There’s another commodity fund in the works from the same firm that has brought to market such controversial funds as the U.S. Oil Fund (NYSE Arca: USO), the U.S. Gasoline Fund (NYSE Arca: UGA), the United States Natural Gas Fund (NYSE Arca: UNG) and the U.S. 12-Month Oil Fund (NYSE Arca: USL).

This time around, United States Commodity Funds LLC—formerly Victoria Bay Asset Management—is seeking approval for its second “12-month” commodities fund, except this one will invest in natural gas—or rather, the futures contracts that promise delivery of natural gas to Louisiana’s Henry Hub.

As with USL, the most recent filing indicates that the fund generally will hold a complete basket of the next 12 months’ futures contracts (as opposed to UNG, which simply holds the upcoming month—August 2009 at the moment.)

Two weeks before the expiration of the nearest-month contract, the fund will roll forward another month, picking up the then-12-months-out contract.

The investment purpose of such a strategy is to protect against contango, the bane of every futures investor.

When a commodity is in contango (which natural gas currently is), the cost of a near-month contract is cheaper than a far-month contract. That means every time an investor (or a fund in this case) has to roll forward a month, they take a hit—tomorrow is more expensive than today.

As such, contango can really eat into the returns of a fund investing exclusively in near-month contracts, even when the price of oil is rising, because it rolls forward into more-expensive contracts—essentially paying up again every month just to keep the holdings the same.

Contango had such an effect on USO, United States Commodity Funds’ first fund that the firm eventually followed it up with USL in December 2007.

Currently, natural gas is trading in contango, hurting the returns of UNG. Of course, the contango could disappear at any moment—as it did in oil not too long ago. (See more on UNG here and a recent IU.com blog about the challenges presented by contango here.)

But even if it does disappear before the proposed fund launches, investors will have a viable alternative to UNG for the next time.

The proposed fund will trade on the NYSE Arca and carry an expense ratio of 0.60%, according to the filing.

You can read the filing here.

-- This report was submitted by IndexUniverse.com's Heather Bell.