An investment in the units issued by the United States Agriculture Index Fund® ("USAG"), involves risks. Some of the risks you may face are summarized below. A more extensive discussion of the risks associated with investing directly or indirectly in USAG, appears in the Prospectus preceding or accompanying this Disclosure document.
- Unlike mutual funds, commodity pools or other investment pools that generally distribute income and gains to their investors, USAG does not expect to distribute cash to Unitholders. You should not invest in USAG if you will need cash distributions from USAG to pay taxes on your share of income and gains of USAG, if any, or for any other reason.
- You may not be able to effectively use USAG as a way to hedge against agricultural commodity-related losses or as a way to indirectly invest in agricultural commodities if the following were to occur:
- The Agriculture Index does not 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 agricultural commodities underlying the Benchmark Component Agriculture Futures Contracts;
- Changes in USAG's net asset value ("NAV") may not correlate with the changes in the value of the Agriculture Index;
- Changes in the price of USAG's units on the NYSE Arca do not correlate perfectly with changes in the NAV of USAG's units;
- Accountability levels, position limits, and daily price fluctuation limits set by the Futures Exchanges 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.
- Investing in USAG for purposes of hedging may subject you to risks, including the possibility of losing the benefit of favorable market movements.
- 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 USAG'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 USAG'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 USAG may benefit because it would be selling more expensive futures 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 USAG's total return may be lower than might otherwise be the case because it would be selling less expensive futures contracts and buying more expensive ones. The impact of backwardation and contango may cause the total return of USAG 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 USAG's NAV and total return.
- The breakeven point per Unit of $0.38 indicates the approximate dollar returns and 1.52%is the percentage required for the redemption value of a hypothetical initial investment in a single Unit to equal the amount invested twelve months after the investment was made. For purposes of this breakeven amount, we have assumed an initial selling price of $25.00 which equals the NAV per Unit. This breakeven amount 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 amount is an approximation only.
- USAG has no operating history, so there is no performance history to serve as a basis for you to evaluate an investment in USAG.
- The structure and operation of USAG may involve conflicts of interest. The Sponsor has sole current authority to manage the investments and operations of USAG, 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 the United States Oil Fund, LP, The United States Natural Gas Fund, LP, the United States 12 Month Oil Fund, LP, the United States Gasoline Fund, LP, the United States Heating Oil Fund, LP, the United States Short Oil Fund, LP, the United States 12 Month Natural Gas Fund, LP, the United States Brent Oil Fund, LP and the United States Commodity Index Fund, the United States Copper Index Fund, and the other commodity pools it manages, or any other commodity pool the Sponsor may form and manage in the future.
- You will have no rights to participate in the management of USAG and will have to rely on the duties and judgment of the Sponsor to manage USAG.
- USAG pays fees and expenses that are incurred regardless of whether it is profitable.
- If the Sponsor causes or permits USAG to become leveraged, you could lose all or substantially all of your investment if USAG's trading positions suddenly turn unprofitable.
- USAG may invest in Other Agriculture-Related Investments. To the extent that these Other Agricultural Commodity-Related Investments are contracts individually negotiated between their parties, they may not be as liquid as Benchmark Component Agriculture Futures Contracts and will expose USAG to credit risk that its counterparty may not be able to satisfy its obligations to USAG.
For purposes of this breakeven analysis, we have assumed that USAG has $30 million in assets. If, however, only the initial Creation Basket of USAG 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 USAG would be $1.75 or 7.00% of the initial selling price per Unit.