424B3 1 d271246d424b3.htm 424(B)(3) FOR UNITED STATES AGRICULTURE INDEX FUND 424(b)(3) for United States Agriculture Index Fund
Table of Contents

Filed pursuant to Rule 424(b)(3)
File No. 333-170844

PROSPECTUS

United States Agriculture Index Fund

20,000,000 Units

United States Commodity Index Funds Trust (the “Trust”) is a Delaware statutory trust formed on December 21, 2009 that is organized into four separate series. The United States Agriculture Index Fund (“USAI” or the “Fund”) is a series of the Trust and is a commodity pool that issues common units representing fractional undivided beneficial interests (“Units”) that are expected to trade on the NYSE Arca. The ticker symbol for USAI is USAG. Merrill Lynch Professional Clearing Corp is expected to be the initial authorized purchaser for the Fund. The Fund intends to continuously offer creation baskets consisting of 100,000 Units to “Authorized Purchasers” through ALPS Distributors, Inc., which is the “Marketing Agent” for the Units of the Fund. An Authorized Purchaser, in turn, may offer to the public Units of any baskets it creates. The Units of the Fund are expected to trade on the NYSE Arca at prices that may be lower or higher than the net asset value per Unit.

The investment objective of the Fund is for the daily changes in percentage terms of its Units’ net asset value (“NAV”) to reflect the daily changes in percentage terms of the SummerHaven Agriculture Index Total ReturnTM (the “Agriculture Index”), less the Fund’s expenses. The Agriculture Index is designed as a benchmark for investors seeking attractive risk-adjusted returns on a portfolio of agricultural commodity futures contracts. The Fund’s sponsor does not intend to operate the Fund in a fashion such that its per unit NAV will equal, in dollar terms, the spot price of the agricultural commodities underlying the futures contracts that comprise the Agriculture Index from time to time.

The sponsor of the Fund is United States Commodity Funds LLC (the “Sponsor”), a Delaware limited liability company that is registered as a commodity pool operator with the Commodity Futures Trading Commission and is a member of the National Futures Association. The Sponsor controls the operations of the Fund and will employ a trading advisor for the Fund, as necessary. The sole trading advisor for the Fund is SummerHaven Investment Management, LLC.

The Fund will offer Creation Baskets consisting of 100,000 Units through the Marketing Agent to Authorized Purchasers. It is expected that the initial Authorized Purchaser will, although it is under no obligation to do so, purchase one or more initial Creation Baskets of the Fund at a per unit price which is expected to initially be $25.00. In order to satisfy NYSE Arca listing standards that at least 100,000 Units of the Fund be outstanding, the Sponsor may purchase one of such Creation Baskets of the Fund 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 such basket except that it may require the initial Authorized Purchaser to repurchase all of such Units at a per Unit price equal to the Fund’s per Unit NAV 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 the Fund remain outstanding. It is expected that the proceeds from the initial Authorized Purchaser’s purchase will be invested on the day of such purchase 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.

An Authorized Purchaser is under no obligation to offer to the public Units of any baskets it creates. Authorized Purchasers that 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 the Fund at the time the Authorized Purchaser purchased the creation basket and the net asset value 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 commodity futures contract market and the market for other commodity-related investments. The prices of Units offered by Authorized Purchasers are expected to fall between the Fund’s NAV and the trading price of its Units on the NYSE Arca at the time of sale. The difference between the price paid by Authorized Purchasers as underwriters and the price paid to such Authorized Purchasers by investors will be deemed underwriting compensation.

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 of the Fund may be temporarily suspended if and when no suitable investments for the Fund are available or practicable.

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

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

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.

 

     Per Unit      Per Basket  

Price of the Units*

     

USAI

   $ 25.00       $ 2,500,000   

The date of this prospectus is December 27, 2011

*    Based on the price of the first basket(s) sold. The prices may vary based on the NAV on a particular day.


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COMMODITY FUTURES TRADING COMMISSION

RISK DISCLOSURE STATEMENT

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

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 90 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 9.

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE 15.

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


Table of Contents

UNITED STATES AGRICULTURE INDEX FUND

TABLE OF CONTENTS

 

     Page  

Statement Regarding Forward-Looking Statements

     iii   

Prospectus Summary

     1   

Overview of the Trust and the Fund

     1   

Principal Offices of the Trust and the Sponsor

     2   

The Agriculture Index

     2   

The Units

     5   

Types of Investments of the Fund

     5   

Principal Investment Risks of an Investment in the Fund

     6   

Financial Condition of the Trust

     8   

Defined Terms

     8   

Breakeven Analysis

     9   

The Offering

     10   

What Are the Risk Factors Involved with an Investment in the Fund?

     15   

Risks Associated With Investing Directly or Indirectly in Commodities and Agriculture Interests

     15   

Operating Risks of the Fund

     20   

Risk of Leverage and Volatility

     29   

Over-the-Counter Contract Risk

     30   

Risk of Trading in International Markets

     31   

Tax Risk

     32   

Risks Specific to the Fund

     33   

The Offering

     35   

What Is the Fund?

     35   

Who Is the Sponsor?

     35   

Contribution to the Fund

     40   

Executive Compensation and Fees to the Sponsor

     40   

Prior Performance of the Sponsor and Affiliates

     41   

Other Related Commodity Trading and Investment Management Experience

     62   

Who Is SummerHaven?

     62   

Who Is the Trustee?

     64   

How Does The Fund Operate?

     64   

What are Futures Contracts?

     69   

What is the Agriculture Index?

     75   

What Are Over-the-Counter Derivatives?

     85   

The Fund’s Investments in Treasuries, Cash and Cash Equivalents

     86   

What are the Trading Policies of the Fund?

     87   

Who are the Service Providers?

     88   

Fees to be Paid by the Fund

     90   

Form of Units

     90   

Transfer of Units

     91   

Inter-Series Limitation on Liability

     91   

Recognition of the Trust in Certain States

     92   

What Is the Plan of Distribution?

     92   

What Is the Flow of Units?

     94   

Calculating NAV

     94   

Creation and Redemption of Units

     96   

Secondary Market Transactions

     99   

Use of Proceeds

     100   

 

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     Page  

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

     101   

The Commodity Interest Markets

     104   

The Trust Agreement

     116   

The Sponsor and SummerHaven Have Conflicts of Interest

     121   

Security Ownership of Certain Beneficial Owners and Management

     123   

Interests of Named Experts and Counsel

     123   

Provisions of Federal and State Securities Laws

     123   

Books and Records

     123   

Statements, Filings, and Reports to Unitholders

     123   

Fiscal Year

     124   

Governing Law; Consent to Delaware Jurisdiction

     124   

Legal Matters

     124   

Experts

     124   

Privacy Policy

     125   

U.S. Federal Income Tax Considerations

     125   

Investment by ERISA Accounts

     135   

Information You Should Know

     138   

Where You Can Find More Information

     138   

Incorporation By Reference of Certain Information

     139   

Index to Financial Statements

     F-1   

Appendix A

  

Glossary of Defined Terms

     A-1   

Appendix B

  

Second Amended and Restated Declaration of Trust and Trust Agreement

     B-1   

Until January 21, 2012 (25 days after the date of this prospectus), all dealers effecting transactions in the offered Units, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.

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

 

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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 commodities markets and indexes that track such movements, the Fund’s operations, the Sponsor’s plans and references to the Fund’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 the Fund?” 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, the Fund’s operations or the value of the Fund’s Units.

 

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PROSPECTUS SUMMARY

This is only a summary of the prospectus and, while it contains material information about the Fund and its Units, it does not contain or summarize all of the information about the Fund and its 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 the Fund?” beginning on page 15, before making an investment decision about the Units.

Overview of the Trust and the Fund

United States Commodity Index Funds Trust (the “Trust”) is a Delaware statutory trust formed on December 21, 2009, that is organized into four separate series. The United States Agriculture Index Fund (“USAI” or the “Fund”) is a series of the Trust and is a commodity fund that issues common units representing fractional undivided beneficial interests in the Fund (“Units”). The three other series of the Trust are the United States Commodity Index Fund (“USCI”), the United States Copper Index Fund (“USCPR”) and the United States Metals Index Fund (“USMI”). USCI’s units are publicly traded under the ticker symbol “USCI”; units of USCPR are publicly traded under the ticker symbol “CPER”; and units of USMI are expected to be publicly traded in the future. Additional series of the Trust that will be separate commodity pools may be created in the future.

The Trust, the Fund, USCI, USCPR and USMI operate pursuant to the Trust’s Second Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”), dated as of November 10, 2010. Wilmington Trust Company, a Delaware trust company, is the Delaware trustee of the Trust. The Trust, the Fund, USCI, USCPR and USMI are managed and controlled by United States Commodity Funds LLC (the “Sponsor”). 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 Fund intends to continuously offer baskets consisting of 100,000 Units (“Creation Baskets”) to “Authorized Purchasers” through ALPS Distributors, Inc., which is the “Marketing Agent” for the Units of the Fund. An Authorized Purchaser, in turn, may offer to the public Units of any Creation Baskets. The Units of the Fund are expected to trade on the NYSE Arca at prices that may be lower or higher than the net asset value (“NAV”) per Unit.

The sole trading advisor for the Fund is SummerHaven Investment Management, LLC (“SummerHaven”). The Sponsor expects to manage the investments of the Fund directly, using the trading advisory services of SummerHaven for guidance with respect to the SummerHaven Agriculture Index Total Return (the “Agriculture Index”) and the Sponsor’s selection of investments on behalf of the Fund. The Sponsor is also authorized to select futures commission merchants to execute transactions in Benchmark Component Agriculture Futures Contracts (as defined below) and Other Agriculture-Related Investments (as defined below) on behalf of the Fund. The Sponsor, SummerHaven Index Management, LLC (“SummerHaven Indexing”), and SummerHaven are not affiliated with a broker-dealer and are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Agriculture Index or the portfolio of the Fund.

The Agriculture Index consists of fourteen agricultural markets: soybeans, corn, soft red winter wheat, hard red winter wheat, soybean oil, soybean meal, canola, sugar, cocoa, coffee, cotton, live cattle, feeder cattle and lean hogs. Each agricultural commodity is assigned a base weight based on an assessment of market liquidity and the commodity’s overall economic importance. Each commodity is US Dollar based, with the exception of canola, which is quoted in Canadian Dollars and converted to US Dollars for the purpose of the Agriculture Index calculation. The Agriculture Index is rules-based and rebalanced monthly based on observable price signals described above. Such formulas are not subject to adjustment based on other factors.

 

 

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The investment objective of the Fund is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the Agriculture Index, less USAI’s expenses. The Agriculture Index is designed to reflect the performance of a diversified group of agricultural commodities. The Agriculture Index is owned and maintained by SummerHaven Indexing and calculated and published by the NYSE Arca. Futures contracts for the agricultural commodities comprising the Agriculture Index are traded on ICE Futures US, ICE Futures Canada, the Chicago Board of Trade (“CBOT”), the Kansas City Board of Trade (“KCBT”) and the Chicago Mercantile Exchange (“CME”) and are collectively referred to herein as “Eligible Agriculture Futures Contracts.” The Agriculture Index is comprised of 14 Eligible Agriculture Futures Contracts that are selected on a monthly basis based on quantitative formulas developed by SummerHaven Indexing. The Eligible Agriculture Futures Contracts that at any given time make up the Agriculture Index are referred to herein as “Benchmark Component Agriculture Futures Contracts.” The relative weighting of the Benchmark Component Agriculture Futures Contracts will change on a monthly basis, based on quantitative formulas relating to the prices of the Benchmark Component Agriculture Futures Contracts developed by SummerHaven Indexing.

USAI will seek to achieve its investment objective by investing to the fullest extent possible in Benchmark Component Agriculture Futures Contracts. Then, if constrained by regulatory requirements, such as those described in “What are Futures Contracts? — Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits,” or in view of market conditions, USAI will invest next in other Eligible Agriculture Futures Contracts based on the same agricultural commodity as the futures contracts subject to such regulatory constraints or market conditions, and finally, to a lesser extent, in other exchange traded futures contracts that are economically identical or substantially similar to the Benchmark Component Agriculture Futures Contracts, if one or more Eligible Agriculture Futures Contracts is not available. When USAI has invested to the fullest extent possible in exchange-traded futures contracts, USAI may then invest in other contracts and instruments based on the Benchmark Component Agriculture Futures Contracts or the agricultural commodities included in the Agriculture Index, such as cash-settled options, forward contracts, cleared swap contracts and swap contracts other than cleared swap contracts. Other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Agriculture Futures Contracts and other contracts and instruments based on the Benchmark Component Agriculture Futures Contracts, as well as metals included in the Agriculture Index, are collectively referred to as “Other Agriculture-Related Interests,” and together with Benchmark Component Agriculture Futures Contracts and other Eligible Agriculture Futures Contracts, “Agriculture Interests.”

For more information on the composition of the Agriculture Index and selection of the Benchmark Component Agriculture Futures Contracts, see the section of this prospectus entitled “What is the Agriculture Index?” In order for a hypothetical investment in Units to break even over the next twelve months, assuming an initial selling price of $25.00 per Unit, the investment would have to generate a 1.52% return. For more information, see the section of this prospectus entitled “Breakeven Analysis.”

Principal Offices of the Trust and the Sponsor

The principal office of the Trust and the Fund 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 the Trust, the Fund and the Sponsor is (510) 522-9600.

The Agriculture Index

The benchmark for the Fund is the Agriculture Index. The Sponsor endeavors to place the Fund’s trades in Agriculture Interests and otherwise manage the Fund’s investments so that “A” will be within plus/minus 10 percent of “B,” where:

 

   

A is the average daily percentage change in the Fund’s NAV for any period of 30 successive NYSE Arca trading days as of which the Fund calculates its NAV (each such trading day, a “Valuation Day”); and

 

   

B is the average daily percentage change in the Agriculture Index over the same period.

 

 

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The Sponsor believes that market arbitrage opportunities will cause the Fund’s Unit price on the NYSE Arca to closely track the Fund’s NAV per Unit. The Sponsor believes that the net effect of this expected relationship and the expected relationship described above between the Fund’s NAV and the Agriculture Index will be that the changes in the price of the Fund’s Units on the NYSE Arca will closely track, in percentage terms, changes in the Agriculture Index, less the Fund’s expenses.

The Fund will invest in Agriculture Interests to the fullest extent possible without being leveraged or unable to satisfy its expected current or potential margin or collateral obligations with respect to its investments in Agriculture Interests. The primary focus of the Sponsor is the investment in Agriculture Interests and the management of the Fund’s investments in Treasuries, cash and/or cash equivalents.

The Sponsor will employ a “neutral” investment strategy for the Fund intended to track the changes in the Agriculture Index regardless of whether the Agriculture Index goes up or goes down. The Fund’s “neutral” investment strategy is designed to permit investors generally to purchase and sell the Fund’s Units for the purpose of investing indirectly in the agricultural commodities market in a cost-effective manner, and/or to permit participants in the commodities or other industries to hedge the risk of losses in their agriculture-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the commodities market and/or the risks involved in hedging may exist. In addition, an investment in the Fund involves the risks that the changes in the price of the Fund’s Units will not accurately track the changes in the Agriculture Index, and that changes in the Agriculture Index will not closely correlate with changes in the spot price of agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts.

The Fund’s investment objective is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the Agriculture Index, not to have the market price of its Units match, dollar for dollar, changes in the price of the Agriculture Index or agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index. Contango and backwardation may impact the total return on investment in Units of the Fund relative to a hypothetical direct investment in agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index and, in the future, it is likely that the relationship between the market prices of the Fund’s Units and changes in the spot price of agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index could be impacted by contango and backwardation. It is important to note that this comparison ignores the potential costs associated with physically owning and storing agricultural commodities, which could be substantial. For a more in-depth discussion of the impact of contango and backwardation, see “Risk Factors — Risks Specific to the Fund — The price relationship between the Agriculture Index at any point in time and the Benchmark Component Agriculture Futures Contracts will vary and may impact both the Fund’s total return and the degree to which its total return tracks that of commodity price indices” in this prospectus.

Furthermore, the Fund also invests in Treasuries and holds cash and/or cash equivalents to meet its current or potential margin or collateral requirements with respect to its investments in Agriculture Interests and invests cash not required to be used as margin or collateral. There is not expected to be any meaningful correlation between the performance of the Fund’s investments in Treasuries, cash or cash equivalents and the changes in the price of the Agriculture Index. While the level of interest earned on or the market price of these investments may in some respect correlate to changes in the price of agricultural commodities, this correlation is not anticipated as part of the Fund’s efforts to meet its objective. This and certain risk factors discussed in this prospectus may cause a lack of correlation between changes in the Fund’s NAV and changes in the price of the Agriculture Index. The Sponsor does not intend to operate the Fund in a fashion such that its per Unit NAV will equal, in dollar terms, the spot price of the agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts that comprise the Agriculture Index from time to time.

 

 

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The Fund creates Units only in Creation Baskets and redeems Units only in blocks of 100,000 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 the Fund at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the Units to the public, the supply of and demand for Units at the time of sale, and the liquidity of the Benchmark Component Agriculture Futures Contracts and Other Agriculture -Related Investments. 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.

All proceeds from the sale of Creation Baskets will be invested as quickly as practicable in the investments described in this prospectus. Investments and related margin or collateral are held through the custodian for the Fund, Brown Brothers Harriman & Co. (“BBH&Co.” or the “Custodian”), in accounts with the Fund’s commodity futures broker, Newedge USA, LLC (“Newedge”), or, in some instances when agreed to by the Fund, in collateral accounts held by third parties with respect to its non-exchange traded or cleared over-the-counter Agriculture Interests. There is no stated maximum time period for the Fund’s operations and the Fund will continue until all its Units are redeemed or the Fund is liquidated pursuant to the terms of the Trust Agreement.

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

Units may also be purchased and sold by individuals and entities that are not Authorized Purchasers in smaller increments than Creation Baskets on the NYSE Arca. However, these transactions are effected at bid and ask prices established by specialist firm(s). Like any listed security, Units of the Fund can be purchased and sold at any time a secondary market is open.

Other than to address monthly changes in the Benchmark Component Agriculture Futures Contracts, in managing the Fund’s assets, the Sponsor does not use a technical trading system that automatically issues buy and sell orders. Instead, each time one or more baskets are purchased or redeemed, the Sponsor will purchase or sell Agriculture Interests with an aggregate market value that approximates the amount of 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 the Fund only in Creation Baskets or Redemption Baskets, respectively, and only by Authorized Purchasers. Each Creation Basket and Redemption Basket consists of 100,000 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 the Fund. Some of the information contained in this prospectus, including information about buying and redeeming Units directly from and to the Fund is only relevant to Authorized Purchasers. Units of the Fund are listed and traded on the NYSE Arca 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.

 

 

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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.

The Units

The Units are registered under the Securities Act of 1933 (“1933 Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) and do not provide dividend rights or conversion rights and there will not be sinking funds. The Units may only be redeemed when aggregated in Redemption Baskets as discussed under “Creation and Redemption of Units” and holders of the Fund’s Units (“Unitholders”) generally have very limited voting rights as discussed below under “The Trust Agreement — Voting Rights” below. Cumulative voting is neither permitted nor required and there are no preemptive rights. As discussed in the Trust Agreement, upon liquidation of the Fund, the Fund’s assets will be distributed first to creditors, and, second, to the Unitholders in accordance with their positive book capital account balances, after giving effect to all contribution distributions and allocations for all periods.

This is a continuous offering under Rule 415 of the 1933 Act 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 during such period when suitable investments for the Fund 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 100,000 Units. Under the plan of distribution, the Fund does not require a minimum purchase amount for investors who purchase Units from Authorized Purchasers. There are no arrangements to place funds in escrow, or in a trust or similar account.

Types of Investments of the Fund

A brief description of the principal types of investments the Fund will make is set forth below.

 

   

A futures contract is an exchange-traded contract traded with standard terms that calls for the delivery of a specified quantity of a commodity at a specified price, on a specified date and at a specified location.

 

   

A forward contract is a non-standardized, non-exchange traded, over-the-counter, bilateral contract for the purchase or sale of a specified quantity of a commodity at a specified price, on a specified date and at a specified location.

 

   

An over-the-counter swap (also referred to as an over-the-counter transaction or uncleared swap) is a non-exchange traded bilateral contract to exchange a periodic stream of payments determined by reference to a notional amount, with one party’s payments determined by reference to a specified price for an underlying asset or index, and the other’s determined by reference to the current market price of that asset or index.

 

   

A cleared swap is a standard contract to exchange a periodic stream of payments determined by reference to a notional amount, with one party’s payments determined by reference to a specified price for an underlying asset or index, and the other’s determined by reference to the current market price of that asset or index. Cleared swaps may be executed bilaterally or on an exchange or other trading platform but must then be accepted for clearing by a clearinghouse.

 

   

An option on a futures contract, forward contract or a commodity on the spot market gives the buyer of the option the right, but not the obligation, to buy or sell a futures contract, forward contract or commodity, at a specified price on or before a specified date. Options on futures contracts, like the future contracts to which they relate, are standardized contracts traded on an exchange, while options on forward contracts and commodities generally are individually negotiated, over-the-counter, bilateral contracts.

 

 

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Unlike exchange-traded contracts, over-the-counter contracts expose the Fund to the credit risk of the other party to the contract. (As discussed below, exchange-traded contracts may expose the Fund to the risk of the clearing broker’s and/or the exchange clearinghouse(s)’ bankruptcy.) The Sponsor does not currently intend to purchase and sell commodities in the “spot market” for the Fund. Spot market transactions are cash transactions in which the buyer and seller agree to the immediate purchase and sale of a commodity, usually with a two-day settlement.

A more detailed description of the Agriculture Interests and other aspects of the commodities and markets for such investments can be found later in this prospectus.

The Fund invests in Benchmark Component Agriculture Futures Contracts traded on the ICE Futures US, ICE Futures Canada, CBOT, CME and KCBT. The Fund expressly disclaims any association with such exchanges or endorsement of the Fund by such exchanges and acknowledges that “ICE Futures US,” “ICE Futures Canada,” “Chicago Board of Trade,” “CBOT,” “Chicago Mercantile Exchange,” “CME” and “KCBT” are registered trademarks of such exchanges.

Principal Investment Risks of an Investment in the Fund

An investment in the Fund 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 15.

 

   

The price relationship between the near month Benchmark Component Agriculture Futures Contracts to expire and the next month Benchmark Component Agriculture Futures Contracts to expire that compose the Agriculture Index will vary and may impact both the Fund’s total return over time and the degree to which such total return tracks the total return of the Agriculture Index. For example, in cases in which the near month contract’s price is lower than next month contracts’ prices (a situation known as “contango” in the futures markets), then, absent the impact of the overall movement in commodity prices, the value of the Benchmark Component Agriculture Futures Contracts would tend to decline as they approach expiration. In cases in which the near month contract’s price is higher than next month contracts’ prices (a situation known as “backwardation” in the futures markets), then, absent the impact of the overall movement in agricultural commodity prices, the value of the Benchmark Component Agriculture Futures Contracts would tend to rise as they approach expiration.

 

   

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

 

   

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

 

   

To the extent that investors use the Fund as a means of investing indirectly in agricultural commodities, there is the risk that the daily changes in the price of the Fund’s Units on the NYSE Arca will not closely track the daily changes in the spot price of the agricultural commodities comprising the Agriculture Index. This could happen if the price of Units traded on the NYSE Arca does not correlate closely with the Fund’s NAV; the changes in the Fund’s NAV do not correlate closely with changes in the Agriculture Index; or the changes in the Agriculture Index do not correlate closely with changes in the cash or spot price of the agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts. This is a risk because if these correlations are not sufficiently close, then investors may not be able to use the Fund as a cost-effective way to invest indirectly in agricultural commodities or as a hedge against the risk of losses in agricultural commodity-related transactions.

 

 

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The Fund has no operating history, so there is no performance history with respect to the Fund to serve as a basis for you to evaluate an investment in the Fund.

 

   

Investors, including those who directly participate in the agricultural commodities market, may choose to use the Fund as a vehicle to hedge against the risk of loss and there are risks involved in hedging activities. 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.

 

   

The structure and operation of the Fund may involve conflicts of interest. The Sponsor has sole current authority to manage the investments and operations of the Fund, which may create a conflict with the Unitholders’ best interests. The Sponsor may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on USCI, USCPR, USMI, the United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States Gasoline Fund, LP (“UGA”), the United States Heating Oil Fund, LP (“USHO”), the United States Short Oil Fund, LP (“USSO”), the United States 12 Month Natural Gas Fund, LP (“US12NG”), and the United States Brent Oil Fund, LP (“USBO”) or any other commodity pool the Sponsor may form in the future. USCI, USCPR, USMI, USOF, USNG, US12OF, UGA, USHO, USSO, US12NG and USBO are referred to herein as the “Related Public Funds.”

 

   

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

 

   

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

 

   

The Fund seeks to have the daily changes in its Units’ NAV in percentage terms track daily changes in the Agriculture Index in percentage terms, rather than profit from speculative trading. The Sponsor therefore endeavors to manage the Fund so that the Fund’s assets are, unlike those of many other commodity pools, not leveraged (i.e., so that the aggregate value of the Fund’s unrealized losses from its investments at any time will not exceed the value of the Fund’s assets). There is no assurance that the Sponsor will successfully implement this investment strategy. If the Sponsor permits the Fund to become leveraged and the Fund’s trading positions suddenly turn unprofitable, you could lose all or substantially all of your investment. These movements in price may be the result of factors outside of the Sponsor’s control and may not be anticipated by the Sponsor.

 

   

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

 

   

Regulation of commodity interests is extensive and constantly changing. On July 21, 2010, a broad financial regulatory reform bill, “The Dodd-Frank Wall Street Reform and Consumer Protection Act,” was signed into law that includes provisions altering the regulation of commodity interests. The CFTC, along with the SEC and other federal regulators, has been tasked with developing the rules and regulations enacting the provisions noted above. The new law and the rules currently being promulgated thereunder may negatively impact the Fund’s ability to meet its investment objective either through limits or requirements imposed on it or upon its counterparties.

 

   

The Fund will invest primarily in Agriculture Interests that are traded or sold in the United States. However, a portion of the Fund’s trades may take place in markets and on exchanges outside the United States. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. In some of these non-U.S. markets, the performance on a contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes the Fund to credit risk. Trading in non-U.S. markets also leaves the Fund susceptible to fluctuations in the value of the local currency against the U.S. dollar.

 

 

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

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

Financial Condition of the Trust

The Fund will not calculate its NAV prior to the day it sells its first Creation Basket. The initial NAV will be determined as of 4:00 p.m. New York time on such day.

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 investment in a single Unit of the Fund to equal the amount invested twelve months after the investment was made. For purposes of this breakeven analysis we have assumed the initial selling price per Unit to be $25.00 which will be the selling price of the Units sold in the initial Creation Baskets. 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 breakeven analysis is an approximation only.

 

Initial Selling Price Per Unit

   $ 25.00   

Sponsor’s Management Fee(1)

   $ 0.24   

Creation Basket Fee(2)

   $ (0.01 )

Estimated Brokerage Fees(3)

   $ 0.03   

Interest Income (0.01%)(4)

   $ (0.01 )

Fees and expenses associated with tax accounting and reporting(5)

   $ 0.13   

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

   $ 0.38   

Percentage of initial selling price per Unit

     1.52 %(6)

 

(1) The Fund is obligated to pay the Sponsor a management fee based on average daily net assets and paid monthly at an annual rate of 0.95%.
(2) Authorized Purchasers are required to pay a Creation Basket fee of $1,000 for each order they place to create one or more baskets of the Fund. An order must be at least one basket, which is 100,000 Units. This breakeven analysis assumes a hypothetical investment in a single Unit so the Creation Basket fee for purposes of this breakeven analysis is $.01 (1,000/100,000).
(3) Assuming that the price of a Unit is $25.00, the Fund would receive $2,500,000 upon the sale of a Creation Basket (100,000 Units multiplied by $25.00). Assuming that this entire amount is invested in Benchmark Component Agriculture Futures Contracts and that there is no change in the settlement price of such contracts, the Fund would be required to purchase approximately 60 Benchmark Component Agriculture Futures Contracts to support the Creation Basket ($2,500,000 divided by $42,000, the average value of the Benchmark Component Agriculture Futures Contracts as of October 31, 2011). Assuming further that futures commission merchants charge approximately $4.00 per Benchmark Component Agriculture Futures Contract for the purchase or sale, and that contracts are rolled on average six times per year, the annual futures commission merchant charge for the Fund would be approximately $2,880 (120 total Benchmark Component Agriculture Futures Contract transactions (60 purchases and 60 sales) multiplied by 6 times per year multiplied by $4.00). As a percentage of the total investment of $2,500,000, this annual commission expense would be approximately 0.12%.
(4) The Fund earns interest on funds it deposits with its futures commission merchant and the Custodian and it estimates that the interest rate will be 0.01% based on the current interest rate on three-month Treasury Bills as of November 7, 2011. The actual rate may vary.
(5) The Fund assumed the aggregate costs attributable to tax accounting and reporting to be $150,000. This estimate is based on the experience of the Sponsor in its management of the Related Public Funds. The number in the break-even table assumes the Fund has $30 million in assets.
(6) For purposes of this breakeven analysis, we have assumed that the Fund has $30 million in assets. If, however, only the initial Creation Basket of the Fund is sold for proceeds of $2.5 million, the amount of trading income required for the redemption value at the end of the year to equal the initial selling price of one Unit for the Fund would be $1.75 or 7.00% of the initial selling price per unit.

 

 

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THE OFFERING

 

Offering

The Fund will offer Creation Baskets consisting of 100,000 Units through the Marketing Agent to Authorized Purchasers. It is expected that on or about the effective date, the initial Authorized Purchaser will, though it is under no obligation to do so, purchase one or more initial Creation Baskets of the Fund at a per Unit price which is expected to initially be $25.00. In order to satisfy NYSE Arca listing standards that at least 100,000 Units of the Fund be outstanding, the Sponsor may purchase one of such Creation Baskets of the Fund 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 such basket except that it may require the initial Authorized Purchaser to repurchase all of these Units at a per Unit price equal to the Fund’s per-Unit NAV 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 the Fund remain outstanding. It is expected that the proceeds from the initial Authorized Purchaser’s purchase will be invested on the day of such purchase and that the initial per Unit NAV of the Fund will be established as of 4:00 p.m. New York City time that day. Units offered in Creation Baskets on any subsequent day will be offered at the per Unit NAV calculated shortly after the close of the core trading session on the NYSE Arca.

 

Use of Proceeds

The Sponsor will apply substantially all of the Fund’s assets toward investing in Agriculture Interests, Treasuries, cash and/or cash equivalents. The Sponsor will deposit a portion of the Fund’s net assets with the futures commission merchant, or other custodians to be used to meet its current or potential margin or collateral requirements in connection with its investment in Agriculture Interests. Newedge is expected to be the futures commission merchant for the Fund. Only Treasuries, cash and/or cash equivalents will be used to satisfy these requirements. The Sponsor expects that all entities that will hold or trade the Fund’s assets will be based in the United States and will be subject to United States regulations. The Sponsor believes that approximately 5% to 20% of the Fund’s assets will normally be committed as margin for Benchmark Component Agriculture Futures Contracts and collateral for Other Agriculture-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 the Fund’s assets will be held in Treasuries, cash and/or cash equivalents by the Custodian. All interest income earned on these investments is retained for the Fund’s benefit.

 

NYSE Arca Symbol

“USAG”

 

Creation and Redemption

Authorized Purchasers pay a $1,000 fee for each order to create or redeem one or more Creation Baskets or Redemption Baskets.

 

 

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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 the Fund 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 of the Fund.

 

Inter-Series Limitation on Liability

While the Trust has four series 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 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 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 will include only those of that fund 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 of the Fund. Instead, Units will be represented by one or more global certificates, which will be deposited by the Custodian with the Depository Trust Company (“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. Beneficial interests in Units will be held through DTC’s book-entry system, which means that Unitholders are limited to:

 

   

participants in DTC such as banks, brokers, dealers and trust companies (“DTC Participants”),

 

   

those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (“Indirect Participants”), and

 

   

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 will be credited to DTC Participants’ securities accounts following confirmation of receipt of payment.

 

  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.

 

 

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Net Asset Value

The NAV of the Fund will be calculated by taking the current market value of the Fund’s total assets and subtracting any liabilities of the Fund. Under the Fund’s current operational procedures, the Administrator will calculate the NAV of the Fund’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. The NYSE Arca will calculate an approximate NAV for the Fund every 15 seconds throughout each day that the Fund’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 Component Agriculture Futures Contracts are traded.

 

Fund Expenses

The Fund is obligated to pay the Sponsor a management fee based on its average daily net assets and paid monthly at an annual rate of 0.95%. The Fund is also 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 the Fund;

 

   

expenses incurred in connection with registering additional Units of the Fund or offering Units of the Fund after the time any Units of the Fund 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 the redemption of Units;

 

   

payment of all federal, state, local or foreign taxes payable on the income, assets or operations of the Fund 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, the Fund and the Units of the Fund 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 the Fund or the offering of the Fund’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 the Fund, (iv) travel, telephone and other expenses in connection with the offering and issuance of the Units of the Fund, (v) accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith, (vi) the routine expenses associated with the preparation of monthly, quarterly, annual and other reports required by applicable U.S. federal and state regulatory authorities, and (vii) payment for fees associated with custody and transfer agency services, whether performed by an outside service provider or by affiliates of the Sponsor.

 

Termination Events

The Fund will 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 dissolution or 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 the Fund and all other funds of the Trust, 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 the Fund or any other funds of the Trust unlawful;

 

   

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

 

   

the Trust or the Fund or any other fund of the Trust, as the case may be, becomes insolvent or bankrupt;

 

   

Unitholders owning at least seventy-five percent (75%) of the outstanding Units held in the Fund and all other funds of the Trust,

 

 

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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 the Fund’s aggregate net assets in relation to the operating expenses of the Trust or the Fund make it unreasonable or imprudent to continue the business of the Trust or the Fund;

 

   

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

 

   

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

 

  Upon the dissolution of the Trust or the Fund or any other fund of the Trust, 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) will take full charge of the trust estate. Thereafter, in accordance with applicable law, the business and affairs of the Trust or the Fund or any other fund of the Trust will be wound up and all assets shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom will 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 the Fund or any other fund of the Trust (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 the Fund and all other funds 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

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

 

 

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

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, which includes the Trust’s financial statements and the related notes of the Trust and each of the Fund, USCPR and USMI.

Risks Associated With Investing Directly or Indirectly in Commodities and Agriculture Interests

Changes in the Fund’s NAV may not correlate with the changes in the value of the Agriculture Index.

It is possible that the Fund’s performance may not correspond to the daily changes in the level of the Agriculture Index due to disruptions in the market for agricultural commodities or due to other extraordinary circumstances. In addition, the Fund is not able to replicate the daily changes in the Agriculture Index because the Fund’s NAV is reduced by expenses and transactions costs, including those incurred in connection with the Fund’s trading activities, and increased by interest income from the Fund’s holdings of Treasuries, cash and/or cash- equivalents. Tracking the Agriculture Index is dependent upon the skills of the Sponsor and its management and trading personnel, among other factors.

While close tracking of the Fund to the Agriculture Index may be achieved on any single trading day, over time the cumulative percentage increase or decrease in the NAV of the Units of the Fund may diverge significantly from the cumulative percentage decrease or increase in the Agriculture Index due to a compounding effect. Therefore, the Fund does not seek to achieve its stated investment objective over a period of time greater than one day.

Historical Performance of the Agriculture Index is no guide to the future performance of the Units.

Past performance of the Agriculture Index is not necessarily indicative of the future performance of the Agriculture Index over the life of the Units. There can be no guarantee that the level of the Agriculture Index will increase. You may lose some or all of your investment in the Units.

The Agriculture Index is not designed to correlate exactly with the spot price of agricultural commodities and this could cause the changes in the price of the Units to substantially vary from the changes in the spot price of the agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts. Therefore, you may not be able to effectively use the Fund to hedge against agricultural commodity-related losses or to indirectly invest in agricultural commodities.

The Agriculture Index reflects the price for future delivery of the Benchmark Component Agriculture Futures Contracts which underlie the Agriculture Index, not the current spot price of agricultural commodities, so at best the correlation between changes in such Benchmark Component Agriculture Futures Contracts and the spot price of agricultural commodities will be only approximate. Weak correlation between the Agriculture Index and the spot price of agricultural commodities may result from typical seasonal fluctuations in agricultural commodity prices. Imperfect correlation may also result from speculation in Agriculture Interests, technical factors in the trading of Benchmark Component Agriculture Futures Contracts, and expected inflation in the economy as a whole. If there is a weak correlation between the Agriculture Index and the spot price of agricultural commodities, then the market price of the Units of the Fund may not accurately track the spot price of the agricultural commodities and you may not be able to effectively use the Fund as a way to hedge the risk of losses in your agricultural commodity-related transactions or as a way to indirectly invest in agricultural commodities.

Changes in the Fund’s NAV may not correlate well with changes in the value of the Agriculture Index. If this were to occur, you may not be able to effectively use the Fund as a way to hedge against agricultural commodity-related losses or as a way to indirectly invest in agricultural commodities.

The Sponsor endeavors to invest the Fund’s assets as fully as possible in Agriculture Interests so that the daily changes in percentage terms in the NAV of the Fund closely correlates with the daily changes in percentage

 

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terms in the Agriculture Index. However, changes in the Fund’s NAV may not correlate with the changes in the Agriculture Index for several reasons as set forth below:

 

   

The Fund does not intend to invest only in Benchmark Component Agriculture Futures Contracts. While its investments in Other Agriculture-Related Investments would generally be for the purpose of tracking the Agriculture Index most effectively and efficiently, the performance of these Other Agriculture-Related Investments may not correlate well with the performance of the Benchmark Component Agriculture Futures Contracts, resulting in a greater potential for error in tracking price changes in those futures contracts. If the trading market for the Benchmark Component Agriculture Futures Contracts is suspended or closed, the Fund may not be able to purchase these investments at the last reported price for such investments.

 

   

The Fund will incur certain expenses in connection with its operations. The Fund will hold most of its assets in income-producing, short-term Treasuries, cash and/or cash equivalents for margin, collateral and other liquidity purposes and to meet redemptions that may be necessary on an ongoing basis. These expenses and income will cause imperfect correlation between changes in the Fund’s NAV and changes in the value of the Agriculture Index.

 

   

The Sponsor may not be able to invest the Fund’s assets in Agriculture Interests having an aggregate notional amount exactly equal to the Fund’s NAV. As standardized contracts, the Benchmark Component Agriculture Futures Contracts included in the Agriculture Index are for a specified amount of agricultural commodities, and the Fund’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the amounts of those contracts. In such case, the Fund could not invest the entire proceeds from the purchase of the Creation Basket in such futures contracts. (For example, assuming the Fund receives $2,500,000 for the sale of a Creation Basket and that the average price of a Benchmark Component Agriculture Futures Contract is $112,500, the Fund could only invest in 22 Benchmark Component Agriculture Futures Contracts with an aggregate value of $2,475,000.) While the Fund may be better able to achieve the exact amount of exposure to agricultural commodities through the use of Other Agriculture -Related Investments such as over-the-counter contracts, there is no assurance that the Sponsor will be able to continually adjust the Fund’s exposure to such Other Agriculture-Related Investments to maintain such exact exposure. Furthermore, as noted above, the use of Other Agriculture-Related Investments may itself result in imperfect correlation with the Agriculture Index. After fulfilling the margin and collateral requirements with respect to the Fund’s Agriculture Interests, the Sponsor will invest the remainder of the Fund’s proceeds from the sale of baskets in Treasuries or cash equivalents, and/or merely holds such assets in cash (generally, in interest-bearing accounts). Such investments may be used to satisfy initial margin and additional margin and collateral requirements, if any, and to otherwise support investments in Agriculture Interests. Investments in Treasuries, cash and/or cash equivalents, both directly and as margin and collateral, will provide rates of return that vary from changes in the value of the price of commodities and the price of Benchmark Component Agriculture Futures Contracts.

 

   

As the Fund grows, there may be more or less correlation with the Agriculture Index. On the one hand, as the Fund grows it should be able to invest in Benchmark Component Agriculture Futures Contracts with a notional amount that is closer on a percentage basis to the Fund’s NAV. For example, if the proportionate amount of the Fund’s NAV allocable to a particular Benchmark Component Agriculture Futures Contract is equal to 4.9 times the value of the Benchmark Component Agriculture Futures Contract, it can purchase only four such futures contracts, which would cause only 81.6% of the Fund’s assets to be exposed to the market for that commodity. On the other hand, if the Fund’s NAV is equal to 100.9 times the value of a single Benchmark Component Agriculture Futures Contract, it can purchase 100 such contracts, resulting in 99.1% exposure. However, at certain asset levels the Fund may be limited in its ability to purchase Benchmark Component Agriculture Futures Contracts due to position limits imposed by the CFTC or position limits or accountability levels imposed by the relevant futures exchanges, such as the ICE Futures US, ICE Futures Canada, CBOT, KCBT or CME. In these instances, the Fund would likely invest to a greater extent in Agriculture Interests not subject to these position limits or accountability levels, to the extent possible. To the extent that the Fund invests in Other Agriculture-Related Investments, the correlation between the Fund’s NAV and the Agriculture Index may be lower. In certain circumstances, position limits could limit the number of Creation Baskets that will be sold.

 

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If changes in the Fund’s NAV do not correlate with changes in the Agriculture Index, then investing in the Fund may not be an effective way to hedge against agricultural commodity-related losses or indirectly invest in agricultural commodities.

Changes in the price of the Fund’s Units on the NYSE Arca may not correlate perfectly with changes in the NAV of the Fund’s Units. If this variation occurs, then you may not be able to effectively use the Fund to hedge against agricultural-commodity-related losses or to indirectly invest in agricultural commodities.

While it is expected that the trading prices of the Units will fluctuate in accordance with the changes in the Fund’s NAV, the prices of Units may also be influenced by other factors, including the short-term supply of and demand for the Units. There is no guarantee that the Units will not trade at appreciable discounts from, and/or premiums to, the Fund’s NAV. This could cause the changes in the price of the Units to substantially vary from the changes in the spot price of the agricultural commodities comprising the Agriculture Index. If this occurs, you may not be able to effectively use the Fund to hedge the risk of losses in your agricultural commodity-related transactions or to indirectly invest in agricultural commodities.

The Fund may experience a loss if it is required to sell Treasuries or cash equivalents at a price lower than the price at which they were acquired.

If the Fund is required to sell Treasuries or cash equivalents at a price lower than the price at which they were acquired, the Fund will experience a loss. This loss may adversely impact the price of the Fund’s Units and may decrease the correlation between the price of the Units, the Agriculture Index, and the spot price of the agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts. The value of Treasuries and other debt securities generally moves inversely with movements in interest rates. The prices of longer maturity securities are subject to greater market fluctuations as a result of changes in interest rates. While the short-term nature of the Fund’s investments in Treasuries and cash equivalents should minimize the interest rate risk to which the Fund is subject, it is possible that the Treasuries and cash equivalents held by the Fund will decline in value.

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

The Fund may not always be able to liquidate its positions in its investments at the desired price. As to futures contracts, it may be difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. Limits imposed by futures exchanges or other regulatory organizations, such as accountability levels, position limits and price fluctuation limits, may contribute to a lack of liquidity with respect to some exchange-traded Agriculture Interests. In addition, over-the-counter (“OTC”) contracts may be illiquid because they are contracts between two parties and generally may not be transferred by one party to a third party without the counterparty’s consent. Conversely, a counterparty may give its consent, but the Fund still may not be able to transfer an OTC Agriculture Interest to a third party, e.g., due to concerns regarding the counterparty’s credit risk.

A market disruption, such as a foreign government taking political actions that disrupt the market in its currency, its agricultural commodity production or exports, or in another major export, can also make it difficult to liquidate a position. Unexpected market illiquidity may cause major losses to investors at any time or from time to time. In addition, at this time the Fund has not and does not intend to establish a credit facility, which would provide an additional source of liquidity and instead rely only on the Treasuries, cash and/or cash equivalents that it holds. The anticipated large value of the positions in Agriculture Interests that the Sponsor will acquire or enter into for the Fund increases the risk of illiquidity. Because Agriculture Interests may be illiquid, the Fund’s holdings 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.

 

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If the nature of the participants in the futures market shifts such that agricultural commodity purchasers are the predominant hedgers in the market, the Fund might have to reinvest at higher futures prices or choose to invest in Other Agriculture-Related Investments.

The changing nature of the participants in the agricultural commodity market will influence whether futures prices are above or below the expected future spot price. Agricultural commodity producers will typically seek to hedge against falling agricultural commodity prices by selling futures contracts. Therefore, if agricultural commodity producers become the predominant hedgers in the futures market, prices of futures contracts will typically be below expected futures spot prices. Conversely, if the predominant hedgers in the futures market are the purchasers of the agricultural commodities who purchase futures contracts to hedge against a rise in prices, prices of futures contracts will likely be higher than expected future spot prices. This can have significant implications for the Fund when it is time to sell a Benchmark Component Agriculture Futures Contract that is no longer part of the Agriculture Index and purchase a new Benchmark Component Agriculture Futures Contract that is part of the Agriculture Index.

While the Fund does not intend to take physical delivery of agricultural commodities under the Agriculture Interests, the possibility of physical delivery impacts the value of the contracts which would make it more difficult for the Fund to track the Agriculture Index and achieve its investment objective.

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

Regulation of 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 commodity interests in the United States is subject to ongoing modification by governmental and judicial action. On July 21, 2010, a broad financial regulatory reform bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), was signed into law.

All of the Dodd-Frank Act’s provisions became effective July 16, 2011. However, some new rules implementing, and in many cases, interpreting and clarifying, the Dodd-Frank Act’s new requirements have not been finalized. Therefore, the Fund will necessarily operate in a period of regulatory uncertainty until all applicable new regulations have been finalized. Some specific examples of how the new Dodd-Frank Act provisions and rules adopted thereunder could impact the Fund are discussed below.

Provisions in the Dodd-Frank Act include the requirement that position limits be established on a wide range of commodity interests including energy-based and other commodity futures contracts, certain cleared

 

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

For a more detailed discussion of the position limits to be imposed by the CFTC under the Dodd-Frank Act and the potential impacts thereof on the Fund, see the section of this prospectus entitled, “What are Futures Contracts?”

Investing in the Fund for purposes of hedging may subject you to several risks, including the possibility of losing the benefit of favorable market movements.

Producers and commercial users of commodities may use the Fund as a vehicle to hedge the risk of losses in their agricultural commodity-related transactions. There are several risks in connection with using the Fund 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. For instance, in a hedging transaction the hedger may be a user of agricultural commodities concerned that the hedged commodities will increase in price, but must recognize the risk that the price may instead decline. If this happens, the hedger will have lost the benefit of being able to purchase agricultural commodities at the lower price because the hedging transaction will result in a loss that would offset (at least in part) this benefit. Thus, the hedger forgoes 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.

When using Agriculture Interests as a hedging technique, at best, the correlation between changes in prices of Benchmark Component Agriculture Futures Contracts and of the items being hedged can be only approximate. The degree of imperfection of correlation depends upon circumstances such as: variations in speculative markets, demand for futures and for agricultural commodity products, technical influences in futures trading, and differences between anticipated costs being hedged and the instruments underlying the standard Benchmark Component Agriculture Futures Contracts available for trading. Even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior as well as the expenses associated with creating the hedge.

An investment in the Fund may provide you little or no diversification benefits. Thus, in a declining market, the Fund may have no gains to offset your losses from other investments, and you may suffer losses on your investment in the Fund at the same time you incur losses with respect to other asset classes.

Historically, commodities have not generally been correlated to the performance of other asset classes such as stocks and bonds. Non-correlation means that there is a low statistical relationship between the performance of commodities, on the one hand, and stocks or bonds, on the other hand. However, there can be no assurance that such non-correlation will continue during future periods. If, contrary to historic patterns, the Fund’s performance were to move in the same general direction as the financial markets, you will obtain little or no diversification benefits from an investment in the Units. In such a case, the Fund may have no gains to offset your losses from other investments, and you may suffer losses on your investment in the Fund at the same time you incur losses with respect to other investments.

 

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Variables such as drought, floods, weather, embargoes, tariffs and other political events may have a larger impact on commodity prices and commodity-linked instruments, including Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments, than on traditional securities. These additional variables may create additional investment risks that subject the Fund’s investments to greater volatility than investments in traditional securities.

Non-correlation should not be confused with negative correlation, where the performance of two asset classes would be opposite of each other. There is no historic evidence that the spot prices of commodities and prices of other financial assets, such as stocks and bonds, are negatively correlated. In the absence of negative correlation, the Fund cannot be expected to be automatically profitable during unfavorable periods for the stock market, or vice versa.

Operating Risks of the Fund

The Fund is not a registered investment company, so you do not have the protections of the Investment Company Act of 1940.

The Fund is not a registered investment company subject to the Investment Company Act of 1940. Accordingly, you 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.

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

In managing and directing the day-to-day activities and affairs of the Fund, 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 the Fund. Furthermore, Messrs. Mah and Hyland are currently involved in the management of the Related Public Funds. 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 matters for the Fund and for the Related Public Funds. Mr. Hyland will spend approximately 100% of his time on matters for the Fund and the Related Public Funds. To the extent that the Sponsor establishes additional funds, even greater demands will be placed on Messrs. Mah and Hyland, as well as the other officers of the Sponsor and its Board of Directors.

SummerHaven is leanly staffed and relies heavily on key personnel to manage advisory activities.

SummerHaven is leanly staffed and relies heavily on key personnel to manage advisory activities. In providing trading advisory services to the Fund with respect to the Agriculture Index, SummerHaven relies heavily on Mr. Adam Dunsby, Mr. Kurt Nelson, Mr. Ashraf Rizvi and Dr. K. Geert Rouwenhorst. Messrs. Dunsby, Nelson and Rizvi, and Dr. Rouwenhorst intend to allocate their time to managing the assets of the Fund and the assets of the other funds that are series of the Trust, in the manner that they deem appropriate. If such key personnel of SummerHaven were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management of SummerHaven.

The liability of SummerHaven is limited, and the value of the Units may be adversely affected if the Sponsor and the Fund are required to indemnify SummerHaven.

Under the licensing agreement and advisory agreement between SummerHaven and the Sponsor, neither SummerHaven and its affiliates, nor any of their respective officers, directors, shareholders, members, partners, employees and any person who controls SummerHaven is liable to the Sponsor or the Fund or any other fund of

 

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the Trust absent willful misconduct, gross negligence, bad faith, or material breaches of applicable law or the applicable agreement on the part of SummerHaven. In addition, SummerHaven and its members, directors, officers, shareholders, employees, representatives, agents, attorneys, service providers, successors and assigns have the right to be indemnified, defended and held harmless from and against any and all claims, liabilities, obligations, judgments, causes of action, costs and expenses (including reasonable attorneys’ fees) (collectively, “Losses”) in connection with or arising out of the licensing agreement or advisory agreement, unless such Losses result from any willful misconduct, gross negligence or bad faith on the part of SummerHaven, or a material breach by SummerHaven of applicable law or the applicable agreement. Furthermore, SummerHaven will not be liable to the Sponsor or the Fund or any other fund of the Trust for any indirect, incidental, special or consequential damages, even if SummerHaven or an authorized representative of SummerHaven has been advised of the possibility of such damages.

Accountability levels, position limits, and daily price fluctuation limits set by ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME have the potential to cause a tracking error, which could cause the price of units to substantially vary from the price of the Agriculture Index and prevent you from being able to effectively use the Fund as a way to hedge against agricultural commodity-related losses or as a way to indirectly invest in agricultural commodities.

U.S. designated contract markets such as ICE Futures US, CBOT, KCBT and the CME have established accountability levels and position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which an investment by the Fund is not) may hold, own or control. For example, the current accountability level for any one month in cocoa futures contracts traded on ICE Futures US is 6,000 contracts. In addition, ICE Futures US imposes an accountability level for all months of 6,000 net futures contracts in cocoa. While this is not a fixed ceiling, it is a threshold above which ICE Futures US may exercise greater scrutiny and control over an investor, including limiting an investor to holding no more than 6,000 cocoa futures contracts.

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 example, the current position limit for feeder cattle futures contracts on the CME is 1,600 futures contracts in any contract month. The Fund will not collectively be able to hold, own or control feeder cattle futures contracts in excess of this limit.

In addition to accountability levels and position limits, futures exchanges, including ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME, may also set daily price fluctuation limits on the Benchmark Component Agriculture 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 Benchmark Component Agriculture Futures Contract, no trades may be made at a price beyond that limit.

Additionally, the Dodd-Frank Act requires the CFTC to promulgate rules establishing position limits for futures and options contracts on commodities as well as for swaps that are economically equivalent to futures or options. On October 18, 2011, the U.S. Commodity Futures Trading Commission (the “CFTC”) adopted regulations implementing position limits and limit formulas for 28 core physical commodity futures contracts, including agricultural commodity 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 (collectively, “Referenced Contracts”). The new regulations require, among other things, aggregation of position limits that would apply across different trading venues to contracts based on the same underlying commodity. However, the regulations do not appear to require aggregation of Referenced Contracts held across separate funds or Trust series.

 

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The position limit rules will be implemented in two phases: Spot-month position limits and non-spot-month position limits. Spot-month limits will be effective sixty days after the term “swap” is defined under the Dodd-Frank Act (see below). The limits adopted will be based on the spot-month position limit levels currently in place at the futures exchanges (“designated contract markets” or “DCMs”). Thereafter, the spot-month limits will be adjusted annually for energy contracts and biennially for agricultural commodity contracts. These subsequent limits will be based on the CFTC’s determination of deliverable supply in consultation with futures exchanges. Spot-month position limit levels will be set generally at 25% of estimated deliverable supply, and limits will be applied separately for physical-delivery and cash-settled contracts in the same commodity.

Non-spot-month position limits for will go into effect by CFTC order after the CFTC has received one year of open interest data on physical commodity cleared and uncleared swaps under the swaps large trader reporting rule. For those non-spot-month contracts which are “legacy” agricultural Reference Contracts, the new non-spot-month limits will go into effect sixty days after the term “swap” is defined under the Dodd-Frank Act. The non-spot month limits will be adjusted biennially based on Referenced Contract open interest. Non-spot-month position limits (i.e., limits applied to positions in all contract months combined or in a single contract month) will be set using the 10/2.5 percent formula: 10 percent of the contract’s first 25,000 of open interest and 2.5 percent thereafter. These limits will be reset biennially based on two years open interest data.

Based on its current understanding of the final position limit regulations, the Sponsor does not anticipate significant negative impact on the ability of the Fund to achieve its investment objective. However, at the time of this prospectus, additional studies are required before final rules are implemented, and therefore, it cannot be determined with certainty, what impact such rules will have on the Fund.

All of these limits may potentially cause a tracking error between the price of the Units of the Fund and the price of the Agriculture Index. This may in turn prevent you from being able to effectively use the Fund as a way to hedge against agricultural commodity-related losses or as a way to indirectly invest in agricultural commodities.

The Fund is not limiting the size of this offering and is committed to utilizing substantially all of its proceeds to purchase Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments. If the Fund encounters accountability levels, position limits, or price fluctuation limits for Benchmark Component Agriculture Futures Contracts, it may then, if permitted under applicable regulatory requirements, purchase Benchmark Component Agriculture Futures Contracts on other futures exchanges that trade listed futures in agricultural commodities. The Benchmark Component Agriculture Futures Contracts available on other futures exchanges may be comparable to the Benchmark Component Agriculture Futures Contracts, but they may have different underlying commodities, sizes, deliveries, and prices.

No independent advisers were involved in the formation of the Fund 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 the Fund. 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.

The Fund, the Sponsor and SummerHaven may have conflicts of interest, which may cause them to favor their own interests to your detriment.

The Fund, the Sponsor and SummerHaven may have inherent conflicts to the extent the Sponsor and SummerHaven attempt to maintain the Fund’s asset size in order to preserve its fee income and this may not always be consistent with the Fund’s objective of having the value of its Units’ NAV track changes in the value of the Agriculture Index.

 

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The Sponsor’s and SummerHaven’s officers, directors and employees do not devote their time exclusively to the Fund. For example, the Sponsor’s directors, officers and employees act in such capacity for other entities including the Related Public Funds that may compete with the Fund for their services. They could have a conflict between their responsibilities to the Fund and to the Related Public Funds.

The Sponsor has sole current authority to manage the investments and operations of the Fund. It has delegated management of the Fund’s investments in Agriculture Interests to its trading advisor, SummerHaven. This authority to manage the investments and operations of the Fund may allow either the Sponsor or SummerHaven to act in a way that furthers its own interests in conflict with your best interests. Unitholders have very limited voting rights, which will limit the ability to influence matters such as amending the Trust Agreement, changing the Fund’s basic investment objective, dissolving the Fund, or selling or distributing the Fund’s assets.

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 the Fund and do not control the Sponsor, so they do not have any influence over basic matters that affect the Fund.

Unitholders have very limited voting rights with respect to the Fund’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 the Fund or the conduct of its business. Unitholders must therefore rely upon the duties and judgment of the Sponsor to manage the Fund’s affairs.

The Sponsor may manage a large amount of assets and this could affect the Fund’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 that it may manage for the Fund. 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 the Trustee are limited, and the value of the Units will be adversely affected if the Fund 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 of the Trust Agreement, as the case may be. As a result, the Sponsor may require the assets of the Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of such kind would reduce the NAV of the Fund and the value of its Units.

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

The Units of the Fund 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 the Fund any distribution they received at a time when the Fund was in fact insolvent or in violation of its Trust Agreement. In addition, a number of states do not have “statutory trust” statutes such as the Delaware statutes under which the Trust has been formed in the State of Delaware. It is possible that a court in such state could hold that, due to the absence of any statutory provision to the contrary in such jurisdiction, the 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 the Fund is made a party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection with any Unitholder’s (or assignee’s) obligations or liabilities unrelated to the business of the Trust or the Fund, as

 

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applicable, such Unitholder (or assignees cumulatively) is required under the Trust Agreement to indemnify the Trust or the Fund, as applicable, for all such liability and expense incurred, including attorneys’ and accountants’ fees.

You cannot be assured of the Sponsor’s continued services, and discontinuance may be detrimental to the Fund.

You cannot be assured that the Sponsor will be willing or able to continue to service the Fund for any length of time. The Sponsor was formed for the purpose of sponsoring the Fund and other commodity pools, and has limited financial resources and no significant source of income apart from its management fees from the commodity pools it operates to support its continued service for the Fund. If the Sponsor discontinues its activities on behalf of the Fund, the Fund may be adversely affected. If the Sponsor’s registration with the CFTC or membership in the NFA were revoked or suspended, the Sponsor would no longer be able to provide services to the Fund.

Investors cannot be assured of the continuation of the agreement between SummerHaven and the Sponsor for use of the Agriculture Index, and discontinuance of the Agriculture Index may be detrimental to the Fund.

You cannot be assured that the agreement between SummerHaven and the Sponsor for use of the Agriculture Index will continue for any length of time. Should the agreement between SummerHaven and the Sponsor for use of the Agriculture Index be terminated, the Sponsor will be required to find a replacement index, which may have an adverse effect on the Fund.

You cannot be assured of SummerHaven’s continued services, and discontinuance may be detrimental to the Fund.

You cannot be assured that SummerHaven will be willing or able to continue to service the Fund for any length of time. SummerHaven was formed for the purpose of providing investment advisory services, and provides these services to the Fund on a contractual basis pursuant to a licensing agreement and an advisory agreement. The licensing agreement and the advisory agreement are to remain in effect until August 1, 2014. After August 1, 2014, the Agreement will continue for successive three-year periods unless terminated by either SummerHaven or the Sponsor as of the end of an annual period by providing at least one hundred eighty (180) days written notice of such termination prior to the end of the annual period. If SummerHaven discontinues its activities on behalf of the Fund, the Fund may be adversely affected. If SummerHaven’s registration with the CFTC or membership in the NFA were revoked or suspended, SummerHaven would no longer be able to provide services to the Fund.

In the event that, during the first two years after the Fund commences operations, either (i) Mr. Rouwenhorst ceases to serve as a partner or senior advisor to SummerHaven, or (ii) there is a change of control of SummerHaven, the Sponsor may terminate the advisory agreement upon one hundred and twenty (180) days’ prior written notice to SummerHaven. In the event that, during the first two years after the Fund commences operations, either (i) Mr. Hyland and Mr. Mah cease to serve as senior advisors or officers to the Sponsor, or (ii) there is a change of control of the Sponsor, SummerHaven may terminate the advisory agreement upon one hundred and twenty (180) days’ prior written notice to the Sponsor. The Sponsor and SummerHaven may have additional rights to terminate the advisory agreement under the terms of such contract.

The Fund could terminate at any time and cause the liquidation and potential loss of your investment and could upset the overall maturity and timing of your investment portfolio.

The Fund may terminate at any time, regardless of whether the Fund has incurred losses, subject to the terms of the Trust Agreement. For example, the dissolution or resignation of the Sponsor would cause the Fund and any other fund of the Trust to terminate unless, within 90 days of the event, Unitholders holding Units

 

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representing at least 66 2/3% of the outstanding Units of the Fund and any other fund of the Trust elect to continue the Trust and appoint a successor Sponsor. In addition, the Sponsor may terminate the Fund and any other fund of the Trust if it determines that the Fund’s aggregate net assets in relation to its operating expenses make the continued operation of the Fund unreasonable or imprudent. However, no level of losses will require the Sponsor to terminate the Fund. The Fund’s termination would result in the liquidation of its assets and the distribution of the proceeds thereof, first to 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 the Fund 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 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. For example, 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 the Fund). The Fund is also not subject to certain investor protection provisions of the Sarbanes-Oxley Act of 2002 and certain NYSE Arca governance rules (for example, audit committee requirements). In addition, the Trust Agreement limits the rights of Unitholders to bring derivative actions.

The Fund and the other funds of the Trust are series of the Trust and, as a result, a court could potentially conclude that the assets and liabilities of the Fund are not segregated from those of another fund that is a series of the Trust, thereby potentially exposing assets in the Fund to the liabilities of another fund that is a series of the Trust.

The Fund is a series of a Delaware statutory trust and not itself a separate legal entity. The Delaware Statutory Trust Act provides that if certain provisions are included in the formation and governing documents of a statutory trust organized in series and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records and are accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred by a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof. Conversely, none of the debts, liabilities, obligations and expenses incurred with respect to any other series thereof shall be enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted this Inter-Series Limitation on Liability or provided any guidance as to what is required for compliance. The Sponsor intends to maintain separate and distinct records for each series of the Trust and account for each 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 fund that is a series of the Trust.

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

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 property of the Fund. The Trust Agreement does not confer upon Unitholders the right to prosecute any such action, suit or other proceeding.

The Fund does not expect to make cash distributions.

The Sponsor has not previously made any cash distributions and intends to re-invest any income and realized gains of the Fund in additional Agriculture Interests rather than distributing cash to Unitholders. Therefore, unlike mutual funds, commodity pools or other investment pools that generally distribute income and

 

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gains to their investors, the Fund generally does not expect to distribute cash to Unitholders. You should not invest in the Fund if you will need cash distributions from the Fund to pay taxes on your share of income and gains of the Fund, if any, or for any other reason. Although the Fund does not intend to make cash distributions, the income earned from the Fund’s 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 Agriculture Interests and investors adversely react to being taxed on such income without receiving distributions that could be used to pay such tax. Cash distributions may be made in these and similar instances.

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

The Fund is obligated to pay the Sponsor a management fee based on its average daily net assets, 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 the Fund’s activities are profitable. Accordingly, the Fund 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 make its future operations viable, the Fund may be forced to terminate and investors may lose all or part of their investment.

All of the expenses relating to the Fund incurred prior to the date of this prospectus have been or will be paid by the Sponsor. These payments by the Sponsor were designed to allow the Fund the ability to commence the public offering of its Units. If the Sponsor and the Fund are unable to raise sufficient funds so that the Fund’s expenses are reasonable in relation to its NAV, the Fund may be forced to terminate and investors may lose all or part of their investment.

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

The arrangements between SummerHaven, clearing brokers and counterparties on the one hand and the Fund on the other generally are terminable by SummerHaven, the clearing brokers or counterparty upon notice to the Fund. Upon termination, the Sponsor may be required to renegotiate or make other arrangements for obtaining similar services if the Fund intends to continue trading in Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments under the advisement of SummerHaven. The services of SummerHaven or any clearing broker or counterparty 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 arrangements.

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

The Fund’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 Benchmark Component Agriculture Futures Contracts on the date when the NAV is being calculated. However, if a Benchmark Component Agriculture 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 Benchmark Component Agriculture Futures Contract position could have been liquidated will be the basis for determining the market value of such position for such day. In these situations, there is a risk that the calculation of the NAV of the Fund on such day will not accurately reflect the realizable market value of the Benchmark Component Agriculture Futures Contracts or of its over-the-counter swap contracts since the value of such contracts is tied to the value of the futures contracts.

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

If a substantial number of orders of Redemption Baskets are received by the Fund during a relatively short period of time, the Fund may not be able to satisfy the orders from the Fund’s assets not committed to trading. As

 

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a consequence, it could be necessary to liquidate the Fund’s trading positions before the time that its trading strategies would otherwise call for liquidation.

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

Since 2008, the financial markets have experienced 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. 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 the Fund’s service providers and Authorized Purchasers which would impact the ability of the Sponsor to achieve the Fund’s investment objective.

The Fund would be negatively impacted if the United States Treasury were to default on its obligations to make payments on Treasuries.

Recent events in Washington, D.C. regarding passing a fiscal budget have drawn concern regarding the United States Government’s ability to pay its obligations to holders of Treasuries. If the Fund is not able to redeem its investments in Treasuries prior to maturity and the U.S. Government cannot pay its obligations, the Fund would be negatively impacted. In addition, the Fund might also be negatively impacted by its use of money market mutual funds to the extent those funds might themselves be using Treasuries.

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 the Fund or postpone the redemption settlement date: (1) for any period during which a Futures 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 the Fund’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 its 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 the Fund 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, bankruptcy or default of a clearing broker could result in substantial losses for the Fund; the clearing broker could be subject to proceedings that impair its ability to execute the Fund’s trades.

Under CFTC regulations, a clearing broker with respect to the Fund’s exchange-traded Agriculture Interests must maintain 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 the Fund, are entitled to recover, even in respect of property specifically traceable to them, only a proportional

 

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share of all property available for distribution to all of that clearing broker’s customers. However, customers could potentially lose all funds on deposit with the clearing broker even if such funds are properly segregated. The Fund 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 Agriculture Interests are traded.

In addition, to the extent the Fund’s clearing broker is required to post the Fund’s assets as margin to a clearinghouse, the margin will be maintained in an omnibus account containing the margin of all of the clearing broker’s customers. If the Fund’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 the Fund 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 the Fund’s trades.

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

As noted above, the vast majority of the Fund’s assets are held in Treasuries, cash and/or cash equivalents with its custodian. The insolvency of the custodian could result in a complete loss of the Fund’s assets held by that custodian, which, at any given time, would likely comprise a substantial portion of the Fund’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 the Sponsor’s intellectual property or technology (which includes intellectual property or technology that the Sponsor licenses from SummerHaven), including the use of its patents, business methods, trademarks and trading program software, without permission. The Sponsor is in the process of registering its trademarks. The Fund does not currently have any proprietary software. However, if the Fund obtains proprietary software in the future, then any unauthorized use of the Fund’s proprietary software and other technology could also adversely affect its competitive advantage. The Fund may have difficulty monitoring unauthorized uses of its trademarks, proprietary software and other technology. Also, third parties may independently develop 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 the Fund, or require it to change its proprietary software and other technology or enter into royalty or licensing agreements.

The success of the Fund depends on the ability of SummerHaven to accurately implement the trading strategies of the Fund, and any failure to do so could subject the Fund to losses on such transactions.

The Sponsor’s trading strategy for the Fund, as developed by SummerHaven, is quantitative in nature and it is possible that the Sponsor or SummerHaven will make errors in its implementation. The execution of the quantitative strategy is subject to human error, such as incorrect inputs into the Sponsor’s or SummerHaven’s computer systems and incorrect information provided to the Fund’s clearing brokers. In addition, it is possible that a computer or software program may malfunction and cause an error in computation. Any failure, inaccuracy or delay in executing the Fund’s transactions could affect its ability to achieve its investment objective. It could

 

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also result in decisions to undertake transactions based on inaccurate or incomplete information. This could cause substantial losses on transactions.

The Fund may experience substantial losses on transactions if the computer or communications system fails.

The Fund’s trading activities, including its risk management, depend on the integrity and performance of the computer and communications systems supporting them. 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 the Fund’s reputations, increased operational expenses and diversion of technical resources.

If the computer and communications systems are not upgraded, the financial condition of the Fund could be harmed.

The development of complex computer and communications systems and new technologies may render the existing computer and communications systems supporting the Fund’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. The Fund’s future success will depend on its ability to respond to changing technologies on a timely and cost-effective basis.

The Fund 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.

The Fund 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 the Sponsor’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 the Fund’s available capital. For example, unavailability of price quotations from third parties may make it difficult or impossible for the Sponsor to conduct trading activities so that the Fund will closely track the Agriculture Index. 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.

Risk of Leverage and Volatility

If the Sponsor causes or permits the Fund to become leveraged, you could lose all or substantially all of your investment if the Fund’s trading positions suddenly turn unprofitable.

Commodity pools’ trading positions in futures contracts or other commodity interests are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other commodity interest’s) entire market value. This feature permits commodity pools to “leverage” their assets by purchasing or selling futures contracts (or other commodity interests) with an aggregate face amount in excess of the commodity pool’s assets. While this leverage can increase a pool’s profits, relatively small adverse movements in the price of the pool’s commodity interests can cause significant losses to the pool. While the Sponsor has not and does not intend to leverage the assets of the Fund, it is not prohibited from doing so under the Trust Agreement. If the Sponsor were to cause or permit the Fund to become leveraged, you could lose all or substantially all of your investment if the Fund’s trading positions suddenly turn unprofitable.

 

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Lengthy and substantial peak-to-valley declines in the value of the Agriculture Index may lead to even greater declines in the NAV of the Fund.

Because it is expected that the Fund’s performance will relate to the performance of the Agriculture Index, the Fund will suffer a decline in value during a period that the Agriculture Index suffers such a decline, and in turn, the value of your Units will decline. It is possible or even likely that redemptions of Redemption Baskets will exceed purchases of Creation Baskets during periods in which the Fund’s Units are declining in value. While redemptions will not directly cause the value of your Units to decline, redemptions will accentuate the reduction in the Fund’s NAV that is caused by losses from the Fund’s positions, potentially resulting in an increase in the Fund’s expenses as a percentage of NAV. Furthermore, redemptions may increase transaction costs by requiring the sale of Agriculture Interests and Treasuries to meet redemption requests.

The Fund’s exposure to the agricultural commodities market may subject you to greater volatility than investments in traditional agricultural commodities.

The Fund’s exposure to the agricultural commodities market may subject you to greater volatility than investments in traditional securities. The value of Agriculture Interests may be affected by changes in the overall agricultural commodities market or commodity indices, changes in interest rates, or factors affecting a particular industry, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.

Over-the-Counter Contract Risk

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

A portion of the Fund’s assets may be used to trade over-the-counter Agriculture Interests, such as forward contracts or swap 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 essentially unregulated by the CFTC. To date, the markets for OTC contracts have relied upon the integrity of market participants in lieu of the additional regulation imposed by the CFTC on participants in the futures markets. The manner in which OTC contracts are regulated could expose the Fund in certain circumstances to significant losses in the event of trading abuses or financial failure by participants. See “— Regulation of commodity interests is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect the Fund” 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. While some aspects of the new legislation are already in effect, most aspects may not take effect until the end of 2011 or later.

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

The Fund faces the risk of non-performance by the counterparties to the over-the-counter 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 the Fund, in which case the Fund could suffer significant losses on these contracts.

If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. During any such period, the Fund may have difficulty in determining the value of its contracts with the counterparty, which in turn could result in the overstatement or understatement of the Fund’s NAV. The Fund may eventually obtain only limited recovery or no recovery in such circumstances.

 

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

Over-the-counter contracts may have terms that make them less marketable than futures contracts or cleared swaps. Over-the-counter 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 OTC transactions may leave a party open to financial risk due to a counterparty default since the collateral held may not cover a party’s exposure on the transaction in such situations.

The Dodd-Frank Act requires the CFTC, the SEC and the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the “Prudential Regulators”) 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. The CFTC and the Prudential Regulators have proposed rules addressing margin requirements and the statutory right of certain market participants but has not implemented any rules on these issues. For more detailed discussion of these proposed rules and the potential impacts thereof on the Fund, see the section of this prospectus entitled, “The Commodity Interest Markets — Commodity Margin.”

In general, valuing OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts and securities or cleared swaps because the price and terms on which such OTC derivatives are entered into or can be terminated are individually negotiated, and those prices and terms may not reflect the best price or terms available from other sources. In addition, while market makers and dealers generally quote indicative prices or terms for entering into or terminating OTC contracts, they typically are not contractually obligated to do so, particularly if they are not a party to the transaction. As a result, it may be difficult to obtain an independent value for an outstanding OTC derivatives transaction.

Risk of Trading in International Markets

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

The Benchmark Component Agriculture Futures Contracts purchased by the Fund are traded on a United States futures exchange. However, in the future a portion of the trades made by the Fund may take place on markets and exchanges outside the United States. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. 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-U.S. laws. Similarly, the rights of market participants, such as the Fund, in the event of the insolvency or bankruptcy of a non-U.S. market or broker are also likely to be more limited than in the case of U.S. markets or brokers. As a result, in these markets, the Fund has less legal and regulatory protection than they do when they trade domestically.

In some of these non-U.S. markets, the performance on a futures contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes the Fund to credit risk. Additionally, trading on non-U.S. exchanges is subject to the risks presented by exchange controls, expropriation, increased tax burdens and exposure to local economic declines and political instability. An adverse development with respect to any of these variables could reduce the profit or increase the loss earned on trades in the affected international markets.

 

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International trading activities subject the Fund to foreign exchange risk.

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

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

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

Tax Risk

Please refer to “U.S. Federal Income Tax Considerations” for information regarding the U.S. federal income tax consequences of the purchase, ownership and disposition of Units.

Your tax liability from holding Units may exceed the amount of distributions, if any, on your Units.

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

Your allocable share of income or loss for tax purposes may differ from your economic income or loss on your Units.

Due to the application of the assumptions and conventions applied by the Fund in making allocations for tax purposes and other factors, your allocable share of the Fund’s income, gain, deduction or loss for tax purposes may be different than your economic profit or loss from your Units for a taxable year. This difference could be temporary or permanent and, if permanent, could result in your being taxed on amounts in excess of your 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 the Fund in allocating those items, with potential adverse consequences for you.

The U.S. tax rules pertaining to partnerships, which apply to the Fund, 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’ interests in the Fund. 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 you, in which case you may be required to file an amended tax return and to pay additional taxes plus deficiency interest.

 

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

In order to avoid being taxable as corporation, at least 90 percent of the Fund’s annual gross income must consist of “qualifying income” as defined in the Code. Although the Sponsor has satisfied and anticipates that it will continue to satisfy the “qualifying income” requirement for all of its taxable years, that result cannot be assured. The Fund 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 Fund 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 Fund 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 Fund as a corporation could materially reduce the after-tax return on an investment in Units and could substantially reduce the value of your Units.

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.

Risks Specific to the Fund

The price relationship between the Agriculture Index at any point in time and the Benchmark Component Agriculture Futures Contracts will vary and may impact both USAI’s total return and the degree to which its total return tracks that of commodity price indices.

The design of the Agriculture Index is such that every month it is made up of different Benchmark Component Agriculture Futures Contracts, and USAI’s investments must be rebalanced on an ongoing basis to reflect the changing composition of the Agriculture Index. In the event of a commodity futures market where near month contracts to expire trade at a higher price than next month contracts to expire, a situation referred to as “backwardation,” then absent the impact of the overall movement in commodity prices, the value of the Agriculture Index would tend to rise as it approaches expiration. As a result USAI may benefit because it would be selling more expensive contracts and buying less expensive ones on an ongoing basis. Conversely, in the event of a commodity futures market where near month contracts trade at a lower price than next month contracts, a situation referred to as “contango,” then absent the impact of the overall movement in commodity prices, the value of the Agriculture Index would tend to decline as it approaches expiration. As a result USAI’s total return may be lower than might otherwise be the case because it would be selling less expensive contracts and buying more expensive ones. The impact of backwardation and contango may cause the total return of USAI to vary significantly from the total return of other price references, such as the spot price of the commodities comprising the Agriculture Index. In the event of a prolonged period of contango, and absent the impact of rising or falling commodity prices, this could have a significant negative impact on USAI’s NAV and total return.

USAI has no operating history so there is no performance history to serve as a basis for you to evaluate an investment in USAI.

USAI is new and has no operating history. Therefore, you do not have the benefit of reviewing the past performance of USAI as a basis to evaluate an investment in USAI. The Sponsor’s current experience involves managing USCI and the Related Public Funds that seek to track a single commodity benchmark futures contract. The Sponsor’s results with the Related Public Funds may not be directly applicable to USAI because USAI seeks to track the Agriculture Index which is comprised of 14 Benchmark Component Agriculture Futures Contracts and is rebalanced monthly.

 

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Changes in the valuation of the Agriculture Index may adversely affect the value of USAI’s Units.

SummerHaven Indexing may modify the method for determining the weighting of the Agriculture Index and for calculating its value in order to ensure that the Agriculture Index represents a measure of the performance over time of the markets for the underlying agricultural commodities. Such changes could adversely affect the value of USAI’s Units. For more information about the methodology for determining the compositions and weighting of the Agriculture Index, see the section of this prospectus entitled “What is the Agriculture Index?”

The Agriculture Index is currently composed exclusively of agriculture futures contracts traded on regulated futures exchanges. The Agriculture Index may in the future include contracts traded in the OTC market or on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. If this were to occur, increased investment by USAI in the OTC market or on alternative trading facilities may become necessary in order for USAI to track the Agriculture Index. Many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities and the inclusion of such contracts in the Agriculture Index may be subject to risks not presented by most exchange-traded futures contracts, including risks related to the liquidity and price histories of relevant contracts.

Fewer representative commodities may result in greater Agriculture Index volatility.

The Agriculture Index is concentrated in terms of the number of commodities represented. You should be aware that other commodities indices are more diversified in terms of both the number and variety of commodities included. Concentration in fewer commodities may result in a greater degree of volatility in the Agriculture Index and the NAV of USAI which tracks the Agriculture Index under specific market conditions and over time.

The Agriculture Index reflects commodities in the grains, softs and livestock sectors. A change in price of any of the commodities in these sectors will have a significant effect on the level of the Agriculture Index and the value of USAI’s Units, which could have a material adverse effect on your investment.

As of September 30, 2011, the weighting of the Benchmark Component Agriculture Futures Contracts that comprise the Agriculture Index is approximately 46% grains, 29% softs and 25% livestock. In addition to the factors affecting commodities generally that are described above, commodities in each sector are subject to specific risks in light of the nature of the sector.

Some specific risks of each sector are described below:

Grains and Softs product commodities

The commodities comprising the grains ( e.g. , wheat, corn, soybeans, etc.) and softs ( e.g. , sugar, cotton, coffee, cocoa) products sectors of the Agriculture Index are subject to a number of factors that can cause price fluctuations, including: weather conditions, such as floods, drought and freezing conditions; changes in government policies (including subsidies) and trade agreements; planting decisions; and changes in demand for grains and softs.

These factors can lead to price volatility for grains and softs commodities that, in turn, may lead to corresponding volatility in the value of USAI Units. Weather conditions can lead to tightened supply and price increases, which may not be sustainable. Government policies and trade agreements can influence both supply and demand. Grains and softs products are also subject to the planting decisions of farmers, which can be influenced both by government policies as well as changing demands for their products.

Livestock commodities

The commodities comprising the livestock sector of the Agriculture Index ( e.g. , live cattle, lean hogs, feeder cattle) are subject to a number of factors that can cause price fluctuations, including: weather conditions, such as floods, drought and freezing conditions; disease and famine; changes in government policies (including subsidies); and changes in demand for livestock. These factors can lead to price volatility for livestock commodities that, in turn, may lead to corresponding volatility in the value of USAI Units.

 

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THE OFFERING

What is the Fund?

The Fund is a series of the Trust. The Fund maintains its main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. The Fund 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 the Fund, in exchange for its initial capital contribution to the Fund, the Sponsor will receive 40 Sponsor’s Units.

The Fund will be publicly traded, and seeks to have the daily changes in percentage terms of its Units’ NAV reflect the daily changes in percentage terms of the Agriculture Index, less the Fund’s expenses. The Fund will invest in a mixture of listed Benchmark Component Agriculture Futures Contracts, Other Agriculture -Related Investments, Treasuries, cash and cash equivalents.

THE FUND HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY.

Who is the Sponsor?

The Sponsor is United States Commodity Funds LLC (formerly known as Victoria Bay Asset Management, LLC), a single member limited liability company that was formed in the state of Delaware on May 10, 2005. 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. The Sponsor is also the general partner of the Related Public Funds.

USCI is a series of the Trust which seeks to have the daily changes in percentage terms of its Units’ NAV reflect the daily changes in percentage terms of the Commodity Index, less USCI’s expenses. USCI invests in a mixture of Benchmark Component Commodity Futures Contracts, other non-listed commodity interests, Treasuries, cash and cash equivalents. USCI’s units began trading on August 10, 2010. As of September 30, 2011, USCI had total net assets of $391,710,248 and had outstanding units of 6,700,020.

USOF is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil traded on the NYMEX, less USOF’s expenses. USOF invests in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. USOF’s units began trading on April 10, 2006. As of September 30, 2011, USOF had total net assets of $1,094,560,403 and had outstanding units of 35.7 million.

USNG is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the NYMEX, less USNG’s expenses. USNG invests in a mixture of listed natural gas futures contracts, other non-listed natural gas related investments, Treasuries, cash and cash equivalents. USNG’s units began trading on April 18, 2007. As of September 30, 2011, USNG had total net assets of $1,336,880,560 and had outstanding units of 148,597,828.

US12OF is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing,

 

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Oklahoma, as measured by the changes in the average of the prices of 12 futures contracts on light, sweet crude oil traded on the NYMEX, less US12OF’s expenses. US12OF invests in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. US12OF’s units began trading on December 6, 2007. As of September 30, 2011, US12OF had total net assets of $173,187,036 and had outstanding units of 4.9 million.

UGA is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the spot price of unleaded gasoline delivered to the New York harbor, as measured by the changes in the price of the futures contract on gasoline traded on the NYMEX, less UGA’s expenses. UGA invests in a mixture of listed gasoline futures contracts, other non-listed gasoline related investments, Treasuries, cash and cash equivalents. UGA’s units began trading on February 26, 2008. As of September 30, 2011, UGA had total net assets of $87,275,501 and had outstanding units of 1.9 million.

USHO is a publicly traded limited partnership which seeks to have the daily changes in percentage terms of its units’ NAV track the daily changes in percentage terms of the spot price of heating oil for delivery to the New York harbor, as measured by the changes in the price of the futures contract on heating oil traded on the NYMEX, less USHO’s expenses. USHO invests in a mixture of listed heating oil futures contracts, other non-listed heating oil related investments, Treasuries, cash and cash equivalents. USHO’s units began trading on April 8, 2008. As of September 30, 2011, USHO had total net assets of $6,297,353 and had outstanding units of 200,000.

USSO is a publicly traded limited partnership which seeks to have the daily changes in percentage terms of its units’ NAV inversely reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil as traded on the NYMEX, less USSO’s expenses. USSO invests in a mixture of listed crude oil futures contracts, other non-listed crude oil related investments, Treasuries, cash and cash equivalents. USSO’s units began trading on September 18, 2009. As of September 30, 2011, USSO had total net assets of $13,859,339 and had outstanding units of 300,000.

US12NG is a publicly traded limited partnership which seeks to have the daily changes in percentage terms of its units’ NAV reflect the daily changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX, less US12NG’s expenses. US12NG invests in a mixture of listed natural gas futures contracts, other non-listed natural gas futures contracts, other non-listed natural gas-related investments, Treasuries, cash and cash equivalents. US12NG’s units began trading on November 18, 2009. As of September 30, 2011, US12NG had total net assets of $30,736,391 and had outstanding units of 1.1 million.

USBO is a publicly traded limited partnership which seeks to have the daily changes in percentage terms of its units’ net asset value reflect the daily changes in percentage terms of the spot price of Brent crude oil as measured by the changes in the price of the futures contract on Brent crude oil as traded on the ICE Futures that is the near month contract to expire, less USBO’s expenses. USBO invests in a mixture of listed crude oil futures contracts, other non-listed crude oil futures contracts, other non-listed crude oil-related investments, Treasuries, cash and cash equivalents. USBO’s units began trading on June 2, 2010. As of September 30, 2011, USBO had total net assets of $6,925,322 and had outstanding units of 100,000.

See “Prior Performance of the Sponsor and Affiliates” on page 41.

The Sponsor is required to evaluate the credit risk of each Fund to the futures commission merchant, oversee the purchase and sale of each Fund’s Units by certain Authorized Purchasers, review daily positions and margin requirements of each Fund, and manage each Fund’s investments. The Sponsor also pays the fees of the Marketing Agent, the Administrator, the Custodian, SummerHaven 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 four 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. While these independent director requirements apply to most of the Related Public Funds, which are limited partnerships and for which the Sponsor acts as the general partner, they do not apply to the Fund. In addition, the Management Directors have the authority to manage the Sponsor pursuant to its Limited Liability Company Agreement.

Mr. Nicholas Gerber and Mr. Howard Mah serve as executive officers of the Sponsor. Neither the Trust nor the Funds have executive officers. The Trust’s and the Fund’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 August 31, 2011, had $192,098,441 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 Management Director of the Sponsor, the Sponsor 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. 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 USAI and the Related Public Funds. 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.

 

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Andrew F. Ngim has been a Management Director of the Sponsor since May 10, 2005 and Treasurer of the Sponsor since June 9, 2005. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005. As Treasurer of the Sponsor, Mr. Ngim is currently involved in the management of USAI and the Related Public Funds. 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.

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.

Robert L. Nguyen has been a Management Director of the Sponsor since May 10, 2005. He has been listed with the CFTC as a Principal of the Sponsor since November 29, 2005 and registered with the CFTC as an Associated Person on November 9, 2007. As a Management Director of the Sponsor, Mr. Nguyen is currently involved in the management of USAI and the Related Public Funds. He received a Bachelor of Science from California State University Sacramento in 1981. Mr. Nguyen has been the Managing Principal of Ameristock Corporation since January 2000. Mr. Nguyen is 52 years old.

In concluding that Mr. Nguyen should serve as Management Director of the Sponsor, the Sponsor considered his background in the financial services industry as well as his experience in leading the marketing efforts for Ameristock Corporation.

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

John P. Love has acted as the Portfolio Operations Manager for USAI and the Related Public Funds since January 2006 and, effective March 1, 2010, became the Senior Portfolio Manager for USAI and the Related Public Funds. 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 1 and Level II Chartered Financial Analyst examination. 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 and USCI in April 2006, April 2007, December 2007, February 2008, April 2008, September 2009, November 2009, June 2010 and August 2010, respectively, and as Chief Investment Officer of the Sponsor since January 2008, acts in such capacity on behalf of USAI and the Related Public Funds. As part of his responsibilities for USCI and the Related Public Funds, Mr. Hyland handles day-to-day trading, helps set investment policies, and oversees USCI’s and 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, through December 2009, provided portfolio management and new fund development expertise to non-U.S. institutional investors. Since January 2010, Towerhouse Capital Management has been inactive. Mr. Hyland was a Principal for Towerhouse in charge of portfolio research and product development regarding U.S. and non-U.S. real estate related securities. Mr. Hyland received his Chartered Financial Analyst (“CFA”) designation in 1994.

 

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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.

Margaret Johnson has acted as a Portfolio Operations Manager for USCI since March 2010 and CPER since November 2011 and will serve as a Portfolio Operations Manager for USAI. Ms. Johnson has been employed by the Sponsor since February 2009. Ms. Johnson has been listed with the CTFC as a Principal of the Sponsor since April 21, 2011. Ms. Johnson has also served as the Sponsor’s Director of Product Development from February 2009 through March 2010 and Director of Investment Services since March 2010. Ms. Johnson also served as the Director of Product Services of Ameristock Corporation from January 2007 to February 2009, where she was responsible for back office and marketing activities for the Ameristock Mutual Fund and Ameristock/Ryan Treasury ETFs. Ms. Johnson was previously employed by Gap Japan, a subsidiary of Gap Inc., from September 2005 to December 2006, and Gap Inc., a global specialty retailer offering clothing, accessories and personal care products to consumers from August 1990 to September 2005, where she most recently served as the Director of Planning for Gap Japan. Ms. Johnson holds a Series 7 registration. She holds a BS in Communications from Moorhead State University. Ms. Johnson is 50 years old.

The following individuals serve as independent directors of the Sponsor.

Peter M. Robinson has been an independent director of the Sponsor since September 30, 2005 and, as such, serves on the Board of the Sponsor, which acts on behalf of the Related Public Funds. He has been listed with the CFTC as a Principal of the Sponsor since December 2005. Mr. Robinson has been employed as a Research 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 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 64 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

 

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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.

The following are individual Principals, as that term is defined in CFTC Rule 3.1, for the Sponsor: Nicholas Gerber, Melinda Gerber, the Gerber Family Trust, the Nicholas and Melinda Gerber Living Trust, Howard Mah, Andrew Ngim, Robert Nguyen, Peter Robinson, Gordon Ellis, Malcolm Fobes, John Love, John Hyland, Ray Allen, Margaret Johnson and Wainwright Holdings, Inc. 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 the Fund other than as described in the section of this prospectus entitled “Security Ownership of Certain Beneficial Owners and Management.” John Hyland and Margaret Johnson make trading and investment decisions for the Fund. Margaret Johnson executes trades on behalf of the Fund. In addition, Nicholas Gerber, John Hyland, Robert Nguyen, Ray Allen and Kyle Balough are registered with the CFTC as Associated Persons of the Sponsor and are NFA Associate Members.

Contribution to the Fund

The Sponsor contributed $1,000 to the Trust upon the Fund’s formation on November 10, 2010, representing an initial contribution of capital to the Trust. Following the designation of the Fund as a series of the Trust, the initial capital contribution of $1,000 was transferred from the Trust to the Fund and deemed an initial contribution to the Fund. In connection with the commencement of the offering of the Fund, the Sponsor will receive 40 Sponsor’s Units of the Fund to be issued in exchange for the previously received capital contribution, representing a beneficial interest in the Fund. See also “The Offer — 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 the Fund from the initial Authorized Purchaser at the initial offering price of the Units of the Fund and hold it for an indefinite period of time.

Executive Compensation and Fees to the Sponsor

The Fund 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 the Fund and other entities controlled by the Sponsor. The Fund 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. The Fund pays fees to the Sponsor pursuant to the Trust Agreement under which it is obligated to pay the Sponsor an annualized fee of 0.95% of its average net assets.

 

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Prior Performance of the Sponsor and Affiliates

USCI is a commodity pool and issues Units traded on the NYSE Arca. The investment objective of USCI is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the Commodity Index, less USCI’s expenses. USCI’s Units’ began trading on August 10, 2010 and are offered on a continuous basis. USCI may invest in a mixture of listed futures contracts, other non-listed related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USCI from its Authorized Purchasers was $531,789,093; the total number of Authorized Purchasers of USCI was 5; the number of baskets purchased by Authorized Purchasers of USCI was 80; the number of baskets redeemed by Authorized Purchasers of USCI was 12; and the aggregate amount of units purchased was 8,000,000. For more information on the performance of USCI, see the Performance Table below.

Since the commencement of the offering of USCI units to the public on August 10, 2010 to September 30, 2011, the simple average daily change in the Commodity Index was 0.065%, while the simple average daily change in the NAV of USCI over the same time period was 0.063%. 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 Commodity Index, the average error in daily tracking by the NAV was -0.269%, meaning that over this time period USCI’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

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.

USOF is a commodity pool and issues units traded on the NYSE Arca. The investment objective of USOF is for the changes in percentage terms of its units’ NAV to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil traded on the NYMEX, less USOF’s expenses. USOF’s units began trading on April 10, 2006 and are offered on a continuous basis. USOF may invest in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USOF from its authorized purchasers was $31,099,617,748; the total number of authorized purchasers of USOF was 22; the number of baskets purchased by authorized purchasers of USOF was 6,365; the number of baskets redeemed by authorized purchasers of USOF was 6,050; and the aggregate amount of units purchased was 636,500,000.

Since the commencement of the offering of USOF units to the public on April 10, 2006 to September 30, 2011, the simple average daily change in its benchmark oil futures contract was -0.029%, while the simple average daily change in the NAV of USOF over the same time period was -0.027%. 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 benchmark oil futures contract, the average error in daily tracking by the NAV was 0.897%, meaning that over this time period USOF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

USNG is a commodity pool and issues units traded on the NYSE Arca. The investment objective of USNG is for the changes in percentage terms of its units’ NAV to reflect the changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana as measured by the changes in the price of the futures contract for natural gas traded on the NYMEX, less USNG’s expenses. USNG’s units began trading on April 18, 2007 and are offered on a continuous basis. USNG may invest in a mixture of listed natural gas futures contracts, other non-listed natural gas related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USNG from its authorized purchasers was $13,340,057,655; the total number of authorized purchasers of USNG was 17; the number of baskets purchased by authorized purchasers of USNG was 10,141; the number of baskets redeemed by authorized purchasers of USNG was 6,323; and the aggregate amount of units purchased was 1,014,100,000.

Since the commencement of the offering of USNG units to the public on April 18, 2007 to September 30, 2011, the simple average daily change in its benchmark futures contract was -0.169% while the simple average

 

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daily change in the NAV of USNG over the same time period was -0.169%. The average daily difference was 0.000%. As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was -0.363%, meaning that over this time period USNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

USHO is a commodity pool and issues units traded on the NYSE Arca. The investment objective of USHO is for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the spot price of heating oil for delivery to the New York harbor, as measured by the changes in the price of the futures contract on heating oil traded on the NYMEX, less USHO’s expenses. USHO’s units began trading on April 9, 2008 and are offered on a continuous basis. USHO may invest in a mixture of listed heating oil futures contracts, other non-listed heating oil-related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USHO from its authorized purchasers was $30,497,990; the total number of authorized purchasers of USHO was 11; the number of baskets purchased by authorized purchasers of USHO was 9; the number of baskets redeemed by authorized purchasers of USHO was 7; and the aggregate amount of units purchased was 900,000.

Since the commencement of the offering of USHO units to the public on April 9, 2008 to September 30, 2011, the simple average daily change in its benchmark futures contract was -0.022%, while the simple average daily change in the NAV of USHO over the same time period was -0.024%. 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 -0.668%, meaning that over this time period USHO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

US12OF is a commodity pool and issues units traded on the NYSE Arca. The investment objective of US12OF is for the changes in percentage terms of its units’ NAV to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of 12 futures contracts on light, sweet crude oil traded on the NYMEX, consisting of the near month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months’ contracts, less US12OF’s expenses. US12OF’s units began trading on December 6, 2007 and are offered on a continuous basis. US12OF may invest in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by US12OF from its authorized purchasers was $372,415,869; the total number of authorized purchasers of US12OF was 10; the number of baskets purchased by authorized purchasers of US12OF was 110; the number of baskets redeemed by authorized purchasers of US12OF was 61; and the aggregate amount of units purchased was 11,000,000.

Since the commencement of the offering of US12OF units to the public on December 6, 2007 to September 30, 2011, the simple average daily change in the average price of its benchmark futures contracts was -0.007%, while the simple average daily change in the NAV of US12OF over the same time period was -0.008%. The average daily difference was -0.001% (or -0.1 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was -0.294%, meaning that over this time period US12OF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

UGA is a commodity pool and issues units traded on the NYSE Arca. The investment objective of UGA is for the changes in percentage terms of its units’ NAV to reflect the changes in percentage terms in the spot price of unleaded gasoline for delivery to the New York harbor, as measured by the changes in the price of the futures contract on gasoline traded on the NYMEX, less UGA’s expenses. UGA’s units began trading on February 26, 2008 and are offered on a continuous basis. UGA may invest in a mixture of listed gasoline futures contracts, other non-listed gasoline related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by UGA from its authorized purchasers was $252,191,077; the total number of

 

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authorized purchasers of UGA was 12; the number of baskets purchased by authorized purchasers of UGA was 71; the number of baskets redeemed by authorized purchasers of UGA was 52; and the aggregate amount of units purchased was 7,100,000.

Since the commencement of the offering of UGA units to the public on February 26, 2008 to September 30, 2011, the simple average daily change in its benchmark futures contract was 0.030%, while the simple average daily change in the NAV of UGA over the same time period was 0.028%. 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 -0.532%, meaning that over this time period UGA’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

USSO is a commodity pool and issues units traded on the NYSE Arca. The investment objective of USSO is for the daily changes in percentage terms of its units’ NAV to inversely reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the NYMEX, less USSO’s expenses. USSO’s units began trading on September 24, 2009 and are offered on a continuous basis. USSO may invest in short positions in listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USSO from its authorized purchasers was $48,255,371; the total number of authorized purchasers of USSO was 12; the number of baskets purchased by authorized purchasers of USSO was 11; the number of baskets redeemed by authorized purchasers of USSO was 8; and the aggregate amount of units purchased was 1,100,000.

Since the commencement of the offering of USSO units to the public on September 24, 2009 to September 30, 2011, the inverse of the simple average daily change in its benchmark futures contract was 0.007%, while the simple average daily change in the NAV of USSO over the same time period was 0.003%. 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 inverse of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was -1.466%, meaning that over this time period USSO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

US12NG is a commodity pool and issues units traded on the NYSE Arca. The investment objective of US12NG is for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX, consisting of the near month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months’ contracts, less US12NG’s expenses. US12NG’s units began trading on November 18, 2009 and are offered on a continuous basis. US12NG may invest in a mixture of listed natural gas futures contracts, other non-listed natural gas related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by US12NG from its authorized purchasers was $81,572,038; the total number of authorized purchasers of US12NG was 6; the number of baskets purchased by authorized purchasers of US12NG was 19; the number of baskets redeemed by authorized purchasers of US12NG was 8; and the aggregate amount of units purchased was 1,900,000.

Since the commencement of the offering of US12NG units to the public on November 18, 2009 to September 30, 2011, the simple average daily change in the average price of its benchmark futures contracts was -0.104%, while the simple average daily change in the NAV of US12NG over the same time period was -0.107%. The average daily difference was -0.004% (or -0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was -0.390%, 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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USBO is a commodity pool and issues units traded on the NYSE Arca. The investment objective of USBO is for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the spot price of Brent crude oil as measured by the changes in the price of the futures contract for Brent crude oil traded on the ICE Futures, less USBO’s expenses. USBO’s units began trading on June 2, 2010 and are offered on a continuous basis. USBO may invest in a mixture of listed oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. As of September 30, 2011, the total amount of money raised by USBO from its authorized purchasers was $99,008,632; the total number of authorized purchasers of USBO was 6; the number of baskets purchased by authorized purchasers of USBO was 14; the number of baskets redeemed by authorized purchasers of USBO was 13; and the aggregate amount of units purchased was 1,400,000.

Since the commencement of the offering of USBO units to the public on June 2, 2010 to September 30, 2011, the simple average daily change in its benchmark futures contract was 0.116%, while the simple average daily change in the NAV of USBO over the same time period was 0.112%. The average daily difference was -0.004% (or -0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was -1.076%, meaning that over this time period USBO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

The table below shows the relationship between the trading prices of the units each of the Related Public Funds and the daily NAV of such fund, since inception through September 30, 2011. The first row shows the average amount of the variation between the 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  

Average Difference

   $ 0.00      $ 0.12      $ -0.03      $ 0.00      $ 0.00      $ 0.01      $ 0.01      $ -0.03      $ 0.06   

Max Premium %

     3.88 %     19.03 %     4.11 %     6.29 %     5.75 %     2.97 %     3.54 %     2.06 %     2.03 %

Max Discount %

     -4.51 %     -2.42 %     -6.18 %     -4.50 %     -3.85 %     -3.41 %     -6.52 %     -2.33 %     -1.34 %

There are significant differences between investing in the Fund and the Related Public Funds and investing directly in the futures market. The Sponsor’s results with the Related Public Funds may not be representative of results that may be experienced with a fund directly investing in futures contracts or other managed funds investing in futures contracts. 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

USCI:

Experience in Raising and Investing in USCI Through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 2,500,000,000   

Dollar Amount Raised

   $ 531,789,093   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 178,247   

FINRA registration fee

   $ 75,500   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 2,500   

Legal fees and expenses

   $ 625,066   

Printing expenses

   $ 50,395   

Length of USCI offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** These expenses were paid for by the Sponsor.

Compensation to the Sponsor and Other Compensation USCI:

Expenses paid by USCI through September 30, 2011 in Dollar Terms:

 

Expenses

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 2,936,622   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 284,360   

Other Amounts Paid or Accrued*

   $ 457,063   

Total Expenses Paid or Accrued

   $ 3,678,045   

Expenses Waived**

   $ (88,303 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 3,589,742   

 

* Includes expenses relating to legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees and miscellaneous expenses.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of USCI’s NAV, on an annualized basis, through March 31, 2011, after which date such payments were no longer necessary. The Sponsor has no obligation to continue such payment into subsequent periods.

 

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Expenses paid by USCI through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses

  

Amount As a Percentage of

Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.95% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.09% annualized

Other Amounts Paid or Accrued

   0.15% annualized

Total Expenses Paid or Accrued

   1.19% annualized

Expenses Waived

   (0.03)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   1.16% annualized

USCI Performance:

  

Name of Commodity Pool

   USCI

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   August 10, 2010

Aggregate Subscriptions (from inception through September 30, 2011)

   $531,789,093

Total Net Assets as of September 30, 2011

   $391,710,248

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $58.46

Worst Monthly Percentage Draw-down

   Sep 11 (11.69)%

Worst Peak-to-Valley Draw-down

   April 11 – Sep 11 (18.43)%

Number of Unitholders (as of December 31, 2010)

   5,456

COMPOSITE PERFORMANCE DATA FOR USCI PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Month

   2010     2011  

January

     —          4.01 %

February

     —          5.27 %

March

     —          (0.14 )%

April

     —          1.89 %

May

     —          (5.77 )%

June

     —          (5.03 )%

July

     —          3.52 %

August

     (0.04 )%**      (0.33 )%

September

     8.38 %     (11.69 )%

October

     6.31 %  

November

     0.76 %  

December

     10.93 %  

Annual Rate of Return

     28.72 %     (9.17 )%*** 

 

* 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 September 30, 2011

Terms Used in Performance Tables

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

Worst Monthly Percentage Draw-down: The largest single month loss sustained 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 of 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 drawdown” analysis conducted as of the end of April would consider that “drawdown” 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 drawdown would have ended as of the end of February at the $2 level.

USOF:

Experience in Raising and Investing in USOF through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 71,257,630,000   

Dollar Amount Raised

   $ 31,099,617,748   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 2,485,175   

FINRA registration fee

   $ 604,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 77,850   

Legal fees and expenses

   $ 1,681,130   

Printing expenses

   $ 68,417   

Length of USOF Offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through December 31, 2006, these expenses were paid for by an affiliate of the Sponsor in connection with the initial public offering. Following December 31, 2006, USOF has recorded these expenses.

Compensation to the Sponsor and Other Compensation

Expenses Paid by USOF through September 30, 2011 in dollar terms:

 

Expenses:

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 34,887,957   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 10,480,525   

Other Amounts Paid or Accrued*

   $ 11,846,707   

Total Expenses Paid or Accrued

   $ 57,215,189   

 

* Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.

 

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Expenses paid by USOF through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses:

   Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.46% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.14% annualized

Other Amounts Paid or Accrued

   0.16% annualized

Total Expenses Paid or Accrued

   0.76% annualized

USOF Performance:

  

Name of Commodity Pool

   USOF

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   April 10, 2006

Aggregate Subscriptions (from inception through September 30, 2011)

   $31,099,617,748

Total Net Assets as of September 30, 2011

   $1,094,560,403

Initial NAV per Unit as of Inception

   $67.39

NAV per Unit as of September 30, 2011

   $30.66

Worst Monthly Percentage Draw-down

   Oct 2008 (31.57)%

Worst Peak-to-Valley Draw-down

   Jun 2008 – Feb 2009 (75.84)%

Number of Unitholders (as of December 31, 2010)

   176,111

COMPOSITE PERFORMANCE DATA FOR USOF PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2006     2007     2008     2009     2010     2011  

January

     —          (6.55 )%      (4.00 )%      (14.60 )%      (8.78 )%     (0.62 )%

February

     —          5.63     11.03     (6.55 )%      8.62 %     1.21 %

March

     —          4.61     0.63     7.23     4.61 %     8.78 %

April

     3.47 %**      (4.26 )%      12.38     (2.38 )%      2.04 %     6.12 %

May

     (2.91 )%     (4.91 )%      12.80     26.69     (17.96 )%     (10.43 )%

June

     3.16 %     9.06     9.90     4.16     0.47 %     (7.65 )%

July

     (0.50 )%     10.57 %     (11.72 )%     (2.30 )%     3.57 %     (0.24 )%

August

     (6.97 )%     (4.95 )%     (6.75 )%     (1.98 )%     (9.47 )%     (7.66 )%

September

     (11.72 )%     12.11 %     (12.97 )%     0.25 %     8.97 %     (11.08 )%

October

     (8.45 )%     16.98 %     (31.57 )%     8.43 %     0.89 %  

November

     4.73 %     (4.82 )%     (20.65 )%     (0.51 )%     2.53 %  

December

     (5.21 )%     8.67 %     (22.16 )%     (0.03 )%     8.01 %  

Annual Rate of Return

     (23.03 )%     46.17 %     (54.75 )%     14.14 %     (0.49 )%     (21.32 )%*** 

 

* The monthly rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to arrive at a percentage increase or decrease.
** Partial from April 10, 2006
*** Through September 30, 2011

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

 

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USNG:

Experience in Raising and Investing in USNG through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 24,056,500,000   

Dollar Amount Raised

   $ 13,340,057,655   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 1,341,530   

FINRA registration fee

   $ 377,500   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 39,350   

Legal fees and expenses

   $ 621,670   

Printing expenses

   $ 76,946   

Length of USNG Offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through April 18, 2007, these expenses were paid for by the Sponsor. Following April 18, 2007, USNG has recorded these expenses.

Compensation to the Sponsor and Other Compensation

Expenses paid by USNG through September 30, 2011 in dollar terms:

 

Expenses:

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 44,078,401   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 23,545,427   

Other Amounts Paid or Accrued*

   $ 24,028,050   

Total Expenses Paid or Accrued

   $ 91,651,878   

 

* Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.

Expenses paid by USNG through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses:

  

Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.54% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.28% annualized

Other Amounts Paid or Accrued

   0.29% annualized

Total Expenses Paid or Accrued

   0.97% annualized

USNG Performance:

  

Name of Commodity Pool

   USNG

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   April 18, 2007

Aggregate Subscriptions (from inception through September 30, 2011)

   $13,340,057,655

Total Net Assets as of September 30, 2011

   $1,336,880,560

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $9.00

Worst Monthly Percentage Draw-down

   Jul 2008 (32.13)%

Worst Peak-to-Valley Draw-down

   Jun 2008 – Sep 2011 (92.82)%

Number of Unitholders (as of December 31, 2010)

   393,887

 

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COMPOSITE PERFORMANCE DATA FOR USNG PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008     2009     2010     2011  

January

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

February

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

March

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

April

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

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 %     (4.9 )%

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 )%  

November

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

December

     0.75 %     (14.32 )%     13.91     4.53 %  

Annual Rate of Return

     (27.64 )%     (35.68 )%     (56.73 )%      (40.42 )%     (25.00 )%*** 

 

* 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 18, 2007
*** Through September 30, 2011

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

USHO:

Experience in Raising and Investing in USHO through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 1,940,500,000   

Dollar Amount Raised

   $ 30,497,990   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 142,234   

FINRA registration fee

   $ 151,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 2,500   

Legal fees and expenses

   $ 127,303   

Printing expenses

   $ 31,751   

Length of USHO offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through August 31, 2009, initial offering costs and a portion of ongoing expenses were paid for by the Sponsor. Following August 31, 2009, USHO has recorded these expenses.

 

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Compensation to the Sponsor and Other Compensation

Expenses paid by USHO through September 30, 2011 in dollar terms:

 

Expenses:

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 218,544   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 35,964   

Other Amounts Paid or Accrued*

   $ 760,769   

Total Expenses Paid or Accrued

   $ 1,015,277   

Expenses Waived**

   $ (682,840 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 332,437   

 

* Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of USHO’s NAV, on an annualized basis, through at least December 31, 2011. The Sponsor has no obligation to continue such payment into subsequent periods.

Expenses paid by USHO through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses:

   Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.60% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.10% annualized

Other Amounts Paid or Accrued

   2.11% annualized

Total Expenses Paid or Accrued

   2.81% annualized

Expenses Waived

   (1.89)% annualized

Total Expenses Paid Including Expenses Waived

   0.92% annualized

USHO Performance:

  

Name of Commodity Pool

   USHO

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   April 9, 2008

Aggregate Subscriptions (from inception through September 30, 2011)

   $30,497,990

Total Net Assets as of September 30, 2011

   $6,297,353

Initial NAV Per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $31.49

Worst Monthly Percentage Draw-down

   Oct 2008 (28.63%)

Worst Peak-to-Valley Draw-down

   Jun 2008 – Feb 2009 (69.17%)

Number of Unitholders (as of December 31, 2010)

   2,539

 

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COMPOSITE PERFORMANCE DATA FOR USHO PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009     2010     2011  

January

     —          0.05     (10.17 )%      7.58 %

February

     —          (11.34 )%      5.78     6.98 %

March

     —          6.73     6.42     5.45 %

April

     2.84 %**      (3.85 )%      5.13     4.75 %

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 )%   

November

     (18.38 )%      0.19     2.97  

December

     (17.80 )%      2.23     8.75  

Annual Rate of Return

     (56.12 )%      25.52     8.28     5.60 %*** 

 

* 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 September 30, 2011

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

US12OF:

Experience in Raising and Investing in US12OF through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 3,718,000,000   

Dollar Amount Raised

   $ 372,415,869   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 129,248   

FINRA registration fee

   $ 151,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 10,700   

Legal fees and expenses

   $ 258,912   

Printing expenses

   $ 44,402   

Length of US12OF Offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through March 31, 2009, a portion of these expenses were paid for by an affiliate of the Sponsor in connection with the initial public offering. Following March 31, 2009, US12OF has recorded these expenses.

 

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Compensation to the Sponsor and Other Compensation

Expenses paid by US12OF through September 30, 2011 in dollar terms:

 

Expenses:

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 2,855,121   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 90,728   

Other Amounts Paid or Accrued*

   $ 1,601,560   

Total Expenses Paid or Accrued

   $ 4,547,409   

Expenses Waived**

   $ (262,220 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 4,285,189   

 

* Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of US12OF’s NAV, on an annualized basis through March 31, 2009, after which date such payments were no longer necessary. The Sponsor has no obligation to continue such payment in subsequent periods.

Expenses paid by US12OF through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses:

   Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.60% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.02% annualized

Other Amounts Paid or Accrued

   0.34% annualized

Total Expenses Paid or Accrued

   0.96% annualized

Expenses Waived

   (0.06)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   0.90% annualized

US12OF Performance:

  

Name of Commodity Pool

   US12OF

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   December 6, 2007

Aggregate Subscriptions (from inception through September 30, 2011)

   $372,415,869

Total Net Assets as of September 30, 2011

   $173,187,036

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $35.34

Worst Monthly Percentage Draw-down

   Oct 2008 (29.59)%

Worst Peak-to-Valley Draw-down

   Jun 2008 – Feb 2009 (66.97)%

Number of Unitholders (as of December 31, 2010)

   13,837

 

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COMPOSITE PERFORMANCE DATA FOR US12OF PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2007     2008     2009     2010     2011  

January

     —          (2.03 )%      (7.11 )%      (8.40 )%     3.38 %

February

     —          10.48     (4.34 )%      6.73 %     1.89 %

March

     —          (0.66 )%      9.22     4.16 %     7.30 %

April

     —          11.87     (1.06 )%      6.37 %     5.94 %

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 )%  

November

     —          (16.17 )%      2.31     1.86 %  

December

     8.46 %**      (12.66 )%      (1.10 )%      9.10  

Annual Rate of Return

     8.46     (42.39 )%      29.23     6.29     (17.64 )%*** 

 

* 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 September 30, 2011

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

UGA:

Experience in Raising and Investing in UGA through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 3,431,000,000   

Dollar Amount Raised

   $ 252,191,077   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 184,224   

FINRA registration fee

   $ 151,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 2,500   

Legal fees and expenses

   $ 192,407   

Printing expenses

   $ 44,881   

Length of UGA Offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through August 31, 2009, initial offering costs and a portion of ongoing expenses were paid for by the Sponsor. Following August 31, 2009, UGA has recorded these expenses.

 

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Compensation to the Sponsor and Other Compensation

Expenses paid by UGA through September 30, 2011 in dollar terms:

 

Expenses:

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 1,463,930   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 224,424   

Other Amounts Paid or Accrued*

   $ 828,645   

Total Expenses Paid or Accrued

   $ 2,516,999   

Expenses Waived**

   $ (351,955 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 2,165,044   

 

* Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of UGA’s NAV, on an annualized basis, through at least September 30, 2011. The Sponsor has no obligation to continue such payment into subsequent periods.

Expenses paid by UGA through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses:

   Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.60% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.09% annualized

Other Amounts Paid or Accrued

   0.34% annualized

Total Expenses Paid or Accrued

   1.03% annualized

Expenses Waived

   (0.14)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   0.89% annualized

UGA Performance:

  

Name of Commodity Pool

   UGA

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   February 26, 2008

Aggregate Subscriptions (from inception through September 30, 2011)

   $252,191,077

Total Net Assets as of September 30, 2011

   $87,275,501

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $45.93

Worst Monthly Percentage Draw-down

   Oct 2008 (38.48%)

Worst Peak-to-Valley Draw-down

   Jun 2008 – Dec 2008 (69.02%)

Number of Unitholders (as of December 31, 2010)

   23,115

 

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COMPOSITE PERFORMANCE DATA FOR UGA

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2008     2009     2010     2011  

January

     —          16.23 %     (7.47 )%     2.19 %

February

     (0.56 )%**      0.26 %     7.33 %     9.52 %

March

     (2.39 )%     2.59 %     5.42 %     7.16 %

April

     10.94 %     2.07 %     3.15 %     10.45 %

May

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

June

     4.80 %     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 %  

November

     (21.35 )%     1.00 %     8.19 %  

December

     (15.72 )%     0.55 %     11.33 %  

Annual Rate of Return

     (59.58 )%     80.16 %     15.52 %     9.20 %*** 

 

* 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 September 30, 2011

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

USSO:

Experience in Raising and Investing in USSO Through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 1,250,000,000   

Dollar Amount Raised

   $ 48,255,371   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 49,125   

FINRA registration fee

   $ 55,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 0   

Legal fees and expenses

   $ 408,335   

Printing expenses

   $ 0   

Length of USSO offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** These expenses were paid for by the Sponsor.

 

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Table of Contents

Compensation to the Sponsor and Other Compensation USSO:

Expenses paid by USSO through September 30, 2011 in Dollar Terms:

 

Expenses

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 160,185   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 35,478   

Other Amounts Paid or Accrued*

   $ 554,652   

Total Expenses Paid or Accrued

   $ 750,315   

Expenses Waived**

   $ (502,914 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 247,401   

 

* Includes expenses relating to legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of USSO’s NAV, on an annualized basis, through at least December 31, 2011. The Sponsor has no obligation to continue such payment into subsequent periods.

Expenses paid by USSO through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses

   Amount As a Percentage of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.60% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.13% annualized

Other Amounts Paid or Accrued

   2.08% annualized

Total Expenses Paid or Accrued

   2.81% annualized

Expenses Waived

   (1.89)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   0.92% annualized

USSO Performance:

  

Name of Commodity Pool

   USSO

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   September 24, 2009

Aggregate Subscriptions (from inception through September 30, 2011)

   $48,255,371

Total Net Assets as of September 30, 2011

   $13,859,339

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $46.20

Worst Monthly Percentage Draw-down

   Feb 10 (8.94)%

Worst Peak-to-Valley Draw-down

   Aug 10 – Apr 11 (33.26)%

Number of Unitholders (as of December 31, 2010)

   1,389

 

 

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COMPOSITE PERFORMANCE DATA FOR USSO PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010     2011  

January

       9.05 %     (0.64 )%

February

       (8.94 )%     (1.94 )%

March

       (4.92 )%     (8.89 )%

April

       (2.50 )%     (6.27 )%

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 )%  

November

     (0.25 )%     (3.18 )%  

December

     (0.57 )%     (7.74 )%  

Annual Rate of Return

     (12.02 )%     (8.12 )%     14.30 %*** 

 

* 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 September 30, 2011

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

US12NG:

Experience in Raising and Investing in US12NG Through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 1,500,000,000   

Dollar Amount Raised

   $ 81,572,038   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 80,910   

FINRA registration fee

   $ 70,000   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 2,500   

Legal fees and expenses

   $ 202,011   

Printing expenses

   $ 31,588   

Length of US12NG offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** These expenses were paid for by the Sponsor.

 

58


Table of Contents

Compensation to the Sponsor and Other Compensation US12NG:

Expenses paid by US12NG through September 30, 2011 in Dollar Terms:

 

Expenses

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 456,972   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 24,418   

Other Amounts Paid or Accrued*

   $ 526,276   

Total Expenses Paid or Accrued

   $ 1,007,666   

Expenses Waived**

   $ (422,297 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 585,369   

 

* Includes expenses relating to legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of US12NG’s NAV, on an annualized basis, through at least December 31, 2011. The Sponsor has no obligation to continue such payment into subsequent periods.

Expenses paid by US12NG through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses

   Amount As a Percentage  of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.72% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.04% annualized

Other Amounts Paid or Accrued

   0.82% annualized

Total Expenses Paid or Accrued

   1.57% annualized

Expenses Waived

   (0.66)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   0.91% annualized

US12NG Performance:

  

Name of Commodity Pool

   US12NG

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   November 18, 2009

Aggregate Subscriptions (from inception through September 30, 2011)

   $81,572,038

Total Net Assets as of September 30, 2011

   $30,736,391

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $27.94

Worst Monthly Percentage Draw-down

   Mar 10 (15.47)%

Worst Peak-to-Valley Draw-down

   Jan 10 – Sep 11 (48.04)%

Number of Unitholders (as of December 31, 2010)

   4,575

 

59


Table of Contents

COMPOSITE PERFORMANCE DATA FOR US12NG PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

     Rates of Return*  

Month

   2009     2010     2011  

January

       (5.93 )%     (0.68 )%

February

       (5.18 )%     (6.49 )%

March

       (15.47 )%     5.32 %

April

       0.07 %     3.53 %

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 )%  

November

     (0.02 )%**      (0.92 )%  

December

     7.56     4.88 %  

Annual Rate of Return

     7.54 %     (34.83 )%      (20.26 )%*** 

 

* 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 September 30, 2011

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

USBO:

Experience in Raising and Investing in USBO Through September 30, 2011

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Dollar Amount Offered*

   $ 2,500,000,000   

Dollar Amount Raised

   $ 99,008,632   

Organizational and Offering Expenses:**

  

SEC registration fee

   $ 139,500   

FINRA registration fee

   $ 75,500   

Listing fee

   $ 5,000   

Auditor’s fees and expenses

   $ 2,500   

Legal fees and expenses

   $ 268,670   

Printing expenses

   $ 39,072   

Length of USBO offering

     Continuous   

 

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** These expenses were paid for by the Sponsor.

 

60


Table of Contents

Compensation to the Sponsor and Other Compensation USBO:

Expenses paid by USBO through September 30, 2011 in Dollar Terms:

 

Expenses

   Amount in
Dollar Terms
 

Amount Paid or Accrued to Sponsor

   $ 260,435   

Amount Paid or Accrued in Portfolio Brokerage Commissions

   $ 26,173   

Other Amounts Paid or Accrued*

   $ 273,554   

Total Expenses Paid or Accrued

   $ 560,162   

Expenses Waived**

   $ (218,147 )

Total Expenses Paid or Accrued Including Expenses Waived

   $ 342,015   

 

* Includes expenses relating to legal fees, auditing fees, printing expenses, printing expenses, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of the Sponsor.
** The Sponsor, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceeded 0.15% (15 basis points) of USBO’s NAV, on an annualized basis, through at least December 31, 2011. The Sponsor has no obligation to continue such payment into subsequent periods.

Expenses paid by USBO through September 30, 2011 as a Percentage of Average Daily Net Assets:

 

Expenses

   Amount As a Percentage  of
Average Daily Net Assets

Amount Paid or Accrued to Sponsor

   0.75% annualized

Amount Paid or Accrued in Portfolio Brokerage Commissions

   0.08% annualized

Other Amounts Paid or Accrued

   0.79% annualized

Total Expenses Paid or Accrued

   1.62% annualized

Expenses Waived

   (0.63)% annualized

Total Expenses Paid or Accrued Including Expenses Waived

   0.99% annualized

USBO Performance:

  

Name of Commodity Pool

   USBO

Type of Commodity Pool

   Exchange traded security

Inception of Trading

   June 2, 2010

Aggregate Subscriptions (from inception through September 30, 2011)

   $99,008,632

Total Net Assets as of September 30, 2011

   $6,925,322

Initial NAV per Unit as of Inception

   $50.00

NAV per Unit as of September 30, 2011

   $69.25

Worst Monthly Percentage Draw-down

   Sep 11 (9.85)%

Worst Peak-to-Valley Draw-down

   Apr 11 – Sep 11 (17.27)%

Number of Unitholders (as of December 31, 2010)

   141

 

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COMPOSITE PERFORMANCE DATA FOR USBO PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

Month

   2010     2011  

January

     —          6.61 %

February

     —          10.42 %

March

     —          4.92 %

April

     —          7.44 %

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 %  

November

     3.00 %  

December

     10.09 %  

Annual Rate of Return

     26.16 %     9.78 %*** 

 

* 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 September 30, 2011

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

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 $192,098,441 in assets as of August 31, 2011. 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 SummerHaven?

Background of SummerHaven

SummerHaven is a Delaware limited liability company formed on August 11, 2009. Its offices are located at Soundview Plaza, 4th Floor, 1266 East Main Street, Stamford, CT 06902, and its telephone number is (203) 352-2700. SummerHaven has been registered under the Commodity Exchange Act (the “CEA”) as a commodity pool operator and a commodity trading advisor since October 9, 2009. SummerHaven became an NFA member effective October 9, 2009. From September 2009 to January 2010, SummerHaven was a registered investment advisor under the Investment Advisers Act of 1940. In January 2010, SummerHaven withdrew its registration since its assets under management was below $25 million. The firm’s management team has over 50 years of combined capital markets experience including commodity research and modeling, trading, investment management and risk management expertise.

 

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Background of SummerHaven Index Management, LLC

SummerHaven Indexing is the owner, creator and licensor of commodity indices including the Agriculture Index. SummerHaven Indexing is a Delaware limited liability company formed on August 11, 2009. It maintains its main business office at Soundview Plaza, Fourth Floor, 1266 East Main Street, Stamford, CT 06902. The firm maintains a website at www.summerhavenindex.com. The firm creates innovative commodities indices focused on providing investors with better risk-adjusted returns than traditional commodity index benchmarks. SummerHaven Indexing’s principals and consultants include academics who are the authors of widely cited and acclaimed papers on commodities futures investing including “Facts and Fantasies about Commodities” and “Fundamentals of Commodities Futures Returns.” The firm is led by a seasoned management team with over 50 years of collective Wall Street experience with commodities futures, capital markets, investment management, and exchange traded products.

Principals of SummerHaven

Adam W. Dunsby has been employed by SummerHaven since April 2009 as a partner. His duties include quantitative modeling and portfolio construction. From April 1995 to April 2008, Mr. Dunsby was employed by Cornerstone Quantitative Investment Group Inc., a quantitative global macro CTA, as a co-founder and manager. From February 6, 1996 through April 27, 2008, he was listed as a Principal of Cornerstone Quantitative Investment Group Inc. Mr. Dunsby was not employed from April 2008 to April 2009. Mr. Dunsby became listed as a principal of SummerHaven effective October 1, 2009, as an associated person of SummerHaven effective October 9, 2009 and as an associate member of the NFA effective October 9, 2009. Mr. Dunsby graduated summa cum laude from the Wharton School of the University of Pennsylvania in 1990 with a BS in Economics. He earned his PhD in Finance from Wharton in 1995. Mr. Dunsby is 43 years old.

Kurt J. Nelson has been employed by SummerHaven since August 2009 as a partner. His duties include investor relations, product structuring and compliance. From September 2007 to July 2009, Mr. Nelson was employed by UBS Investment Bank as a Managing Director and supervisory committee member of the UBS Bloomberg CMCI Index and Dow-Jones UBS Commodity Index. From March 1998 to January 2007, Mr. Nelson was employed by AIG Financial Products Corp. as a Managing Director. Mr. Nelson was not employed from January 2007 to September 2007. Mr. Nelson became listed as a principal of SummerHaven effective October 1, 2009, as an associated person of SummerHaven effective October 12, 2009 and as an associate member of the NFA effective October 12, 2009. Mr. Nelson is 42 years old.

Ashraf R. Rizvi has been employed by SummerHaven since April 2009 as a partner. His duties include trading and operational management. From October 1994 to February 2008, Mr. Rizvi was employed by UBS Investment Bank as a Managing Director and Global Head of Commodities Trading. Mr. Rizvi was not employed from February 2008 to April 2009. Mr. Rizvi became listed as a principal of SummerHaven effective October 9, 2009, as an associated person of SummerHaven effective September 9, 2011 and as an associate member of the NFA effective September 9, 2011. Mr. Rizvi is 48 years old.

K. Geert Rouwenhorst has been employed by SummerHaven since April 2009 as a partner. His duties include research and investor relations. From July 1990 to present, Dr. Rouwenhorst has been employed by Yale School of Management as a Professor of Finance. Dr. Rouwenhorst became listed as a principal of SummerHaven effective October 8, 2009, as an associated person of SummerHaven effective September 1, 2011 and as an associate member of the NFA effective September 1, 2011. Dr. Rouwenhorst is 51 years old.

Joseph J. Schultz has been employed by SummerHaven since April 2011 as a partner. His duties include supervision of the firm’s reporting, accounting and operations. From February 2004 to April 2011, Mr. Schultz was the Chief Operating Officer and a Managing Partner at Basso Capital Management, L.P., an employee owned hedge fund sponsor which provides services to pooled investment vehicles focused primarily on convertible securities and their underlying equity shares, where he was responsible for the oversight of the firm’s

 

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day-to-day operations. From May 1997 to February 2004, Mr. Schultz was a Vice President at AIG Trading Group, a subsidiary of American International Group, Inc. which provides currency and commodity prime brokerage, back-office support, access to e-commerce trading portals, and political-economic research and consulting services for the financial services industry, where he designed systems, procedural protocol and managed the daily operations for the fixed income and foreign currency options department and hedge funds. On July 11, 2011, Mr. Schultz became listed as a principal of SummerHaven. Mr. Schultz received a B.B.A in Finance from Baruch College and is 39 years old.

Who is the Trustee?

The sole Trustee of the Trust is Wilmington Trust Company, a Delaware trust company. 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 the Fund 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 the Fund. The Trustee has no duty or liability to supervise or monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions of the Sponsor.

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

How Does The Fund Operate?

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

The investment objective of the Fund is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the Agriculture Index, less the Fund’s expenses. The Sponsor does not intend that the Fund will be operated in a fashion such that its NAV will equal, in dollar terms, the price of the Agriculture Index or the price of any particular Benchmark Component Agriculture Futures Contract.

 

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The Fund will seek to achieve its investment objective by investing to the fullest extent possible in the Benchmark Component Agriculture Futures Contracts. Then if constrained by regulatory requirements, such as those described in “What are Futures Contracts? — Impact of Position Limits, Accountability Levels, and Price Fluctuation Limits,” or in view of market conditions, The Fund will invest next in other Eligible Agriculture Futures Contracts, and finally to a lesser extent, in other exchange traded futures contracts that are economically identical or substantially similar to the Benchmark Component Agriculture Futures Contracts if one or more other Eligible Agriculture Futures Contracts is not available. When the Fund has invested to the fullest extent possible in exchange-traded futures contracts, it may then invest in other contracts and instruments based on the Benchmark Component Agriculture Futures Contracts, other Eligible Agriculture Futures Contracts or agricultural commodities, such as cash-settled options, forward contracts, cleared swap contracts and swap contracts other than cleared swap contracts. Other exchange-traded futures contracts that are economically identical or substantially similar to the Benchmark Component Agriculture Futures Contracts and other contracts and instruments based on the Benchmark Component Agriculture Futures Contracts, are collectively referred to as “Other Agriculture-Related Investments,” and together with Benchmark Component Agriculture Futures Contracts and other Eligible Agriculture Futures Contracts, “Agriculture Interests.”

For more information on the composition of the Agriculture Index and selection of the Benchmark Component Agriculture Futures Contracts, see the section of this prospectus entitled “What is the Agriculture Index?”

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

 

   

A is the average daily percentage change in the Fund’s NAV for any period of 30 successive Valuation Days; and

 

   

B is the average daily percentage change in the price of the Agriculture Index over the same period.

The Sponsor believes that market arbitrage opportunities will cause the daily changes in the Fund’s Unit price on the NYSE Arca to closely track the daily changes in the Fund’s NAV per Unit. The Sponsor believes that the net effect of this expected relationship and the expected relationship described above between the Fund’s NAV and the Agriculture Index will be that the daily changes in the price of the Fund’s Units on the NYSE Arca will closely track the daily changes in the Agriculture Index, less the Fund’s expenses. While the Agriculture Index is composed of Benchmark Component Agriculture Futures Contracts and is therefore a measure of the prices of the commodity comprising the Agriculture Index for future delivery, there is nonetheless expected to be a reasonable degree of correlation between the Agriculture Index and the cash or spot price of the commodity underlying the Benchmark Component Agriculture Futures Contracts.

 

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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 agricultural commodity prices. An investment in the Units allows both retail and institutional investors to easily gain this exposure to the agricultural commodities market in a transparent, cost-effective manner.

The Sponsor employs a “neutral” investment strategy for the Fund intended to track the changes in the Agriculture Index regardless of whether the Agriculture Index goes up or goes down. The Fund’s “neutral” investment strategy is designed to permit investors generally to purchase and sell the Fund’s Units for the purpose of investing indirectly in the agricultural commodities market in a cost-effective manner, and/or to permit participants in the agricultural commodity or other industries to hedge the risk of losses in their agricultural commodity-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with investing in the agricultural commodities market and/or the risks involved in hedging may exist. In addition, an investment in the Fund involves the risks that the changes in the price of the Fund’s Units will not accurately track the changes in the Agriculture Index, and that changes in the Agriculture Index will not closely correlate with changes in the spot price of the agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts.

The Fund’s investment objective is for the daily changes in percentage terms of its Units’ NAV to reflect the daily changes in percentage terms of the Agriculture Index, not to have the market price of its Units match, dollar for dollar, changes in the price of the Agriculture Index or the agricultural commodity futures contracts underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index.

 

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Contango and backwardation may impact the total return on investment in Units of the Fund relative to a hypothetical direct investment in the agricultural commodity futures contracts underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index and, in the future, it is likely that the relationship between the market prices of the Fund’s Units and changes in the spot prices of the agricultural commodity futures contracts underlying the Benchmark Component Agriculture Futures Contracts that make up the Agriculture Index could be impacted by contango and backwardation. It is important to note that this comparison ignores the potential costs associated with physically owning and storing agricultural commodities, which could be substantial. For a more in-depth discussion of the impact of contango and backwardation, see “Risk Factors — Risks Specific to the Fund — The price relationship between the Agriculture Index at any point in time and the Benchmark Component Agriculture Futures Contracts will vary and may impact both the Fund’s total return and the degree to which its total return tracks that of commodity price indices” in this prospectus.

Furthermore, the Fund also invests in Treasuries and holds cash and/or cash equivalents to meet its current or potential margin or collateral requirements with respect to its investments in Agriculture Interests and invests cash not required to be used as margin or collateral. There is not expected to be any meaningful correlation between the performance of the Fund’s investments in Treasuries, cash or cash equivalents and the changes in the prices of agricultural commodities or Agriculture Interests. While the level of interest earned on or the market price of these investments may in some respect correlate to changes in the price of agricultural commodities, this correlation is not anticipated as part of the Fund’s efforts to meet its objective.

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

The Units issued by the Fund may only be purchased by Authorized Purchasers and only in blocks of 100,000 Units called Creation Baskets. The amount of the purchase payment for a Creation Basket is equal to the aggregate NAV of the Units in the Creation Basket. Similarly, only Authorized Purchasers may redeem Units and only in blocks of 100,000 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 the Fund. The NYSE Arca will publish an approximate NAV intra-day based on the prior day’s NAV and the current price of the Benchmark Component Agriculture Futures Contracts, but the price of Creation Baskets and Redemption Baskets is determined based on the actual NAV calculated at the end of each trading day.

While the Fund only issues Units 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.

Investment Strategy

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

 

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As an example, assume that a Creation Basket is sold by USAI, and that USAI’s closing NAV per Unit is $25.00. In that case, USAI would receive $2,500,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per Unit multiplied by 100,000 Units, and ignoring the Creation Basket fee of $1,000). If one were to assume further that the Sponsor wants to invest the entire proceeds from the Creation Basket in Benchmark Component Agriculture Futures Contracts and that the market value of each such Benchmark Component Agriculture Futures Contract is $112,500, USAI would be unable to buy an exact number of Benchmark Component Agriculture Futures Contracts with an aggregate market value equal to $2,500,000. Instead, USAI would be able to purchase 22 Benchmark Component Agriculture Futures Contracts with an aggregate market value of $2,475,000. Assuming a margin requirement equal to 10% of the value of the Benchmark Component Agriculture Futures Contracts, USAI would be required to deposit $247,500 in Treasuries and cash with the futures commission merchant through which the Benchmark Component Agriculture 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 Agriculture Interests purchased will depend on various factors, including a judgment by the Sponsor as to the appropriate diversification of the Fund’s investments. The Sponsor anticipates, particularly while the Fund has lesser amounts of assets, that it will make significant investments in Benchmark Component Agriculture Futures Contracts on ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME. In addition, for various reasons, including the ability to enter into the precise amount of exposure to the agricultural commodities market or due to market conditions regarding liquidity or pricing of differing futures contracts, it may invest in other exchange-traded futures contracts that are economically identical or substantially similar to, the Benchmark Component Agriculture Futures Contracts. The Sponsor further anticipates that as the Fund grows larger, due to position limits on futures contracts or other regulatory requirements limiting the Fund’s holdings, and market conditions, it may also invest in Other Agriculture-Related Investments. To the extent that the Fund invests in Other Agriculture-Related Investments, it would prioritize investments in contracts and instruments that are economically equivalent to the Benchmark Component Agriculture Futures Contracts. In considering the use of Other Agriculture-Related Investments, the Sponsor anticipates that it would first make use of swaps that clear through derivatives clearing organizations that satisfy the Fund’s criteria if such swaps are available with respect to the Benchmark Component Agriculture Futures Contracts or the agricultural commodity futures contracts included in the Agriculture Index. Then, and to a lesser extent, it would invest in other types of contracts, instruments and swaps, including uncleared swaps in the over-the-counter market. If the Fund is required by law or regulation, or by one of its regulators, including ICE Futures US, ICE Futures Canada, CBOT, KCBT or the CME, to reduce its position in one or more Benchmark Component Agriculture Futures Contracts to the applicable position limit or to a specified accountability level or if market conditions dictate it would be more appropriate to invest in Other Agriculture-Related Investments, a substantial portion of the Fund’s assets could be invested in accordance with such priority in Other Agriculture-Related Investments that are intended to replicate the return on the Agriculture Index or particular Benchmark Component Agriculture Futures Contracts. As the Fund’s assets reach higher levels, the Fund is more likely to exceed position limits, accountability levels or other regulatory limits and, as a result, it is more likely that it will invest in accordance with such priority in Other Agriculture-Related Investments at such higher levels. In addition, market conditions that the Sponsor currently anticipates could cause the Fund to invest in Other Agriculture-Related Investments include those allowing the Fund to obtain greater liquidity or to execute transactions with more favorable pricing. But see “Risk Factors — Risks Associated With Investing Directly or Indirectly in the Agriculture Index and Agriculture Interests — Regulation of commodity interests is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect the Fund” for a discussion of the potential impact of the Dodd-Frank Act on the Fund’s ability to invest in OTC transactions and cleared swaps.

The Sponsor may not be able to fully invest the Fund’s assets in Benchmark Component Agriculture Futures Contracts having an aggregate notional amount exactly equal to the Fund’s NAV. For example, as standardized contracts, the Benchmark Component Agriculture Futures Contracts included in the Agriculture Index are for a

 

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specified amount of an agricultural commodity, and the Fund’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the amounts of those contracts. As a result, in such circumstances, the Fund may be better able to achieve the exact amount of exposure to changes in price of the Benchmark Component Agriculture Futures Contracts through the use of Other Agriculture-Related Investments, such as over-the-counter contracts that have better correlation with changes in price of the Benchmark Component Agriculture-Futures Contracts.

The Fund anticipates that, to the extent it invests in Agriculture Interests other than the Benchmark Component Agriculture Futures Contracts, it will enter into various non-exchange-traded derivative contracts to hedge the short-term price movements of such Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments against the current Benchmark Component Agriculture Futures Contracts.

The Sponsor does not anticipate letting its Benchmark Component Agriculture Futures Contracts expire and taking delivery of agricultural commodities. Instead, the Sponsor will close out existing positions, e.g., in response to ongoing changes in the Agriculture Index or if it otherwise determines it would be appropriate to do so and reinvest the proceeds in new Agriculture 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 the Fund. Notwithstanding this, the Sponsor has no intention of changing the investment objective of the Fund or the manner in which it intends to achieve the Fund’s investment objective. Should the Sponsor seek to change the investment objective of the Fund, such change would be reflected in an amended prospectus and the Fund would provide advance notice to investors.

What are Futures Contracts?

Futures contracts are agreements between two parties. One party agrees to buy a commodity such as Soybean Meal from the other party at a later date at a price and quantity agreed-upon when the contract is made. For example, the futures contracts for Soybean Meal traded on the CBOT trade in units of 100 short tons. Generally, futures contracts are priced by floor brokers and other exchange members both through an “open outcry” of offers to purchase or sell the contracts and through an electronic, screen-based system that determines the price by matching electronically offers to purchase and sell. Futures contracts may also be based on commodity indices, in that they call for a cash payment based on the change in the value of the specified index during a specified period.

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

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, COMEX, CME, and CBOT have established accountability levels and position limits on the maximum net long or net short futures contracts in commodity interests that any person or group of persons under common trading control (other than as a hedge, which is not applicable to the Fund’s investments) may hold, own or control. The net position is the difference between an individual or firm’s open long contracts and open short contracts in any one commodity. In addition, most U.S.-based futures exchanges limit the daily price fluctuation for futures contracts. Currently, the ICE Futures imposes position and accountability limits that are similar to those imposed by U.S.-based futures exchanges but does not limit the maximum daily price fluctuation, while some other non-U.S. futures exchanges have not adopted such limits.

 

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The accountability levels for the commodities comprising the Agriculture Index and other futures contracts traded on U.S.-based futures exchanges are not a fixed ceiling, but rather a threshold above which such exchanges may exercise greater scrutiny and control over an investor’s positions. For example, the current accountability level for any one month in cocoa futures contracts traded on ICE Futures US is 6,000 contracts. In addition, ICE Futures US imposes an accountability level for all months of 6,000 net futures contracts in cocoa. If the Fund and the Related Public Funds exceed these accountability levels for investments in futures contracts for cocoa, ICE Futures US will monitor such exposure and ask for further information on their activities, including the total size of all positions, investment and trading strategy, and the extent of the Fund’s and the Related Public Funds’ liquidity resources. If deemed necessary by ICE Futures, it could also order a reduction of positions back to the accountability level.

Position limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. For example, the current position limit for feeder cattle futures contracts on the CME is 1,600 futures contracts in any contract month. The Fund will not be able to hold, own or control copper futures contracts in excess of this limit.

If ICE Futures US, ICE Futures Canada, CBOT, KCBT or the CME orders the Fund to reduce its position in a particular Benchmark Component Agriculture Futures Contract back to the applicable position limit or accountability level, or to an accountability level that such exchange deems appropriate for the Fund, such a level may impact the mix of investments in Agriculture Interests made by the Fund. To illustrate, assume that the Soybean Meal futures contract traded on the CBOT is $375 per ton, and that the CBOT has determined that USAI may not own more than 6,500 Soybean Meal futures contracts. In such case, USAI could invest up to $243,750,000 of its daily net assets in the Soybean Meal futures contract (i.e., $375 per ton multiplied by 100 tons per contract multiplied by 6,500 contracts) before reaching the position level imposed by the CBOT. If the Fund is limited in its investments in any Benchmark Component Agriculture Futures Contracts, the Sponsor anticipates that it will invest the majority of its assets above that level in a mix of other Benchmark Component Agriculture Futures Contracts or other Agriculture Interests in the OTC markets. However, the Dodd-Frank Act requires the CFTC to establish aggregate position limits that apply to both cleared and uncleared commodity swaps in addition to exchange-traded futures contracts and the aggregation of these position limits could further limit the Fund’s ability to invest in Agriculture Interests.

Additionally, the Dodd-Frank Act requires the CFTC to promulgate rules establishing position limits for futures and options contracts on commodities as well as for swaps that are economically equivalent to futures or options. On October 18, 2011, the U.S. Commodity Futures Trading Commission (the “CFTC”) adopted regulations implementing position limits and limit formulas for 28 core physical commodity futures contracts, including agricultural commodity 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 (collectively, “Referenced Contracts”). The new regulations require, among other things, aggregation of position limits that would apply across different trading venues to contracts based on the same underlying commodity. However, the regulations do not appear to require aggregation of Referenced Contracts held across separate funds or Trust series.

The position limit rules will be implemented in two phases: Spot-month position limits and non-spot-month position limits. Spot-month limits will be effective sixty days after the term “swap” is defined under the Dodd-Frank Act (see below). The limits adopted will be based on the spot-month position limit levels currently in place at the futures exchanges (“designated contract markets” or “DCMs”). Thereafter, the spot-month limits will be adjusted annually for energy contracts and biennially for agricultural commodity contracts. These subsequent limits will be based on the CFTC’s determination of deliverable supply in consultation with futures exchanges. Spot-month position limit levels will be set generally at 25% of estimated deliverable supply, and limits will be applied separately for physical-delivery and cash-settled contracts in the same commodity.

 

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Non-spot-month position limits for will go into effect by CFTC order after the CFTC has received one year of open interest data on physical commodity cleared and uncleared swaps under the swaps large trader reporting rule. For those non-spot-month contracts which are “legacy” agricultural Reference Contracts, the new non-spot-month limits will go into effect sixty days after the term “swap” is defined under the Dodd-Frank Act. The non-spot month limits will be adjusted biennially based on Referenced Contract open interest. Non-spot-month position limits (i.e., limits applied to positions in all contract months combined or in a single contract month) will be set using the 10/2.5 percent formula: 10 percent of the contract’s first 25,000 of open interest and 2.5 percent thereafter. These limits will be reset biennially based on two years open interest data.

Based on its current understanding of the final position limit regulations, the Sponsor does not anticipate significant negative impact on the ability of the Fund to achieve its investment objective. However, at the time of this prospectus, additional studies are required before final rules are implemented, and therefore, it cannot be determined with certainty, what impact such rules will have on the Fund.

In addition to position limits and accountability levels that may apply at any time, ICE Futures US, ICE Futures Canada, CBOT, KCBT or the CME may impose position limits on particular contracts held in the last few days of trading in the near month contract prior to the contract expiring. However, it is unlikely that the Fund will run up against such position limits. The Fund will not typically hold the near month contract in Benchmark Component Agriculture Futures Contracts. In addition, the Fund’s investment strategy is to close out its positions during the last four business days of each month (the “Rebalancing Period”) in advance of the period right before expiration and purchase new contracts. As such, the Fund does not anticipate that position limits that apply to the last few days prior to a contract’s expiration will impact it.

U.S.-based futures exchanges may also limit the amount of price fluctuation for futures contracts. For example, the CBOT imposes a $20.00 per unit of trading ($2,000 per contract) price fluctuation limit for Soybean Meal futures contracts. Under CBOT rules, maximum daily price fluctuation limits for a given trading day for Soybean Meal futures contracts are calculated using the settlement price reported by the CBOT at close of the open outcry trading session of the previous day. Trading in Soybean Meal futures contracts for a contract month during a given trading day is permitted only at prices that are no greater or less than the previous trading day’s settlement price plus or minus $20 per unit. Trading ceases in the affected contract month once acceptance of a bid or offer would result in a price for a month that is outside the applicable maximum price fluctuation limit for Soybean Meal futures contracts.

It is anticipated that to the extent the Fund invests in anything other than the Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments, it will enter into various non-exchange-traded derivative contracts to hedge against the short-term price movements of such Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments.

The position and price limits imposed on the agricultural commodity futures contracts that USAI may invest in are as follows:

 

Futures Contract

  

Position Accountability
Levels and Limits

  

Maximum Daily Price Fluctuation

CME

Feeder

Cattle

  

Accountability Limits: none.

Position Limits: non-spot month: 1,950 net futures / spot month: 300 net futures (during the last 10 days of trading).

   $0.03 per pound above or below the previous day’s settlement price.

CME Lean

Hogs

   Accountability Levels: none. Position Limits: non-spot month: 4,150 net futures / spot month: 950 net futures (as of the close of business on the fifth business day of the contract month).    $0.03 per pound above or below previous day’s settlement price, except that there are no limits in the spot month contract during the in last 2 days of trading.

 

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Futures Contract

  

Position Accountability
Levels and Limits

  

Maximum Daily Price Fluctuation

CME Live

Cattle

  

Accountability Levels: none.

Position Limits: non-spot month: 6,300 net futures / spot month: 450 net futures (300 net futures as of the close of business on the business day immediately preceding the last 5 business days of the contract month).

   $0.03 per pound above or below the previous day’s settlement price.

CBOT

Corn

  

Accountability Levels: none.

Position Limits: spot month: 600 net futures / any one month (excluding the spot month): 13,500 net futures & futures equivalents / all months: 22,000 net futures & futures equivalents.

  

$0.40 per bushel above or below the previous day’s settlement price. Should two or more corn futures contract months within the first five listed non-spot contracts (or the remaining contract month in a crop year) close at limit bid or limit offer, the daily price limits for all contract months shall increase to $0.60 per bushel the next business day. If price limits are $0.60 per bushel and no corn futures contract month closes limit bid or limit offer, daily price limits for all contract months shall revert back to $0.40 per bushel the next business day. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

$20 per unit of trading ($2,000 per contract) above or below the previous day’s settlement price, except that there shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

CBOT

Soybean

Meal

  

Accountability Levels: none.

Position Limits: spot month: 720 net futures / any one month (excluding the spot month): 5,000 net futures & futures equivalents / all months: 6,500 net futures & futures equivalents.

  

CBOT

Soybean

Oil

  

Accountability Levels: none.

Position Limits: spot month: 540 net futures / any one month (excluding the spot month): 5,000 net futures & futures equivalents / all months: 6,500 net futures & futures equivalents.

   $.02 per unit of trading ($1,200 per contract) above or below the previous day’s settlement price, except that there shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

 

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Futures Contract

  

Position Accountability
Levels and Limits

  

Maximum Daily Price Fluctuation

CBOT

Soybeans

  

Accountability Levels: none.

Position Limits: spot month: 600 net futures / any one month (excluding the spot month) 6,500 net futures & futures equivalents / all months: 10,000 net futures & futures equivalents.

   $0.70 per bushel ($3,500 per contract) above or below the previous day’s settlement price. Should two or more contract months within the first seven listed non-spot contracts (or the remaining contract month in a crop year) close at limit bid or limit offer, the daily price limits for all contract months shall increase to $1.05 per bushel the next business day. Should two or more contract months within the first seven listed non-spot contracts (or the remaining contract month in a crop year) close at limit bid or limit offer while price limits are $1.05 per bushel, daily price limits for all contract months shall increase to $1.60 per bushel the next business day. If price limits are $1.60 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months shall revert back to $1.05 per bushel the next business day. If price limits are $1.05 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months shall revert back to $0.70 per bushel the next business day. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

CBOT

Wheat
(Soft Red

Winter)

  

Accountability Levels: none.

Position Limits: spot month: 600 net futures (subject to deliverable supplies in the month of May)/ any one month (excluding the spot month): 5,000 net futures & futures equivalents (additional futures contracts may be held outside of the spot month as part of futures/futures spreads within a crop year provided that the total of such positions, when combined with outright positions, does not exceed the all months combined limit) / all months: 6,500 net futures & futures equivalents.

   $0.60 per bushel ($3,000 per contract) above or below the previous day’s settlement price. Should two or more contract months within the first five listed non-spot contracts (or the remaining contract month in a crop year) close at limit bid or limit offer, the daily price limits for all contract months shall increase to $0.90 per bushel the next business day. Should two or more contract months within the first five listed non-spot contracts (or the remaining contract month in a crop year) close at limit bid or limit offer while price limits are $0.90 per bushel, daily price limits for all contract months shall increase to $1.35 per bushel the next business day. If price limits are $1.35 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months shall revert back to $0.90 per bushel the next business day. If price limits are $0.90 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months shall revert back to $0.60 per bushel the next business day. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

 

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Futures Contract

  

Position Accountability
Levels and Limits

  

Maximum Daily Price Fluctuation

KCBT

Wheat

(Hard Red

Winter)

  

Accountability Levels: none.

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

   $0.60 per bushel above or below the previous day’s settlement price and will increase by 50% the following trading session when the price of two or more futures contract months within the first five listed non-spot contract months, or the final contract month of a crop year, closes at limit bid or limit offer. Price limits can expand two consecutive times: to a $0.90 per bushel limit and then to a maximum $1.35 limit. Daily price limits will step back to their prior levels when no contract month closes at limit bid or limit offer that day. If price limits are $1.35 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months revert back to $0.90 per bushel the next business day. If price limits are $0.90 per bushel and no contract month closes limit bid or limit offer, daily price limits for all contract months revert back to $0.60 per bushel the next business day. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

ICE-

Canada

Canola Oil

  

Accountability Levels: None.

Position Limits: 1000 net futures in the spot month.

   CDN $30.00 above or below previous settlement. If the settlement price of any two (2) contract months is at the regular daily limits, the limits shall be expanded on the following day to CDN $45.00. If while the daily limits are expanded to CDN $45.00, the settlement price of any two (2) contract months is at the expanded limits, the limits shall be expanded on the following day to CDN $60.00. If price limits are expanded to either CDN $45.00 or CDN $60.00, and no contract month settles at the expanded limit that day, the limits will move to the next-lowest level the following day.

ICE-US

Cocoa

  

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

Position Limits: 1,000 net futures for any month for which delivery notices have or may be issued.

   There is no maximum daily price fluctuation limit.

ICE-US

Coffee “C”

  

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

Position Limits: 500 net futures for any month for which delivery notices have or may be issued.

   There is no maximum daily price fluctuation limit.

 

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Futures Contract

  

Position Accountability
Levels and Limits

  

Maximum Daily Price Fluctuation

ICE-US

Cotton

  

Accountability Levels: none.

Position Limits: spot month: 300 net futures / any one month: 3,500 net futures & futures equivalents / all months: 5,000 net futures & futures equivalents.

   $0.07 per pound above and below the prior day’s settlement price. There is an initial limit amount that increases or decreases as the absolute price level of the determining futures delivery month increases or decreases. In addition, there is a single expansion of the initial limit amount by an additional $0.01/lb. on the trading day following any day on which two or more of the first five listed months (or the sole remaining futures contract in a crop year) close at limit bid or offer based upon the initial limit amount then in effect.

ICE-US

World

Sugar No. 11

  

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

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

   There is no maximum daily price fluctuation limit.

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 the Fund invests a significant portion of its assets in futures contracts, the assets of the Fund, and therefore the price of the Fund’s Units, may be subject to greater volatility than traditional securities.

Marking-to-Market Futures Positions

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

What is the Agriculture Index?

The Agriculture Index is an agricultural sector index designed to broadly represent major agricultural commodities while overweighting the components that are assessed to be in a low inventory state and underweighting the components assessed to be in a high inventory state.

The Agriculture Index consists of fourteen agricultural markets: soybeans, corn, soft red winter wheat, hard red winter wheat, soybean oil, soybean meal, canola, sugar, cocoa, coffee, cotton, live cattle, feeder cattle and lean hogs. Each agricultural commodity is assigned a base weight based on an assessment of market liquidity and the commodity’s overall economic importance. Each commodity is US Dollar based, with the exception of canola, which is quoted in Canadian Dollars and converted to US Dollars for the purpose of the Agriculture Index calculation.

 

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Academic research by Professors Gorton, Rouwenhorst and Hayashi has shown that commodities in relatively low inventory states tend to have higher returns than commodities in relatively high inventory states. Furthermore, relative inventory comparisons can be estimated by the price-based signals momentum and basis. Momentum is the percentage price change in a commodity over the previous year. Basis is the annualized percentage difference between the nearest-to-maturity contract and the second nearest-to-maturity contract. Using these price-based signals, agricultural commodities determined to be in low inventory state will be weighted more heavily, and agricultural commodities in high inventory state will be weighted less heavily during any given month.

The Agriculture Index is rules-based and rebalanced monthly based on observable price signals described above. In this context, the term “rules-based” is meant to indicate that the composition of the Agriculture Index in any given month will be determined by quantitative formulas relating to the prices of the futures contracts that relate to the commodities that are included in the Agriculture Index. Such formulas are not subject to adjustment based on other factors.

The overall return on the Agriculture Index is generated by two components: (i) uncollateralized returns from the Benchmark Component Agriculture Futures Contracts comprising the Agriculture Index and (ii) a daily fixed income return reflecting the interest earned on a hypothetical 3-month U.S. Treasury Bill collateral portfolio, calculated using the weekly auction rate for the 3-Month U.S. Treasury Bills published by the U.S Department of the Treasury. SummerHaven Indexing is the owner of the Agriculture Index.

Table 1 below lists the eligible agricultural commodities, the relevant Futures Exchange on which each Benchmark Component Agriculture Futures Contract is listed and quotation details. Table 2 lists the Benchmark Component Agriculture Futures Contracts, their sector designation and maximum allowable tenor.

TABLE 1

 

Commodity

  Designated
Contract
 

Exchange

 

Units

  

Quote

Soybeans

  Soybeans   CBOT   5,000 bushels    U.S. cents/bushel

Corn

  Corn   CBOT   5,000 bushels    U.S. cents/bushel

Soft Red Winter Wheat

  Soft Red Winter Wheat   CBOT   5,000 bushels    U.S. cents/bushel

Hard Red Winter Wheat

  Hard Red Winter Wheat   KCBT   5,000 bushels    U.S. cents/bushel

Bean Oil

  Bean Oil   CBOT   60,000 lbs.    U.S. cents/pound

Soybean Meal

  Soybean Meal   CBOT   100 tons    USD/ton

Coffee

  Coffee “C”   ICE-US   37,500 lbs.    U.S. cents/pound

Cocoa

  Cocoa   ICE-US   10 metric tons    USD/metric ton

Sugar

  World Sugar No. 11   ICE-US   112,000 lbs.    U.S. cents/pound

Canola

  Canola   ICE-CANADA   20 tonnes    $CAD/tonne

Cotton

  Cotton   ICE-US   50,000 lbs.    U.S. cents/pound

Feeder Cattle

  Feeder Cattle   CME   50,000 lbs.    U.S. cents/pound

Live Cattle

  Live Cattle   CME   40,000 lbs.    U.S. cents/pound

Lean Hogs

  Lean Hogs   CME   40,000 lbs.    U.S. cents/pound

 

 

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TABLE 2

 

Commodity Name

   Commodity
Symbol
    

Allowed Contracts

   Max.
Tenor
 

Soybeans

     S      

Jan, Mar, May, July, Aug, Sep, Nov,

     12   

Corn

     C      

Mar, May, July, Sep, Dec

     12   

Soft Red Winter Wheat

     W      

Mar, May, July, Sep, Dec

     7   

Hard Red Winter Wheat

     KW      

Mar, May, July, Sep, Dec

     5   

Bean Oil

     BO      

Jan, Mar, May, July, Aug, Sep, Oct, Dec

     7   

Soybean Meal

     SM      

Jan, Mar, May, July, Aug, Sep, Oct, Dec

     7   

Coffee

     KC      

Mar, May, July, Sep, Dec

     7   

Cocoa

     CC      

Mar, May, July, Sep, Dec

     7   

Sugar

     SB      

Mar, May, July, Oct,

     7   

Canola

     RS      

Jan, Mar, May, July, Nov

     5   

Cotton

     CT      

Mar, May, July, Dec

     7   

Feeder Cattle

     FC      

Jan, Mar, April, May, Aug, Sep, Oct, Nov

     5   

Live Cattle

     LC      

Feb, April, June, Aug, Oct, Dec

     5   

Lean Hogs

     LH      

Feb, April, June, July, Aug, Oct, Dec

     5   

Prior to the end of each month, SummerHaven Indexing determines the composition of the Agriculture Index and provides such information to the NYSE Arca. Values of the Agriculture Index are computed by the NYSE Arca and disseminated approximately every fifteen (15) seconds from 8:00 a.m. to 5:00 p.m., New York City time, which also publishes a daily Agriculture Index value at approximately 5:30 p.m., New York City time, under the index ticker symbol “SDAITR”. Only settlement and last-sale prices are used in the Agriculture Index’s calculation, bids and offers are not recognized; including limit-bid and limit-offer price quotes. Where no last-sale price exists, typically in the more deferred contract months, the previous days’ settlement price is used. This means that the underlying Agriculture Index may lag its theoretical value. This tendency to lag is evident at the end of the day when the Agriculture Index value is based on the settlement prices of the Benchmark Component Agriculture Futures Contracts, and explains why the underlying Agriculture Index often closes at or near the high or low for the day.

Currency Conversion

Canola seed futures trade on the ICE Futures Canada and are denominated in Canadian dollars. Canola futures prices are divided by the USD/CAD foreign exchange spot price for purposes of index calculation and commodity weighting calculations. The USD/CAD price used for canola futures for the daily Agriculture Index value is the 3:00 p.m. EST USD/CAD price quoted by Bloomberg under currency ticker “USDCAD F150”.

Composition of the Agriculture Index

The composition of the Agriculture Index on any given day, as determined and published by SummerHaven Indexing, is determinative of the benchmark for USAI. Neither the SDAI index methodology nor any set of procedures, however, are capable of anticipating all possible circumstances and events that may occur with respect to the Agriculture Index and the methodology for its composition, weighting and calculation. Accordingly, a number of subjective judgments must be made in connection with the operation of the Agriculture Index that cannot be adequately reflected in this description of the Agriculture Index. All questions of interpretation with respect to the application of the provisions of the SDAI index methodology, including any determinations that need to be made in the event of a market emergency or other extraordinary circumstances, will be resolved by SummerHaven Indexing.

Contract Expirations

Because the Agriculture Index is comprised of actively traded contracts with scheduled expirations, it can be calculated only by reference to the prices of contracts for specified expiration, delivery or settlement periods, referred to as contract expirations. The contract expirations included in the Agriculture Index for each commodity during a given year are designated by SummerHaven Indexing, provided that each contract must be

 

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an active contract. An active contract for this purpose is a liquid, actively-traded contract expiration, as defined or identified by the relevant trading facility or, if no such definition or identification is provided by the relevant trading facility, as defined by standard custom and practice in the industry.

If a Futures Exchange ceases trading in all contract expirations relating to a particular Benchmark Component Agriculture Futures Contract, SummerHaven Indexing may designate a replacement contract on the particular agricultural commodity. The replacement contract must satisfy the eligibility criteria for inclusion in the Agriculture Index. To the extent practicable, the replacement will be effected during the next monthly review of the composition of the Agriculture Index. If that timing is not practicable, SummerHaven Indexing will determine the date of the replacement based on a number of factors, including the differences between the existing Benchmark Component Agriculture Futures Contract and the replacement contract with respect to contractual specifications and contract expirations.

If a Benchmark Component Agriculture Futures Contract is eliminated and there is no replacement contract, the underlying agricultural commodity will necessarily drop out of the Agriculture Index. The designation of a replacement contract, or the elimination of an agricultural commodity from the Agriculture Index because of the absence of a replacement contract, could affect the value of the Agriculture Index, either positively or negatively, depending on the price of the contract that is eliminated and the prices of the remaining contracts. It is impossible, however, to predict the effect of these changes, if they occur, on the value of the Agriculture Index.

Commodity Weighting

Each of the Benchmark Component Agriculture Futures Contracts will remain in the Agriculture Index from month to month. Weights for each of the Benchmark Component Agriculture Futures Contracts in the Agriculture Index are determined for the next month. The methodology used to calculate the Agriculture Index weighting is based solely on quantitative data using observable futures prices and is not subject to human bias.

The monthly weighting selection is a three-step process based upon examination of the relevant futures prices for each agricultural commodity:

1) The annualized percentage price difference between the closest-to-expiration Benchmark Component Agriculture Futures Contract and the next closest-to-expiration Benchmark Component Agriculture Futures Contract is calculated for each of the 14 eligible agricultural commodities on the Selection Date. The four agricultural commodities with the highest percentage price difference are selected. A hypothetical example is included below, with the three selected commodities shaded below (the selected agricultural commodities are ranked 1 – 4):

 

Eligible Commodity

   Percentage
Price
Difference
    Ranking  
Soybeans      -1.87     10   
Corn      8.50     1   
Soft Red Winter Wheat      3.91     5   
Hard Red Winter Wheat      5.18     3   
Bean Oil      1.49     7   
Soybean Meal      3.51     6   
Coffee      -7.29     13   
Cocoa      -9.81     14   
Sugar      6.31     2   
Canola      -4.90     11   
Cotton      5.14     4   
Feeder Cattle      -0.85     8   
Live Cattle      -1.30     9   
Lean Hogs      -5.96     12   

 

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2) For the remaining 10 eligible agricultural commodities, the percentage price change of each agricultural commodity over the previous year is calculated, as measured by the change in the price of the closest-to-expiration Benchmark Component Agriculture Futures Contract on the Selection Date from the price of the closest-to-expiration Benchmark Component Agriculture Futures Contract a year prior to the Selection Date. The three agricultural commodities with the highest percentage price change are selected. A hypothetical example is included below, with the next two selected agricultural commodities shaded below (the selected agricultural commodities are ranked 1 – 3):

 

Eligible Commodity

   Percentage
Price
Change
     Ranking  

Soybeans

        5.33      5   

Soft Red Winter Wheat

        9.38      4   

Bean Oil

        5.10      6   

Soybean Meal

        31.96      2   

Coffee

        39.44      1   

Cocoa

        -37.67      9   

Canola

        -48.17      10   

Feeder Cattle

        15.80      3   

Live Cattle

        -12.28      8   

Lean Hogs

        -6.33      7   

3) For the seven commodities selected through basis (step 1) and momentum (step 2), each commodity weight is increased by 2% above its base weighting for the following month. For the remaining seven commodities not selected, each commodity weight is decreased by 2% below its base weighting for the following month. A hypothetical example is included below, with the five selected commodities shaded below:

 

Eligible Commodity

   Base
Weighting
     Monthly Agriculture
Index Weighting
 

Soybeans

        12.5      10.5

Corn

        12.5      14.5

Soft Red Winter Wheat

        8.0      6.0

Hard Red Winter Wheat

        4.0      6.0

Bean Oil

        3.0      1.0

Soybean Meal

        6.0      8.0

Coffee

        10.0      12.0

Cocoa

        6.0      4.0

Sugar

        10.0      12.0

Canola

        3.0      1.0

Cotton

        6.0      8.0

Feeder Cattle

        3.0      5.0

Live Cattle

        10.0      8.0

Lean Hogs

        6.0      4.0

Due to the dynamic monthly agricultural commodity weighting calculation, the individual agricultural commodity weights will vary over time, depending on the price observations each month. The Selection Date for the Agriculture Index is the fifth business day prior to the first business day of the next calendar month.

 

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The following graph shows the agricultural commodity weights of the agricultural commodities selected for inclusion in the Agriculture Index as of September 2011.

SDAI Commodity Weights

as of September 2011

LOGO

Contract Selection

For each agricultural commodity in the Agriculture Index, the index selects a specific Benchmark Component Agriculture Futures Contract with a tenor ( i.e. , contract month) among the eligible tenors (the range of contract months) based upon the relative prices of the Benchmark Component Agriculture Futures Contracts within the eligible range of contract months. The previous notwithstanding, the contract expiration is not changed for that month if a Benchmark Component Agriculture Futures Contract remains in the Agriculture Index, as long as the contract does not enter expire or enter its notice period in the subsequent month.

Portfolio Construction

The portfolio rebalancing takes place during the Rebalancing Period. At the end of each of the days in the Rebalancing Period one fourth of the prior month portfolio positions are replaced by the new commodity weights for the commodity contracts determined on the Selection Date.

Currency Conversion

Canola futures are denominated and quoted in Canadian dollars.

Agriculture Index Return Calculation

The percentage excess return equals the percentage change of the market values of the underlying Benchmark Component Agriculture Futures Contracts. During the Rebalancing Period, the Agriculture Index changes its contract holdings and weightings during a four day period.

The value of the SDAI Excess Return (“SDAI ER”) at the end of a business day “ t” is equal to the SDAI ER value on day “ t -1” multiplied by the sum of the daily percentage price changes of each commodity future factoring in each respective commodity future’s notional holding on day “ t -1”.

 

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Rebalancing Period

During the Rebalancing Period, existing positions are replaced by new positions based on the signals used for contract selection as outlined above. At the end of the first day of the Rebalancing Period, the signals are observed and on the and on the second day a new portfolio is constructed that is equally weighted in terms of notional positions in the newly selected contracts.

Total Return Calculation

The value of the SDAI Total Return (“SDAI TR”) on any business day is equal to the product of (i) the value of the SDAI TR on the immediately preceding business day multiplied by (ii) one plus the sum of the day’s SDAI ER returns and one business day’s interest from the hypothetical Treasury Bill portfolio. The value of the SDAI TR will be calculated and published by the NYSE Arca.

Agriculture Index Base Level

The SDAI TR was set to 100 on January 2, 1991.

Holiday Schedule

The SDAI TR will not be computed on the following weekdays in 2011:

January 17

February 21

April 22

May 30

July 4

September 5

November 24

The holiday schedule is subject to change. USAI will not accept Creation Baskets or Redemption Baskets on these days.

The table and chart below show the hypothetical performance of the Agriculture Index from December 31, 1997 through September 30, 2011.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

 

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THE SPONSOR HAS HAD LITTLE OR NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE RESULTS.

Since the Agriculture Index was launched on September 23, 2010, there is no actual performance history of the Agriculture Index to present. However, the components of the Agriculture Index and the weighting of the components of the Agriculture Index are established each month based on purely quantitative data that is not subject to revisions based on other external factors. This data is available for periods prior to September 23, 2010. As a result, the table below reflects how the Agriculture Index would have performed from December 31, 1997 through September 30, 2011 had it been in effect during such time period. The performance data does not reflect any reinvestment or distribution of profits, commission charges, management fees or other expenses that would have been incurred in connection with operating and managing a commodity pool designed to track the Agriculture Index. Such fees and expenses would reduce the performance returns shown in the table below.

Hypothetical Performance Results for the period from December 31, 1997 through September 30, 2011

 

Year

   Ending Level*      Annual Return  

1997

     215.499         

1998

     167.323            -22.36

1999

     153.241            -8.42

2000

     167.805            9.50

2001

     150.407            -10.37

2002

     179.705            19.48

2003

     201.497            12.13

2004

     213.353            5.88

2005

     231.652            8.58

2006

     259.773            12.14

2007

     315.849            21.59

2008

     261.024            -17.36

2009

     282.237            8.13

2010

     377.898            33.89

2011 (YTD)

     354.565            -6.17

 

* The “base level” for the Agriculture Index was set at 100 on January 2, 1991. The “Ending Level” represents the value of the components of the Index on the last trading day of each year and is used to illustrate the cumulative performance of the Index.

 

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Summerhaven Dynamic Agriculture Index Year-Over-Year Hypothetical Total Returns (1998 – 9/2011 YTD)

LOGO

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The following table and chart compare the hypothetical total return of the Agriculture Index in comparison with the actual total return of three major indexes from December 31, 1997 through September 30, 2011.

 

     Hypothetical and Historical Results for the period
from December 31, 1997 through September 30, 2011
 
     DJ-UBS Ag TR     S&P GSCI Ag TR     DB LCI OY Ag TR     SDAI TR  

Total return

     13     -45     20     65

Average annual return (total)

     0.624     -2.73     2.51     4.61

Annualized volatility

     20.64     21.03     19.94     15.94

Annualized Sharpe ratio

     -0.10        -0.25        -0.01        0.12   

The table above shows the performance of the Agriculture Index from December 31, 1997 through September 30, 2011 in comparison with three traditional agricultural commodities indices: the S&P GSCI® Agriculture Index Total Return, Dow Jones-UBS Agriculture Total Return Sub-indexSM , and the Deutsche Bank Liquid Commodity Index-Optimum Yield Agriculture Total ReturnTM . The S&P GSCI® Agriculture Index Total Return comprises the commodities: Wheat (Chicago and Kansas), Corn, Soybeans, Cotton, Sugar, Coffee, and Cocoa, and is part of a series of sub-indices representing components of the S&P GSCI. The Dow Jones-UBS Agriculture Total Return Sub-IndexSM is currently composed of seven futures contracts on agricultural commodities traded on U.S. exchanges. The Deutsche Bank Liquid Commodity Index-Optimum Yield Agriculture Total ReturnTM is designed to reflect the performance of certain corn, wheat, soybean and sugar futures contracts plus the returns from investing in 3 month United States Treasury Bills. The data for the SDAI Total Return Index is derived by using the Agriculture Index’s calculation methodology with historical prices for the futures contracts comprising the Agriculture Index. The information about each of the indices comes from

 

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publicly-available material about such indices but is not designed to provide a thorough overview of the methodology of each index. None of the indices have investment objectives identical to the Agriculture Index. As a result, there are inherent limitations in comparing the performance of such indices against the Agriculture Index. For more information about these indices and their methodologies, please refer to the material published by the sponsors of each such index which may be found on their websites. We are not responsible for any information found on such websites, and such information is not part of this prospectus.

In the table above, “Total Return” refers to the return of the relevant index from December 31, 1997 to September 30, 2011; “Annualized Volatility” is a measure of the amount of variation or fluctuation in the returns of the relevant index. Annualized Volatility is calculated by taking the monthly standard deviation of the relevant index’s return and multiplying it by the square root of 12; and “Annualized Sharpe Ratio” is a measure of the total return of each relevant index adjusted by the risk-free interest rate (the 90 Day U.S. Treasury Bill yield) and the volatility of each index. Many investors consider volatility to be a measure of risk, and lower volatility of investment returns is considered a positive investment attribute as opposed to higher volatility. Annualized Sharpe Ratio is a standard measure for investors to compare two different investments or indexes that have different levels of volatility. If two indexes have the same total return, but one has lower Annualized Volatility, then its Annualized Sharpe Ratio will be higher. The higher the Annualized Sharpe Ratio, the better the risk-adjusted performance. Annualized Sharpe Ratio is calculated by taking the average monthly total return of the relevant index and subtracting the then current yield on the 90 Day U.S. Treasury Bill. The annualized return of this series is then divided by the Annualized Volatility of this series, and this result is the Annualized Sharpe Ratio for the relevant index. A higher Sharpe Ratio is not a guarantee that one investment or index will in the future produce better risk adjustment total returns, but management believes it is a useful tool for investors to consider when making investment decisions.

Source: SummerHaven Index Management, Bloomberg

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

10 Year Comparison of Index Returns of the DJ-UBS Ag TR, S&P GSCI Ag TR, DB LCI OY Ag TR, and the Hypothetical Returns of the SDAI TR (9/30/01 – 9/30/11)

LOGO

Source: SummerHaven Index Management, Bloomberg

 

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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

The following chart compares the hypothetical total return of the Agriculture Index in comparison with the actual total return of three major indexes over a 5 year period.

Five Year Comparison of Index Returns of the DJ-UBS Ag TR, S&P GSCI Ag TR, DB LCI OY Ag TR, and the Hypothetical Returns of the SDAI TR (9/30/06 – 9/30/11)

LOGO

Source: SummerHaven Index Management, Bloomberg

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

What are Over-the-Counter Derivatives?

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

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

 

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commodity futures contracts underlying the Benchmark Component Agriculture Futures Contracts, thereby enabling the Fund to track the Agriculture Index without investing in futures contracts.

To reduce the credit risk that arises in connection with such contracts, the Fund 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 the Fund 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. The Fund also may require that the counterparty be highly rated and/or provide collateral or other credit support.

Provisions of the Dodd-Frank Act require the use of clearinghouse mechanisms for most derivative transactions, including swaps, that are currently entered into in the OTC market. On April 27, 2011, the CFTC and the SEC proposed joint rules defining the term “swap” and thus providing more clarity regarding which transactions will be regulated as such under the Dodd-Frank Act. However, the CFTC and the SEC have not implemented final regulations on this issue and it is therefore still uncertain which types of transactions will ultimately be regulated as “swaps.” The Dodd-Frank Act requires that certain transactions ultimately falling within the definition of “swap” be executed on organized exchanges or “swap execution facilities” and cleared through regulated clearing organizations (which are referred to in the Dodd-Frank Act as “derivatives clearing organizations”), but it is also currently unknown which swaps will be subject to such trading and clearing requirements. If a swap is required to be cleared, the initial margin will be set by the clearing organization, subject to certain regulatory requirements and guidelines. Initial and variation margin requirements for swap dealers and major swap participants who enter into uncleared swaps and capital requirements for swap dealers and major swap participants who enter into both cleared and uncleared trades will be set by the CFTC, the SEC or the applicable Prudential Regulator. For a more detailed discussion of these capital and margin requirements, see the section of this prospectus entitled, “The Commodity Interest Markets — Commodity Margin.” At this time, the CFTC has not promulgated final regulations to determine which entities will be regulated as “swap dealers” and “major swap participants” and thus have to comply with these capital and margin requirements (as well as a multitude of other requirements under the Dodd-Frank Act). In general, increased regulation of, and the imposition of additional costs on, swap transactions could have an adverse effect on USCF by, for example, reducing the size of and therefore liquidity in the derivatives market, increasing transaction costs and decreasing the ability to customize derivative transactions.

Forward contracts currently traded in the OTC market may be treated differently under the Dodd-Frank Act because not all forward contracts will be subject to regulation as “swaps” under the Dodd-Frank Act. Those forward contracts that will not be regulated as “swaps,” which include physically-settled non-financial commodity forward contracts, will also not be subject to the Dodd-Frank Act’s execution and clearing requirements. With respect to foreign exchange forward contracts, the Dodd-Frank Act contemplates that such contracts may be regulated as swaps but gives the Secretary of the United States Department of Treasury the authority to exempt them from certain regulation under the CEA, including mandatory clearing and margin requirements. To date, the Secretary of the United States Department of Treasury has not made any final determinations on this issue. Absent a clearing facility (whether because of regulatory requirements or otherwise), a Fund’s trading in foreign exchange and other forward contracts is exposed to the creditworthiness of the counterparties on the other side of the trade.

The Fund’s Investments in Treasuries, Cash and Cash Equivalents

The Fund seeks to have the aggregate “notional” amount of the Agriculture Interests it holds approximate at all times the Fund’s aggregate NAV. At any given time, however, most of the Fund’s investments will be in

 

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Treasuries, cash and/or cash equivalents that support the Fund’s positions in Agriculture Interests. For example, the purchase of an Benchmark Component Agriculture Futures Contract with a stated or notional amount of $10 million would not require the Fund to pay $10 million upon entering into the contract; rather, only a margin deposit, generally of 5% – 20% of the notional amount, would be required. To secure its obligations under the Benchmark Component Agriculture Futures Contract, the Fund 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 the Fund is required to make on its Benchmark Component Agriculture Futures Contracts. Other Agriculture-Related Investments typically also involve collateral requirements that represent a small fraction of their notional amounts, so most of the Fund’s assets dedicated to Other Agriculture-Related Investments will also be held in Treasuries, cash and cash equivalents.

The Fund earns interest 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 interest income will increase the Fund’s NAV. The Fund applies the earned interest income to the acquisition of additional investments or uses it to pay its expenses. If the Fund reinvests the earned interest income, it makes investments that are consistent with its investment objectives.

What are the Trading Policies of the Fund?

Options on Benchmark Component Agricultural Commodity Futures Contracts

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

Liquidity

The Fund invests only in Benchmark Component Agriculture 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 OTC Agriculture Interests that, in the opinion of the Sponsor, may be readily liquidated with the original counterparty or through a third party assuming the Fund’s position.

Spot Commodities

While most futures contracts can be physically settled, the Fund does not intend to take or make physical delivery. However, the Fund may from time to time trade in Other Agriculture-Related Investments based on the spot prices of the agricultural commodity futures contracts comprising the Agriculture Index.

Leverage

The Sponsor endeavors to have the value of the Fund’s Treasuries, cash and cash equivalents, whether held by the Fund or posted as margin or collateral, at all times approximate the aggregate market value of its obligations under the Fund’s Agriculture Interests. Commodity pools’ trading positions in futures contracts or Other Agriculture-Related Investments are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other commodity interest’s) entire market value. While the Sponsor does not intend to leverage the assets of the Fund, it is not prohibited from doing so under the Trust Agreement.

 

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Borrowings

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

Pyramiding

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

Who are the Service Providers?

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

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

The Fund also employs ALPS Distributors, Inc. as Marketing Agent, which is further discussed under “What is the Plan of Distribution?” 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 of the Fund exceed ten percent (10%) of the gross proceeds of the Fund’s 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.

Currently, Newedge USA, LLC (“Newedge USA”) serves as the Fund’s clearing broker to execute and clear the Fund’s futures and equities transactions and provide other brokerage-related services, Newedge USA’s affiliate, Newedge Alternative Strategies, Inc. (“NAST”), may execute foreign exchange or other over the counter transactions with the Fund as principal. Newedge USA and NAST are subsidiaries of Newedge Group. Newedge USA is a futures commission merchant and broker dealer registered with the CFTC and the SEC, and is a member of FINRA. Newedge USA is a clearing member of all principal futures exchanges located in the United States as well as a member of the Chicago Board Options Exchange, International Securities Exchange, New York Stock Exchange, Options Clearing Corporation, and Government Securities Clearing Corporation. NAST is an eligible swap participant that is not registered or required to be registered with the CFTC or the SEC, and is not a member of any exchange.

Newedge USA and NAST are headquartered at 550 W. Jackson, Suite 500, Chicago, IL 60661 with branch offices in San Francisco, California; New York, New York; Kansas City, Missouri; Cypress, Texas; and Montreal, Canada.

 

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Prior to January 2, 2008, Newedge USA was known as Fimat USA, LLC, while NAST was known as Fimat Alternative Strategies Inc. On September 1, 2008, Newedge USA merged with future commission merchant and broker dealer Newedge Financial Inc. (“NFI”) — formerly known as Calyon Financial Inc. Newedge USA was the surviving entity.

In March 2008, NFI settled, without admitting or denying the allegations, a disciplinary action brought by the NYMEX alleging that NFI violated NYMEX rules related to: numbering and time stamping orders by failing properly to record a floor order ticket; wash trading; failure to adequately supervise employees; and violation of a prior NYMEX cease and desist order, effective as of December 5, 2006, related to numbering and time stamping orders and block trades. NFI paid a $100,000 fine to NYMEX in connection with this settlement.

In February 2011, Newedge USA settled, without admitting or denying the allegations, a disciplinary action brought by the CFTC alleging that Newedge USA exceeded speculative limits in the October 2009 live cattle futures contract on the Chicago Mercantile Exchange and failed to provide accurate and timely reports to the CFTC regarding their larger trader positions. Newedge USA paid a $140,000 civil penalty and disgorgement value of $80,910 to settle this matter. In addition, the CFTC Order required Newedge USA to implement and maintain a program designed to prevent and detect reporting violations of the Commodity Exchange Act and CFTC regulations.

Other than the foregoing proceedings, which did not have a material adverse effect upon the financial condition of Newedge USA, there have been no material administrative, civil or criminal actions brought, pending or concluded against Newedge USA, NAST or their principals in the past five years.

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

Currently, the Sponsor employs SummerHaven as a commodity trading advisor. SummerHaven provides advisory services to the Sponsor with respect to the Agriculture Index and investment decisions for the Fund. Its advisory services include, but are not limited to, general consultation regarding the calculation and maintenance of the Agriculture Index, anticipated changes to the Agriculture Index and the nature of the Agriculture Index’s current or anticipated component securities. For these services, the Sponsor pays fees to SummerHaven as set forth in the table below.

SummerHaven’s principal business address is 1266 East Main Street, Soundview Plaza, Fourth Floor, Stamford, CT 06902. SummerHaven is a commodity trading advisor and commodity pool operator registered with the NFA.

The Sponsor has also entered into a licensing agreement with SummerHaven. Under this licensing agreement, SummerHaven has sub-licensed to the Fund the use of certain names and marks, including the Agriculture Index, which SummerHaven licensed from SummerHaven Indexing, the owner of the Agriculture Index. For this license, the Sponsor pays a fee to SummerHaven as set forth in the table below.

SummerHaven Indexing’s principal business address is 1266 East Main Street, Soundview Plaza, Fourth Floor, Stamford, CT 06902.

 

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Fees to be Paid by the Fund

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

 

Service Provider

  

Compensation Paid by the Fund and the Sponsor

United States Commodity Funds LLC, Sponsor    The Fund is obligated to pay the Sponsor a management fee based on its average daily net assets and paid monthly at the annual rate of 0.95%.*
BBH&Co., Custodian and Administrator    Minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to the Fund 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 the Fund’s and the Related Public Funds’ combined assets, (b) 0.0465% for the Fund’s and the Related Public Funds’ combined assets greater than $500 million but less than $1 billion, and (c) 0.035% once the Fund’s and the Related Public Funds’ combined assets exceed $1 billion.**
ALPS Distributors, Inc.,
Marketing Agent
   The Fund pays 0.06% on assets up to $3 billion; 0.04% on assets in excess of $3 billion.**
Newedge, Futures
Commission Merchant
and Clearing Broker
   The Fund pays approximately $4.00 per buy or sell; charges may vary.*
SummerHaven,
Commodity Trading
Advisor
  

Advisory Fee:

    
On behalf of the Fund, the Sponsor pays a percentage of the average daily assets of the Fund that is equal to the percentage fees paid to the Sponsor by the Fund minus 0.18%, with that result multiplied by 0.5, minus 0.06%.**
    
Sublicense Fee:
    
For the Fund, the Sponsor pays $30,000 for the calendar year 2010, and $15,000 annually in subsequent years, plus an annual fee of 0.06% of the average daily assets of the Fund.**

Wilmington Trust Company, Trustee    On behalf of the Trust, the Sponsor pays $3,000 annually.**

 

* The Fund 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 the Fund’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.

 

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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.

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, each series established under the Trust will be operated so that it will be liable only for obligations attributable to such series and will not be liable for obligations of any other series or affected by losses of any other series. If any creditor or Unitholder of any particular series asserts against the series a valid claim with respect to its indebtedness or Units, the creditor or Unitholder will only be able to obtain recovery from the assets of that series and not from the assets of any other series or the Trust generally. The assets of each series will include only those funds and other assets that are paid to, held by or distributed to the series on account of and for the benefit of that series, including, without limitation, amounts delivered to the Trust for the purchase of 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

 

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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, the Fund or the Sponsor on behalf of the Trust or the Fund, 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 the Fund. To the greatest extent permissible under Delaware law, the Trustee acts in an entirely passive role, delegating all authority for the management and operation of the Fund and the Trust to the Sponsor. The Trustee does not provide custodial services with respect to the assets of the Fund.

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 the Fund shall give notice that the obligation is not binding upon the Unitholders individually but is binding only upon the assets and property of the Fund, and no resort shall be had to the Unitholders’ personal property for satisfaction of such obligation. Furthermore, the Trust and the Fund indemnify all Unitholders of the Fund 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 the Fund in secondary market transactions through brokers. Units of the Fund trade on the NYSE Arca under the ticker symbol “USAG”. 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 the Fund’s Units is a best efforts offering. The Fund will continuously offer Creation Baskets consisting of 100,000 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 the initial Authorized Purchaser will purchase one or more initial Creation Baskets of the Fund at a per unit price which is expected to initially be $25.00.

In order to satisfy NYSE Arca listing standards that at least 100,000 Units be outstanding, the Sponsor may purchase one of such Creation Baskets of the Fund 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 the Fund’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 the Fund 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 the Fund acquired by the Sponsor in connection with its initial capital contribution were purchased at a price of $25.00. All Authorized Purchasers pay a $1,000 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 the Fund, a fee at an annual rate of: 0.06% on the Fund’s average net assets up to $3 billion; and 0.04% on the Fund’s 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 the Fund calculated shortly after the close of the NYSE Arca on that day divided by the number of issued and outstanding Units of the Fund. 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, the Fund. 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 an Authorized Purchaser for the Fund. We also expect there to be additional Authorized Purchasers for the Fund. 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 the Fund, 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 the Fund, 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.

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.

 

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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?

LOGO

Calculating NAV

The Fund’s NAV is calculated by:

 

   

Taking the current market value of its total assets, and

 

   

Subtracting any liabilities.

 

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BBH&Co., the Administrator, will calculate the NAV of the Fund once each NYSE Arca trading day. The NAV for a particular trading day will be released after 4:00 p.m. New York time. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time. The Administrator will use the closing prices of the Benchmark Component Agriculture Futures Contracts on ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME (determined at the earlier of the close of such exchange or 2:30 p.m. New York time) for the contracts traded on such exchanges, but will calculate or determine the value of all other investments of a Fund 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., the Fund 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 the Funds in the regular course of their 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 the Fund 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 the Fund as a base and updating that value throughout the trading day to reflect changes in the most recently reported price level of the Agriculture Index 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 the Fund’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 ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME vary, with some ending their trading hours before the close of the core trading session on NYSE Arca. As a result, there will be a gap in time at the beginning and/or the end of each day during which the Fund’s units are traded on the NYSE Arca, but real-time futures exchange trading prices for Benchmark Component Agriculture Futures Contracts traded on the ICE Futures, ICE Futures Canada, CBOT, KCBT and the CME 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 the Units of the Fund on the NYSE Arca. Investors and market professionals will be able throughout the trading day to compare the market price of the Fund and the indicative fund value. If the market price of the Units of the Fund diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades. For example, if the Fund appears to be trading at a discount compared to the indicative fund value, a market professional could buy Units of the Fund on the NYSE Arca and sell short agricultural commodity futures contracts. Such arbitrage trades can tighten the tracking between the market price of the Fund and the indicative fund value and thus can be beneficial to all market participants.

 

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In addition, Other Agriculture-Related Investments and Treasuries held by the Fund 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 Agriculture Index value as reported on Bloomberg or another reporting service.

Creation and Redemption of Units

The Fund 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 the Fund or the distribution by the Fund of the amount of Treasuries and/or cash represented by the baskets being created or redeemed, the amount of which is 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 $1,000 to the Sponsor for each order they place to create or redeem one or more baskets. Authorized Purchasers who make deposits with the Fund 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 physical agricultural commodities market and the Agriculture Interests markets. Some Authorized Purchasers or their affiliates may from time to time buy or sell agricultural commodities or Agriculture Interests and may profit in these instances. The Sponsor believes that the size and operation of the agricultural commodities market makes it unlikely that Authorized Purchasers’ direct activities in the agricultural commodity or securities markets will significantly affect the price of agricultural commodities, Agriculture Interests, or the 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 registered 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 futures exchange upon which a Benchmark Component Agriculture 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.

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 the Fund (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 the Fund’s account with the Custodian the required amount of Treasuries and/or cash by 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.

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. The Fund’s NAV and the total amount of the payment required to create a basket could rise or fall substantially between the time an irrevocable purchase order is submitted and the time the amount of the purchase price in respect thereof is determined.

Rejection of Purchase Orders

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 of the Fund;

 

   

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

 

   

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

 

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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 the Fund 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 the applicable Fund not later than 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.

Determination of Redemption Distribution

The redemption distribution from the Fund 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 the Fund (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.

Delivery of Redemption Distribution

The redemption distribution due from the Fund 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, the Fund’s DTC account has been credited with the baskets to be redeemed. If the Fund’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 the Sponsor 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 the Fund’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 the Fund’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.

 

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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 Component Agriculture Futures Contract is traded is closed other than customary weekend or holiday closings, or trading on the NYSE Arca or such futures exchanges is suspended or restricted, (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of Treasuries is not reasonably practicable, or (3) for such other period as 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 the Fund’s assets at an appropriate value to fund a redemption. If the Sponsor has difficulty liquidating the Fund’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 100,000 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 $1,000 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.

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 the Fund 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, the Fund 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 the Fund or the distribution by the Fund 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

 

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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 the Units 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 Benchmark Component Agriculture Futures Contract market and the market for Other Agriculture-Related Investments. Baskets are generally redeemed when the price per Unit is at a discount to the NAV per Unit.

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 Benchmark Component Agriculture Futures Contract market and the market for Other Agriculture-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 Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments may be reduced after the close of the futures exchanges upon which the Benchmark Component Agriculture 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 the Fund 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 the Fund’s assets in Benchmark Component Agriculture Futures Contracts and Other Agriculture-Related Investments, Treasuries, cash and cash equivalents. When the Fund purchases Benchmark Component Agriculture Futures Contracts and certain Other Agriculture-Related Investments that are exchange-traded, the Fund 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 Agriculture Interests at maturity. This deposit is known as initial margin. Counterparties in transactions in over-the-counter Agriculture Interests will generally impose similar collateral requirements on the Fund. The Sponsor will invest the Fund’s assets that remain after margin and collateral is posted in 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;

 

   

used for other investments; and

 

   

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

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

 

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A futures commission merchant, counterparty, government agency or commodity exchange could increase margin or collateral requirements applicable to the Fund 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.

The assets of the Fund posted as margin for Benchmark Component Agriculture Futures Contracts will be held in segregation pursuant to the Commodity Exchange Act and CFTC regulations.

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 the Fund’s financial statements and related disclosures once the Fund commences operations. The Sponsor has determined that the valuation of Agriculture 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 the Fund given the fact that the Fund is not currently involved in trading activities, the values which will be used by the Fund for Benchmark Component Agriculture Futures Contracts will be provided by the commodity 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

The Fund does not anticipate making use of borrowings or other lines of credit to meet its obligations. It is anticipated that the Fund 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. The Fund’s liquidity needs include: redeeming Units, providing margin deposits for existing Benchmark Component Agriculture Futures Contracts or the purchase of additional Benchmark Component Agriculture Futures Contracts, posting collateral for OTC Agriculture Interests, and payment of expenses, summarized below under “Contractual Obligations.”

The Fund 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 the Fund begins trading activities, it is anticipated that all of the net assets of the Fund will be allocated to trading in Agriculture Interests. Most of the assets of the Fund will be held in Treasuries, cash and/or cash equivalents that could or will be used as margin or collateral for trading in Agriculture 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 Agriculture Interests change. Interest earned on interest-bearing assets of the Fund will be paid to the Fund.

The investments of the Fund in Agriculture Interests will be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, the CME limits the fluctuations in futures contract prices during a single day by regulations referred to as “daily price limits.” During a single day, no trades may be executed at prices beyond the daily price limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily price limit, positions in the contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Such market conditions could prevent the Fund from promptly liquidating a position in futures contracts.

 

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

Market Risk

Trading in Agriculture Interests such as Benchmark Component Agriculture Futures Contracts will involve the Fund entering into contractual commitments to purchase or sell specific amounts of commodities 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 the Fund because the Fund intends to close out any open positions prior to settlement. As a result, the Fund 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. The Fund 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 the Fund to purchase a specific commodity will be limited to the aggregate face amount of the contacts held.

The exposure of the Fund to market risk will depend on a number of factors including the markets for agricultural commodities, the volatility of interest rates and foreign exchange rates, the liquidity of the Agriculture Interests markets and the relationships among the contracts held by the Fund. The lack of experience of the Sponsor in utilizing its model to trade in Agriculture Interests in a manner that tracks changes in the Agriculture Index, 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 the Fund enters into Benchmark Component Agriculture Futures Contracts and Other Agriculture-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 Benchmark Component Agriculture Futures Contracts traded on the ICE Futures US, ICE Futures Canada, CBOT, KCBT and the CME is the clearinghouse associated with such exchanges. 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 Component Agriculture Futures Contracts, the counterparty to an OTC Agriculture 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 the Fund.

The Sponsor will attempt to manage the credit risk of the Fund by following certain trading limitations and policies. In particular, the Fund intends to post margin and collateral and/or hold liquid assets that will be equal to approximately the face amount of the Agriculture 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 the Fund to limit its credit exposure.

Any commodity broker for the Fund, 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 the Fund all of the Fund’s assets that relate to domestic futures contract trading. These commodity brokers are not allowed to commingle the assets of the Fund with the commodity broker’s other assets. In addition, the CFTC requires commodity brokers to hold in a secure account the assets of the Fund related to foreign futures contract trading.

 

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Off Balance Sheet Financing

As of the date of this prospectus, neither the Trust nor the Fund has 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 the Fund. While the Fund’s exposure under these indemnification provisions cannot be estimated, they are not expected to have a material impact on the Fund’s financial positions.

Redemption Basket Obligation

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

Contractual Obligations

The Fund’s primary contractual obligation will be with the Sponsor and certain other service providers. The Fund is obligated to pay the Sponsor a management fee based on its average daily net assets and paid monthly at the annual rate of 0.95%. The Fund 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 the Fund;

 

   

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