Fund Objective & Key Features
The United States Commodity Index Fund® ("USCI") is an exchange-traded security that is designed to track, in percentage terms, the price movements of the SummerHaven Dynamic Commodity Index Total Return℠. USCI issues units that may be purchased and sold on the NYSE Arca.
The investment objective of USCI 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 Dynamic Commodity Index Total Return℠ (the ''Commodity Index''), less USCI's expenses. The Commodity Index is designed to reflect the performance of a diversified group of commodities.
The Commodity Index is comprised of 14 Futures Contracts that will be selected monthly from a list of 27 possible futures contracts. The Commodity Index is rules-based and rebalanced monthly based on observable price signals.1 The commodity sectors for the Index include Precious Metals, Industrial Metals, Energy, and Agricultural products such as Livestock, Softs, and Grains.
The portfolio consists of listed futures contracts and other commodity-related investments and may consist of forwards and swap contracts. These investments will be collateralized by cash, cash equivalents and US government obligations with remaining maturities of two years or less.
Below are the eligible commodities that may comprise the Index on a monthly basis:
|Crude Oil (Brent)||Crude Oil (WTI)||Gasoil|
|Heating Oil||Natural Gas||Unleaded Gasoline|
|Feeder Cattle||Lean Hogs||Live Cattle|
For the month of April, the Benchmark Component Futures Contracts are:
|Crude Oil (Brent) OCT13||Unleaded Gasoline (RBOB) OCT13||Natural Gas OCT13|
|Live Cattle JUN13||Corn SEP13||Soybeans NOV13|
|Soybean Meal OCT13||Wheat JUL13||Lead SEP13|
|Tin NOV13||Zinc OCT13||Gold JUN13|
|Platinum JUL13||Cotton DEC13|
1In this context, "rules-based" indicates that the composition of the Commodity Index in any given month will be determined by quantitative formulas relating to the prices of the futures contracts of the commodities that are eligible to be included in the Commodity Index.
USCI's Key Features
- USCI provides a vehicle to take directional positions on commodity prices.
- USCI offers the convenience of an exchange-traded security (NYSE Arca)
- USCI permits commodity exposure without using a commodity futures account.
- USCI provides equity-like order flexibility, including market, limit, stop, stop limit and GTC orders.
- USCI provides Market Price, NAV and Portfolio Holdings on a daily basis.
What is the Index?
- The Commodity Index is designed to reflect the performance of a fully margined or collateralized portfolio of 14 commodity futures contracts with equal weights, selected each month from a universe of 27 eligible commodity futures contracts.
- Commodity Index is rules-based and rebalanced monthly based on observable price signals. In this context, the term "rules-based" is meant to indicate that the composition of the Commodity 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 eligible to be included in the Commodity Index.
- The overall return on the Commodity Index is generated by two components: (i) uncollateralized returns from the commodity futures contracts comprising the Commodity 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
Composition of the Index
The composition of the Commodity Index on any given day, as determined and published by SummerHaven Investment Management, LLC, is determinative of the benchmark for USCI. Neither the Commodity Index methodology nor any set of procedures, however, are capable of anticipating all possible circumstances and events that may occur with respect to the Commodity 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 Commodity Index that cannot be adequately reflected in this description of the Commodity Index. All questions of interpretation with respect to the application of the provisions of the Commodity 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 Investment Management, LLC.
USCI's Creation & Redemption Process
- Authorized Purchasers pay a $350 fee for each order to create or redeem one or more Creation Baskets or Redemption Baskets consisting of 50,000 units. 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 is the total NAV of USCI 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.
U.S. Federal Income Tax Considerations
A summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of units in USCI, and the U.S. federal income tax treatment of USCI, is set forth in the Prospectus.
Each prospective investor is advised to consult its own tax advisor as to the U.S. federal income tax consequences of an investment in USCI to the investor and as to applicable state, local or foreign taxes.
Tax Status of USCI
The Trust is organized and will be operated as a statutory trust in accordance with the provisions of the Trust Agreement and applicable Delaware law. Although the matter is not free from doubt, assuming full compliance with the terms of the Trust Agreement and other relevant documents and notwithstanding the Trust's organization as a trust under state law, USCI will be treated as a partnership that is a "publicly traded partnership" for U.S. federal income tax purposes. Under the Code, an entity classified as a partnership that is deemed to be a "publicly traded partnership" is generally taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a partnership not registered under the Investment Company Act of 1940 whose gross income for each taxable year of its existence consists of at least 90% "qualifying income" (the "qualifying income exception"). For this purpose, "qualifying income" is defined as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, "qualifying income" includes income and gains from commodities and futures, forwards, options and swaps and other notional principal contracts with respect to commodities. The Trust and the Sponsor have represented, among other things, that:
- At least 90% of USCI's gross income for each taxable year will be derived from (i) commodities (not held as inventory) or futures, forwards, options, swaps, or other notional principal contracts with respect to commodities and (ii) interest income;
- USCI is organized and will be operated in accordance with its governing documents and applicable law.
- USCI has not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes.
Based in part on these representations, Reed Smith LLP, tax counsel to USCI, is of the opinion that USCI will be treated as a partnership that it is not taxable as a corporation for U.S. federal income tax purposes. Reed Smith LLP's opinion is not binding on the IRS and no assurance can be given that the IRS will not challenge USCI's classification as a partnership for federal income tax purposes. In addition, USCI's taxation as a partnership rather than a corporation will require the Sponsor to conduct USCI's business activities in such a manner that it meets the qualifying income exception on a continuing basis. No assurance can be given that USCI's operations for any given year will produce income that satisfies the requirements of the qualifying income exception. Reed Smith LLP will not review USCI's ongoing compliance with these requirements and will have no obligation to advise the Trust, USCI or USCI's unitholders in the event of any subsequent change in the facts, representations or applicable law relied upon in reaching its opinion.
If USCI failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in which case USCI could be required to pay over amounts determined by the IRS), USCI would be taxable as a corporation for federal income tax purposes and would pay federal income tax on its income at regular corporate rates. In that event, unitholders would not report their share of USCI's income or loss on their returns. In addition, any distributions to unitholders would not be deductible by USCI but would be treated as dividends to the extent of USCI's current and accumulated earnings and profits. To the extent a distribution exceeded USCI's earnings and profits, it would be treated as a return of capital up to the amount of a unitholder's basis in its units and thereafter as gain from the sale of units. Accordingly, if USCI were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in USCI and on the value of the units.
The foregoing is only a partial summary of the federal income tax consequences of an investment in USCI. The full summary can be found in the Prospectus.
|USCI Data||as of 05/21/2013|
|Minimum Trade Size||1 unit|
|Administrator||Brown Brothers Harriman & Co|
|Distributor||ALPS Distributors, Inc.|
|Sponsor||United States Commodity Funds LLC|
|Management Expense Ratio||0.95%|
*There are special risks associated with margin investing. Please ask your financial advisor for more information about these risks.