Fund Details - Objective & Key Features
United States Brent Oil Fund® LP (BNO) is an exchange-traded security designed to track the movements of Brent crude oil. BNO issues units that may be purchased and sold on the NYSE Arca.
The investment objective of BNO 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 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 Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case the futures contract will be the next month contract to expire (the "Benchmark Futures Contract"), less BNO's expenses.
Crude oil is one of the world's most widely-used commodities and one of the most actively traded commodities worldwide. A key geo-political benchmark, the price of oil is among the most quoted statistics in business headlines today. Due to the liquidity and price transparency of Brent light, sweet crude oil futures contracts, they are used as a principal international pricing benchmark for all grades and qualities of crude oil.
The portfolio consists of listed crude oil futures contracts and other oil-related futures and may consist of forward and swap contracts. These investments will be collateralized by cash, cash equivalents and US government obligations with remaining maturities of two years or less.
BNO's Key Features
- BNO provides a vehicle to hedge against the risk of loss associated with the rising cost of crude oil
- BNO offers the convenience of an exchange-traded security listed on the NYSE Arca
- BNO permits commodity-like exposure without using a commodity futures account
- BNO provides "equity-like" order flexibility, including market, limit, stop, stop limit and good-til-cancelled (GTC) orders
- BNO provides Market Price, NAV, and Portfolio Holdings on a daily basis
BNO's Creation & Redemption Process
- Creation/redemption basket size: 50,000 units
- Through December 31, 2012, transaction charge for each AP order is $350 (per order, not per basket)
- Order cut-off for APs is 12:00 pm ET
- BNO's NAV is calculated generally around 4:00 pm ET
- Settlement is T+3
- Custodian is Brown Brothers Harriman & Co.
- Marketing Agent is ALPS Distributors, Inc.
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 BNO, and the U.S. federal income tax treatment of BNO, 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 BNO to the investor and as to applicable state, local or foreign taxes.
Tax Status of BNO
BNO is organized and will be operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law. Under the Internal Revenue Code of 1986, as amended (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 publicly traded partnership whose gross income for each taxable year of its existence consists of at least 90% "qualifying income" ("qualifying income exception"). For this purpose, section 7704 defines "qualifying income" as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, "qualifying income" includes income and gains from such commodities and futures, forwards and options with respect to commodities. BNO and the General Partner have represented the following to Reed Smith LLP:
- At least 90% of BNO's gross income for each taxable year will constitute "qualifying income" within the meaning of Code section 7704 (as described above);
- BNO will be organized and operated in accordance with its governing agreements and applicable law;
- BNO has not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes.
If BNO failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the Internal Revenue Service to be inadvertent and that is cured within a reasonable time after discovery, BNO 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 BNO's income or loss on their returns. In addition, distributions to unitholders would be treated as dividends to the extent of BNO's current and accumulated earnings and profits. To the extent a distribution exceeded BNO's earnings and profits, the distribution would be treated as a return of capital to the extent of a unitholder's basis in its units, and thereafter as gain from the sale of units. Accordingly, if BNO were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in BNO and on the value of the units.
The foregoing is only a partial summary of the federal income tax consequences of an investment in BNO. The full summary can be found in the Prospectus.
|BNO||as of 05/23/2013|
|Minimum Trade Size||1 unit|
|Administrator||Brown Brothers Harriman & Co|
|Distributor||ALPS Distributors, Inc.|
|General Partner||United States Commodity Funds LLC|
|Management Expense Ratio||0.75%|
*There are special risks associated with margin investing. Please ask your financial advisor for more information about these risks.