book entry-system on such terms as the Sponsor may from time to time determine.

Suspension or Rejection of Redemption Orders

The Sponsor may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which the NYSE Arca or any of the Futures Exchanges upon which a Benchmark Futures Contract is traded is closed other than customary weekend or holiday closings, or trading on the NYSE Arca or the Futures Exchanges is suspended or restricted, (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of Treasuries is not reasonably practicable, or (3) for such other period as the Sponsor determines to be necessary for the protection of the Unitholders. For example, the Sponsor may determine that it is necessary to suspend redemptions to allow for the orderly liquidation of USGCF’s assets at an appropriate value to fund a redemption. If the Sponsor has difficulty liquidating USGCF’s positions, e.g. , because of a market disruption event in the futures markets or an unanticipated delay in the liquidation of a position in an over the counter contract, it may be appropriate to suspend redemptions until such time as such circumstances are rectified. None of the Sponsor, the Marketing Agent, 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. The Sponsor acting by itself or through the Marketing Agent may, in its sole discretion, reject any Redemption Order (1) the Sponsor determines that the Redemption Order is not in proper form, (2) the fulfillment of which its counsel advises may be illegal under applicable laws and regulations, or (3) if circumstances outside the control of the Sponsor, the Marketing Agent or the Custodian make it for all practical purposes not feasible for the units to be delivered under the Redemption Order. The Sponsor may also reject a redemption order if the number of units being redeemed would reduce the remaining outstanding units to 50,000 units (i.e., one basket) or less, unless the Sponsor has reason to believe that the placer of the redemption order does in fact possess all the outstanding units and can deliver them.

Creation and Redemption Transaction Fee

To compensate the Sponsor for its expenses in connection with the creation and redemption of baskets, an Authorized Purchaser is required to pay a transaction fee to the Sponsor of $350 per order to create or redeem baskets, regardless of the number of baskets in such order. The transaction fee may be reduced, increased or otherwise changed by the Sponsor. The Sponsor shall notify DTC of any change in the transaction fee and will not implement any increase in the fee for the creation or redemption of baskets until 30 days after the date of the notice.

 

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Tax Responsibility

Authorized Purchasers 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 Purchaser, and agree to indemnify the Sponsor and USGCF 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, USGCF will create and redeem units 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 USGCF or the distribution by USGCF of the amount of Treasuries and/or cash equal to the aggregate NAV of the number of units 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 Purchasers are the only persons that may place orders to create and redeem baskets. Authorized Purchasers 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 Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public units of any baskets it does create. Authorized Purchasers that do offer to the public units from the baskets they create will do so at per-unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the NAV of USGCF at the time the Authorized Purchaser purchased the Creation Baskets, the NAV of the units at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the Futures Contract market and the market for Other Hard Currency-Related Investments. The prices of units offered by Authorized Purchasers are expected to fall between USGCF’s NAV and the trading price of the units on the NYSE Arca at the time of sale. Units initially comprising the same basket but offered by Authorized Purchasers to the public at different times may have different offering prices. An order for one or more baskets may be placed by an Authorized Purchaser on behalf of multiple clients. Units are expected to trade in the secondary market on the NYSE Arca. Units may trade in the secondary market at prices that are lower or higher relative to their NAV per unit. The amount of the discount or premium in the trading price relative to the NAV per unit may be influenced by various factors, including the number of investors who seek to purchase or sell units in the secondary market and the liquidity of the Futures Contract market and the market for Other Hard Currency-Related Investments. While the units 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 Hard Currency-Related Investments may be reduced after the close of the Futures Exchanges upon which the Benchmark Futures Contracts are traded. As a result, during this time, trading spreads, and the resulting premium or discount, on the units may widen.

Use of Proceeds

The Sponsor will cause USGCF to transfer the proceeds of the sale of Creation Baskets to the Custodian or another custodian for use in trading activities. The Sponsor will invest USGCF’s assets in Futures Contracts and Other Hard Currency-Related Investments, short-term Treasuries, cash and cash equivalents. When USGCF purchases Futures Contracts and certain Other Hard Currency-Related Investments that are exchange-traded, USGCF will be required to deposit with the futures commission merchant on behalf of the exchange a portion of the value of the contract or other interest as security to ensure payment for the obligation under the Currency Interests at maturity. This deposit is known as initial margin. Counterparties in transactions in over-the-counter Currency Interests will generally impose similar collateral requirements on USGCF. The Sponsor will invest USGCF’s assets that remain after margin and collateral is posted in short-term Treasuries, cash and/or cash equivalents. Subject to these margin and collateral requirements, the Sponsor has sole authority to determine the percentage of assets that will be:

 

   

held as margin or collateral with futures commission merchants or other custodians;

 

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used for other investments; and

 

   

held in bank accounts to pay current obligations and as reserves.

In general, USGCF expects that it will be required to post between 5% to 20% of the notional amount of a currency futures contract as initial margin when entering into such currency futures contract. Ongoing margin and collateral payments will generally be required for both exchange-traded and over-the-counter Currency Interests based on changes in the value of the Currency Interests. Furthermore, ongoing collateral requirements with respect to over-the-counter Currency Interests 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 commodity futures contract, and each party’s creditworthiness. In light of the differing requirements for initial payments under exchange-traded and over-the-counter Currency Interests and the fluctuating nature of ongoing margin and collateral payments, it is not possible to estimate what portion of USGCF’s assets will be posted as margin or collateral at any given time. The Treasuries, cash and cash equivalents held by USGCF will constitute reserves that will be available to meet ongoing margin and collateral requirements. All income will be used for USGCF’s benefit.

A futures commission merchant, counterparty, government agency or commodity exchange could increase margin or collateral requirements applicable to USGCF to hold trading positions at any time. Moreover, margin is merely a security deposit and has no bearing on the profit or loss potential for any positions held.

USGCF’s assets posted as margin for Futures Contracts will be held in segregation pursuant to the Commodity Exchange Act and CFTC regulations. Collateral posted in connection with over-the-counter contracts held with USGCF’s futures commission merchant will be similarly segregated and if held with other counterparties will be segregated pursuant to contract between USGCF and its counterparties.

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

Critical Accounting Policies

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Trust’s application of these policies involves judgments and actual results may differ from the estimates used.

The Sponsor has evaluated the nature and types of estimates that it will make in preparing USGCF’s financial statements and related disclosures once USGCF commences operations. The Sponsor has determined that the valuation of Currency Interests that are not traded on a U.S. or internationally recognized futures exchange (such as swaps and other over-the-counter contracts) involves a critical accounting policy. While not currently applicable to USGCF, given the fact that it is not currently involved in trading activities, the values which will be used by USGCF for Benchmark Futures Contracts will be provided by the broker who will use market prices when available, while OTC contracts will be valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date. Values will be determined on a daily basis.

Liquidity and Capital Resources

USGCF does not anticipate making use of borrowings or other lines of credit to meet its obligations. It is anticipated that USGCF will meet its liquidity needs in the normal course of business from the proceeds of the sale of its investments or from the cash, cash equivalents and/or the Treasuries that it intends to hold at all times. USGCF’s liquidity needs include: redeeming units, providing margin deposits for existing basket or the purchase of additional futures contract, posting collateral for OTC Currency Interests, and payment of expenses, summarized below under “Contractual Obligations.”

 

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USGCF will generate cash primarily from (i) the sale of Creation Baskets and (ii) interest earned on cash, cash equivalents and its investments in Treasuries. Once USGCF begins trading activities, it is anticipated that all of the net assets of USGCF will be allocated to trading in Currency Interests. Most of the assets of USGCF will be held in Treasuries, cash and/or cash equivalents that could or will be used as margin or collateral for trading in Currency Interests. The percentage that such assets will bear to the total net assets will vary from period to period as the market values of the Currency Interests change. Interest earned on interest-bearing assets of USGCF will be paid to USGCF.

The investments of USGCF in Currency Interests will be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons.

To date, all of the expenses of the USGCF have been funded by Sponsor. If USGCF is unsuccessful in raising sufficient funds to cover its expenses and its portion of the Trust’s expenses, or in locating any other source of funding, USGCF may terminate and its Unitholders may lose all or part of their investment.

Market Risk

Trading in Currency Interests such as Benchmark Futures Contracts will involve USGCF entering into contractual commitments to purchase or sell specific amounts of Hard Currency at a specified date in the future. The gross or face amount of the contracts is expected to significantly exceed the future cash requirements of USGCF because it intends to close out any open positions prior to settlement. As a result, USGCF should be subject only to the risk of loss arising from the change in value of the contracts, not from the need to make delivery under the contracts. USGCF considers the “fair value” of its derivative instruments to be the unrealized gain or loss on the contracts. The market risk associated with the commitment by USGCF to purchase a specific amount of Hard Currency will be limited to the aggregate face amount of the contacts held.

The exposure of USGCF to market risk will depend on a number of factors including the markets for currencies, the volatility of interest rates and foreign exchange rates, the liquidity of the Currency Interest markets and the relationships among the contracts held by USGCF. The lack of experience of the Sponsor in utilizing its model to trade in Currency Interests in a manner that tracks changes in the changes in the value of the Futures Basket, as well as drastic market occurrences, could ultimately lead to the loss of all or substantially all of a Unitholder’s investment.

Credit Risk

When USGCF enters into Benchmark Futures Contracts and Other Hard Currency-Related Investments, it will be exposed to the credit risk that the counterparty will not be able to meet its obligations. The counterparty for the futures contracts traded on ICE Futures is the clearinghouse associated with ICE Futures. In general, clearinghouses are backed by their members who may be required to participate in the financial burden resulting from the nonperformance of one of their members, which should significantly reduce credit risk. Some foreign exchanges are not backed by their clearinghouse members but may be backed by a consortium of banks or other financial institutions. Unlike in the case of exchange-traded Benchmark Futures Contracts, the counterparty to an OTC Currency Interest contract is generally a single bank or other financial institution. As a result, there will be greater counterparty credit risk in OTC transactions. There can be no assurance that any counterparty, clearing house, or their financial backers will satisfy their obligations to USGCF.

The Sponsor will attempt to manage the credit risk of USGCF by following certain trading limitations and policies. In particular, USGCF intends to post margin and collateral and/or hold liquid assets that will be equal to approximately the face amount of the Currency Interests it holds. The Sponsor will implement procedures that will include, but will not be limited to, executing and clearing trades and entering into over-the-counter transactions only with parties it deems creditworthy and/or requiring the posting of collateral by such parties for the benefit of USGCF to limit its credit exposure.

 

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Any commodity broker for USGCF, when acting as the futures commission merchant in accepting orders to purchase or sell futures contracts on United States exchanges, will be required by CFTC regulations to separately account for and segregate as belonging to USGCF all of USGCF’s assets that relate to domestic futures contract trading. These commodity brokers are not allowed to commingle the assets of USGCF with the commodity broker’s other assets. In addition, the CFTC requires commodity brokers to hold in a secure account the assets of USGCF related to foreign futures contract trading.

Off Balance Sheet Financing

As of the date of this prospectus, neither the Trust nor USGCF have any loan guarantees, credit support or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions relating to certain risks service providers undertake in performing services which are in the best interests of USGCF. While USGCF’s exposure under these indemnification provisions cannot be estimated, they are not expected to have a material impact on USGCF’s financial positions.

Redemption Basket Obligation

Other than as necessary to meet the investment objective of USGCF and pay its contractual obligations described below, USGCF will require liquidity to redeem Redemption Baskets. USGCF intends to satisfy this obligation through the transfer of its cash (generated, if necessary, through the sale of Treasuries) in an amount proportionate to the number of units being redeemed, as described above under “Redemption Procedures.”

Contractual Obligations

USGCF’s primary contractual obligation will be with the Sponsor and certain other service providers. USGCF is obligated to pay the Sponsor a management fee at an annual rate of 0.60% of its average daily net assets and paid monthly. USGCF will also be responsible for all ongoing fees, costs and expenses of its operations, including:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

costs and expenses associated with client relations and services;

 

   

the payment of any distributions related to redemption of units;

 

   

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

 

   

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

 

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

While the Sponsor has agreed to pay registration fees to the SEC, FINRA, NYSE Arca or any other regulatory agency or exchange in connection with the offer and sale of the units offered through this prospectus and the legal, printing, accounting and other expenses associated with such registrations, USGCF will be responsible for any registration fees and related expenses incurred in connection with any future offer and sale of its units in excess of those offered through this prospectus.

USGCF pays its own brokerage and other transaction costs. USGCF will pay fees to futures commission merchants in connection with its transactions in futures contracts. Futures commission merchant fees are estimated to be             % annually for USGCF. This estimate is based on the number of futures contracts the Sponsor would have to purchase each month based on an average value of $[            ] for a Benchmark Futures Contract as of May 30, 2012. These amounts may be higher or lower once USGCF commences operations. In general, transaction costs on OTC Currency Interests and on Treasuries and other short-term securities will be embedded in the purchase or sale price of the instrument being purchased or sold, and may not readily be estimated. The Sponsor may, in its discretion, pay or reimburse USGCF for, or waive a portion of its management fee to offset, expenses that would otherwise be borne by USGCF.

The parties cannot anticipate the amount of payments that will be required under these arrangements for future periods as USGCF’s NAV and trading levels to meet their respective investment objectives will not be known until a future date. These agreements are effective for a specific term agreed upon by the parties with an option to renew, or, in some cases, are in effect for the duration of USGCF’s existence. The parties may terminate these agreements earlier for certain reasons listed in the agreements

The Sponsor has Conflicts of Interest

There are present and potential future conflicts of interest in each Fund’s structure and operation you should consider before you purchase units. The will use this notice of conflicts as a defense against any claim or other proceeding made. If the Sponsor is not able to resolve these conflicts of interest adequately, it may impact the Funds’ and the Related Public Funds’ ability to achieve their investment objectives.

USGCF and the Sponsor may have inherent conflicts to the extent the Sponsor attempts to maintain USGCF’s asset size, in order to preserve its fee income and this may not always be consistent with the investment objective of USGCF which is to have the daily changes in percentage terms of its NAV (after fees and expenses) reflect the daily changes in percentage terms of the price, in US dollars, of the Futures Basket. The officers, directors and employees of the Sponsor do not devote their time exclusively to USGCF. These

 

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persons are directors, officers or employees of other entities which may compete with USGCF or the other funds managed by the Sponsor for their services. They could have a conflict between their responsibilities to USGCF and to those other entities. The Sponsor believes that it has sufficient personnel, time, and working capital to discharge its responsibilities in a fair manner and that these persons’ conflicts should not impair their ability to provide services to USGCF. See “Risk Factors — USGCF’s Operating Risks” for disclosure relating to the time commitments of the principals of the Sponsor.

The Sponsor has adopted policies that prohibit the principals, officers, directors and employees of the Sponsor from trading futures and related contracts for their own account. In addition, the Sponsor has adopted a Code of Business Conduct and Ethics to ensure that the officers, directors, and employees of the Sponsor and its affiliates do not engage in trades that will harm USGCF or the Unitholders. The Sponsor has also adopted Corporate Governance Policy. If these provisions are not successful, Unitholders may be harmed in that such trades could affect the prices of the Futures Contracts purchased by USGCF, which could affect USGCF’s ability to track the value of the Futures Basket.

The Sponsor has sole current authority to manage the investments and operations of USGCF, and this may allow it to act in a way that furthers its own interests, which may create a conflict with your best interests. Unitholders have very limited voting rights, which will limit their ability to influence matters such as amendment of the Trust Agreement, change in USGCF’s basic investment objective, dissolution of the Trust, or the sale or distribution of USGCF’s assets.

The Sponsor serves as the general partner to the Related Public Funds, as well as of other funds that have yet to offer securities to the public or begin operations. The Sponsor may have a conflict to the extent that its trading decisions for USGCF or any other Fund may be influenced by the effect they would have on the other Funds and the Related Public Funds. By way of example, if the CFTC or the CBOT imposed position limits limiting the total number of futures contracts on a currency that could be held by all of the funds operated by the Sponsor, than the Sponsor could find itself in a position of rationing each individual fund as to how many currency contracts it can hold. The Sponsor could have a conflict in deciding which fund will be allowed to buy more currency contracts and which fund might have to forego purchasing more currency contracts.

In addition, the Sponsor is required to indemnify its officers and directors, if the need for indemnification arises. This potential indemnification will cause the Sponsor’s assets to decrease. If the Sponsor’s other sources of income are not sufficient to compensate for the indemnification, then the Sponsor may terminate and you could lose your investment.

Resolution of Conflicts Procedures

The Trust Agreement provides that whenever a conflict of interest exists between the Sponsor or any of its affiliates, on the one hand, and the Trust, a series or any Unitholder or any other Person, on the other hand, the Sponsor shall resolve such conflict of interest considering the relative interest of each party (including its own interest) and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable accepted accounting practices or principles.

Security Ownership of Certain Beneficial Owners and Management

Security ownership by certain beneficial owners and management is defined by (i) those persons who directly or indirectly own, control or hold with the power to vote, 5% or (ii) more of the outstanding units of USGCF and those individuals that serve as executive officers of the Funds or directors of the Sponsor.

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. To our knowledge, unless otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Unless otherwise indicated by footnote, the address for each executive officer of the Funds is United States Currency Funds Trust, 1320 Harbor Bay Parkway, Suite 145, Alameda, CA 94502.

Currently, there are no executive officers or directors of the Sponsor who beneficially own any units of USGCF.

 

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Interests of Named Experts and Counsel

The Sponsor has employed Reed Smith LLP (“Reed Smith”) to assist in the preparation this prospectus. Neither the law firm nor any other expert hired by USGCF to give advice on the preparation of this offering document has been hired on a contingent fee basis. Nor do any of them have any present or future expectation of interest in the Sponsor, Marketing Agent, Authorized Purchasers, Custodian, Administrator or other service providers to USGCF.

Provisions of Federal and State Securities Laws

This offering is made pursuant to federal and state securities laws. The SEC and state securities agencies take the position that indemnification of the Sponsor that arises out of an alleged violation of such laws is prohibited unless certain conditions are met. Those conditions require that no indemnification of the Sponsor or any underwriter for USGCF 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, the Sponsor or other indemnitee must apprise the court of the position held by regulatory agencies against such indemnification.

Books and Records

The Trust and USGCF keep their books of record and account at the office of the Sponsor located at 1320 Harbor Bay Parkway, Suite 145, Alameda, CA 94502, or at the offices of the Administrator located at 40 Water Street, Boston, MA, 02109, or such office, including of an administrative agent, as it may subsequently designate upon notice. The books of account of USGCF are open to inspection by any Unitholder (or any duly constituted designee of a Unitholder) at all times during the usual business hours of USGCF upon reasonable advance notice to the Sponsor to the extent such access is required under CFTC rules and regulations. In addition, the Trust keeps a copy of the Trust Agreement on file in the Sponsor’s office which will be available for inspection by any Unitholder at all times during its usual business hours upon reasonable advance notice.

Statements, Filings, and Reports to Unitholders

The Trust will publish on its website monthly reports and will deliver to Unitholders based on its tax records annual (as of the end of each fiscal year) reports for USGCF as are required to be provided to Unitholders by the CFTC and the NFA. Monthly reports will contain certain unaudited financial information regarding USGCF, including USGCF’s NAV, and annual reports will contain financial statements prepared by the Sponsor and audited by an independent registered public accounting firm designated by the Sponsor. The Sponsor will furnish to the Unitholders other reports or information which the Sponsor, in its discretion, determines to be necessary or appropriate. In addition, under SEC rules the Trust will be required to file quarterly and annual reports for USGCF with the SEC, which need not be sent to Unitholders but will be publicly available through the SEC. The Trust will post the same information that would otherwise be provided in the Trust’s CFTC, NFA and SEC reports on USGCF’s website www.usgoldencurrencyfund.com.

The Sponsor is responsible for the registration and qualification of the units under the federal securities laws, federal commodities laws, and laws of any other jurisdiction as the Sponsor may select. The Sponsor is responsible for preparing all required reports, but has entered into an agreement with the Administrator to prepare these reports on the Trust’s behalf.

The accountants’ report on its audit of USGCF’s financial statements will be furnished by the Trust to Unitholders upon request. The Trust will make such elections, file such tax returns, and prepare, disseminate and file such tax reports for USGCF, as it is advised by its counsel or accountants are from time to time required by any applicable statute, rule or regulation.

The Administrator, 50 Milk Street, Boston, MA 02109-3661, as representative of the Trust and USGCF, will provide tax information in accordance with applicable U.S. Treasury Regulations relating to information reporting with respect to widely held fixed investment trusts. Persons treated as middlemen for purposes of these regulations may obtain tax information regarding USGCF from the Administrator or from USGCF’s website, www.usgoldencurrencyfund.com.

 

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Fiscal Year

The fiscal year of USGCF is the calendar year. The Sponsor may select an alternate fiscal year at a later date.

Governing Law; Consent to Delaware Jurisdiction

The rights of the Sponsor, the Trust, USGCF, DTC (as registered owner of USGCF’s global certificate for units) and the Unitholders are governed by the laws of the State of Delaware. The Sponsor, the Trust, USGCF and DTC and, by accepting units, each DTC Participant and each Unitholder, 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 the Sponsor, the Trust or USGCF.

Legal Matters

Litigation and Claims

Within the past 5 years of the date of this prospectus, there have been no material administrative, civil or criminal actions against the Sponsor, the Trust or USGCF, or any principal or affiliate of any of them. This includes any actions pending, on appeal, concluded, threatened, or otherwise known to them.

Legal Opinion

[To be filed via pre-effective amendment to the registration statement.]

Experts

[To be filed via pre-effective amendment to the registration statement.]

Privacy Policy

USGCF and the Sponsor 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 units of USGCF.

USGCF and the Sponsor do not disclose nonpublic personal information except as required by law or as described in their Privacy Policy. In general, USGCF and the Sponsor 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.

USGCF and the Sponsor maintain safeguards that comply with federal 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 USGCF and the Sponsor 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 USGCF and the Sponsor’s current Privacy Policy is provided to investors annually and is also available upon request.

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 units of USGCF, and the U.S. federal income tax treatment of USGCF, as of the date hereof. In general, this discussion is applicable to a Unitholder who holds its units as a capital asset.

 

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This summary does not purport to be a complete description of the income tax considerations applicable to an investment in units. For example, we have not described tax consequences that may be relevant to certain types of Unitholders subject to special treatment under United States federal income tax laws, including dealers or traders in securities, commodities or currencies, financial institutions, tax-exempt entities, insurance companies, persons holding units as a part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated transaction for federal income tax purposes, or holders of units whose “functional currency” is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Code, and regulations (“Treasury Regulations”), rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified (possibly with retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below.

The Sponsor anticipates receiving the opinion of Reed Smith, counsel to the Trust, that, subject to the conditions, limitations and assumptions stated in this discussion, the material U.S. federal income tax consequences to USGCF and to U.S. Unitholders and Non-US Unitholders (as defined below) will be as described in the following paragraphs. In rendering its opinion, Reed Smith has relied on the facts and assumptions described in this prospectus as well as certain factual representations made by the Trust and the Sponsor. This opinion is not binding on the Internal Revenue Service (“IRS”). No ruling has been requested from the IRS with respect to any matter affecting USGCF or prospective investors, and the IRS may disagree with the tax positions taken by the Trust. If the IRS were to challenge the Trust’s tax positions in litigation, they might not be sustained by the courts.

As used herein, the term “U.S. Unitholder” means a Unitholder that is, for United States federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust (X) that is subject to the supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (Y) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. A “Non-US Unitholder” is a holder that is not a US Unitholder. If a partnership holds our units, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our units, you should consult your own tax advisor regarding the tax consequences.

EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN UNITS, AS WELL AS ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES, IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES.

Tax Status of the Trust and USGCF

The Trust is organized and will be operated as a statutory trust in accordance with the provisions of the Trust Agreement and applicable Delaware law. Notwithstanding the Trust’s status as a statutory trust and USGCF’s status as a series of that trust, due to the nature of its activities, USGCF will be treated as a partnership rather than a trust for United States federal income tax purposes. In addition, the trading of units on the NYSE Arca will cause USGCF to be classified as a “publicly traded partnership” for federal income tax purposes. Under the Code, a publicly traded partnership is generally taxable as a corporation. In the case of an entity (such as USGCF) that is not registered under the Investment Company Act of 1940, however, an exception to this general rule applies if at least 90% of the entity’s gross income is “qualifying income” for each taxable year of its existence. For this purpose, “qualifying income” is defined as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than

 

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as inventory) or of futures, forwards and options with respect to commodities, “qualifying income” includes income and gains from commodities and futures, forwards, options and swaps and other notional principal contracts with respect to commodities. In connection with the opinion provided by Reed Smith, the Trust and the Sponsor have represented, among other things, the following to Reed Smith:

 

   

At least 90% of USGCF’s gross income for each taxable year will be derived from (i) income and gains from commodities (not held as inventory) or futures, forwards, options, OTC swap transactions, cleared swaps and other notional principal contracts with respect to commodities, and (ii) interest income;

 

   

USGCF is organized and will be operated in accordance with its governing documents and applicable law; and

 

   

USGCF has not elected, and USGCF will not elect, to be classified as a corporation for U.S. federal income tax purposes.

Based in part on these representations, Reed Smith is of the opinion that USGCF will be treated as a partnership that it is not taxable as a corporation for U.S. federal income tax purposes. USGCF’s taxation as a partnership rather than a corporation will require the Sponsor to conduct USGCF’s business activities in such a manner that it satisfies the qualifying income exception on a continuing basis. No assurance can be given that USGCF’s operations for any given year will produce income that satisfies the requirements of the qualifying income exception. Reed Smith will not review USGCF’ ongoing compliance with these requirements and will have no obligation to advise the Trust, USGCF or USGCF’s Unitholders in the event of any subsequent change in the facts, representations or applicable law relied upon in reaching its opinion.

If USGCF failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case USGCF could be required to pay over amounts determined by the IRS), USGCF would be taxable as a corporation for federal income tax purposes and would pay federal income tax on its income at regular corporate rates. In that event, Unitholders of USGCF would not report their share of USGCF’s income or loss on their returns. In addition, any distributions to Unitholders would be treated as ordinary dividends to the extent of USGCF’s current and accumulated earnings and profits. To the extent a distribution exceeded USGCF’s earnings and profits, it would be treated as a return of capital up to the amount of a Unitholder’s basis in its units and thereafter as gain from the sale of units. Accordingly, if USGCF were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in USGCF and on the value of the units.

The remainder of this summary assumes that USGCF is classified for federal income tax purposes as a partnership that it is not taxable as a corporation.

U.S. Unitholders

Tax Consequences of Ownership of Units

Taxation of USGCF’s Income . No U.S. federal income tax is paid by USGCF on its income. Instead, USGCF files annual partnership returns, and each U.S. Unitholder is required to report on its U.S. federal income tax return its allocable share of USGCF’s income, gain, loss, deduction and credit reported on USGCF’s partnership return. These items must be reported without regard to the amount (if any) of cash or property the Unitholder receives as a distribution from USGCF during the taxable year. As a result, if, for example, USGCF recognizes ordinary income in the form of interest on Treasury Securities and other investments, and net capital gain from Futures Contracts and Other Hard Currency-Related Investments for a taxable year, Unitholders must report their share of these items regardless of whether USGCF makes any distributions to Unitholders. Consequently, a Unitholder may be taxed on income or gain recognized by USGCF but receive no cash distribution with which to pay the resulting tax liability, or may receive a distribution that is insufficient to pay such liability. Because the Sponsor currently does not intend to make distributions, it is likely that a U.S. Unitholder that is allocated income or gain from a Fund will be required to pay taxes on its allocable share of such income or gain from sources other USGCF distributions.

 

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Monthly Conventions for Allocations of USGCF’s Profit and Loss and Capital Account Restatement. Under Code section 704, the determination of a partner’s distributive share of any item of income, gain, loss, deduction or credit is governed by the applicable organizational document unless the allocation provided by such document lacks “substantial economic effect.” An allocation that lacks substantial economic effect nonetheless will be respected if it is in accordance with the partners’ interests in the partnership, determined by taking into account all facts and circumstances relating to the economic arrangements among the partners.

Subject to the discussion below, concerning certain conventions to be used by USGCF, allocations of USGCF income pursuant to the Trust Agreement should be considered as having substantial economic effect or as being in accordance with a Unitholder’s interest in USGCF.

In situations where a partner’s interest in a partnership is sold or otherwise transferred during a taxable year, the Code generally requires that partnership tax items for the year be allocated to the partner using either an interim closing of the books or a daily proration method. USGCF intends to allocate tax items using an interim closing of the books method under which income, gain, loss, deductions and credits will be determined on a monthly basis, taking into account USGCF’s accrued income and deductions and gains and losses (both realized and unrealized) for the month. The tax items for each month during the taxable year will then be allocated among the holders of units in proportion to the number of units owned by them as of the close of business on the last trading day of the previous month (the “monthly allocation convention”).

Under the monthly allocation convention, if an investor who held a unit as of the close of business on the last trading day of the previous month disposes of a unit during the current month, such investor will be treated for purposes of making allocations as if it owned the unit throughout the current month. For example, an investor who buys a unit 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 unit for April will be allocated to the person who is the actual or deemed holder of the unit as of the close of business on the last trading day of March. Under the monthly convention, an investor who purchases and sells a unit during the same month, and therefore does not hold (and is not deemed to hold) the unit 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 unit for any period. Accordingly, investors may receive no allocations with respect to units that they actually held, or may receive allocations with respect to units attributable to periods that they did not actually hold the units. Investors who hold a unit on the last trading day of the first month of USGCF’s operation will be allocated the tax items for that month, as well as the tax items for the following month, attributable to the unit.

By investing in units, a U.S. Unitholder agrees that, in the absence of new legislation, regulatory or administrative guidance, or judicial rulings to the contrary, it will file its U.S. income tax returns in a manner that is consistent with the monthly allocation convention as described above and with the IRS Schedule K-1 or any successor form provided to Unitholders by the Trust.

In addition, for any month in which a Creation Basket is issued or a Redemption Basket is redeemed, USGCF generally will credit or debit the “book” capital accounts of its existing Unitholders with any unrealized gain or loss, on USGCF’s assets. For this purpose, unrealized gain or loss will be computed based on the lowest fair market value of USGCF’s assets during the month in which units are issued or redeemed, which may be different than the value of the assets at the time of an issuance or redemption. The capital accounts as adjusted in this manner will be used in making tax allocations intended to

 

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account for the differences between the tax basis and fair market value of assets of USGCF at the time new units are issued or outstanding units are redeemed (so-called “reverse Code section 704(c) allocations”). The intended effect of these adjustments is to equitably allocate among Unitholders any unrealized appreciation or depreciation in USGCF’s assets existing at the time of a contribution or redemption for book and tax purposes.

The Sponsor believes that application of the conventions described above is consistent with the intent of the partnership provisions of the Code and that the resulting allocations should have substantial economic effect or otherwise should be respected as being in accordance with Unitholders’ interests in USGCF for federal income tax purposes. The Code and existing Treasury Regulations do not expressly permit adoption of these conventions, although the monthly allocation convention described above is consistent with a method permitted under recently proposed Treasury Regulations. It is possible that the IRS could successfully challenge USGCF’s allocation conventions on the ground that they do not satisfy the technical requirements of the Code or Treasury Regulations, requiring a Unitholder to report a greater or lesser share of items of income, gain, loss, deduction, or credit than if our conventions were respected. The Sponsor is authorized to revise our allocation method to conform to the requirements of future Treasury Regulations.

The conventions used by USGCF in making tax allocations may cause a Unitholder to be allocated more or less income or loss for federal income tax purposes than its proportionate share of the economic income or loss realized by USGCF during the period it held its units. This mismatch between taxable and

economic income or loss in some cases may be temporary, reversing itself in a later year when the units are sold, but could be permanent. For example, a Unitholder could be allocated income accruing before it purchased its units, resulting in an increase in the basis of the units (see “Tax Basis of Units”, below). On a subsequent disposition of the units, the additional basis might produce a capital loss the deduction of which may be limited (see “Limitations on Deductibility of Losses and Certain Expenses” below).

Section 754 election. USGCF intends to make the election permitted by section 754 of the Code, which election is irrevocable without the consent of the IRS. The effect of this election is that when a secondary market sale of units occurs, USGCF adjusts the purchaser’s proportionate share of the tax basis of its assets to fair market value, as reflected in the price paid for the units, as if the purchaser had directly acquired an interest in USGCF’s 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 units and the tax bases of USGCF’s assets at the time of the purchase, the effect of the section 754 election on a purchaser of units may be favorable or unfavorable. In order to make the appropriate basis adjustments in a cost effective manner, USGCF will use certain simplifying conventions and assumptions. In particular, USGCF will obtain information regarding secondary market transactions in its units and use this information to make adjustments to Unitholders’ basis in USGCF’s assets. 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 Unitholders.

Section 1256 Contracts. Under the Code, special rules apply to instruments constituting “section 1256 contracts.” A section 1256 contract is defined as including, in relevant part: (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”; and (2) a non-equity option traded on or subject to the rules of a qualified board or exchange. Section 1256 contracts held at the end of each taxable year are treated as if they were sold for their fair market value on the last business day of the taxable year (i.e., are “marked to market”). In addition, any gain or loss realized from a disposition, termination or marking-to-market of a section 1256 contract is treated as long-term capital gain or loss to the extent of 60% thereof, and as short-term capital gain or loss to the extent of 40% thereof, without regard to the actual holding period (“60 – 40 treatment”).

 

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Many of USGCF’s Futures Contracts and some their Other Hard Currency-Related Interests will qualify as “section 1256 contracts” under the Code. Gain or loss recognized through disposition, termination or marking-to-market of USGCF’s section 1256 contracts will be subject to 60-40 treatment and allocated to Unitholders in accordance with the monthly allocation convention.

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 Unitholders by USGCF, including but not limited to those described below.

A Unitholder’s deduction of its allocable share of any loss of USGCF is limited to the lesser of (1) the tax basis in its units or (2) in the case of a Unitholder that is an individual or a closely held corporation, the amount which the Unitholder is considered to have “at risk” with respect to USGCF’s activities. In general, the amount at risk will be a Unitholder’s invested capital. Losses in excess of the amount at risk must be deferred until years in which USGCF generates additional taxable income against which to offset such carryover losses or until additional capital is placed at risk.

Non-corporate taxpayers are permitted to deduct capital losses only to the extent of their capital gains for the taxable year plus $3,000 of other income. Unused capital losses can be carried forward and used to offset capital gains in future years. In addition, a non-corporate taxpayer may elect to carry back net losses on section 1256 contracts to each of the three preceding years and use them to offset section 1256 contract gains in those years, subject to certain limitations. Corporate taxpayers generally may deduct capital losses only to the extent of capital gains, subject to special carryback and carryforward rules.

Otherwise deductible expenses incurred by non-corporate taxpayers constituting “miscellaneous itemized deductions,” generally including investment-related expenses (other than interest and certain other specified expenses), are deductible only to the extent they exceed 2% of the taxpayer’s adjusted gross income for the year. Although the matter is not free from doubt, we believe the management fees that USGCF pays to the Sponsor and other expenses of USGCF 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.

Non-corporate Unitholders generally may deduct “investment interest expense” only to the extent of their “net investment income.” Investment interest expense of a Unitholder will generally include any interest accrued by USGCF and any interest paid or accrued on direct borrowings by a Unitholder to purchase or carry its units, 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 USGCF allocates losses or expenses to you that must be deferred or 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 units. As one example, you could be allocated and required to pay tax on your share of interest income accrued by USGCF for a particular taxable year, and in the same year allocated a share of a capital loss that you cannot deduct currently because of the limitations discussed above. As another example, you could be allocated and required to pay tax on your share of interest income and capital gain for a year, but be unable to deduct some or all of your share of management fees and/or margin account interest incurred by you with respect to your units. Unitholders are urged to consult their own professional tax advisors regarding the effect of limitations under the Code on their ability to deduct their allocable share of USGCF’s losses and expenses.

 

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Tax Basis of Units

A Unitholder’s tax basis in its units is important in determining (1) the amount of taxable gain it will realize on the sale or other disposition of its units, (2) the amount of non-taxable distributions that it may receive from USGCF, and (3) its ability to utilize its distributive share of any losses of USGCF on its tax return. A Unitholder’s initial tax basis of its units will equal its cost for the units plus its share of USGCF’s liabilities (if any) at the time of purchase. In general, a Unitholder’s “share” of those liabilities will equal the sum of (i) the entire amount of any otherwise nonrecourse liability of USGCF as to which the Unitholder or an affiliate is the creditor (a “partner nonrecourse liability”) and (ii) a pro rata share of any nonrecourse liabilities of USGCF that are not partner nonrecourse liabilities as to any Unitholder.

A Unitholder’s tax basis in its units generally will be (1) increased by (a) its allocable share of USGCF’s taxable income and gain and (b) any additional contributions by the Unitholder to USGCF and (2) decreased (but not below zero) by (a) its allocable share of USGCF’s tax deductions and losses and (b) any distributions by USGCF to the Unitholder. For this purpose, an increase in a Unitholder’s share of USGCF’s liabilities will be treated as a contribution of cash by the Unitholder to USGCF and a decrease in that share will be treated as a distribution of cash by USGCF to the Unitholder. Pursuant to certain IRS rulings, a Unitholder will be required to maintain a single, “unified” basis in all units that it owns. As a result, when a Unitholder that acquired its units at different prices sells less than all of its units, such Unitholder will not be entitled to specify particular units (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 units to the units sold.

Treatment of USGCF Distributions. If USGCF makes non-liquidating distributions to Unitholders, such distributions generally will not be taxable to the Unitholders for federal income tax purposes except to the extent that the sum of (i) the amount of cash and (ii) the fair market value (subject to certain adjustments) of marketable securities distributed exceeds the Unitholder’s adjusted basis of its interest in USGCF immediately before the distribution. Any cash distributions in excess of a Unitholder’s tax basis generally will be treated as gain from the sale or exchange of units.

Constructive Termination of the Partnership. USGCF will be considered to have been terminated for tax purposes if there is a sale or exchange of 50% or more of the total interests in its units within a 12-month period. A termination would result in the closing of USGCF’s taxable year for all Unitholders. In the case of a Unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of USGCF’s taxable year may result in more than 12 months of our taxable income or loss being includable in its taxable income for the year of termination. We would be required to make new tax elections after a termination. A termination could result in tax penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination.

Tax Consequences of Disposition of Units

If a Unitholder sells its units, it will recognize gain or loss equal to the difference between the amount realized and its adjusted tax basis for the units sold. A Unitholder’s amount realized will be the sum of the cash or the fair market value of other property received plus its share of any USGCF debt outstanding.

Gain or loss recognized by a Unitholder on the sale or exchange of units 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 Unitholders to identify and use the actual holding periods for the units sold for purposes of determining whether the gain or loss recognized on a sale of units will give rise to long-term or short-term

 

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capital gain or loss. It is expected that most Unitholders will be eligible to elect, and generally will elect, to identify and use the actual holding period for units sold. If a Unitholder fails to make the election or is not able to identify the holding periods of the units sold, the Unitholder may have a split holding period in the units sold. Under such circumstances, a Unitholder will be required to determine its holding period in the units sold by first determining the portion of its entire interest in USGCF 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 Unitholder would then treat each unit 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 USGCF.

Under Section 751 of the Code, a portion of a Unitholder’s gain or loss from the sale of units (regardless of the holding period for such units), will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized receivables” or “inventory” owned by USGCF. 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 USGCF.

If some or all of a Unitholder’s units are lent by its broker or other agent to a third party — for example, for use by the third party in covering a short sale — the Unitholder may be considered as having made a taxable disposition of the loaned units, in which case:

 

   

the Unitholder may recognize taxable gain or loss to the same extent as if it had sold the units for cash;

 

   

any of USGCF’s income, gain, loss or deduction allocable to those units during the period of the loan will not be reportable by the Unitholder for tax purposes; and

 

   

any distributions the Unitholder receives with respect to the units under the loan agreements will be fully taxable to the Unitholder, most likely as ordinary income.

Unitholders desiring to avoid these and other possible consequences of a deemed disposition of their units should consider modifying any applicable brokerage account agreements to prohibit the lending of their units.

Other Tax Matters

Information Reporting. The Trust will report tax information to the beneficial owners of units and the IRS. Unitholders of USGCF are treated as partners for federal income tax purposes. Accordingly, USGCF will furnish its Unitholders each year with tax information on IRS Schedule K-1 (Form 1065), which will be used by the Unitholders in completing their tax returns. The IRS has ruled that assignees of partnership interests who have not been admitted to a partnership as partners but who have the capacity to exercise substantial dominion and control over the assigned partnership interests will be considered partners for federal income tax purposes. On the basis of such ruling, except as otherwise provided herein, we will treat as a Unitholder any person whose units are held on their behalf by a broker or other nominee if that person has the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of the units.

Persons who hold an interest in USGCF 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 number and a description of units 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 units they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Code for failure to report such information to USGCF. The nominee is required to supply the beneficial owner of the units with the information furnished to USGCF.

 

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Partnership Audit Procedures. The IRS may audit the federal income tax returns filed by USGCF. Adjustments resulting from any such audit may require each Unitholder to adjust a prior year’s tax liability and could result in an audit of the Unitholder’s own return. Any audit of a Unitholder’s return could result in adjustments of non-partnership items as well as USGCF items. 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 Unitholders. The Code provides for one Unitholder to be designated as the “tax matters partner” and represent the partnership purposes of these proceedings. The Trust Agreement appoints the Sponsor as the tax matters partner of USGCF.

Tax Shelter Disclosure Rules. In certain circumstances the Code and Treasury Regulations require that the IRS be notified of certain “reportable transactions” through a disclosure statement attached to a taxpayer’s United States federal income tax return. These disclosure rules may apply to transactions irrespective of whether they are structured to achieve particular tax benefits. They could require disclosure by the Trust or Unitholders (1) if a Unitholder incurs a loss in excess of a specified threshold from a sale or redemption of its units, or (2) 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 units, even if the taxpayer’s basis in such interests is equal to the amount of cash it paid. In addition, 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.

Additional Tax On Investment Income. For taxable years beginning after December 31, 2012, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses).

Tax-Exempt Organizations. Subject to numerous exceptions, qualified retirement plans and individual retirement accounts, charitable organizations and certain other organizations that otherwise are exempt from federal income tax (collectively “exempt organizations”) nonetheless are subject to the tax on unrelated business taxable income (“UBTI”). Generally, UBTI means the gross income derived by an exempt organization from a trade or business that it regularly carries on, the conduct of which is not substantially related to the exercise or performance of its exempt purpose or function, less allowable deductions directly connected with that trade or business. If USGCF were to regularly carry on (directly or indirectly) a trade or business that is unrelated with respect to an exempt organization Unitholder of USGCF, then in computing its UBTI, the Unitholder must include its share of (1) USGCF’s gross income from the unrelated trade or business, whether or not distributed, and (2) USGCF’s allowable deductions directly connected with that gross income.

UBTI generally does not include dividends, interest, or payments with respect to securities loans and gains from the sale of property (other than property held for sale to customers in the ordinary course of a trade or business). Nonetheless, income on, and gain from the disposition of, “debt-financed property” is UBTI. Debt-financed property generally is income-producing property (including securities), the use of which is not substantially related to the exempt organization’s tax-exempt purposes, and with respect to which there is “acquisition indebtedness” at any time during the taxable year (or, if the property was

 

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disposed of during the taxable year, the 12-month period ending with the disposition). Acquisition indebtedness includes debt incurred to acquire property, debt incurred before the acquisition of property if the debt would not have been incurred but for the acquisition, and debt incurred subsequent to the acquisition of property if the debt would not have been incurred but for the acquisition and at the time of acquisition the incurrence of debt was foreseeable. The portion of the income from debt-financed property attributable to acquisition indebtedness is equal to the ratio of the average outstanding principal amount of acquisition indebtedness over the average adjusted basis of the property for the year. USGCF currently does not anticipate that it will borrow money to acquire investments; however, USGCF cannot be certain that it will not borrow for such purpose in the future. In addition, an exempt organization Unitholder that incurs acquisition indebtedness to purchase its units in USGCF may have UBTI.

The federal tax rate applicable to an exempt organization Unitholder on its UBTI generally will be either the corporate or trust tax rate, depending upon the Unitholder’s form of organization. USGCF may report to each such Unitholder information as to the portion, if any, of the Unitholder’s income and gains from USGCF for any year that will be treated as UBTI; the calculation of that amount is complex, and there can be no assurance that USGCF’s calculation of UBTI will be accepted by the IRS. An exempt organization Unitholder will be required to make payments of estimated federal income tax with respect to its UBTI.

Regulated Investment Companies. Interests in and income from “qualified publicly traded partnerships” satisfying certain gross income tests are treated as qualifying assets and income, respectively, for purposes of determining eligibility for regulated investment company (“RIC”) status. A RIC may invest up to 25% of its assets in interests in a qualified publicly traded partnership. The determination of whether a publicly traded partnership such as USGCF is a qualified publicly traded partnership is made on an annual basis. USGCF expects to be a qualified publicly traded partnership in each of its taxable years. However, such qualification is not assured.

Non-US Unitholders

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% withholding tax, which may be reduced for certain categories of income by a treaty between the U.S. and the recipient’s country of residence. In contrast, ECI is generally subject to U.S. tax on a net basis at graduated rates upon the filing of a U.S. tax return. Where a non-U.S. person has ECI as a result of an investment in a partnership, the ECI is subject to a withholding tax at a rate of 35% for both individual and corporate Unitholders.

Withholding on Allocations and Distributions. The Code provides that a non-U.S. person who is a partner in a partnership that is engaged in a U.S. trade or business during a taxable year will also be considered to be engaged in a U.S. trade or business during that year. Classifying an activity by a partnership as an investment or an operating business is a factual determination. Under certain safe harbors in the Code, an investment fund whose activities consist of trading in stocks, securities, or commodities for its own account generally will not be considered to be engaged in a U.S. trade or business unless it is a dealer is such stocks, securities, or commodities. This safe harbor applies to investments in commodities only if the commodities are of a kind customarily dealt in on an organized commodity exchange and if the transaction is of a kind customarily consummated at such place. Although the matter is not free from doubt, USGCF believes that the activities directly conducted by USGCF do not result in USGCF being engaged in a trade or business within in the United States. However, there can be no assurance that the IRS would not successfully assert that USGCF’s activities constitute a U.S. trade or business.

 

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In the event that USGCF’s activities were considered to constitute a U.S. trade or business, USGCF would be required to withhold at the highest rate specified in Code section 1 (currently 35%) on allocations of our income to Non-U.S. Unitholders. A Non-U.S. Unitholder with ECI will generally be required to file a U.S. federal income tax return, and the return will provide the Non-U.S. Unitholder with the mechanism to seek a refund of any withholding in excess of such Unitholder’s actual U.S. federal income tax liability. Any amount withheld by USGCF will be treated as a distribution to the Non-U.S. Unitholder.

If USGCF is not treated as engaged in a U.S. trade or business, a Non-U.S. Unitholder may nevertheless be treated as having FDAP income, which would be subject to a 30% withholding tax (possibly subject to reduction by treaty), with respect to some or all of its distributions from USGCF or its allocable share of USGCF’s income. Amounts withheld on behalf of a Non-U.S. Unitholder will be treated as being distributed to such Unitholder.

To the extent any interest income allocated to a Non-U.S. Unitholder that otherwise constitutes FDAP is considered “portfolio interest,” neither the allocation of such interest income to the non-U.S. Unitholder nor a subsequent distribution of such interest income to the non-U.S. Unitholder will be subject to withholding, provided that the Non-U.S. Unitholder is not otherwise engaged in a trade or business in the U.S. and provides USGCF with a timely and properly completed and executed IRS Form W-8BEN or other applicable form. In general, “portfolio interest” is interest paid on debt obligations issued in registered form, unless the “recipient” owns 10% or more of the voting power of the issuer.

The Trust expects that most of USGCF’s interest income will qualify as “portfolio interest.” In order for USGCF to avoid withholding on any interest income allocable to Non-U.S. Unitholders that would qualify as “portfolio interest,” it will be necessary for all Non-U.S. Unitholders to provide USGCF with a timely and properly completed and executed Form W-8BEN (or other applicable form).

Gain from Sale of Units. Gain from the sale or exchange of units may be taxable to a Non-U.S. Unitholder if the Non-U.S. Unitholder 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% withholding tax on the amount of such individual’s gain.

Branch Profits Tax on Corporate Non-U.S. Unitholders. In addition to the taxes noted above, any Non-U.S. Unitholders that are corporations may also be subject to an additional tax, the branch profits tax, at a rate of 30%. The branch profits tax is imposed on a 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. Unitholder is a “qualified resident.”

Prospective Non-U.S. Unitholders should consult their own tax advisor with regard to these and other tax issues unique to Non-U.S. Unitholders.

Backup Withholding

USGCF may be required to withhold U.S. federal income tax (“backup withholding”) at a rate of 28% from all payments to: (1) any Unitholder who fails to furnish USGCF with his, her or its correct taxpayer identification number or a certificate that the Unitholder is exempt from backup withholding, and (2) any Unitholder with respect to whom the IRS notifies USGCF that the Unitholder 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.

 

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Foreign Account Tax Compliance Act Provisions

Recently enacted legislation that becomes effective after 2012 generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions that fail to enter into an agreement with the United States Treasury to report, with respect to accounts held by United States persons (or held by foreign entities that have United States persons as substantial owners), certain information. The types of income subject to the tax include U.S.-source interest and dividends and the gross proceeds from the sale of any property that could produce U.S.-source interest or dividends. The information to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, payments to foreign entities that are not financial institutions will be subject to withholding tax unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. When these provisions become effective, depending on their status and the status of the intermediaries through which they hold their units, Non-U.S. Unitholders could be subject to this 30% withholding tax with respect to distributions on their units and proceeds from the sale of their units.

Other Tax Considerations

In addition to federal income taxes, Unitholders 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 USGCF does business or owns property or where the Unitholders reside. Although an analysis of those various taxes is not presented here, each prospective Unitholder should consider their potential impact on its investment in USGCF. It is each Unitholder’s responsibility to file the appropriate U.S. federal, state, local, and foreign tax returns. Reed Smith 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.

Investment By ERISA Accounts

General

Most employee benefit plans and individual retirement accounts (“IRAs”) are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the Code, or both. This section discusses certain considerations that arise under ERISA and the Code that a fiduciary of an employee benefit plan as defined in ERISA or a plan as defined in Section 4975 of the Code who has investment discretion should take into account before deciding to invest the plan’s assets in USGCF. Employee benefit plans under ERISA and plans under the Code 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 and the Code as of the date hereof. This summary is not intended to be complete, but only to address certain questions under ERISA and the Code likely to be raised by your advisors. 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 USGCF and the manner in which units should be purchased.

Special Investment Considerations

Each plan fiduciary must consider the facts and circumstances that are relevant to an investment in USGCF, including the role that an investment in USGCF would play in the plan’s overall investment portfolio. Each plan fiduciary, before deciding to invest in USGCF, must be satisfied that the investment is prudent for the plan, that the investments of the plan are diversified so as to minimize the risk of large losses, and that an investment in USGCF complies with the terms of the plan.

 

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USGCF and Plan Assets

A regulation issued under ERISA contains rules for determining when an investment by a plan in an equity interest of a statutory trust will result in the underlying assets of the statutory trust being deemed plan assets for purposes of ERISA and Section 4975 of the Code. Those rules provide that assets of a statutory trust will not be plan assets of a plan that purchases an equity interest in the statutory trust if the equity interest purchased is a publicly-offered security. If the underlying assets of a statutory trust are considered to be assets of any plan for purposes of ERISA or Section 4975 of the Code, the operations of that trust would be subject to and, in some cases, limited by the provisions of ERISA and Section 4975 of the Code.

The publicly-offered security exception described above applies if the equity interest is a security that 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.

The plan asset regulations under ERISA state that the determination of whether a security is freely transferable is to be made based on all the relevant facts and circumstances. In the case of a security that is part of an offering in which the minimum investment is $10,000 or less, the following requirements, alone or in combination, ordinarily will not affect a finding that the security is freely transferable: (1) a requirement that no transfer or assignment of the security or rights relating to the security be made that would violate any federal or state law; and (2) a requirement that no transfer or assignment be made without advance written notice given to the entity that issued the security.

The Sponsor believes that the conditions described above are satisfied with respect to the units of USGCF. The Sponsor believes that the units of USGCF therefore constitute publicly-offered securities, and the underlying assets of USGCF should not be considered to constitute plan assets of any plan that purchases units.

Prohibited Transactions

ERISA and the Code generally prohibit certain transactions involving a plan and persons who have certain specified relationships to the plan. In general, units may not be purchased with the assets of a plan if the Sponsor, the clearing brokers, the trading advisors (if any), or any of their affiliates, agents or employees either:

 

   

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 moneys 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.

 

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Also, a prohibited transaction may occur under ERISA or the Code when circumstances indicate that (1) the investment in units is made or retained for the purpose of avoiding application of the fiduciary standards of ERISA, (2) the investment in units constitutes an arrangement under which USGCF is expected to engage in transactions that would otherwise be prohibited if entered into directly by the plan purchasing the units, (3) the investing plan, by itself, has the authority or influence to cause USGCF 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 USGCF to engage in such transactions with such person.

Special IRA Rules

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 USGCF and its custodial arrangement. If a separate qualifying custodial arrangement is not maintained, an investment in the units will be treated as a distribution from the IRA. Second, IRAs are prohibited from investing in certain commingled investments, and the Sponsor makes no representation regarding whether an investment in units is an inappropriate commingled investment for an IRA. Third, 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

Certain employee benefit plans may be governmental plans or church plans. Governmental plans and church plans are generally not subject to ERISA, nor do the prohibited transaction provisions described above apply to them. These plans are, however, subject to prohibitions against certain related-party transactions under Section 503 of the Code, which are similar to the prohibited transaction rules described above. In addition, the fiduciary of any governmental or church plan must 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 USGCF (and any continued investment in USGCF), or the operation and administration of USGCF, 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 USGCF is not to be construed as a representation by the Trust, USGCF, the Sponsor, 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 USGCF in light of the circumstances of the particular plan, current tax law and ERISA.

 

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INFORMATION UNITHOLDERS SHOULD KNOW

This prospectus contains information you should consider when making an investment decision about the units. You should rely only on the information contained in this prospectus or any applicable prospectus supplement. Neither the Trust, USGCF nor the Sponsor 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 units in any jurisdiction where the offer or sale of the units is not permitted.

The information contained in this prospectus was obtained from us and other sources believed by us to be reliable.

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. 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.

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 movements in the currency markets, indexes or financial instruments that track such movements, USGCF’s operations, the Sponsor’s plans and references to USGCF’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 the Sponsor 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 the Sponsor’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 “What Are the Risk Factors Involved with an Investment in USGCF?” Consequently, all the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, USGCF’s operations or the value of its units.

WHERE YOU CAN FIND MORE INFORMATION

The Trust has filed on behalf of USGCF a registration statement on Form S-1 with the SEC under the 1933 Act. This prospectus does not contain all of the information set forth in the registration statement (including the exhibits to the registration statement), parts of which have been omitted in accordance with the rules and regulations of the SEC. For further information about the Trust, USGCF or the units, please refer to the registration statement, which you may inspect, without charge, at the public reference facilities of the SEC at the below address or online at www.sec.gov, or obtain at prescribed rates from the public reference facilities

 

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of the SEC at the below address. Information about the Trust, USGCF and the units can also be obtained from USGCF’s website, which is www.USGCFFund.com. USGCF’s website address is only provided here as a convenience to you and the information contained on or connected to the website is not part of this prospectus or the registration statement of which this prospectus is part. The Trust is subject to the informational requirements of the Exchange Act and will file certain reports and other information with the SEC under the Exchange Act. The Sponsor will file an updated prospectus annually for USGCF pursuant to the 1933 Act. The reports and other information can be inspected at the public reference facilities of the SEC located at 100 F Street, N.E., Washington, DC 20549 and online at www.sec.gov. You may also obtain copies of such material from the public reference facilities of the SEC at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates. You may obtain more information concerning the operation of the public reference facilities of the SEC by calling the SEC at 1-800-SEC-0330 or visiting online at www.sec.gov.

SUMMARY OF PROMOTIONAL AND SALES MATERIAL

USGCF uses the following sales material it has prepared:

 

   

USGCF’s website, www.usgoldencurrencyfund.com and

 

   

Fact Sheet found on USGCF’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.

INTELLECTUAL PROPERTY

The Sponsor has filed for trademark registration for “US GOLDEN CURRENCY FUND” (Application No.             ) for “fund investment services.” USGCF relies upon this trademark 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 USGCF continues to use this trademark to identify its services, without challenge from any third party, and properly maintains and renews the trademark registration under applicable laws, rules and regulations, it will continue to have indefinite protection for this trademark under current laws, rules and regulations.

 

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US GOLDEN CURRENCY FUND

INDEX TO FINANCIAL STATEMENTS

[To be filed via pre-effective amendment to the registration statement.]

 

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APPENDIX A

Glossary of Defined Terms

In this prospectus, each of the following terms have the meanings set forth after such term:

1933 Act: The Securities Act of 1933.

Administrator: Brown Brothers Harriman & Co., Inc.

Authorized Purchaser: One that purchases or redeems Creation Baskets or Redemption Baskets, respectively, from or to USGCF.

Hard Currency: A currency that is widely use and freely exchangeable, issued by a financial and economically strong country, and issued by a country which has historically suffered less from the effects of inflation compared to other countries.

Benchmark Futures Contracts: The Hard Currency futures contracts selected as a component of the Futures Basket.

Business Day: Any day other than a day when the NYSE Arca, the New York Stock Exchange, or any of the Futures Exchanges upon which a Benchmark Futures Contract is traded is closed for regular trading.

CEA: Commodity Exchange Act.

CFMA: Commodity Futures Modernization Act of 2000.

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 over-the-counter 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.

Commodity Trading Advisor or CTA: Subject to certain exceptions set forth in the Commodity Exchange Act, any person who for compensation or profit, (i) engages in the business of advising others, either directly or through publications, writings or electronic media, as to the value of or the advisability of trading in any commodity for future delivery or commodity option on or subject to the rules of any contract market, or (ii) as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to in (i).

Creation Basket: A block of 50,000 units used by USGCF to issue units.

Currency Interests: Futures Contracts and Other Hard Currency-Related Investments.

Custodian: Brown Brothers Harriman & Co., Inc.

Dodd-Frank Act: “The Dodd-Frank Wall Street Reform and Consumer Protection Act” that was signed into law on July 21, 2010.

DTC: The Depository Trust Company. DTC will act as the securities depository for the units.

DTC Participant: An entity that has an account with DTC.

Exchange Act: The Securities Exchange Act of 1934.

FINRA: Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers.

Futures Basket: The basket of Benchmark Futures Contracts that USGCF attempts to track.

 

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Futures Contracts: Futures contracts for currencies that are traded on Futures Exchanges.

Futures Exchanges: The New York Mercantile Exchange, Chicago Mercantile Exchange, ICE Futures and other foreign exchanges.

General Partner: United States Commodity Funds LLC, a Delaware limited liability company, which is registered as a Commodity Pool Operator, and which is the general partner of each of the stated Related Public Funds.

ICE Futures: ICE Futures Europe, ICE Futures U.S. or ICE Futures Canada.

Indirect Participants: Banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly.

Limited Liability Company (LLC): A type of business ownership combining several features of corporation and partnership structures.

Margin: The amount of equity required for an investment in futures contracts.

Marketing Agent: ALPS Distributors, Inc.

NAV: Net Asset Value of a Fund.

NFA: National Futures Association.

NYMEX: New York Mercantile Exchange.

1933 Act: The Securities Act of 1933, as amended.

Option: The right, but not the obligation, to buy or sell a futures contract or forward contract at a specified price on or before a specified date.

Other Hard Currency-Related Investments: Other Hard Currency-Related investments such as cash-settled options on Futures Contracts, forward contracts relating to currencies, cleared swap contracts and over-the-counter transactions that are based on the price of Hard Currency, Futures Contracts and indices based on the foregoing.

Over-the-Counter Derivative, OTC Derivative, Over-the-Counter Contract, OTC Contract, Over-the-Counter Transaction or OTC Transaction: A financial contract, whose value is designed to track the return on stocks, bonds, currencies, commodities, or some other benchmark, that is traded over-the-counter or off organized exchanges.

Rebalancing Period: The business two weeks prior to the expiration of the Futures Contract.

Redemption Basket: A block of 50,000 units used by USGCF to redeem units.

Related Public Funds: USOF, USNG, US12OF, UGA, USHO, USSO, US12NG, USCI, USBO, USMI, USAG and CPER.

SEC: Securities and Exchange Commission.

Secondary Market: The stock exchanges and the over-the-counter 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.

Sponsor: United States Commodity Funds LLC, a Delaware limited liability company, which is registered as a Commodity Pool Operator, who controls the investments and other decisions of USGCF and the other Funds.

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: An over-the-counter derivative that generally involves an exchange of a stream of payments between the contracting parties based on a notional amount and a specified index.

Tracking Error: Possibility that the daily NAV of USGCF will not Hard Currencies.

Treasuries or Treasury Securities: Obligations of the U.S. government with remaining maturities of 2 years or less.

Trust: United States Currency Funds Trust.

Trust Agreement: The Declaration of Trust and Trust Agreement of the Trust effective as of May 22, 2012.

 

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UGA: United States Gasoline Fund, LP.

UAC: United States Asian Commodities Basket Fund.

UGA: United States Gasoline Fund, LP.

UNGD: United States Natural Gas Double Inverse Fund.

USAG: United States Agriculture Index Fund.

US12NG: United States 12 Month Natural Gas Fund, LP.

US12OF: United States 12 Month Oil Fund, LP.

USBO: United States Brent Oil Fund, LP.

USCI: United States Commodity Index Fund.

USGO: United States Gasoil Fund.

USHO: United States Heating Oil Fund, LP.

USMI: United States Metals Index Fund.

USNG: United States Natural Gas Fund, LP.

USOF: United States Oil Fund, LP.

USSF: United States Sugar Fund.

USSO: United States Short Oil Fund, LP.

Units: Common units representing fractional undivided beneficial interests in USGCF.

Unitholders: Holders of units.

Valuation Day: Any day as of which USGCF calculates its NAV.

You: The owner of units.

 

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APPENDIX B

DECLARATION OF TRUST

AND

TRUST AGREEMENT

OF

UNITED STATES CURRENCY FUNDS TRUST

Dated as of May 25, 2012

By and Between

UNITED STATES COMMODITY FUNDS LLC,

as Sponsor

and

WILMINGTON TRUST, NATIONAL ASSOCIATION,

as Delaware Trustee


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TABLE OF CONTENTS

 

                   Page  

Article I

    

DEFINITIONS

     1   
    

Section 1.1

     Definitions      1   

Article II

    

GENERAL PROVISIONS

     6   
    

Section 2.1

     Name      6   
    

Section 2.2

     Delaware Trustee; Business Offices